If you pay attention to CNBC you may begin to get the impression that the government is going to begin subsidizing mortgages and even sending out checks to get people out of trouble.  It sounds great for many people in this time of crisis but remember we haven’t seen the details.  The Devil is always in the details.

 

The first thought that comes to mind is the shear number of people that are underwater on their mortgages. The second thought is what will happen if the government incentivizes failure and gives money to people through subsidies or other debt forgiveness plans.  What will the people do that are not in trouble but still fighting to make a mortgage payment that may not be ideal?  They probably will default and look for the free handout. 

 

It’s a very difficult decision in determining who and how to help without making the housing problem in our economy worst.  The key is to stabilize housing.  I thought the tax credit for purchasing an existing home went a long way toward helping only to find out it was cut back and now only available for new first time home buyers.

 

Instead of waiting for another failed government program have you considered your current options?  I had a client last week tell me he was waiting on what the government was going to do before determining if he was going to face the responsibility for his problem with an investor property. 

 

If you have Mortgage Troubles here are your options to avoid foreclosure:

 

1)      Loan Modification:  A modification with your existing lender is a move that can be considered if you want to stay in your home.  Modifications don’t have a high success rate because people’s expectations are not realistic.  You lender may cut your payment down by a couple hundred dollars per month but don’t expect them to forgive any of the debt.  All of the reduction in payments will be added to the back of your mortgage for you to make up in the future.  A modification is nice for a select few but it won’t help you if you don’t have a job and can’t make any payments.  It also may require you to be delinquent before any consideration by your lender.  Whatever the new payment is associated with a successful modification, you will have to make it to avoid foreclosure regardless if you owe more than the current value of your home.  Don’t expect a market rate of interest for your new payment.  If you do you are setting yourself up for a major disappointment.  The lender really doesn’t care.  You owe them the money and that is pretty much the end of any discussion.

 

2)      Hybrid Refinance:  A Hybrid Refinance is a more constructive means of seeking a long term affordable solution if you are underwater on your home but would genuinely like to stay in your home.  This vehicle carves out a chuck of your existing indebtedness from your lender with a new loan and seeks to mitigate and/or restructure any residual debt.  The end result is an affordable long term solution. The new market rate first trust loan is usually 85-95% of your homes current market value.  You do not have to be delinquent to qualify for a Hybrid.  Not everyone is qualified for this solution.  You must be gainfully employed and you must also qualify for the new loan based on income and credit.   Again, this is an innovative solution that helps a select group of people that are underwater on their homes.  If you have bad credit, insufficient income, or no job you are simply not eligible for the Hybrid.

 

3)      Real Estate Short Sale:  The Short Sale is not the option that will allow you to stay in your home.  The Short Sale is a workout with your lender that enables you to sell the home for less the indebtedness.  This is the only vehicle that will provide the opportunity for forgiven mortgage debt.  This should be considered if you simply cannot afford or qualify for the loan modification or hybrid refinance.  Many people owe hundreds of thousands of dollars over what their properties are currently worth. Others have too much exposure with second homes and investment properties where the values have literally cratered.  In these scenarios you need a real plan.  I hear people all the time suggest that they will hold out until the market comes back, only to call back a couple months later with a sob story of how their tenants lost their job and can’t pay the rent.  Denial is not healthy.  We cannot influence the market so we have to follow it. The current price trend in the national real estate market is down. 

 

Realistically these are the only three options you have to stop and/or avoid foreclosure if you are currently at an affordability crossroad.  It is imperative to think clearly and address the problem.  All three options are available at www.thenegotiatedsolution.com

 

As I said in an earlier blog, the government is going to save the free markets.  I will be shocked it they subsidize mortgages even for people that are termed destitute.  Foreclosure and bankruptcy are free market remedies that allow orderly termination and renewal.  Having said that, if there is any subsidy given it will only be for the very needy and it will only be a Band-Aid to help stabilize the markets.  Once the economy regains its legs all bets will be off. Our government can not afford to borrow to pay for peoples misfortunes.

 

I am suggesting to all those that are concerned and have affordability issues to examine the three options I have outlined above.  If you owe significantly more than your property is worth a short sale could be your wisest move.  You will need to do some sole searching and put aside the denial and moral character to benefit.  It is truly the lesser of two evils.  The debt will burry you and it will hurt your family.  Think of the short sale as an act of prevention.  It is a very constructive solution for you and your lender.  Don’t attempt it without a complete understanding or the credit side, tax implications, and personal liability associated with the mortgage note.  I do not advise that you consult only a realtor. 

 

On the subject of a realtor, we have a new client in Florida that is unhappy with their realtor and current delayed short sale solution.  Selling a property and signing a note for the unpaid mortgage debt is what your solution may entail with improper council.  Other mistakes include emptying out your retirement accounts to satisfy your lender.  On Friday I had another client sign up for the program and regretfully admit that they liquidated 200K from an IRA to pay people off for a business that went bankrupt.  Now they are in trouble with their home.  I asked why and where did they get such advice.  These are common mistakes and tragedies that can be avoided with a plan and credible advice. 

 

Please humor me for a moment.  In the jungle the Hyena will take the spoils with complete disregard if it were not for the watchful eye of the Ferocious Lion.  Regardless of what option you chose to pursue above, your family and financial well being are at risk.  Are you prepared for the role of the Lion?  Is your lender the Hyena?  Do you have the knowledge you need to make the right decision and see it through to a solution?   We talk to a lot of people facing the mortgage/housing crisis.  I would like everyone to know that the homeowner is consistently more harmful to themselves than you could ever imagine. 

 

The blog is free at blog.thenegotiatedsolution.com and the program is on special for February for only $99.95.  You make the call.  Good luck!  Blogging from the front line of the housing crisis.

 

GHunter

Submitted on Monday, February 16th, 2009 at 8:49 pm