There is a lot of misconception out there about the foreclosure freeze and who it really helps, what it takes to qualify, and how it works. My goal is to demystify it a bit. I have listed some bullet points to help:
The freeze is temporary. It freezes legal efforts to remove delinquent borrowers for 30 days while lenders and borrowers work together on a payment plan.
This is a joint effort by 6 of the nation's largest lenders
One big difference between this and other options discussed in the past is that it is available to people regardless of their loan types. Even if you do NOT have an ARM, it may help. (Some people have Pay Option ARMs or fixed rates that are high, too). (ARMS have the highest rate of delinquency though)
The borrower does not need to be subprime to qualify as with other programs like the Bush plan. Any kind of mortgage is okay.
When does the homeowner qualify?
Once they are 90 days or more behind in their payments, lenders will send letters asking the owner to call.
Borrowers will be asked if they ewant to stay in their home. If they do, they will be offered financial counseling.
Important things to note:
Loan modifications are not automatic! Homeowners have to provide proof of wages and debt.
Lenders then decide whether to pause the foreclosure process.
During the freeze, foreclosure prevention specialists decide if a loan modification program will work. Will the borrower have a chance to be successful? Is he/she making enough money?
Potential options are: Lowernig rates, balance on loans, or both. Anything that does happen though requires that the homeowner pay on time for three months at which time the changes become permanent.
As homeowners, remember it costs the bank generally $50,000 per home to process a foreclosure. Most would rather have homeowners stay in homes - so call your bank!
Dani
Tuesday, February 12, 2008
Sunday, February 10, 2008
Let the Spin Begin - the Media and the R Word
As late as mid January of 2008, economists surveyed by leading financial publications resulted in a prediction that the US had less than a 50% chance of going into a recession in 2008.
If you listened to the media, you'd think the world was ending. Who are the worst offenders?
I did a search to see how many hits I got on web sites noted below, with hit rates indicated:
Fox News 1530
CNN: 1692
ABC (approximately) 3760
and MSNBC an astounding 23,200!
I wanted to take this into the newspaper arena, and found the following:
The far left leaning San Francisco Chronicle in 2008 alone mentioned a recession 464 times according to their web search - already more than the entire 2007 year! (which came in at 329)
The New York Times.. also left leaning.. 420 in 2007, and already 311 since January 1, 2008.
Compare this to the Washington Times (considered more conservative) which mentions it 149 times in 2007 and 77 times in 2008.
One could speculate on the motivations behind using the R word. Perhaps it's pure drama that drives viewers.
But the media has a responsibility here, and it seems very few are holding them accountable. The more they mention the word recession (whether we are in one or not), the more people assume we are.
ABC, CBS and NBC reported in the first two weeks of 2008 negative stories about a pending or looming recession 32 times. The positive? Mentioned in 8 stories. (Source: Business & Media Institute)
What are the facts? Well a study conducted by Bloomberg of 62 economists released January 9th showed economists predicitng a 1.5% GROWTH in the first half of 2008. This is most definitely weak expansion, but it is far from a recession! The Wall Street Journal reported similar findings, predicting growth of 2% or less, and a 42% chance of recession. The same type of issue holds true for unemployment, also exaggerated by the media. Take the Today Show reporting on January 5th that unemployment moved up to 5% last month, the highest rate in two years. Really? In September of 05, unemployment was also at 5.1%. The 5% rate is the highest in SIXTEEN months, not two years. It's also below the 5.4% 10 year average and the 6% 30 year average. (Source: Business and Media Institute)
I can only speculate on why the media would choose to report the news as they do in an election year or when circulation at some aforementioned newspapers are down (you can guess which ones), but the media owes it to the public to talk about the facts and not use scare tactics, selectively choosing the data it wishes to represent.
Dani
If you listened to the media, you'd think the world was ending. Who are the worst offenders?
I did a search to see how many hits I got on web sites noted below, with hit rates indicated:
Fox News 1530
CNN: 1692
ABC (approximately) 3760
and MSNBC an astounding 23,200!
