Real Estate Investing

Two months ago, my friend deliberately skipped for the first time on making her monthly mortgage payment.  She had been paying $1200 p/month on a home she bought for about $120,000.  Her payment should’ve been about $840 p/month including taxes and insurance.

She had called her lender and asked them to help her refinance, renegoatiate, or revamp her $1200 p/month payment because - seriously - that was ridiculous.  Unwittingly, the person on the other end of the call explained that no help was available because she’d NEVER MISSED a payment.

For Christmas, my friend bought her kids the new Wii game and skipped her monthly payment on the home.  In January, she called and again asked for help.  This time, they did cartwheels to help her out and her house payment is now down to about $800 p/month - a savings of $400 (or $4800 annually).

I thought then and still do believe the system is having a major meltdown (or as they say around these parts “That ain’t right”) when you have to default on a loan payment before anyone helps you.  However, the latest proposal by President Barack Obama’s administration is to reverse this ridiculous trend.  According to CNN Money,

The long-awaited foreclosure fix marks a sharp departure from the Bush administration, which relied mainly on having servicers voluntarily modify troubled mortgages.

Obama, on the other hand, will make it easier for homeowners to afford their monthly payments either by refinancing the mortgages or having their loans modified. The president is vastly broadening the scope of the government rescue by focusing on homeowners who are still current in their payments but at risk of default. And he puts billions of federal funds into enticing servicers to modify the loans of those who’ve already stopped paying.

How do I know about all this?  My husband sent me the link and asked, “Do we qualify?”  I would adore being able to refinance the loan on our house to a 15-year loan.  Our value has dropped by about $20,000, so number crunching is in order.  I’ll be looking into this and plan to keep you posted.

Photo by totaldebtrelief through Flickr Creative Commons.

Back in November 2008, I urged all mortgage companies to follow in Citigroup’s footsteps and place a moratorium on foreclosures.  I said,

If the mortgage company is bent on foreclosing, they will do so if you’re not caught up by such and such date.  However, foreclosures cost the mortgage companies a LOT of money - I once heard foreclosures cost lenders about $62,000 each.  Wouldn’t it make sense for the companies to put a moratorium on foreclosing these homes and instead renegotiate the loan so that the homeowner will have a more affordable mortgage payment?  In that scenario, everyone wins.

The very next day, I told of an idea by a friend of mine that when people are unemployed they should get an automatic stay on their mortgage payments - not unlike the break people can get paying back student loans if the same type of situation arises.

If you become unemployed while holding a student loan, you can fax proof of unemployment to some office somewhere and then be exempt from making those loan payments until you get a job.  That’s called an automatic stay.

Why can’t we do the same thing with mortgages?   Especially now that most mortgages seem to be owned in some way by the government (much like with student loans.)  The default and foreclosure rates would surely go down if people weren’t technically falling behind on their mortgage payments as they looked for work.  The downside for the lender is that they don’t get their money–but they weren’t getting it anyway.  The downside for the borrower is that they aren’t paying down their mortgage during those months.  But they likely weren’t able to pay it down anyway.

The great news is that officials in Washington, D.C. seem to finally be listening!  Unless you never watch the news, you already know that Congress has reached an agreement on the stimulus bill providing tax relief for the middle class, expanded help for unemployment benefits, good stamps and health coverage, money for states, more help for people on Social Security, job creation, and more.

However a full housing relief plan is still forthcoming from Treasury and until it comes together, there is a call for a moratorium on foreclosures, according to CNN Money.com,

Until that loan modification plan is released, foreclosures should be halted, some say.

“I would ask all of you now to please make sure that we have a moratorium in effect,” Rep. Barney Frank, D-Mass., told top bank executives at a hearing Wednesday. “It would be until we get that program, and until you know if people can qualify. Having someone suffer foreclosure because two weeks hadn’t gone by for this program would be unacceptable.”

My friend facing foreclosure finally has a plan in place to save her home.  All she and her family need is two to three monthsto make it work and they’ll be okay.  I hope they get that time.  I want their kids to grow up in a happy home, not in one where struggle and disappointment are a constant in their lives.

A large number of people have been refinancing their mortgages since rates have been at historic lows.  We’ve heard time and again that loans are hard to come by, but realistically even FHA is offering some great deals.  In addition to folks who retained a good credit score, others who were swept into homes via let’s just say “not completely honest” methods have also been looking for ways to get out of their high interest mortgages.

A friend of mine - and let me stress that I was *not* her agent - has told me hair-raising tales about how she got her home loan.  Not only did her Realtor encourage my friend and her husband to fudge numbers, but their lender did the same.  And she bought a home for a little more than $118,000 and they were paying a whopping $1200 p/month on the mortgage.  Her payment should’ve been closer to $850 - and that would include property taxes and homeowners insurance.  Given that obscene rate they received, I think it’s fair to say in today’s stricter mortgage market it didn’t quite pass the sniff test.

But here’s the rub.  I say STRICTER MORTGAGE MARKET, but I think lenders are *still* doing weird things.  Here’s why.  My same friend wanted a lower interest rate so she called her lender.  The lender didn’t tell her to do this, but said they couldn’t work on the rate with her unless she missed a mortgage payment. She has struggled every month since May of 2004 to make her mortgage payment on time.  She’s been late on other bills, has denied her children toys, passes on clothes… she’s done everything right to make that mortgage payment because she understands and honors her priorities.

Let’s let what the lender said sink in… they wouldn’t work with her until she misses a mortgage payment.  So December rolls around and my friend decided to skip out on her mortgage payment in favor of buying the kids Christmas presents.  They had a great holiday season!

She and her husband called the lender in January - after having missed December’s payment after paying ontime for four and a half year - to see if they’d NOW work with them to lower their monthly amount due.  The lender was incredibly kind and friendly to them where they were unhelpful and stubborn before.  She just heard today that her payment is now $880 p/month rather than $1200.  AND they think they can do a full refinance and get the payment down to the $700’s.

This is FANTASTIC for her, but it begs the question - what is wrong with this picture???  There is NO HELP for people doing the right thing, but be late on one payment and mortgage companies roll out the red carpet for you. Seriously, mortgage companies are just plain weird.