Increasing numbers of homeowners are having a difficult time maintaining a good payment history with their mortgage lenders due to rising unemployment and to sharp increases occurring in their monthly payments as a result of adjustable rate, interest-only, and “option ARM” mortgages. With nearly a quarter of the nation’s mortgages scheduled to reset in 2009, according to the Center for Responsible Lending, thousands of Chicago homeowners will be at risk of falling behind on their mortgages and perhaps even losing their homes due to job loss and high-cost mortgages.
Whether you are a homeowner with an adjustable rate mortgage or just know someone with one, the following is a list of action steps that can help you get control of your finances and save your home.
1. Create a budget. Identify and list expected income and expenses for the next several months to determine what costs can be reduced to set aside more money for making the house payment.
2. Contact your Servicer to inquire about a modification of your current loan, which can lower your payment and fix the rate of interest going forward.
3. Check your refinance options. If the original lender is not responsive, you may be eligible to qualify for a 15- or 30-year fixed-rate, Energy Conservation or Rescue Loan from ShoreBank. Successful ownership is still the best way to build equity. To learn more about your refinancing options or the Rescue Loan program, contact a ShoreBank mortgage lending specialist at (773) 420-HOME (4663). Consultations with a ShoreBank lender are free and there is no obligation.
4. Get help. Contact nonprofit organizations such as Neighborhood Housing Services in Chicago that has counselors available at no charge to help you to evaluate all your options. For assistance in Cleveland, Detroit, and other areas, contact The Housing and Urban Development Department at (800) 827-1000 to receive a referral to a financial counselor in your area.
And, do not forget, you can also provide help to those who are struggling to keep up with their mortgage. For example, a significant number of our refinance mortgage customers have told us that they discovered the Rescue Loan and Prevention Program because someone at work or a neighbor, usually someone without mortgage payment difficulties, encouraged them to seek help.
With the number of foreclosed, empty homes not just in our urban neighborhoods but in suburban ones too continuing to increase, it is vital that if we wish to get the struggling market back on its feet and stabilize our community, we need to do whatever we can to assist homeowners at risk.
With more than a million foreclosed and distressed properties expected to hit the market, buying a foreclosed home can be a good investment opportunity for the first-time home buyer and investors. While ShoreBank would rather make a Rescue Loan to help save a home, buying a foreclosed property helps stabilize home prices, strengthens a neighborhood and, at the same time, realizes the dream of homeownership for many.
However, potential buyers should not gamble when buying a foreclosed property. This is not a process for the faint of heart, but if one does their due diligence and goes about it in a responsible way, buying a foreclosed home can be a very good investment opportunity. To help home buyers purchase a foreclosed property and ensure sustainable ownership, I am sharing with you my 10 Steps for Buying a Foreclosed Home.
1. Search for foreclosure listings. Track foreclosures in your area to stay on top of the market so you are able to move quickly when they become available. Use an electronic tracking service like RealtyStore or look for listings in real estate magazines, newsletters, newspapers, and government agencies such as Fannie Mae.com; check public records at the county clerk’s office. 2. Find a real estate agent experienced in foreclosures. Some sellers will not accept offers from unrepresented buyers. 3. Find a real estate attorney. Proceedings and laws can be complex and difficult to understand. Do some homework on foreclosures laws and procedures. Start by using Google or another search engine to research foreclosure laws in your state as well as to contact an attorney. 4. Choose a foreclosed home to invest in. Some factors to consider include how to purchase a home while minimizing risk and determining the safest home to go after However, bank-owned properties carry the least risk for investors seeking foreclosed homes. When the bank takes ownership of the foreclosed property, you know there are not any taxes or liens to contend with and that the home is empty of homeowners. 5. Tour the property. And inspect it as closely as possible. It’s best to bring along a professional inspector to determine the property’s condition. Some foreclosures–unlike fixer-uppers–are in fairly good shape, while others may be way behind in maintenance from sitting empty for an extended period of time that could be quite costly to remedy. 6. Line up financing. To qualify for buying a foreclosed home you will need a good payment history with current creditors. If you need to improve your credit, sign up with an experienced credit counseling agency to help budget and to negotiate on your behalf while settling delinquent accounts. Smaller banks are usually more open to working with buyers who have tarnished credit histories. Check your credit report and correct any existing defaults or outdated information. Get pre-approved for a mortgage–speak with three potential lending institutions to obtain a responsible loan. Most sellers of foreclosed properties require a cash offer or pre-approved letter in order to make an offer. 7. MLS Search/Comps. Have your real estate agent check nearby or comparable homes to see if the asking price for a foreclosed home is, in fact, a bargain. 8. Do your homework. Check to see if a foreclosed home has any liens on it, such as unpaid property taxes. Find out who is liable for those costs. 9. Make an Offer. This step involves having your real estate agent or attorney prepare a contract offer to purchase the property with bank financing, bid at a foreclosure auction, or submit a sealed bid to the owner after the foreclosure sale. The key is to decide what the offer or bid price ought to be. You don’t want to pay more than the assessed value, based on the condition and location of the property. The goal in buying a foreclosed property is to buy at a low cost so that you can quickly begin building equity. Foreclosed homes are often sold at discounts of 30 percent or more. 10. Prepare paperwork. Be prepared to deal with more paperwork with a foreclosure than you would with a conventional purchase, particularly when a government agency is involved.
