As the values of houses have begun their slow climb out from under the depths of the the watery ocean in which they were swimming, so are borrowers getting out from underwater on their mortgages.  According to CNN Money, fewer borrowers are underwater on their mortgages than in the last quarter.  However, the article cautions that this is largely due to the fact that more people have already lost their homes to foreclosure.

Nevertheless, some of it is good news,

In some markets, residents were helped by improving home prices. As prices rise, it narrows the gap between what homeowners owe and what they could sell for. As a result, hard-hit metro areas such as Merced, Calif., and Orlando, Fla., recorded huge declines in the number of underwater borrowers. Merced was down to 40% while Orlando fell to 64.6%.

Prices have begun slowly creeping back up in many parts of the country.  Real estate experts are saying the recovery is expected to take at least two to five years in most parts of the nation, although some areas that were already suffering economically before the recession hit nationwide will likely take longer.

Flickr Creative Commons photo by Rain Rannu.

An agent in my office told me today about her sister who is a Realtor in California.  She was excited because recently she’s receive at least two emails saying that to qualify for a home loan, you can opt in to a “No Income Documentation” loan.

My first instinct was to flinch because these are the loans that are now most at risk for foreclosure (if they haven’t already foreclosed).  However my friend was pretty excited about them because it means that the economy is starting to turn to the point that investors feel confident in releasing no-income loans.

The paperwork shows that a minimum FICO score of 620 is required and are 30-year fixed mortgages with no pre-payment penalties.  To verify that a buyer is able to make the payments, the lender will verify current employment but is not asking for pay check stubs, W-2’s, tax returns, 1099’s, or 4506 forms. One lender states the loan amount must be at least $220,000 but no greater than $729,750, while another offers a minimum loan amount of $100,00 with a maximum of $3 million.

The loans are available both for new purchases, home owners wishing to refinance, to purchase condos, or for non-owner occupied loans (at a higher interest rate, certainly).

This will be an interesting trend to follow - to see if it expands to the rest of the country.  If it does, it might just be the electric shock the heart of real estate needs to get going again.

My husband and I refinanced our mortgage several years ago in the heyday of real estate.  We bought our current home in 2003, then watched - amazed - as the value went up by $40,000 in just two years.  We thought, “Let’s refinance for the value and pay off our car and credit card!”

Bad move.  Our home is now worth only about $10,000 more than our original purchase price - only because we also added a sun room.  So in essence, we are about $50,000 underwater because we jumped right in the middle of the feeding frenzy of property values increasing like white lightning.  Hindsight… yea yea…

So is refinancing a good idea?  For us - even though we could decrease our interest rate from a 6.5 to a 4.5 percent rate - we can’t do it because the house won’t appraise for the refinance.  For others, it may still be a good option according to cashmoneylife.  Some of the reasons to refinance:

• Your credit score has improved.
• Mortgage interest rates increasing.
• Have trouble making your payments each month.
• Need to consolidate other debts.
• Making more money.

Again, proceed with caution if you decide to refinance, but the good news is if you bought your house before 2007, you are probably in good shape not getting in upside down.  Good luck!

I had lunch today with a mortgage lender and asked what she would advise buyers right now about getting a home loan.  I was surprised that she didn’t talk about the money part as much as a misconception people have,

“Remember that you don’t have to CLOSE your loan by April 30th to get the tax credit, you just have to have a fully executed contract.”

It surprised me because people still don’t understand that the $8,000 tax credit is available through June 30th as long as they’re in a valid contract by the end of this month.

The lender did add that when you’re finding a lender, don’t just take “No” for an answer.  Find someone who can counsel you about why you’re not yet qualified to get a home loan - they can’t “fix” your credit but they can tell you why your credit score was low.

Don’t be afraid to ask!

A new plan by the Obama administration is being designed to help some homeowners who are “underwater” on their mortgage - or they owe more money than the home is now worth.  The program will provide new loans backed by the Federal Housing Administration to qualified borrowers.  The qualified borrowers will not include homeowners living in multi-million dollar mansions or who have vacation homes, nor will it be available to investors, for example.  According to MSNBC.com,

To be eligible for the FHA refinancing program, borrowers who owe more than the value of their homes, known as being “under water,” must not have fallen behind on their existing mortgage payments.

