Mortgage Rate News

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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?

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Many people have been trying to time the market, waiting to buy when the housing market hits bottom. However, there is an argument that the housing bottom has passed, and that the chance to buy at the bottom was earlier this year. With the Case-Shiller index showing that the housing market is improving (despite issues related to home sales recently), there are some that argue that the time to buy was back in February.

Here is what The Mortgage Reports says about the economy, housing market and when to buy:

But now, as the Case-Shiller Index shows improvement, it’s making a case that the economy is coming back from the brink.

An improving economy will harm home affordability.

Soon, government stimulus will fade, mortgage rates will rise, and sellers will regain the upper-hand in negotiations. Based on the Case-Shiller home value data, the “right time” to buy a home may have been in 7 months ago — while the status of the recovery was still in doubt.

Of course, there are concerns that there could be a double dip recession, with another drop on its way. Indeed, some are speculating that the housing market could dip again next year as government aid is withdrawn and unemployment stubbornly refuses to improve. That could mean another housing bottom that could provide buying opportunities.

If you are planning on buying, though, there is no reason to keep trying to time the market. Mortgage interest rates are still relatively low, and it’s still a buyer’s market. The only thing I’d wait for is to give it a few weeks to see if Congress decides to extend the home buyer tax credit deadline, and expand the program to include those who are not first time home buyers. In the end, you are unlikely to find such deals for another decade or so, and getting in now is a fairly good plan, especially if you are simply buying a home to serve as your primary residence.

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Right now, there are a lot of good deals to be had when it comes to buying a home. Home prices are low, and mortgage interest rates remain relatively low. And, it looks like Congress is getting serious about some sort of extension to the home buyer tax credit. It really is a great time to buy — if you can find the right deal. However, in the frenzy, it is important to slow down and evaluate whether or not you really are getting the best deal. Carolyn Warren wrote the book Homebuyers Beware: Who’s Ripping You Off Now? What You Must Know About the New Rules of Mortgage and Credit. Here are 5 things, shared in an email, that Warren points out about what you should know about home buying:

1. Some prices are too good to be true: 
   

   “That ultra-low price might be nothing more than a lure to bring in bids. Right now, many homebuyers are bidding on 5 to 10 bank-owned properties before they get a bite due to bidding wars and all-cash offers. If you want to avoid that type of stress, make an offer on a privately-owned property instead.”

2. Don’t think that “exclusive” always is: 
   

   “Realtors like to post signs saying a property is “exclusive” with them, but what that really means is that you cannot go to the home owner directly with your offer and that all offers need to go exclusively through the listing agent. That’s normal, whether the sign says “exclusive” or not. Naturally, you have the right to your own agent representation, and you should not forego that right. If you plunge into the home buying arena using the seller’s agent, you are setting yourself up to pay more.”

3. Use your own Realtor when buying new construction: 
   

   “Using the builder’s agent as your dual agent is like using your opponent’s attorney as your attorney, too. It’s folly!”
   

4. Avoid a “no points” mortgage:
   

   “Why would any sane person leave out points, which are income tax deductible, and then pay just as much in lender fees instead?”

5. Your bank may try a few tricks: 
   

   “Never sign anything or commit to a loan without first reviewing a Good Faith Estimate and getting your questions satisfactorily answered. (And by the way, if you ask what a certain odd-sounding fee is for and get a runaround answer such as, “Oh, that’s just standard,” then beware. You are probably being over-charged.)”