Community News

As a rather news-worthy year in real estate is now in the books, it’s a good time to look briefly at what actually transpired in 2008. The media had its heyday with gloom and doom nationally while we enjoyed a somewhat sheltered version of the market “correction” here locally. But with all of the information posted, it’s important to stay familiar with “just the facts” regarding some of the terminology and changes that are the real estate market of 2009. Let’s look at three “headliners” and their definitions.

Revised Down Payment Requirements – The National Association of Realtors® recently issued a clarification of the four primary facts associated with the required amount of a down payment for a mortgage in today’s market. First, most potential homeowners make a down payment of 5 to 10% based on their financial situation. Second, a borrower who has put down less than 20% will be required to obtain mortgage insurance, which has always been the case. Next, in a market designated as “declining”, a borrower will need to make an additional 5% down payment. FHA (which now originates approximately 30% of new mortgages) requires only a 3.5% down payment, with the housing cost-to-income ratio ranging from 45% or higher, depending on the overall picture. There continues to be a myth about the lack of loan availability. Lenders stand ready to lend to credit-worthy buyers, and interest rates are at the most competitive terms in years.
 
Short Sale – The simplest definition is when homeowners owe more on their mortgage(s) than their home is worth and the primary lender, as well as junior creditors, are willing to write down or “short” their loan payoffs. A short sale occurs when the net proceeds from the sale of the home are not enough to cover the outstanding mortgage, debts, and closing costs, and the seller is unwilling or unable to cover the difference. This differential can be caused by flat or falling home prices in an area, home-equity credit lines that have been attached to the first mortgage, 100% financing that eliminated equity, and rising interest rates on adjustable mortgages among other things. In order for a lender to approve a short sale, a homeowner must generally provide documentation to the bank that shows the amount of money received by a short sale is favorable to the amount that can be recouped from foreclosing on a property. Lenders generally don’t want to take back a property via foreclosure and will attempt to work out a solution. It can be a complicated and time-consuming ordeal. When purchasing a home that will result in a short sale, it is often a more lengthy process so buyers will need to be aware of the situation at the time of making an offer on the property and recognize that the seller cannot dictate or control the terms and conditions of the sale.
 
Foreclosure Process – Once a homeowner realizes that they are in a financial situation that could compromise their ability to pay their mortgage(s), the first crucial step to take is to contact their lender to attempt to avoid the foreclosure process. Though some people might think that keeping the lender out of the picture for as long as possible would be beneficial (feeling a lender would immediately begin working on a foreclosure), the opposite is in fact true. The process is costly and lengthy for lenders, and they would ultimately prefer to work with borrowers to find a way to keep the home. One option is forbearance, which is when a partial payment or skipped payment is granted as long as a reasonable plan to catch up is presented (such as an upcoming tax refund, bonus, or a new job with higher pay). Reinstatement refers to making a payment that covers all of the late payments and generally coincides with the end of the forbearance period. A repayment plan is another option for those who can’t afford reinstatement but are able to pay an additional amount each month until the borrower is caught up. Numerous options for modifying the actual loan include adding the total amount of all payments to the loan principal while increasing the monthly payment to reflect the new loan, extending the loan payoff timeframe, or amending the interest rate to lower the monthly payment, among others. And finally, the lender may have a homeowner sign over the property in exchange for debt forgiveness. This last option can certainly hurt a borrower’s credit, but it is still preferable to having a foreclosure reflected on credit history. The U.S. Department of Housing and Urban Development (HUD) has an extremely informative website at www.hud.gov which provides both information and links to foreclosure counseling and further websites which may assist in halting the foreclosure process and helping homeowners find ways to keep their homes. If a foreclosure becomes inevitable, the timeframe for the lender to begin the process ranges from 3 to 6 months after the initial missed payment.
 
On a positive local note, keep in mind that with all of the attention paid to foreclosures and short sales being on the rise, Montana recently ranked 45th lowest in the nation in foreclosure rates by RealtyTrac and foreclosure rates are still estimated at only 1% of total mortgages.