LA Digs - Northeast LA Real Estate Blog

As news and information about relief assistance swirls around in the midst of this crisis, there are lots of questions about what to do with your mortgage payments. To some, it can be interpreted that if you just don't pay your mortgage payment right now all will be forgiven. This is not true, and can have some serious affects on your financial health, and truly the health of the economy as a whole. 

Here is information from a lender friend of ours, Scott Groves with Movement Mortgage, that explains forbearance and how it works:

"If you, or your clients, are in dire-straights and having to make the toughest of financial decisions - like, what bills do I pay or how do I buy food - then I understand that you must do EVERYTHING you can to improve your cash-flow situation.

That being said, applying for a FORBEARANCE on your mortgage payment should be an ABSOLUTE LAST RESORT when it comes to your finances.

Starting October 1, 2011, "Conforming" (think Fannie and Freddie) and FHA loan limits are set to be lowered nationwide as the federal government looks to lessen its footprint in the business.  This means the current loan limit of $729,750 in Los Angeles that we've gotten used to the past several years will be reduced to $625,000 this fall.

So why does this matter to you? Since most buyers rely on the low rates, smaller down payment requirements and the easier underwriting guidelines offered by these government backed loans, the market is going to lose a tremendous amount of its purchasing power.

When purchasing power decreases it puts downward pressure on sales prices. For sellers in certain price ranges, this means fewer qualified buyers this fall.  For buyers, this will put many properties out of reach.

For example: with the conforming loan limit at the current $729,000 the average buyer with 20% down payment can buy at $910,000 house.  When the conforming loan limit decreases back to $625,000, the average buyer with 20% down payment can afford a $780,000 house.  Today an FHA buyer with the minimum 3.5% down payment has the power to buy a $755,000 property.  After October that max purchase price drops to $646,000. 

Of course there is, and will continue to be financing far above these loan limits.  However, these "non-conforming," or jumbo, loans may have higher interest rates, are more difficult to qualify for, require a larger down paymnet, and require more post-closing cash reserves by the borrower.  It's also important to know that these higher loans are not backed by the government, so in turn the jumbo loan product varies significantly from one bank to the next, and one lender to another.  It is not "one size fits all" when it comes to jumbo loans. 

For more information on jumbo loans, or conforming loan limits, you can contact Lyndi Mallory, our Teles Financial mortgage consultant - 323.877.4028, This email address is being protected from spambots. You need JavaScript enabled to view it..

How much income does a borrower need to qualify for a home mortgage loan? A borrower's monthly debt must be approximately 45% of their monthly income. To qualify for a mortgage, a borrower must pass two debt tests: 1. Housing Debt - The housing cost must equal approximately 40% of the borrower's monthly income. a. The housing cost = Mortgage, Taxes, and Insurance b. If the housing cost $4,000, income should be approximately $10,000. c. $4,000 is 40% of $10,000. 2. Total Debt - The housing cost is added to all consumer/credit card debt. The total debt must be approximately 45% of the borrower's monthly income. a. If the total debt is $4,500, income should be approximately $10,000. b. $4,500 is 45% of $10,000. 3. To calculate the borrower's debt ratio, divide the debt by the income. a. If the monthly housing cost is $3,200 and the monthly income is $6,500, divide $3,200 by $6,500. This would yield a housing debt of 49%. b. In this instance, the housing cost is too high to qualify. Information provided by Paul Cawthorne,

Loan Officer
NMLS # 249035
Prospect Mortgage
A Direct Lender
Phone: 310-499-8128
Fax: 877-809-7969
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.

From Linda Wilkes, Ambassador Capital Mortgage:

FHA Annual Mortgage Insurance Premium to Increase If your clients are still on the fence about buying a home, you should let them know that the Federal Housing Administration (FHA) is increasing mortgage insurance premiums on FHA home loans as of April 18, 2011. This deadline applies to the FHA case assignment date. This increase could cost your buyers more money each month for their total monthly mortgage payment. What can your buyers do? If they are close to contract, advise them to buy now before the new mortgage insurance premium takes effect. They must have an active loan application for the subject property prior to April 18, 2011. HUD Temporary Flipping Waiver Extended In an effort to expand access to FHA mortgages and allow for the rapid resale of foreclosed properties, HUD announced a temporary waiver of the 90-day flipping restriction until December 31, 2011.