Additional valuable information:
• Find out how foreclosure works in your state. Procedures and legal requirements differ, so get a sense of how soon you can go after a home that appeals to you.
• Be particularly aggressive in negotiating with a bank. Banks are very interested in selling a foreclosed home fast when it’s just sitting on their books doing nothing.
• HUD and other agencies often auction foreclosed homes. However, buyers are frequently unable to inspect any property before making an offer. With so little information, the higher the bid for the property, the higher the risk that you may end up with a money pit.
And finally, it’s important to remember to look for an experienced agent, suitable properties, and outstanding lien issues and be prepared to review a mountain of paperwork.
The foreclosure crisis and current tough economic times this fall make it hard for me to focus on thoughts of gratitude. But that is exactly the reason that I feel now is the time to focus on being thankful. Reviewing the stories behind the borrowers in our Rescue Mortgage Program, I find myself grateful that ShoreBank is able to continue to reach out to people trapped in predatory loans. When ShoreBank provides a homeowner with refinancing into a 30-year fixed-rate loan means children can stay in their house for Thanksgiving; it means parents can sleep better at night, and it means that neighborhoods do not become wastelands of abandoned foreclosed homes. I am so lucky to play a small part in this process, and so thrilled to work with good colleagues that do the tough lending day in and day out.
Beyond feeling thankful for having such wonderful and rewarding work, many other things make me grateful for the life I have. I am so thankful for my family, particularly my zany husband who keeps me laughing even when the economy makes me cry; my children, young adults both spreading their wings and testing themselves in one of the worst job markets in decades; and the wonderful circle of friends that makes my life fun and meaningful. We live in challenging times and the day-to-day crush can make me forget how wonderful it is to be alive. It is the perfect time to pause and remember the intangibles that make life so worth living, and to reconnect and warm myself with the feeling of gratitude. As we close this work week I wish you all a Happy Thanksgiving.
The scale of the foreclosure crisis threatens the dreams of many homeowners in ShoreBank’s communities. In my last blog, I wrote about what makes a mortgage a bad fit for consumers. The reasons vary, but if someone you know has the wrong mortgage for their circumstances, remember that there are solutions. One is a Rescue Loan.
The most important thing to remember if you’re having difficulty making your monthly payments is to take action right away. It’s easier to recover if you haven’t missed more than one or two monthly payments. As the foreclosure process moves along, the size of the delinquent debt owed, and the bank legal costs that customers are usually charged, mount.
Curing a foreclosure is a little like curing cancer — the sooner you catch it, the better your chance of survival. Acting sooner rather than later, keeps more options open for you, minimizes costs and protects your credit. The first step is to contact your lender as soon as you think you cannot make a payment. Look for the lender’s toll free number on your monthly statement. Do not ignore telephone calls or written notices from your lender. Borrowers who try to ignore their financial problems — and their lenders’ phone calls — will likely lose their homes.
ShoreBank’s Rescue Loan Program offers fixed-rate loans to homeowners at risk of losing their homes. Who should consider applying for a Rescue Loan? To be eligible for a ShoreBank Rescue Loan you must:
• Have a subprime mortgage or other adjustable rate mortgage
• Open a ShoreBank auto debit account at the time of application
• Qualify for sustainable mortgage payment
• Be no more than 90 days past due on your mortgage payment
We look at many factors when considering a customer for a mortgage. We consider your income; your monthly mortgage payment as a percentage of your income; your total debt situation; employment history; property appraisal, and of course, your credit history. This is different than your credit score. ShoreBank will work with you if you’ve had credit difficulties. For example, let’s say you had a rough patch, and lost your job and fell behind on your payments. That would lower your score. But as soon as you could, you worked to catch up on your bills. That’s a good thing, but your credit score may still be low, because those missed payments are on your record. We look at the big picture.
Unlike other banks, we don’t sell our loans. Perhaps you’ve had the experience of getting a mortgage from a bank you knew and then after a few payments, an unfamiliar envelope with your mortgage bill arrived in the mail from a bank you never heard of. That’s because the bank you got the mortgage from sold your mortgage. Now you have to deal with a “stranger” who doesn’t know you.
