Walk away companies taking advantage of distressed homeowners

I'm a little late getting back to my discussion of "walk away"companies but I thought the topic was interesting so I wanted to least direct readers to the article. Time magazine recently had a great article about companies that offer to help distressed homeowners "walk away" from cumbersome mortgages they can't afford while also avoiding foreclosure. There are different variations of these types of companies; some are genuinely helpful while others are just out to make a buck.


Walking Away From Your Mortgage

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Government bailout in the works?

As Fannie Mae and Freddie Mac continue to suffer huge losses because of declining home prices and increased foreclosures, the government may jump in with the hope of preventing default on their debt.

The government is considering placing the two in a conservatorship, which means shares of Freddie and Fannie would be worthless and losses on any guaranteed mortgages they own would be paid by taxpayers. Freddie Mac and Fannie Mae are the biggest providers of financing for domestic home loans. In recent weeks both have suffered big losses in stock prices while they also battle increased borrowing costs in debt markets. The fear is that these issues will make it difficult for Fannie and Freddie to buy loans from commercial lenders, which will likely increase the difficulty and costs of consumers getting loans.

U.S. Weighs Takeover of Two Mortgage Giants

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Condo loans could be difficult to get

Looks like refinancing or getting a loan for a condo purchase is going to get tough. Underwriting changes by Fannie Mae and Freddie Mac as well as new restrictions by private mortgage insurers are going to limit the number of loans available for condo purchases.


Kenneth Harney, a nationally known columnist on real estate, reported that many private mortgage insurers will no longer write coverage on condominiums in hundreds of areas across the country that are designated as having declining markets. Even in parts of the country where real estate markets are healthy there are going to be difficulties. Buyers will be required to put a least 10% down, and if the condo project's ownership is made up of more than 30% investors then all buyers loan applications will automatically be turned down. Buyers with 20 % or more down will avoid paying PMI so they won't be affected with the new restrictions.

These new procedures are going to be time consuming for lenders as they're going to require a lot of research on condo project characteristics. Legal documents, condo association operating budgets, percentage of unit owners that are late in association fees, and percentage of units owned by investors are just a few of the areas that will need to be investigated in order to insure a new loan. On top of that lenders are going to be required to warranty their research. Fannie Mae said the new procedures are designed to "protect borrowers and manage increased credit risk in the market".

Tucson's condo market could be seeing some hard times ahead. In the last few years several Tucson apartment complexes were converted into condominiums. Needless to say we have a lot if condos in the Tucson area. As of today there are about 150 condo units for sale in North Tucson alone. The new restrictions could have a big impact on local condo sales. It's going to be interesting to see the sales numbers over the next few months!

Securing a loan for a condo might become even tougher

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Foreclosure rescuers; the latest scam

As if it's not bad enough that so many people are faced with the thought of losing their homes right now, it's even worse to hear that there are phony "bail out" companies taking advantage of homeowners that are trying to avoid foreclosure. Unfortunately "foreclosure rescuers" are popping up everywhere, preying on homeowners when they're at their weakest.


Foreclosure Rescue Management is the latest addition to these scam groups that trick needy homeowners into signing away their most precious asset. These companies approach struggling homeowners and tell them they can help them to avoid foreclosure by refinancing their debt. All homeowners need to do is sign over their home's title for a year while the company cleans up the debt. Problem is that during the year these companies sell the titles to buyers who in turn demand high rent from the original owners. When they can't afford to pay it, they receive eviction notices. Once homeowners have fallen for the scam it's almost impossible to get out.

It's really a shame that these companies are thriving right now, but what should we expect. In Cleveland over 20 mortgage fraud companies opened last year alone. Currently there are twelve states fighting back with new anti-fraud laws. Unfortunately Arizona is not yet on the list. Nothing worse then these bottom feeders in my opinion...

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States fighting back against foreclosure fraud

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Even the credit worthy are struggling

Every day we're bombarded with more news about stricter lending practices and how difficult it is now for individuals to qualify for home loans. Most of the time we assume that only those with less then stellar credit or those looking at 100 percent financing are facing these problems.