I wanted to take this into the newspaper arena, and found the following:
The far left leaning San Francisco Chronicle in 2008 alone mentioned a recession 464 times according to their web search - already more than the entire 2007 year! (which came in at 329)
The New York Times.. also left leaning.. 420 in 2007, and already 311 since January 1, 2008.
Compare this to the Washington Times (considered more conservative) which mentions it 149 times in 2007 and 77 times in 2008.
One could speculate on the motivations behind using the R word. Perhaps it's pure drama that drives viewers.
But the media has a responsibility here, and it seems very few are holding them accountable. The more they mention the word recession (whether we are in one or not), the more people assume we are.
ABC, CBS and NBC reported in the first two weeks of 2008 negative stories about a pending or looming recession 32 times. The positive? Mentioned in 8 stories. (Source: Business & Media Institute)
What are the facts? Well a study conducted by Bloomberg of 62 economists released January 9th showed economists predicitng a 1.5% GROWTH in the first half of 2008. This is most definitely weak expansion, but it is far from a recession! The Wall Street Journal reported similar findings, predicting growth of 2% or less, and a 42% chance of recession. The same type of issue holds true for unemployment, also exaggerated by the media. Take the Today Show reporting on January 5th that unemployment moved up to 5% last month, the highest rate in two years. Really? In September of 05, unemployment was also at 5.1%. The 5% rate is the highest in SIXTEEN months, not two years. It's also below the 5.4% 10 year average and the 6% 30 year average. (Source: Business and Media Institute)
I can only speculate on why the media would choose to report the news as they do in an election year or when circulation at some aforementioned newspapers are down (you can guess which ones), but the media owes it to the public to talk about the facts and not use scare tactics, selectively choosing the data it wishes to represent.
Dani
Saturday, February 2, 2008
McCain Event, Economics, Mannequins and Illigitimate Middle Class Warfare
I went to a McCain fundraiser in Los Angeles, CA on Thursday the 31st. Among lots of Hollywood celebs, former Congressmen, Senators and our California Governor, McCain spoke about the war in Iraq. He made a comment that was quite interesting to me.
Many critics have said that he must begin discussing the "economic situation", so he's thrown a few comments in here and there to let people know he's in tune with the American concerns. He said, loosely quoted as I didn't write it down verbatim, "yes I know I know, we need to talk about the economy..." and then proceeded to talk about the war again.
In my view, many people on the left and right are using the fundamental misunderstanding of the general population with regard to how economics works to their political advantage. I see Romney doing it to the nth degree, Obama and Clinton of course - not unexpected. They talk about the middle class families; even create a 'war between the classes' that is highly misleading and divisive all while talking hypocritically about unity. Speaking of hypocrits. We need a "CEO to run the country?" Last time I checked, weren't the CEOs being jailed, blamed for scandals and ripping off their shareholders and employees?
Some countries try to avoid having a middle class altogether. American clearly has one; one that has unprecedented homeownership (thanks to the creative lending practices that are now being trampled upon by so-called economic experts saying they "predicted this long ago", and the Bush tax cuts).
What people don't realize is this:
1. What the Dems and some Republicans are calling a debacle with regard to the mortgage "crisis" is that, still, less than 2% of people in this nation are late on their mortgages.
2. The economy not be growing as fast as it did three year ago, but we are hardly in a recession. No one cares to look up what the term actually means.
3. The middle class has the highest home ownership in the history of this nation. Why? Because mortgage companies wanted to make money. Hedge fund managers wanted to money. Mortgage companies got creative, provided funding to people who wanted to buy homes, investors bought the mortgages - and the middle class benefitted this entire thing. And, not commonly heard in the media? Most are actually paying those obligations - so who is losing exactly?
4. As the middle class gains in equity, and they will (markets never go down over a long period), they will become even wealthier. Lower-middle income individuals who bought homes will move into the middle class.
