Mortgage Mess

As with any economic decline, new opportunities arise and new means to address problems develop. As someone put it, “A recession is a terrible thing to waste.”  But these new opportunities and means create traps for the unwary. We can assist you in finding opportunities and in avoiding traps by evaluating your overall financial situation, explaining the law as it applies to you, and developing a workable and affordable plan tailored for you. We can assist with loan modifications and restructuring, anti-deficiency analysis, short sales and bankruptcy considerations.[1] The residential real estate market is constantly changing, and our firm strives to be informed and current. Here are some of our recent observations:

Government Loan Refinancing and Modification. The Making Home Affordable plan has two components: modification and refinancing for owner-occupied property. Qualification for the refinancing component is difficult for the typical person who wants to participate in the program because of the large decline in home values.  After a recent change, a homeowner whose mortgage balance is more than 125% of the current value of the home will not qualify.  The homeowner also must have sufficient income to support the new loan payment and be current on mortgage payments. Loan modifications are a better option if available.  A borrower who has experienced significant income loss and whose mortgage payment is more than 31% of the borrower’s gross monthly income can obtain modification under the program, but modifications apply only to first mortgages. Any loan modification requires patience and perseverance.  Complete and accurate financial disclosure and statements of hardship are usually required.  Frustrations from delay, lack of continuity and repeated documentation submission are common.  We can help you overcome these obstacles while working with you to keep the modification process affordable. This is only a basic explanation of Making Home Affordable options and other criteria restrict qualification. You can receive detailed information and self-evaluation tools for eligibility at www.makinghomeaffordable.gov.

Lender Adjustments. Direct dealing with the lender to obtain adjustment of the loan can succeed.  The approach is important for borrowers who are not eligible for the government program, especially if the property is collateral for more than one loan.  Lowering monthly payments by lengthening the loan term and reducing the interest rate are the most feasible alternatives together with a plan to address any past due payments.

Tenant Protection from Foreclosure. Recognizing that residential tenants are often vulnerable and unaware of pending foreclosures, a recently enacted federal statute will protect many from immediate eviction.  The Protecting Tenants at Foreclosure Act of 2009 entitles tenants to remain in the property (single to four family dwellings) for 90 days from receiving notice of foreclosure before eviction proceedings can begin. The borrower cannot be the tenant, the lease must result from an arm’s length transaction, and the rent must be approximately the fair market rent. The loan must be a “federally related mortgage[2].”

Conventional Loan Refinancing. Historically low interest rates make this a good time for homeowners to refinance their existing loans.  To qualify, borrowers must have sufficient equity in their home, satisfactory credit, and sufficient monthly income.

First-Time Homeowners and Those Moving Up. Tax incentives, record low home prices and low interest rates create “perfect storm” timing for first-time homeowners and those who wish to move up to a better home.  Stricter lending standards now require good credit, sufficient income and a down payment sufficient to create a loan to value ratio satisfactory for the lender. For those who qualify, this is an excellent opportunity and the silver lining in the storm.

Investment Buying. Record low prices also create prime buying opportunities for those with the financial wherewithal to hold onto the property and pay the carrying costs until better times come.

Hymson Goldstein & Pantiliat, PLLC is here to provide analysis, advice and support to you towards those better times.

Written by Attorney David B. Goldstein, dbg@hgplaw.com

[1] To the extent we advise you about bankruptcy we act as a debt relief agency. [2] One from a lender where deposits are insured by a federal agency or insured, guaranteed or assisted in any way by the federal government or intended to be sold to Fannie Mae or a similar organization.