The waiver is subject to certain conditions, and eligible mortgages must meet these conditions to take advantage of the waiver. The complete text of the waiver extension, including conditions the waiver is limited to, is available on the HUD website.

Call or email Linda if you want more information on FHA loans.

Linda Wilkes

Senior Loan Officer Ambassador Capital Mortgage NMLS# 23610 1499 Huntington Dr. South Pasadena, CA 91030 Office: (323) 221-5111 Fax: (866) 706-6443 This email address is being protected from spambots. You need JavaScript enabled to view it.

Here is an inside description of one family's experience with navigating the loan modification process. These are clients of mine who sold their first home that their growing family had outgrown and bought a larger one right at the peak of the market and then had the misfortune of losing a job and half their income. I've always admired these people for their positive attitude about whatever came their way and their ability to keep moving forward. They sent me this story of their experiences because they want to help others navigate these very choppy and treacherous waters if they can. Please feel free to comment or ask questions and I will get them to my client for whatever answers might be available.

Our story is a familiar one.
In January 2010, my husband lost his job. We could no longer afford our mortgage
payments, so we stopped making them. That sounds much easier than it actually was
(emotionally, anyway). We’d purchased our house at the height of the market so we
owed about $120k more than what we could sell it for. A regular sale wasn’t an option
for us. We began researching our other options and after talking to friends in similar
situations, reading articles and discussion boards online, we came to the conclusion
that despite Obama’s Making Home Affordable program (HAMP) and despite all the
efforts of millions of homeowners trying to save their homes, very few people actually
succeeded. Our particular loan structure made a work-out even more difficult. We began
trying to make ourselves comfortable with the idea that we would be losing our home.
Thanks to a persistent friend who couldn’t accept that we were going to let it go so easily,
we rallied. This month, we were offered a trial modification from our bank, which gets
us 90% of the way to getting a permanent modification. Here’s what we did right.

We bought our second mortgage.
We bought our home 4 years ago with two loans: the 1st mortgage was 80% of the
purchase price and the 2nd was 20%. Indymac held our 1st and CitiMortgage held the
2nd. This definitely made our journey more complicated. Thanks to a conversation with
a financial counselor, I discovered that it was possible to negotiate with the bank to buy
our second loan (a settlement). It’s basically like doing a short sale, except we could be
our own buyers. I did a little research on it, and despite not really having much in
savings, we thought we’d give it a try. I called the bank and asked to talk to someone
about a settlement. They transferred me to the loss mitigation department, who had me
fill out some paperwork and submit a hardship letter, which I wrote. In it, I outlined that
we had a hardship (income loss) that we’d like to make good on our loan in any way that
we could. I explained that because we bought at the height of the market, if our house
sold today in a short sale or foreclosure, after paying off our 1st mortgage, there would be
nothing left for the 2nd. I offered to settle with them by paying $9,000 for my $119,000
loan. It seemed impossible, but worth a shot. A few weeks later, they called and
countered. They offered $12,000 and I took it! I wired in the $12,000 and within a
couple of weeks the loan was written off as ‘settled for less than the amount owed.’ We
took a hit on our credit, but it meant that if we did lose our home, they couldn’t come
after us for the money later and if we didn’t lose our home, it was again worth
approximately market value.

We called a HUD Counselor and our Congressman.
After buying our 2nd mortgage, we started trying to modify our 1st. This was not
easy. This application was about 67 pages. It required constant updating (sending in
a new paystub every two weeks, a new bank statement every month and writing letters
explaining things when the packet was kicked back because the reviewer was confused).
I called 2x a week to check on the status of the modification and to see if they needed
any new documents. After 4 months, I had to resubmit my application (again, 67 pages)
because it had expired. And after 5 months, we got a notice on our door that our house was being sold at auction. It seemed like the end. But we had two things on our side.