What I found refreshing about McCain is that he knows he has to talk about the economy if he wants to score points. He does.. to a small degree, to avoid losing to a talking mannequin known as the former Governor of Massachusetts.
But what about this? Will losing 70000 jobs after gaining hundreds of thousands matter when another Islamic radicalist boards a plane and takes a Delta jet into the Empire State Building? Probably not. A Dow down day of 300 could be a blessing.
Maybe we need to stop all the whining, cowtowing to Wall Street, and let the Fed do the hard work it needs to do.. and stop using bogus hypocritical claims to try to win the office of President. Maybe for once, people will see through the BS and think of the big picture rather than the $50 their mortgage payment went up in two years on that McMansion they bought on their $50,000/year salary.
Dani
Many critics have said that he must begin discussing the "economic situation", so he's thrown a few comments in here and there to let people know he's in tune with the American concerns. He said, loosely quoted as I didn't write it down verbatim, "yes I know I know, we need to talk about the economy..." and then proceeded to talk about the war again.
In my view, many people on the left and right are using the fundamental misunderstanding of the general population with regard to how economics works to their political advantage. I see Romney doing it to the nth degree, Obama and Clinton of course - not unexpected. They talk about the middle class families; even create a 'war between the classes' that is highly misleading and divisive all while talking hypocritically about unity. Speaking of hypocrits. We need a "CEO to run the country?" Last time I checked, weren't the CEOs being jailed, blamed for scandals and ripping off their shareholders and employees?
Some countries try to avoid having a middle class altogether. American clearly has one; one that has unprecedented homeownership (thanks to the creative lending practices that are now being trampled upon by so-called economic experts saying they "predicted this long ago", and the Bush tax cuts).
What people don't realize is this:
1. What the Dems and some Republicans are calling a debacle with regard to the mortgage "crisis" is that, still, less than 2% of people in this nation are late on their mortgages.
2. The economy not be growing as fast as it did three year ago, but we are hardly in a recession. No one cares to look up what the term actually means.
3. The middle class has the highest home ownership in the history of this nation. Why? Because mortgage companies wanted to make money. Hedge fund managers wanted to money. Mortgage companies got creative, provided funding to people who wanted to buy homes, investors bought the mortgages - and the middle class benefitted this entire thing. And, not commonly heard in the media? Most are actually paying those obligations - so who is losing exactly?
4. As the middle class gains in equity, and they will (markets never go down over a long period), they will become even wealthier. Lower-middle income individuals who bought homes will move into the middle class.
What I found refreshing about McCain is that he knows he has to talk about the economy if he wants to score points. He does.. to a small degree, to avoid losing to a talking mannequin known as the former Governor of Massachusetts.
But what about this? Will losing 70000 jobs after gaining hundreds of thousands matter when another Islamic radicalist boards a plane and takes a Delta jet into the Empire State Building? Probably not. A Dow down day of 300 could be a blessing.
Maybe we need to stop all the whining, cowtowing to Wall Street, and let the Fed do the hard work it needs to do.. and stop using bogus hypocritical claims to try to win the office of President. Maybe for once, people will see through the BS and think of the big picture rather than the $50 their mortgage payment went up in two years on that McMansion they bought on their $50,000/year salary.
Dani
Thursday, January 24, 2008
How do I know when to refi?
How do I know if this is a good time to refi?
With the recent drop in interest rates, many consumers are asking, "is this the time to refi?" The decision is more complicated than "did my rate drop?" There are often many fees associated with refinances, and consumers need to calculate when a good time for them is. Mortgage applications rose over 8% last week.. and there is good reason for it.
When the Fed drops rates, most banks drop their rates on certain mortgages too. People that are locked into negative amortization or option ARM loans, where they aren't even covering their interest or had a teaser-rate loan, may be looking now to refinance.
In general, Home Equity Lines of Credit see rate drops the day after the Fed. How do you know if you should refi? Calculate the savings per month with the new rate, and ask your lender what the refi will cost you. Determine what the break-even point is in months - 6 months and you plan to stay a year? You get a net win! 12 months and you plan to move in the Spring? Keep that higher rate.