I think a lot of us forget that this big mortgage mess impacts even those with good credit. USA Today had a great article in Tuesday's paper about the effects that tighter lending practices are having on credit worthy borrowers. A quarterly Federal Reserve study showed 55% of US lenders had tightened standards for prime mortgages, which impacts borrowers with good credit. The study reports that about 60% of US Banks have instituted tougher criteria for revolving home-equity credit lines.

Read more about USA Today's report and the hurdles faced by credit worth borrowers

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Federal funds rate is cut by three-quarter percent in emergency meeting

The Federal Reserve decided once again to cut interest rates Tuesday morning in hopes of stabilizing the nation's weakening economy. The federal funds rate was cut by three-quarters of a percent, bringing it down to 3.5 percent.



The decision to cut the federal fund rate was made during an emergency phone conference with Federal Reserve officials late Monday night. The plunging financial markets worldwide and fears of a potential recession are the main reasons for this cut. The federal funds rate affects consumer loans, including home equity, credit card and auto loans. The hope is that lower interest rates will increase the number of buyers that can afford to buy homes. Most buyers aren't as concerned with how much their home actually costs as they are with how big their monthly payments will be. Lower interest rates mean lower monthly debt obligations. This in turn could mean more buyers, which increases property demands and stabilize home prices.

Read more about the latest federal rate cut

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Subprime is Word of the Year

You can tell 2007 was a bad year for real estate when the American Dialect Society chose to make "Subprime" it's annual word of the year. Yikes!

Seems like no one knew the word until summer 2007 when other terms like "mortgage meltdown" came to be common household phrases. Other popular words that were in the running were "Facebook", "green", "Googleganger" and "waterboarding". Hmmmmmm, interesting.....

To read more about "Subprime" being choosen as word of the year

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Arizona foreclosure statistics for November

The latest foreclosure statistics for November were just released by RealtyTrac, and it looks like the number of foreclosure filings for the month were down about 10% nationwide. Arizona foreclosure filings were actually down 9% for the month of November.


Arizona still falls in the "Top Ten" list of states with highest foreclosure filings, ranking in at #8, which is down from our #7 position in October. Arizona now averages about one foreclosure filing for every 441 households.

As you can see by the US map below, the pink states have higher foreclosure filings. Nevada ranks in at number one for foreclosure filings, with one for every 152 households. That's actually four times the national average. Florida came in at number two, with one foreclosure filing for every 282 homes.

It's great to see the foreclosure rate slowly going down, but I'm anxious to see if it remains stable or if we'll see a shift after the holidays are over. Foreclosure rates are expected to rise in the upcoming year, and with many interest rates resetting after the New Year, it's going to be interesting to watch how homeowners react. The addition of increased spending during this holiday shopping season will likely have some impact, but hopefully homeowners were smart and planned ahead when making this year's purchases.

I'm hoping to get foreclosure stats specific to Tucson soon, but if you'd like more information on the latest national foreclosure statistics visit RealtyTrac

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Fed's do it again

Once again the Feds decided to cut the key interest rate in hopes of helping the country to avoid a recession.

The federal funds rate was cut by a quarter point, down to 4.25 percent this morning. Though this cut isn't going to have a direct impact on the dragging real estate market, it should help ease the impact of consumer spending during this holiday season. The rate cut will help some homeowners who are currently holding high interest adjustable rate home equity loans.

Although we all wish and dream that these rate cuts would help boost the housing market out of it's current slump, there's too many impending issues that will continue to hold it down. As a record number of adjustable rate mortgages will reset January 1, 2008, there are a large number of homeowners who won't qualify for the proposed interest rate freeze. These folks are facing higher mortgage payments, and some will likely be forced to file for foreclosure. In other words, there's a good chance that it's only going to get worse before it gets better.

For the housing market to improve the inventory needs to go down. There's an extremely large inventory of homes for sale nationwide right now, currently 6956 single family homes in Tucson. Until this inventory shrinks, we can't expect to see home sales or prices increase. Buyers have too much choice and no real need to negotiate. Many homeowners are still filing for foreclosure, resulting in lower average sales prices for neighboring homes. The fact that lenders are working more closely with borrowers to avoid foreclosure is a step in the right direction, but unfortunately there's no quick fix for solving the issues at hand.

