Real Estate Investing

I was recently designated as a SFR – a short sale and foreclosure resource – by the National Association of Realtors.  In my eight hours of classroom study and three hours of subsequent online workshops, understanding what happens to someone’s credit score was addressed.  Basically, if someone forecloses on a property their score drops 200 points.  For a short-sale, it’s 50.

What we also need to understand is that for every month BEHIND you are on your mortgage payment, your score drops each month.  So the final credit dings of foreclosure or the short sale are the last icing on the cake – the last decorative pearl placed in the decorative lattice.  Only the impact of the credit ding puts a very bad taste in your mouth, unlike a glorious wonderful piece of wedding cake.

Another effort to helping homeowners who are at financial risk is the loan modification, but it too is having a very detrimental impact on credit scores.  According to CNN Money,

During this period, industry guidelines call for loan servicing companies to report borrowers to the credit bureaus according to their status before they entered the modification – either current or the number of days delinquent.  However, borrowers’ accounts are also designated with a code indicating they are in a partial payment plan.

The coding alone can impact credit scores, which measure a consumer’s financial health and range from 300 to 850 under the FICO system. The severity depends on how many payments the borrower missed before entering the program. Those who were current in their mortgages could see their scores fall up to 100 points, according to the Treasury Department.

The trouble may be due to banks not notifying the credit bureaus when people have entered a modification plan.  Even so, once this is resolved the credit report will show for seven years when a homeowner was delinquent on a mortgage payment.  Even without plans to buy another home, the lower score will cause higher interest rates on other borrowing activities like car loans and credit card interest rates.

Meanwhile, public opinion varies on this outcome.  Some people are completely unsympathetic to these problems, while others take a different view as indicated by commenter Danielle,

What would you do? Pay on a mortgage that is worth $200,000 less than what it is worth? I would be stupid to stay and throw my hard earned money into a hole that will never regain value. I am looking long term-long term at my financial health. There is no intergrity in ruining myself financially. My credit will repair itself way before my house will increase in value to the purchase price. This is business. Where was the intergrity when banks were lending $ to anyone that had a pulse? The banks dont care about me. I have to look after myself and my family.

The only clear answer from everyone is that we can expect this and other mortgage loan questions, housing market difficulties, and burst bubble fallout to continue through this year.

If you want to see the latest mortgage interest rates, visit here.

Photo by Powerbooktrance via flickr creative commons.

I quite like helping people get the keys to their new home.  Of course a strong growth in the housing market would do wonders for our economic recovery!  No one would argue that… consider who would have money again – all the workers involved with builders, home supply stores, lumber companies, banks, lenders and staff, real estate agents, real estate companies, investors… this list goes on and on.  A housing recovery would most definitely have a wonderful trickle up effect.

According to Daniel Gross of Newsweek magazine, the economy doesn’t need housing to recover,

What’s driving this recovery? Ultra-low interest rates and government spending, yes. But also education and health care. And in recent months, sectors tethered to the global economy have come back: commodities, energy, and exports. Since April, exports have risen six straight months. Manufacturing is growing again, and business services are adding jobs. Instead of one big thing, it’s a bunch of smaller things.

I had an interesting conversation with an agent in my office yesterday who said (and this surprised me a lot) the American Dream may be shifting away from home ownership.  When you consider the aging baby boomers and realize that many still don’t own their homes free and clear, it may make more sense to rent than to continue a house payment for years and years after retirement age.

Why?  What happens when something breaks?  If you own the house – or at least still make monthly mortgage payments – it is your responsibility to make repairs.  If you rent, hellooooo landlord!   When the cost of renting is ultimately lower than the cost of home ownership, why bother to buy?  You save on your insurance, you don’t have ot pay property taxes, you don’t have to make repairs or buy new appliances.

Still.  I want to be a part of the housing recovery.  I don’t think the American Dream is dead… I think we should just be smarter about it.  Don’t over extend yourself financially and  save money for an emergency fund.  Be slow before you jump into home ownership – have plenty saved for a downpayment.  I want to continue handing people he keys to their new home, but want to do it in a way that they can feel good about a healthy financial decision.

In what’s surely a relief for some homeowners, Citigroup suspended foreclosures and evictions for one month during the holiday season. Beginning December 17th and running through January 17th, people with mortgages through Citigroup can sleep soundly knowing the sheriff won’t be knocking on their door with eviction papers.

The suspension means Citi will halt foreclosure sales and stop evicting homeowners from properties it has already seized. The company projects it will help 2,000 homeowners with scheduled foreclosure sales and another 2,000 that were due to receive foreclosure notices. 

Aimed at giving homeowners some relief, the company will also be examining and working on long-term alternatives. My guess is loan modifications, short-sales, and deed in lieu of foreclosures may be on the table for homeowners who may still have access to funding to pay a mortgage payment.

Meanwhile home prices have started the gradual climb upward in many parts of the country.  The loss in the value of homes may have finally been plugged…

Home prices play a key role in the economy. Homeowners feel wealthier when property values rise and are more likely to spend money. Rising prices also help millions of homeowners who owe more to the banks than their houses are worth.

Good news that I hope carries over into the new year.