Option Adjustable Rate Mortgages, known as Pay Option ARMs, are the risky loans that let people pay less than the interest and accumulate mortgage principle. These tend to drop 30 to 90 days after a Fed rate drop. Margins always tend to lag the Fed rate. To figure out if you should refi, get a good faith estimate with all costs from the lender. Do the same analysis as for a HELOC. With the rate change, what is the savings per month? Then, divide the total cost of the refi into the savings, and you will get your break-even point in months. If you are planning to stay in your home longer than this number of months, you will save money.
Long term rates, 30 year fixed loans, generally remain flat and may even increase. I would not consider this a viable option right now.
Short term interest only loans, where the first 3, 5 or 7 years is held constant, will decrease. To figure out if you should refi, get a good faith estimate with all costs from the lender. With the rate change, what is the savings per month? Then, divide the total cost of the refi into the savings, and you will get your break-even point in months. If you are planning to stay in your home longer than this number of months, you will save money.
What are some intangibles to consider?
1. Is your mortgage stressing you out? Is the unknown tough to handle? If so, you might opt for a short term interest only loan or a fixed mortgage, even if the rate is higher.
2. Is your principle amount climbing faster than the appreciation rate? You may want to refinance even if the rate is the same, just to "stop the bleeding".
With the recent drop in interest rates, many consumers are asking, "is this the time to refi?" The decision is more complicated than "did my rate drop?" There are often many fees associated with refinances, and consumers need to calculate when a good time for them is. Mortgage applications rose over 8% last week.. and there is good reason for it.
When the Fed drops rates, most banks drop their rates on certain mortgages too. People that are locked into negative amortization or option ARM loans, where they aren't even covering their interest or had a teaser-rate loan, may be looking now to refinance.
In general, Home Equity Lines of Credit see rate drops the day after the Fed. How do you know if you should refi? Calculate the savings per month with the new rate, and ask your lender what the refi will cost you. Determine what the break-even point is in months - 6 months and you plan to stay a year? You get a net win! 12 months and you plan to move in the Spring? Keep that higher rate.
Option Adjustable Rate Mortgages, known as Pay Option ARMs, are the risky loans that let people pay less than the interest and accumulate mortgage principle. These tend to drop 30 to 90 days after a Fed rate drop. Margins always tend to lag the Fed rate. To figure out if you should refi, get a good faith estimate with all costs from the lender. Do the same analysis as for a HELOC. With the rate change, what is the savings per month? Then, divide the total cost of the refi into the savings, and you will get your break-even point in months. If you are planning to stay in your home longer than this number of months, you will save money.
Long term rates, 30 year fixed loans, generally remain flat and may even increase. I would not consider this a viable option right now.
Short term interest only loans, where the first 3, 5 or 7 years is held constant, will decrease. To figure out if you should refi, get a good faith estimate with all costs from the lender. With the rate change, what is the savings per month? Then, divide the total cost of the refi into the savings, and you will get your break-even point in months. If you are planning to stay in your home longer than this number of months, you will save money.
What are some intangibles to consider?
1. Is your mortgage stressing you out? Is the unknown tough to handle? If so, you might opt for a short term interest only loan or a fixed mortgage, even if the rate is higher.
2. Is your principle amount climbing faster than the appreciation rate? You may want to refinance even if the rate is the same, just to "stop the bleeding".
Wednesday, January 23, 2008
Best & Worst Places to Buy?
Check out Dani's latest article on Entrepreneur.com!
http://www.entrepreneur.com/money/personalfinance/article189454.html.
What would you add to - or subtract from - this list.. and why?
Dani Babb
http://www.entrepreneur.com/money/personalfinance/article189454.html.
What would you add to - or subtract from - this list.. and why?