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Mortgage relief plan preview

Seems everywhere I look this morning I'm seeing reports about Bush's plans to freeze mortgage interest rates in an attempt to save millions of home owners from falling into foreclosure. About 2 million home owners took out sub prime mortgages between 2003-2005 and are now at risk of losing their homes as interest rates begin to reset in January 2008.


The three part plan will freeze interest rates for those scheduled to reset between Jan 1, 2008 and July 31, 2010, as well as provide more affordable financing options and provide help and funding for those trying to refinance. Unfortunately only about 750,000 will benefit from the the interest rate freeze because homeowners must be current on their mortgage payments in order to qualify. Another alternative will be Fast Track Refinancing, which will help homeowners with FICO scores lower then 660 qualify for refi's on their current home loans.

I was surprised to learn that about 50 percent of homeowners that go into foreclosure never even contact their lender to discuss possible option and alternatives. I guess there are a lot of mixed feelings that can contribute to this, from embarrassment to denial. The HopeNow alliance is trying to reach out to these homeowners by sending out HopeNow letters to over 300,000 borrowers to encourage them to call in and get advice and find out what options they may have. It's going to be interesting to see how this impacts the nation's foreclosure rate as well as real estate sales over the next few months.

You can see the full story at CBS News

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Tucson's foreclosure epidemic by area

An article in today's Arizona Daily Star reports more then 5000 homes in Tucson fell into foreclosure within the first nine months of 2007. Although the highest density of foreclosures seem to fall in the more centralized areas of Tucson, there's really no area that's been left untouched by the foreclosure epidemic.

It's a common misconception that homes in foreclosure are dilapidated and in lower income neighborhoods, but we're finding foreclosures in even the most upscale Tucson communities. Tucson's Catalina Foothills, which is known for it's multi million dollar estates, is reporting a number of foreclosure filings, and I've located a few brand new, semi custom homes in the Oro Valley area which are now in foreclosure. The foreclosure "hot spots" in Tucson for Sept/Oct seem to fall into three zip codes; 85730 (East/SE Tucson) had 66 reported foreclosure filings, 85746 (Southwest Tucson) had 90 filings, and 85706 (South Tucson) had 101 filings.

Tucson foreclosures by area

The high foreclosure rate in Tucson and the rest of the nation is being credited to several factors that are currently steering the housing market. Those high risk, high rate loans that so many lenders offered to buyers with poor credit are now adjusting their interest rates, and borrowers are finding themselves unable to afford payments. There's also a number of homeowners that have cashed out their home's equity and now find themselves owing more then their home is worth.

For more info read Foreclosure surge hits every corner of Tucson

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Latest Tucson foreclosure statistics

Just another note about foreclosure statistics, this time specific to Tucson. Today RealtyTrac released it's analysis of foreclosure activity for the nation's top 100 metropolitan areas and Tucson ranked in at number 34.

The analysis measured foreclosure filings for Q3 of 2007, and reported that Tucson saw 2,514 foreclosure filings, amounting to about one filing for every 162 homes. This represents a 22% increase from the second quarter of 2007, and a 96% increase in the last year (Q3 2006).

See the complete table of foreclosure filings Q3 2007

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Explanantions for increase in Arizona foreclosures

As our nation continues to see an increase in foreclosure rates there are still a lot of people asking "What's causing it?" Basically it all comes down to loan problems. Sure the housing slump plays a role, but the current state of the real estate market only escalated an already existing problem. The loose loan standards of several years ago increased the potential for problems. We can't play a blame game here; lenders did provide the loans but buyers were the ones signing on the dotted line. The emotional rush that came with the 2004-2005 housing frenzy was just too overwhelming; many of those individuals felt they had to get in on the action and by a home then and there.

The American dream is to own a home, and in the first part of this decade a large number of people were able to make that dream come true. Unfortunately many potential buyers went out on a limb and overextended themselves to obtain their dream, and now it's coming back to bite them in the form of loan default. Some of the reasons for foreclosure increases include

- Lending guidelines, which have changed quite a bit in the last decade. Back in the day home buyers were required to put 20 percent down, have a stable income and great credit to obtain a loan. In the last decade all that changed. Lenders loosened their requirements on credit standards so buyers could obtain loans with no money down, lower credit scores and less income. Many buyers were purchasing more then they could afford, resulting in increased defaults.