We don’t sell our mortgages at ShoreBank. We stay with you for the life of the loan. That also means we want you to be successful. It’s not as important to the other banks that sell your loans if you take out a bigger loan than you might be able to handle in the future, because they’re going to sell that loan. If you can’t make payments, it will be someone else’s problem.
So we work with our customers to fit our mortgages to their needs. We want that mortgage to be successful for them (and consequently successful for us). That’s why we’re not in the same position as many other banks today. ShoreBank is safe, secure and strong. We’re not going to be bought out or taken over by the government. Your money is safe with us.
To help fund the program, ShoreBank launched a high interest online savings account, www.shorebankdirect.sbk.com. The interest paid on the online account is currently 3.50% *APY.
Call us if you have a mortgage that is wrong for you. We’ll work with you to help put you back in control of your finances.
* Annual Percentage Yield (APY) is accurate as of June 4, 2008. Rates may change at anytime and without notice after the account is opened. Fees could reduce the earnings on the account. A minimum balance of $1.00 is required to open the account and obtain the stated APY.
Let’s compare two recent stories from the Home Front.
First, here’s a story, courtesy of The Wall Street Journal. In 2006, Nanci Puerto refinanced her house near San Francisco for $637,288. She and her husband “take home a combined $70,000 a year.” According to the Journal, “Each month, she makes the minimum payment on her loan, $2,416. At the same time, she watches the outstanding principal swell since that payment doesn’t fully cover the interest costs. Now she owes IndyMac $707,000 on a house that the county tax assessor says is only worth $410,000.”
The other story is from The New York Times. Todd Lawrence of Norwich Connecticut “has a traditional 30-year mortgage that he has no trouble paying every month.” Home prices in his area have fallen so much that he now owes more on his home than its market value. “’Why am I being punished for having bought a house I could afford?’ he asked. ‘I am beginning to think I would have rocks in my head if I keep paying my mortgage.’”
Now we’ll do a little math. It takes a monthly payment of $3,820 to fully amortize a loan of $637,288 at 6% interest over 30 years. Just the interest, again at 6%, on $637,288, comes to $3,185 month. And, of course, these amounts do not include real estate taxes and homeowners insurance. The fully amortizing payment is equivalent to about 65% of the Puertos’ take home pay, which is about double the rule of thumb that housing costs should be a third of net household income. No responsible lender would have made Ms Puerto a conventional, fully amortizing mortgage for $637,288. Only an irresponsible lender would have made it.
The efforts that the FDIC, which now owns IndyMac, is making to keep Mr and Mrs Puerto in their home are laudable. Restructuring Ms Puerto’s loan does far more than benefit her family. It helps the local community by saving yet another house from foreclosure, and that, in its small way, benefits the whole country. But our little math exercise cuts both ways, and we shouldn’t automatically picture Ms Puerto purely as a victim of IndyMac. She was also a gambler. She bet that the value of her home would keep appreciating. Then she could keep refinancing at “teaser” rates that would keep the payments low indefinitely. She lost.
But Mr Lawrence lost too, and he didn’t even realize he was playing. The nationwide run-up in home values caused by cheap and easy credit has led to a vicious double-digit devaluation in nearly every part of the United States. Mr Lawrence’s problem underlines an even greater danger than that of the Puertos. Ms Puerto wants to pay, but can’t. Mr Lawrence can pay, but is wondering if he should. Creditworthiness is defined not just as the ability to pay, but also the willingness to pay. Sorting out the mortgage mess must be done fairly, but rigorously. Ms Puerto must be helped without making Mr Lawrence feel like a sucker.
Note: Ms Puerto’s story appears on page 1 of the November 1 Journal in “FDIC Plan Tests Limits of Leniency” by Michael M. Phillips and Ruth Simon. Mr Lawrence’s story is in a page 1 Times story on October 31 called “Mortgage Plan May Aid Many and Irk Others” by David Streitfeld.
Increasing numbers of homeowners are having a difficult time maintaining a good payment history with their mortgage lenders due to rising unemployment and to sharp increases occurring in their monthly payments as a result of adjustable rate, interest-only, and “option ARM” mortgages. With nearly a quarter of the nation’s mortgages scheduled to reset in 2009, according to the Center for Responsible Lending, thousands of Chicago homeowners will be at risk of falling behind on their mortgages and perhaps even losing their homes due to job loss and high-cost mortgages.
And, do not forget, you can also provide help to those who are struggling to keep up with their mortgage. For example, a significant number of our refinance mortgage customers have told us that they discovered the Rescue Loan and Prevention Program because someone at work or a neighbor, usually someone without mortgage payment difficulties, encouraged them to seek help.