Dani Babb
Monday, January 21, 2008
Abandoned Homes cause BIG problems
With the wave of foreclosures hitting lenders, there is a new problem on the rise - houses abandoned by banks AND homeowners, and people left on the block getting hit with substantial value decreases as a result. An intense amount of crime sweeping into these suburban neighborhoods as vandals, thieves, drug dealers, prostitution rings, etc move into abandoned houses.
This is a forgotten, misunderstood component of foreclosure. Fights and legal battles are ensuing all across the nation about just who is responsible for these homes in limbo, being left to vandals and worse.
There are obvious signs that a home has been abandoned. The grass turns brown, eye-level weeds, the garage door becomes boarded up, signs indicating the home is bank owned - no trespassing... in some really bad cities, owners write "no piping" or "no aluminum" or "PVC only" because vandals are ripping the houses apart, bringing in trucks to haul away appliances, copper wiring, take piping out of the walls using sledge hammers, take mouldings, anything metal - you name it, it's being taken. Others are being turned into indoor marijuana farms.
Also, squatters begin to make fires in the homes to stay warm as it gets colder, sometimes burning them to the ground.
Other homes are being left to drug dealers and vandals, criminals running prostitution rings in the home and setting up shop.
Let's walk through it a bit to see how this happens.
1. First, the owner gets a notice of default. The owner often leaves the home - right then. Owners often would rather leave on their own terms than the banks.
If the owners don't leave then, they often wait until they get a notice of foreclosure proceedings.. then leave.
So at this point, the home is abandoned.
2. Foreclosure gives the bank the ability to take the home as collateral for the mortgage. This can take 6 to 12 months. In the meantime, the house sits. It becomes attractive to vandals, homeless, gangs, drug sellers, thieves, etc. This is outlined nicely in Business Week.
3. Ownership becomes an issue. Technically, in most states, the owner still owns the home while the lender decides what it is worth. They include legal costs of taking it through foreclosure (expensive), repairs, back unpaid taxes (a big problem right now), potential repairs if they cannot sell it as is, and the value of the home. They compare all of this to the value of the loan. In many cities, they cannot break even. The lender stops the foreclosure process. The title remains in the borrowers name!
4. The home becomes a problem. It begins to affect property values across the neighborhood. Some of the initial issues that become apparent is the water being shut off and lawns turning brown, pools turning green. Housing inspectors check property records and cite borrowers for violations, which can lead to fines and jail time. But, the borrower says in court he or she thought the bank took the house back.
5. At some point, officials begin to expand the definition of who exactly owns the home. In some states, prosecutors are taking banks that foreclose into court and seeking fines. If the house cannot be sold as it's so badly damaged, it may be demo'd.
Some ask, if the bank won't take care of the home and won't get any money from the home, why not let the owner continue to live in the house and at least take care of it until it can be sold on short sale? Good question. It seems a case of banks going through a process rather than using their heads. They affect property value throughout the entire neighborhood; just being within 150 to 200 yards of an abandoned house severely affects your own property value.
Dani
This is a forgotten, misunderstood component of foreclosure. Fights and legal battles are ensuing all across the nation about just who is responsible for these homes in limbo, being left to vandals and worse.
There are obvious signs that a home has been abandoned. The grass turns brown, eye-level weeds, the garage door becomes boarded up, signs indicating the home is bank owned - no trespassing... in some really bad cities, owners write "no piping" or "no aluminum" or "PVC only" because vandals are ripping the houses apart, bringing in trucks to haul away appliances, copper wiring, take piping out of the walls using sledge hammers, take mouldings, anything metal - you name it, it's being taken. Others are being turned into indoor marijuana farms.
Also, squatters begin to make fires in the homes to stay warm as it gets colder, sometimes burning them to the ground.
Other homes are being left to drug dealers and vandals, criminals running prostitution rings in the home and setting up shop.
Let's walk through it a bit to see how this happens.
1. First, the owner gets a notice of default. The owner often leaves the home - right then. Owners often would rather leave on their own terms than the banks.