In addition, the program will give lenders incentives for accepting a lower principal loan balance.  The plan will also lend a hand to the unemployed,

It also includes three to six months of temporary aid for borrowers who have lost their jobs. And there will be additional payments designed to give banks an incentive to reduce payments or eliminate second mortgages such as home equity loans — a problem that has blocked many loan modifications.

The second mortgages have truly been a road block for a lot of people, especially those who hope for a short-sale to avoid foreclosure.  Here’s hoping the plan really will help a portion of homeowners burdened with owing a bigger mortgage than their home is worth.

Have a great weekend!

House pictured is a HUD-owned house in middle Tennessee.

While this video is from Japan, it rings so true even in the U.S.

Have a great weekend!

If you lose your job in Pennsylvania, but your credit has been okay up until then - help may be forthcoming.  The Pennsylvania Housing Finance Agency offers help where all that’s needed is a break.  According to CNN Money.com, candidates are carefully screened but the end result is it gives people who have recently lost a job the chance to find another one without losing their house in the process.

“You must have a reasonable prospect of resuming full payments within 36 months and of paying the mortgage in full,” [Brian] Hudson [program director] said.

Loan payments are made directly to the servicers and a lien is placed on the property. The aid is repaid at a 5.25% interest rate over 10 years on average, though the borrower’s financial circumstances are taken into account.

Bravo to Pennsylvania for offering this amazing program to its citizens who are trying to survive the hardships of this economy!

Photo by mknobil via flickr creative commons.

The long-anticipated increase in mortgage rates has begun, but at just over 5 percent, they are still favorable for buyers.  According to MSNBC.com, the best rates are assigned to 15-year mortgages rather than the typical 30-year funding plans.  One reason mortgages have remained low is because the Federal Reserve has been buying new loans, however there is fear that when the program stops in March rates will skyrocket,

Some analysts fear that once the central bank stops, mortgage rates could spike due to a lack of willing buyers, hurting the recovery in housing and the overall economy. But government officials have been optimistic about that the Fed will be able to end its program without a major disruption.

In my own opinion, I believe the real estate market will be shaken when the April 30th “under contract” date arrives for the $8000 first-time home buyer tax credit.

Mortgage companies may be breathing a sigh of relief right now because fewer homeowners were delinquent in their mortgage payments this past quarter than the one before.  According to CNN.com, this could mean that the mortgage market is starting to heal,

This figure is significant because it shows a reduction — even if just slight — in the volume of loans heading toward the foreclosure process. This has not happened since 2006.

Always being an optimist, I hope the healing has begun.  However until I stop hearing about friends who’ve just received their formal foreclosure notice, I’m not buying into this sunny outlook quite yet.

There are thousands of homeowners huddled in their houses today, hiding in the giant shadow of looming foreclosure.  I talked with one earlier today and our conversation turned to the phenomenon of Deed in Lieu of Foreclosure.

Sometimes mortgage companies will agree to work with homeowners, but only if they can prove their ability to pay future house payments if a loan modification is granted.  Other times, it’s simply better for the homeowner to cut his/her losses and walk.

Before you take that drastic action, however, it’s ALWAYS better to stay in contact with the lender.  See if they can help.  In most cases, people have confided in me that the mortgage company won’t do anything until they’ve missed X number of payments.  After this has happened, they are told they won’t help until they get caught up.  O.o

Every now and then, however, a mortgage company will realize it’s more sensible to work with a homeowner and accept a deed in lieu of foreclosure. The company will tell a homeowner they can remain in the property for a certain amount of time, but will need to vacate by a specific date. The homeowner has the opportunity to find another place to live (and is sometimes paid so they don’t destroy the property), while the mortgage company saves on the massive cost of performing an actual foreclosure.

I just asked a local lender about the possibilities of a Deed in Lieu Of from his company. He advised homeowners to contact the Loss Mitigation Department, but overall that they would allow the Deed in Lieu Of was very rare.

Read more about other options other than foreclosure here at Being Frugal.

Nevertheless, good luck!