First, our HUD counselor knew the California laws: that they couldn’t sell our home at
auction while we were in the HAMP modification process. She called our bank on our
behalf and made sure that we had a process for stopping the sale (that process was, of
course, complicated). Second, I’d contacted our congressman early in the modification
process, asking for his help. His office had a contact within the bank, who they regularly
called to check on the status of our loan. That’s all they could really do, but just the
fact that the congressman was working on our behalf helped us get special attention. I
called his office as soon as we got the foreclosure notice on our door. Within days, the
bank called us (this NEVER happens) to tell us that our sale was put on hold, that the
escalations department was handling our modification and that they were trying to finish
it.

Three weeks later, we had an offer for a trial modification. From what I understand, this
means that the bank has established that we are eligible for a permanent modification and
that they can offer us a new loan. They are offering us a new payment, which is about
30% less than our old payments combined, and if we make those payments on time for 3
months, they should offer us a permanent modification. There are still things that could
go wrong. Trial payments have been known to go on much longer than 3 months. Banks
are overwhelmed and under-staffed, so they make mistakes. But this is a win, and for
now, we’ll take it.

Find yourself in a similar situation?
• Call a HUD counselor. Operation HOPE was very helpful to us: http://
www.operationhope.org/smdev/
• Contact your congressman and ask if he/she can assist you when dealing with
your bank. On Congressman Becerra’s website, he has a button right on his home
page that says “How can I help you?”: http://becerra.house.gov/
• Be persistent. It is a lot of hard work. But if you’re willing to fight, you might
just save your home.

Check out this letter from the National Association of Realtors Chief Economist, Lawrence Yun:

Home Ownership Letter from Lawrence Yun.

Yun sent the letter to the editor of The Washington Post in response to the January 1, 2011 article, “Trim the Excessive Tax Subsidy for Real Estate.”

My thoughts? Tax incentives have influenced the ability for people to own homes for decades. The first-time buyer tax credit of the last couple of years was critical in propelling the market through a very dark time. Many people are nudged into home ownership on the advice of their tax adviser when their income improves to the point of being able to benefit from the mortgage interest tax deduction.

One of the agents in our office pitched his new listing at 1375 Coronet in Pasadena this morning, a 4 bedroom, 3 bath traditional in Hastings Ranch.  The cool thing about the pitch was that the sellers had the original ad for the property from 1952.  The original list price was $15,005 - at a 4% interest rate!  There ya go folks... it's not everyday that you will actually be getting a better deal than you would have almost 60 years ago!

 

A little blurry, but wow!

1375 Coronet is listed for $649,500 (unfortunately for buyers, home prices haven't dropped to 1950s prices!).  If you want to see this home it is open today 10-2, or you can give us a call at 626.844.2211.

Listing courtesy of Darrell Done, Coldwell Banker

Here are some resources:

From the website www.YouWalkAway.com: Strategic default, also known as voluntary foreclosure is when the borrower decides to stop paying a mortgage even though they can still afford the payment. For many people who are upside down on their mortgage, the decision to strategically default is one that is difficult, but often times is the first step to financial freedom.

Wikipedia has an interesting discussion of the ethical issues at play http://en.wikipedia.org/wiki/Strategic_default. One notation from an ethicist states that the economy is essentially amoral.

http://www.city-journal.org/2010/forum0427.html. A really well-considered discussion with good ideas about how the banking industry could take some responsibility for helping to fix the problem:  “Zingales and Posner propose that lenders be required to give underwater homeowners the option of resetting their mortgages to the current value of their houses in exchange for giving the lender 50 percent of the house’s future appreciation. Enough with guilt-tripping underwater homeowners into holding on to their homes. Instead, let’s focus on equitable and practical solutions to the negative-equity crisis. The Zingales/Posner proposal would be a great start.”

http://www.strategicdefault.org/  Free advice.

My thoughts: The question “can they afford to make their payment?” is key. For example, it would obviously be a strategic default if you bought a house with 20% down, a good 30 year fixed loan at say, 5.5% interest, and you still have the same job, your family is fine, you have $20,000 in savings and nothing has changed except your $500,000 house is now worth maybe $400,000. You may not like that fact that your house is now worth less, but you can clearly continue to pay for it.