If the owners don't leave then, they often wait until they get a notice of foreclosure proceedings.. then leave.
So at this point, the home is abandoned.
2. Foreclosure gives the bank the ability to take the home as collateral for the mortgage. This can take 6 to 12 months. In the meantime, the house sits. It becomes attractive to vandals, homeless, gangs, drug sellers, thieves, etc. This is outlined nicely in Business Week.
3. Ownership becomes an issue. Technically, in most states, the owner still owns the home while the lender decides what it is worth. They include legal costs of taking it through foreclosure (expensive), repairs, back unpaid taxes (a big problem right now), potential repairs if they cannot sell it as is, and the value of the home. They compare all of this to the value of the loan. In many cities, they cannot break even. The lender stops the foreclosure process. The title remains in the borrowers name!
4. The home becomes a problem. It begins to affect property values across the neighborhood. Some of the initial issues that become apparent is the water being shut off and lawns turning brown, pools turning green. Housing inspectors check property records and cite borrowers for violations, which can lead to fines and jail time. But, the borrower says in court he or she thought the bank took the house back.
5. At some point, officials begin to expand the definition of who exactly owns the home. In some states, prosecutors are taking banks that foreclose into court and seeking fines. If the house cannot be sold as it's so badly damaged, it may be demo'd.
Some ask, if the bank won't take care of the home and won't get any money from the home, why not let the owner continue to live in the house and at least take care of it until it can be sold on short sale? Good question. It seems a case of banks going through a process rather than using their heads. They affect property value throughout the entire neighborhood; just being within 150 to 200 yards of an abandoned house severely affects your own property value.
Dani
Monday, January 14, 2008
Property Tax Decline
In doing a story for local news tonight, I found out that the County of Orange has collected 48% less tax than they expected in property taxes. This is a big deal nationally now, too.
Throughout the country, counties are seeing lower than expected property tax revenues. This is due to several reasons:
1. Individuals prioritizing their higher mortgage payments over taxes
2. If a home is being foreclosed upon, owners are letting the bank worry about the taxes
3. As income is prioritized in terms of expenses, taxes are lower on the priority list
4. Lots of counties have not reassessed properties to their real values after the real estate drop in prices.
What is happening? Well some states are projecting revenue growth slowing from 12% in 2007/2008 to 3% in 2009/2010. This, coupled with lower sales tax revenue because people are spending less, could lead to significant state and county budget deficits.
What do homeowners need to know?
Tax liens take precedence in courts even over mortgage liens or trust deeds! Counties sell off tax liens to private investors, that often make between 16 and 23% profit. These investors can take title - essentially take back the home from the homeowner, if these taxes go unpaid.
Homeowners who aren't losing their homes must prioritize their tax payments to avoid steep penalties and the potential for tax liens being placed on their property. If the home isn't valued appropriately, homeowners should call their assessors office and find out how to document a claim for lower property valuation.
Dani
Throughout the country, counties are seeing lower than expected property tax revenues. This is due to several reasons:
1. Individuals prioritizing their higher mortgage payments over taxes
2. If a home is being foreclosed upon, owners are letting the bank worry about the taxes
3. As income is prioritized in terms of expenses, taxes are lower on the priority list
4. Lots of counties have not reassessed properties to their real values after the real estate drop in prices.
What is happening? Well some states are projecting revenue growth slowing from 12% in 2007/2008 to 3% in 2009/2010. This, coupled with lower sales tax revenue because people are spending less, could lead to significant state and county budget deficits.
What do homeowners need to know?
Tax liens take precedence in courts even over mortgage liens or trust deeds! Counties sell off tax liens to private investors, that often make between 16 and 23% profit. These investors can take title - essentially take back the home from the homeowner, if these taxes go unpaid.
Homeowners who aren't losing their homes must prioritize their tax payments to avoid steep penalties and the potential for tax liens being placed on their property. If the home isn't valued appropriately, homeowners should call their assessors office and find out how to document a claim for lower property valuation.
Dani
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