- "Bad" mortgages, as I'll call them, are a significant reason that so many homeowners are defaulting. These include adjustable rate mortgages (ARMs) which offered low minimum payments, encouraging buyers that might not have otherwise pursued or obtained loans. Though their initial payments may have been low, the loan balance continued to rise, and now interest rates on those loans are resetting at higher rates.

- Home equity is also a contributing factor. Arizona as well as many other states saw huge gains in appreciation in 2004-2005, and many homeowners took advantage of it by cashing out their home equity. Unfortunately there are now a large number of homeowners that owe more then their home is worth, and they can't come up with the funds to make monthly payments.

- Bankruptcy change in 2005 . In October 2005 the Bankruptcy Abuse Prevention and Consumer Protection Act went into effect, making it more difficult and expensive for individuals to file bankruptcy. In the past homeowners would file bankruptcy to avoid foreclosure, but the new act makes foreclosure an easier option.

- Declining housing prices will continue to impact foreclosure rates as they feed off the other factors listed above. Homeowners that obtained creative financing like the popular "interest only" loans are finding that their home's value is less then what they owe due to an increased loan balance and the drop in housing prices. Those homeowners that maxed out their home equity are facing the same obstacle.

Only time will tell what will happen with foreclosure rates in Arizona and the rest of the nation. Stricter lending guidelines are already in affect, which is a step in the right direction. As the holiday season get's underway it will be interesting to see the impact our national foreclosure rate and the housing slump will have on consumer spending.

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Arizona ranks 7 in top foreclosure states

Arizona again made the top 10 list for states with the largest foreclosure rates according to a third quarter analysis done by Realtytrac. Arizona ranked in at number 7, with Nevada and California taking first and second place.


National foreclosure rates were up 30% for 2007's third quarter, with 635,259 foreclosure filings nationwide. This amounts to about one foreclosure filing for every 196 households for the quarter. Arizona reported 22,750 foreclosures for Q3 2007 , about one foreclosure for every 112 households in the state. It results in a 44% increase in foreclosures from Q2 2007, and over a 200% increase from third quarter 2006.

Looking at the map below it's easy to locate high foreclosure areas (think pink!) Both coasts seem to be carrying the brunt while the Midwest appears to be holding steady, other then Michigan and Ohio (Michigan is suffering through one of the worst housing markets in the nation). It's evident that states that saw an explosion of population and real estate growth in 2004-2005 are the same ones that appear to be suffering right now.

Each time we review new foreclosure statistics we ask the same questions, what's causing it? There are several contributing factors, and most are a result of the credit crunch we continue to experience. So as not to drag this blog out I've added a separate blog to describe some of the reasons behind the current explosion in foreclosures.

For more information about Arizona foreclosure statistics

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Rate cut won't significantly impact Tucson housing market

The Feds once again cut the key rate by a quarter percent on Wednesday to motivate the economy and help the country out of it's housing slump. The question on everyone's mind is "How will this impact me?" The answer, not much. Lower short term rates will lower interest rates on home equity loans and some credit cards, which is a positive for consumers. If short term rates are lower then fewer people are likely to default; a good thing when our nation is currently plagued with foreclosures. As a result consumers are likely to spend a little more during our upcoming holiday season because their confidence level is higher. It also means consumers will likely accumulate more debt on their credit cards. Tis the season!

Unfortunately the problems with the housing market won't be resolved with a simple interest cut because the issues are too deep. The after affect of the mortgage meltdown has resulted in stricter lending standards, leaving a lot of home buyers with no way to obtain a home loan. Even popular new home builders like Pulte and Lennar have tightened their standards and are struggling to make sales. A client of mine just received her second price reduction from her home builder, and her home will be complete in a week. Most Tucson home builders are offering incredible incentives to encourage buyers to purchase their homes.

