Mortgage Rate News

Image by respres via Flickr

The news, of course, is that the recession is over. But, even though there has been a technical end to the recession, it doesn’t mean that things are suddenly going to get better. Indeed, there are still foreclosures likely, and the unpleasant fact that many people still can’t afford their mortgage payments — whether they got a home they couldn’t really afford in the first place, or whether they fell on bad luck and job loss during the recession.

As it looks as though more foreclosures could be coming in the future, and the housing market may dip again, it is little surprise that some are starting to look around for a solution to their problems. And, in some cases, the solution is presenting itself in what is known as strategic default, or foreclosure on purpose.

Walking away from your home mortgage loan

Some markets have been so hard hit, and will probably take so long to recover, that there are those that feel that the only viable option is to allow foreclosure. Indeed, Mish’s Global Economic Trend Analysis shared a letter from someone who recommended just such a course of action:

I said the answer was easy, walk away. In fact, I told her I would stop paying the mortgage and see how long it took them to foreclose. She might be able to live there 6 months or more rent free.

Her fiancé was there and he didn’t agree with my answer. He said that her credit would be ruined for ten years and that the value would come back. I responded that a foreclosure would stay on a credit report for 10 years, but if you work hard at re-establishing your credit, the score can come back in a year or two.

I have seen people plenty of people with credit scores over 700 within one year of a bankruptcy or foreclosure. As far as the value coming back, I told him that it would take 10 years or more before that value comes back.

It’s an interesting thought. But in some cases, foreclosure can be a way to get a new start — as long as you aren’t too emotionally invested in staying in your home.  But if you decide that strategic default is the way to go, you should have a plan to rebuild your credit. The letter writer on Mish’s suggested that you have a credit card and a good car. You won’t be able to get a good rate on a car loan, so you need a good one. And you need a credit card to help rebuild your credit. Just don’t max out the credit card.

What do you think? Is strategic default a viable option in some cases?

Image via Wikipedia

There seems to be a bit of confusion with regard to what is happening with foreclosures. Indeed, it is commonplace to read about how foreclosures are both increasing and decreasing. Mainly because “foreclosure” is being used to report homes in various stages of foreclosure. Real Estate Pro Articles points this out about foreclosure coverage:

However, it is also the case that the number of foreclosure filings fell in both August and September of this year even though REOs actually rose in September by over ten thousand properties.

The numbers are fairly straight forward in this issue and the fact remains that there are a great many families who’ve tragically lost their homes. It is unfortunate that it is so hard to get a clear idea of what trends we’re actually seeing at this point because there are so many numbers and trends being reported all under the umbrella term of “foreclosure” without any real explanation of what aspect of the foreclosure procedure is being reported on.

In the end, it is important to look at foreclosure filings, which represent the very first stage of foreclosure, and the number of foreclosures that actually go through to completion. These are two different things, since the foreclosure can be stopped after the filing takes place, with the help of loan modification and through other means.

Another trend to look at is the fact that foreclosures are moving up the “food chain” in the housing market. With unemployment on the rise, many prime borrowers are suddenly finding themselves in the unexpected position of no longer being able to make mortgage payments. This is also causing problems, since for loan modification or refinancing to work in order to stave off foreclosure, some sort of income is needed to ensure that payments will be made.

It’s a tricky situation right now, and many are anxious to get a clear picture of what’s going on. However, in this particular situation, it is difficult to find a great deal of consistency and clarity.

Image via Wikipedia

It is little surprise that, even as the stock market soars today, that the home builder sentiment index is falling. The first time home buyer tax credit that so many have been taking advantage of over the last few months is set to expire November 30. However, since the mortgage has to close by the deadline, anyone who hasn’t already got things in motion is unlikely to make the deadline. And it also means that home sales are likely to dip this month, and the months after. No wonder home builders are concerned. So, with the imminent expiration of the first time home buyer tax credit (unless Congress extends the deadline), there is a new plan to help home buyers.

Obama Administration ready to unveil new plan to help home buyers

In order to try and continue stemming the tide of foreclosures, the Obama Administration is working on a new plan. This is not one that will help in terms of new home buyers. Subprime Blogger offers this summary of the new plan to help home buyers:

The new mortgage help plan will have two parts.  The first part will be a new bond purchase program that will support new lending by housing agencies.  The second part will be a temporary credit and liquidity program to improve the access that housing agencies have to credit sources.  This comes on the heels of the Federal Reserve Bank stopping their purchases of US Treasuries by the end of October.

Clearly, the idea is to keep mortgage interest rates low so that people are still interested in using home mortgage loans to purchase. (This should also help those wishing to refinance.) The plan will provide money to state housing agencies that work to help low to middle income earners buy homes. The idea is to provide funding so that more people can afford homes. It is important to be careful here, though, to make sure that buyers can afford the homes they are getting. Otherwise, we’ll end up with a repeat of the mortgage market disaster.