But say the same situation has one change: you were laid off from your job and the best new job you could find pays 60% what your last one did. You are spending some of your savings—not a lot, every month just to pay the bills. You could change your spending habits and squeak by. Do you bail?

Or try this: Same issue with your job, but you could take on an extra job and be fine, or save yourself the time and trouble and walk away.

Think about these scenarios within this same situation:

There are 5 other families on your street that are experiencing similar issues

There are 3 foreclosures on your block that are boarded up and overgrown with weeds

At what point do you draw the line?

Those of us who have been involved in such loan and appraisal nightmares question whether these lenders are interested in actually doing any business.

Supplemental Property Tax is just about the most confusing aspect of purchasing a home

If last week the highest sale in, say, the 90041 zip code was $695,000 and this week the highest sale is $748,000—does that mean that the value of my house just went up $40,000?

Well, I now see that we should definitely undergo the loan process in some manner right now, because no matter how excruciating we find the process to be when we represent our clients, it is about 100 times more excruciating when we have to go through it ourselves.

the best explanation I’ve seen of the two income tax credits that are now available to homebuyers in our grand state of California.

Check out this blogpost by Sean O'Toole, CEO of Foreclosure Radar.

http://www.foreclosuretruth.com/blog/sean/time-for-troop-surge-on-the-front-lines-of-the-housing-crisis/ 

If you look at his website and his past blogposts, you see a thoughtful, intelligent person who has studied and understood more of this real estate market than most. I know that I have done what he suggests, talked to people who are in trouble with their mortgages, and I've tried to help them find solutions. Unfortunately, if they are in real trouble with no equity, I can't help them effectively because they have to negotiate with their lender--and that, as Sean eloquently points out, is where the trouble lies.

More thoughts on my chosen profession:

As I reflect on my year in real estate, 2009 has certainly been a challenge. But last year at this time, it was even more frightening. Would I ever sell another house? My notes from December, 2008, show that was a real concern to me. To relate back to what Sean wrote, I did feel like the best thing I could do was to be as helpful as I could. I wrote about the government programs in my blog, I took flyers around the neighborhood, I met with people to discuss their options even though they couldn't sell. But I felt powerless in most cases to effect positive help.

In hindsight, it looks like the real estate market in our area bottomed out in the first quarter of this year, so I was truly facing a very dark time ahead. But as I looked around at other people going through that dark time, I could see that I had a huge advantage—I am my own boss and no one can lay me off but myself.

Imagine how vulnerable employees feel, not knowing if they will have a job next week. Even public employees are feeling the pinch with unpaid furlough days, frozen wages, pay cuts. It may not be easy to go out and sell another house, but at least I have that possibility in my day.

I have a full-time assistant and I have a family and a household to support. This has been both a burden and an inspiration to me through these difficult times. As my income was drastically reduced, I had to make a number of budget adjustments, but I always felt it was very important to make sure I kept my employee. Imagine how tough it is on a person who relies on an individual person for their livelihood. I have seen many Realtors decide that they can’t afford their staff anymore. Is that a really wise economy? There is the saying, “If you don’t have an assistant, you are an assistant.” If you spend your time doing administrative jobs, when are you going to go out there and do your real job, which it to make deals? The temptation is really strong to spend a lot of time on administration since it feels like work. But it’s not our work. Not if we are really doing what we need to do.

When the market is so difficult, it’s really easy to decide any effort you make is useless and you might as well not try. But with an assistant to keep busy and a family to support, I went ahead and got out there and looked for deals. The key to success is to be there the moment the decision to buy or sell real estate happens. If you are back at the office filing your paperwork, how will you be there with the buyer or seller?

What if we were out in our neighborhoods helping people get to the truth about what they really could and couldn't do with their homes and providing them with achievable options?

One of the most difficult aspects of selling your property is figuring out where you are going to move next. Most people want to buy another house, but it can be a frustrating desire in so many ways.

A boon for new homebuyers, scheduled to last through next March, will be out of money long before that.