With the Tucson housing market being as saturated as it is, sellers are negotiating their socks off. If you're a buyer looking for a retirement or vacation home, it's the perfect time to take advantage of Tucson's prices. And you can be in your home to enjoy a Tucson winter; sunny and 75 degrees!

To see how this rate cut can impact a home equity loan

For more info about the fed rate cut and it's impact on housing

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Mortgage Tips From the Expert

There's been a lot of discussion this week about the Fed's rate cut, but it seems like many people are confused about the impact it's going to have. I asked my mortgage pro Perry what information he could give me, and I found out some interesting information.

How will the “Fed’s” rate cut effect home buyers?

In the short run… rates will likely go up for mortgage loans (except home equity loans). Yes, I said up. “But rates got cut, why would mortgage rates go up?” If you promise not to shoot the messenger I’ll explain. Let me start by clarifying some often confused terms and misconceived notions. The only rate that the Chairman of the Federal Reserve directly controls is the “Discount Rate” (see glossary below). He can influence but he has no direct control over mortgage rates! He also indirectly controls the “Fed Funds Rate” also called the “Overnight Rate” by setting a target for the rate. And since the Prime Rate is essentially the Fed Funds Rate plus 3% one could also say that he indirectly controls the Prime Rate.
A key concept to understand, one that many borrowers tend to get wrong is the fact that none of these rates I’ve mentioned (Prime, Discount, Fed Funds) are long term rates and Mortgage rates are every bit long term rates. Therefore, a change in the Fed Funds rate only influences mortgage rates it does not dictate them.
A half point reduction in the Feds Funds Rate does not translate to a half point reduction in Mortgage rates. In fact, though the two rates often trend in the same direction, they can actually move in opposite directions. I know it seems counter intuitive, but there are many other influences that effect long term rates and if those influences are getting more traction in raising mortgage rates than the Fed Funds Rate cut is getting in lowering them, the rate cut can be neutralized when it comes to moving mortgage rates. Sometimes long term rates actually trend in opposite directions with the Fed Funds Rate. Rates creeping upward despite Tuesday September 18th 2007’s half point reduction to the Fed Funds Rate is a classic example.
No one knows for sure where 30 year fixed rates will be 6 months or a year from now. Rates going up this week could have been a knee jerk reaction to inflationary fears spawned by the Fed stepping in and reducing the Overnight Rate. We could see rates come back a bit within the next few weeks if market speculators become less jittery about inflation.
The one thing that we know for sure is that though rates are not at the very bottom where they were a few years ago, they are still historically low. If you went to the gas pump tomorrow and paid 97 cents a gallon would you be pretty happy about that or would you think gee, my grandfather only paid 45 cents a gallon when he was a kid. So what! We may never see that again in our lifetimes. Mortgage rates are at 97 cents a gallon right now. Don’t put off buying the home you want hoping that rates dip “just a bit lower” because you may be waiting for 40 years. When rates are as low as they are now, the odds that they will go up vastly outweigh the odds that they will improve.
I’ll leave it with a positive note. Because most people’s home equity loans are tied to the prime rate and the prime rate is influenced by the recent rate cut, most people with a home equity line of credit will benefit by seeing their HELOC rate reduced by that same half point next billing cycle.
Remember: The Fed sets the Discount Rate and banks set the Federal Funds Rate and mortgage lenders set their individual Mortgage Rates based on numerous market conditions.
Market update: The central bank reduced the target rate for overnight lending between banks to 4.75 percent On September 18th 2007, saying in its statement that policy makers are trying to contain the housing slump while continuing to monitor inflation risks. The Fed also lowered the discount rate at which it makes direct loans to banks by another half-percentage point to 5.25 percent. The first half point cut in the discount rate came on August 17th and lowered it to 5.75 percent from its previous rate of 6.25%.

Glossary:
The Discount Rate (Currently 5.25%) is the interest rate set by the “Fed” or the Federal Open Market Committee (FOMC).This is the interest rate at which banks in the Federal Reserve System can borrow money from the Fed. However, once these banks have borrowed money from the Fed, they can lend it to other banks at whatever interest rate they want. This is where the Federal Funds Rate comes in.
The Federal Funds Rate (Currently 4.75%) is the rate banks charge each other as they lend money back and forth among each other. This rate is also referred to as the “Overnight Rate” because these loans are given in order to maintain their required reserves and often last for only one day. It is called the Federal Funds Rate because it is the rate banks charge to lend funds that they have received from the Federal government.
Note: The Fed uses the federal funds rate to control the supply of available funds, essentially controlling inflation. If the federal funds rate is low, banks are more likely to borrow from one another, using the reserves to grant more loans which in turn feeds the economy. If the Fed feels the need to slow things down, they will simply raise the federal funds rate, which will put the brakes on borrowing among banks.
The Prime Rate (Currently 7.75%) is the interest rate offered by commercial banks to its most valued customers. The prime rate is also the index for many mortgage programs, including HELOC’s (Home Equity Line Of Credit). The prime rate always adjusts according to how the Fed changes the discount rate.

PERRY (Timothy Perry)
Home Mortgage Consultant
Wells Fargo Home Mortgage
866258-8363 Office
866711-6377 Fax
timothy.perry@wellsfargo.com

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Fed's Cut Rates, But What's it Mean?

The Fed's cut the federal funds rate by a half point today in the hopes of turning around what many say is the worst housing slump our nation has seen in 16 years. The key rate, which was lowered to 4.75%, has caused a frenzy on Wall Street. Since I don't really follow the financial and economic markets as much as I should, the information has become a little overwhelming. So I decided all I really need to ask is what does this mean for me and the typical consumer? I wanted to find out what it all means in the grand scheme of things, and I did find some interesting information.

Two rates were cut by the Federal Reserve. The Federal Funds Rate, which is considered by many as the "most important" rate to consumers, is a short term interest rate that affects consumer loans. By lowering this rate it becomes less expensive for consumers to borrow money. Credit cards, auto loans and mortgages, will see slight dips in interest rates, which may encourage consumers to spend more. If homeowners have ARM's, their current interest rates could reset to the new lower rate.

The Fed's also cut the Discount Rate by half a percent to 5.75% on Friday. This is the rate that banks and lending institutions are charged by Federal Reserve Banks when they borrow money on a short term basis. When the discount rate changes, it affects the costs that consumers pay to borrow money. This rate cut will decrease the banks costs, in turn decreasing the borrowers costs.

There are several reasons that the Fed's made these significant cuts ( I say significant because these cuts were higher then the quarter cut that most expected). Basically, there's a fear that a recession is lurking out there in our future, and this is the Fed's attempt to prevent it. The housing slump, mortgage meltdown and weakening job market have stressed out consumers, making them reluctant to spend. This rate key is the Fed's attempt to keep consumers spending, which stimulates the economy.

Unfortunately these rate cuts will not be seen immediately. It could take months before consumers see the impact of these cuts that everyone is so excited about.

Now the big question is "How will this effect the housing market? Are more people going to feel encouraged to buy a home? I know that this rate cut is meant to spark consumer interest, but is this the "save all"? I personally think we need a larger rate cut to really get the ball moving and motivate the economy. That's the only way to affect mortgage interest rates. The housing market has taken months to fall, so a quick adjustment of the interest rate is not likely to save it immediately. Sales prices for homes in Tucson have increased in the last month, but foreclosures are also on the rise. And there are still a lot of problems within the mortgage market. However I do think Tucson is going to see it's real estate market begin to inch up this Fall as it usually does. Tucson has a faithful following; it's a beautiful city with much to offer, and it attracts home buyers from all over. Tucson Real Estate Sales Stats for the next two months will be telling in regards to the impact the rate cut is having on consumers locally.

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Is Home Equity Overused?

The September 6th edition of USA Today had an interesting article about home equity (or lack of it) and the "dependence" homeowners have on it. One of the great features of owning a home (other then the tax deduction) is the equity one has in it. From 2003 thru 2005, Tucson and much of Arizona saw a huge jump in property values and home appreciation. Many home buyers, myself included, were lucky enough to buy at just the right time and in just the right place, and then BAM....instant equity. It's great knowing that the home you bought has doubled in value over two years, but it's also dangerous for those that don't have the strongest control over their finances. If your local real estate market continues to see appreciation, then great; spend to your heart's content without worrying. But today's housing market has slowed considerably, and home appreciation is not what it was a few years ago. Too many homeowners are still using their home's equity to pay off high interest bills without restructuring their spending habits, or are buying expensive luxury items and trips when their equity is fading away. They're putting themselves further into dept with no "escape hatch" in site.

Now I do think that a home equity loan used wisely is a great thing. Why not pay off the high interest credit cards when you can get a lower rate, or consolidate loans with a home equity that's tax deductible. That's a no brainer. It's also great if you want to add a pool or landscape the backyard; anything that will add value to your home. And I don't think it's a bad idea to have a HELOC in case of emergency. I've even seen individuals buy new vehicles with their home's equity (although I'm not sure how I feel about that; what would Suzi Orman say?) But now it seems that it's gotten out of control, and many homeowners rely on their home's equity to pay their bills. According to a report by CardTrack , from 2000 to 2006 the average credit card debt increased from $7,842 to $9,659. Still today a large number of homeowners are paying off these credit card balances with home equity loans on their homes. Unfortunately once the balances are paid, many homeowners continued to make purchases, charging the cards right back up to their limits. Creditcards.com reported that more then one-third of credit card holders acknowledged using their cards for purchases they can't afford. The problem here is that home equity is shrinking away as the nation's current home values remain flat or drop, leaving homeowners without a way to pay off these debts. Amazing that credit card debt is rising when a consumer poll done by Lending Tree found that 48% of Americans are uncomfortable with the total amount of household debt they have.

If so many homeowners are uncomfortable with the amount of debt they have, why does it continue to grow? Sure there are emergencies that require some to utilize their equity, and others consolidate all their loans to make paying off debts easy. But I do think that a lot can be contributed to the consumers desire to live in the here and now. Who knows what tomorrow will bring, so let's enjoy today. We're are all guilty of thinking like this from time to time. But we have to draw the line between enjoying life and balancing our finances, and sometimes it's a hard line to draw. Buying that special item or vacation we really want with a credit card is alright, but relying on our home's equity to ultimately pay for it every time might not be the best decision in the long run. It's important to remember that unsecured credit card debt an be erased, but filing for bankruptcy is not going to erase a home equity loan.

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The Resurgance of the Short Sale

I'm seeing more and more information about Real Estate Short Sales and their resurgence in the past few months. Neither the real estate community nor consumers have seen much about this type of transaction since the real estate market has been so good in past years. But now all that's changed. As a record number of homeowners continue to struggle to make their mortgage payments, low property values make it impossible to refinance or sell, and foreclosure has been their most likely option. According to a report by the Mortgage Bankers Association, the number of Americans receiving foreclosure notices hit a record high this past Spring, with .65 percent of mortgage holders starting the foreclosure process in the second quarter of 2007. Short Sales are becoming a popular alternative to foreclosure for homeowners that are in a bind but want to avoid the financial and emotional impact that foreclosure will have.

Short Sales are actually very similar to a typical real estate transaction -

- Seller puts home up for sale

- Buyer makes offer on home

- Seller and Buyer agree to price and terms and are under contract

This is where the transaction changes. In a Short Sale, the lender must agree to take less then is owed for the mortgage if there is a proven hardship. It may sound crazy; agree to take less then the owed amount? Not so crazy when you see that lenders can lose up to 50 percent of the amount due in a foreclosure, so it's likely they're going to be more eager to use a short sale to handle the situation. Still, Short Sales require a lot of extra documentation, and did I mention proven hardship? Basically you need to prove that you're flat broke, which can be hard to do when you're up against the banks. And you do need to have a firm offer on the home before you can even address the possibility of a Short Sale with your lender. This in itself is difficult in today's sluggish market, but seasoned real estate investors are in search of "smokin deals" so there is some demand. Also, a Short Sale is not inexpensive. You'll need a real estate agent to handle the home sale, an attorney to negotiate with the lender, and a tax professional to help clear up all confusion and explain the repercussions. Simply put, a Short Sale is not for the faint hearted, but it may be some homeowners only alternative.

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Answers From a Mortgage Pro

The mortgage and lending industry is making headlines every day now, and consumers are being overwhelmed by the news that's brought to them. Buying a home can be stressful, but obtaining a loan for the home can be even more difficult and confusing for some consumers. It seems that many home buyers (and some real estate agents) have a lot of mortgage related questions but are afraid to ask anyone for help. For this reason I decided to "pick the brain" of a professional mortgage consultant I know, and get answers to some of those common mortgage questions. Perry works with Wells Fargo Home Mortgage, and he's agreed to be my "Answer Man". My plan is to provide a regular question and answer feature every few weeks. We are going to start off with the basics; I know that most real estate agents are already familiar with this information, but there's nothing like a refresher course! And this information is helpful to all those potential home buyers. Anyway, here we go!

Do I need to be Pre - Qualified for a loan before I begin my home search?

You should get Pre-Approved, not just Pre-Qualified. There are important differences for both you and the seller.

A Pre-Approval Letter is a written commitment from a lender, subject to a property appraisal and certain conditions, that lets you know exactly how much home you qualify for. The power of this document is that it authenticates that you are a viable buyer and tells real estate agents and home sellers that you already have your financing lined up and can afford to buy up to the specified amount.

The less substantial Pre-Qualification Letter can be helpful in determining the appropriate price range you should be shopping in but does little else. Because it’s based on basic financial data the buyer provides that has not been verified, it’s not worth much more to a seller than the paper it’s written on. Therefore a pre-qual should be thought of as a minimal first step, a step that’s often better to forego if time allows you to jump directly to the more useful Pre-Approval.

Advantages of being pre-approved

It's a smart move for serious home buyers to get pre-approved and here are some reasons.
Not only will real estate agents perceive you as a serious home buyer, but sellers are much more apt to accept offers from pre-approved buyers. Many sellers only accept offers that are accompanied by a pre-approval or “priority buyer” letter.

Helps you shop confidently because you know exactly how much you can afford.

A pre-approval gives you an advantage over other buyers who haven't been pre-approved, especially if multiple offers are presented.
The mortgage process goes more quickly once pre-approved since much of the work has already been done and the required conditions have been spelled out, giving the buyer plenty of time to comply.

“Not only will you know your housing budget to the dollar before you start looking for a home, you'll also have more negotiating leverage because the seller knows you've already got a loan virtually in your pocket”

Understanding your mortgage options gives you an advantage as you negotiate your home purchase.

Characteristics of a reputable lender

Never before has it been more important to choose one of the few remaining financially solid “Big Boys” as your mortgage lender. The mortgage industry is experiencing unprecedented times. Never have so many long standing companies gone out of business so quickly. Many of the departing lenders literally went out of business overnight leaving home buyers stranded at the closing table with no funds and no warning.

· You can ensure you’re working with a reputable lender by looking to a company with stability, integrity, capabilities and experience.

How does the process work?

Before you begin shopping for a home, call a reputable lender. Wells Fargo, Citimortgage and BofA are probably the only 3 major lenders that stand virtually no chance of going under anytime even remotely soon. Wells Fargo is the only one of those three lenders, the only bank in the U.S., to have the highest credit rating (AAA) from both Moody’s and Standard & Poor’s investor’s service.

How much should I be pre-approved for? It's a good idea to get approved for the maximum amount that you can qualify for (without wildly exceeding what you’re willing to spend) so that you're prepared.

You are not locked into the maximum loan amount. You are able to buy a lower priced home, lower your loan amount, or switch to another loan type. The beauty of having a pre-approval is the flexibility it provides for you and the ability to enter the real estate market with confidence.
fact...sellers are much more apt to accept offers from pre-approved buyers.

A home purchase is an important transaction. That’s why it’s important to work with experts committed to helping you make a smart investment. To maximize your purchasing power, rely on an agent who is a REALTOR® to help you find the right home, as well as a reputable lender to help you secure the right financing.

PERRY (Timothy Perry)
Home Mortgage Consultant
Wells Fargo Home Mortgage
866258-8363 Office
866711-6377 Fax
timothy.perry@wellsfargo.com

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