Strategic Default Has a Hidden Cost You Might Not Be Willing to Pay
Credit.com | December 2, 2013 | link
By Mitchell D. Weiss
If you’re one of the 28 percent of U.S. homeowners with a mortgage that’s higher than your house is currently worth, is it time to toss the keys to your lender and walk away?
According to Zillow’s third quarter Negative Equity Report, some 14 million people combine to owe an estimated $1 trillion more on their mortgages than their homes would sell for in today’s depressed real estate market. Perhaps that helps explain why a recent JZ Analytics survey estimated that 32 percent of all adults in the U.S. (nearly 68 million people) say that they would be comfortable with the notion of strategic default.
Homeowners who tactically elect to default on their mortgage obligations aren’t typically short on cash, nor are they in financial distress. Rather, they have the means to make their monthly payments but choose not to do so for a couple reasons: Their mortgage loans are underwater and they happen to live in states that have enacted so-called anti-deficiency legislation.
The concept behind these laws is fairly straightforward: to protect against or limit the extent to which lenders are able to pursue hardship-experiencing consumers for the difference between what their foreclosed-upon houses ultimately sell for and the unpaid loan balances. The laws vary from state to state and are focused on first mortgage loans for primary residences as opposed to second mortgages (homeowners’ equity lines of credit and loans) and financing for vacation houses and investment properties.
2 Million Homeowners Freed From Negative Equity in 2012; 1 Million More to Come in 2013
Cory Hopkins | Zillow Blog | February 20, 2013 | link
Almost 2 million American homeowners were freed from negative equity in 2012, and the overall percentage of all homeowners with a mortgage in negative equity fell to 27.5 percent at the end of the fourth quarter, according to Zillow’s fourth quarter Negative Equity Report.
The falling negative equity rate is good news for struggling homeowners and is largely attributable to a 5.9 percent bump in home values nationwide last year to a median Zillow Home Value Index of $157,400 (when home values rise, negative equity falls). At the end of 2011, 31.1 percent of homeowners with a mortgage were underwater, or more than 15.7 million people.
In the fourth quarter, Zillow determined where American homeowners freed from negative equity in 2012 were located. Among the nation’s 30 largest metro areas, those with the highest number of homeowners freed from negative equity last year were Phoenix (135,099 homeowners freed in 2012); Los Angeles (72,936 homeowners freed in 2012); Miami-Fort Lauderdale (70,484 homeowners freed in 2012); Dallas-Fort Worth (59,461 homeowners freed in 2012); and Riverside, CA (58,417 homeowners freed in 2012).
Still, despite more than 1.9 million homeowners nationwide finding their way back above water last year, 13.8 million American homeowners are still struggling with negative equity. Many remain so far underwater that even the very high rates of appreciation experienced in many markets still can only bring them so far. In the Phoenix metro, for example, despite more than 135,000 freed homeowners last year, more than 300,000 homeowners — or 40.4 percent of homeowners with a mortgage — remain trapped in negative equity. This is largely attributable to the fact that although home values in Phoenix rose 22.5 percent last year, they remain more than 44 percent below their peak. So for those who bought at the peak, even with rapid appreciation, they still have a long way to go.
City’s Fix for Mortgage Crisis: Seizing Home Loans by Eminent Domain
Sheree R. Currey | AOL | August 1, 2013 | link
Doris Ducre of Richmond, Calif., is like millions of other homeowners in this country. She works a 9-to-5 job. She pays her bills. She’s current on her mortgage. But Ducre (pictured above) feels like a renter in her own home because she’s not gaining equity. “My home is underwater,” she tells AOL Real Estate.
The four-bedroom, two-bath ranch-style home that this laboratory technician’s family purchased for $300,000 in 1998 is now worth about half its value, she estimates. The same goes for many of her neighbors in this 33-square-mile town just outside of San Francisco. About 49 percent of Richmond homeowners with a mortgage have a dwelling that’s worth less than the mortgage owed on it. City data reveals that more than 78 percent of the housing units have mortgages.
Officials in Richmond say that situation is untenable and want to seize about 620 underwater mortgages under eminent domain and give them back to the homeowners at a reasonable value. The program’s intent is to help homeowners like Ducre — and like Rodney Conway, who bought his home in 2004 for $340,000 and says that it’s now worth about $140,000. Richmond is the first city to adopt such a plan using eminent domain, a law that typically allows government to seize land for public use — such as when it wants to expand a road or allow for a commuter rail line to pass through town. Other local governments have considered it, though, most notably San Bernardino County in Southern California, where a proposal for it was ultimately rejected early this year.
Should We Build a Fence So Buyers Won’t Worry About Privacy?
TIM McKEOUGH | New York Times | July 31, 2013 | link
Q. Our neighbors can see straight into our house from their backyard. Should we build a fence so buyers won’t worry about privacy?
A. “It’s never great to be able to look into someone else’s window,” said Lyn Stevens, a real estate broker at Sotheby’s International Realty in Greenwich, Conn. And it’s worse still when they can look into yours. But before trying to solve the problem, she said, “think about return on investment, and salability.”
A thoughtfully designed fence may improve the look of your yard and resolve privacy issues, she said, which could make the property more salable. But that doesn’t necessarily mean a higher sale price.
“These things end up costing a lot of money, and you won’t necessarily get the value out of them,” she said. “If you had two homes side by side, and one had a fence in the backyard and the other one didn’t, I don’t see the one with the fence selling at a higher number.”
You should also check your local building code. In New York City, for instance, the fence height would be limited to six feet, said Susannah C. Drake, principal of dlandstudio, a Brooklyn architecture and landscape architecture firm. That might not be tall enough to block prying eyes.
“But that doesn’t mean that plants can’t grow over six feet,” Ms. Drake added.
Homes Selling as Fast as They Did During Housing Boom
Diana Olick | AOL | May 29, 2013 | link
Strong demand and still limited supply mean homes are now selling nearly three times as fast as they normally would. The average number of days a listing stayed on the market in April was 46, down from 62 in March and down from the normal pace of 90-120 days, according to the National Association of Realtors.
“I have a seller, his house came on, he got a full-price offer, and he refused to take it because he wanted multiples. Really?” asked Jane Fairweather, a real estate agent in Montgomery County Maryland, a suburb of Washington, D.C. Fairweather said homes in her market are selling in an average of 23 days because inventories are way down and demand is strong. The number of listings in Montgomery County were down 41 percent in April from 2011. In April of 2011, one third of the listings went under contract. In April of this year, 67 percent went under contract.
“I don’t think it’s a boom we have to worry about because this is all about low interest rates and low inventory,” noted Fairweather. “This is not about easy money. The standards for borrowing are still very tight.”
The sales pace is back to what it was during the housing boom in 2005 and 2006, but the circumstances are of course very different. Back then it was all about easy money, and now it’s about stiff competition for limited supply. “We need to see home builders increase production,” said Lawrence Yun, chief economist for the NAR, in a press conference. “We need a 50 percent increase in starts.”
Paying Down Your Mortgage Wisely
Justin McHood | Zillow Blog | August 15, 2012 | link
Should you pay off your mortgage early? Does it make sense to pay down your mortgage? The answer to both of these questions is actually more of a personal preference than one of actual dollars and cents.
Should you pay off your mortgage early?
Before you can determine the smartest way to pay down your mortgage, you must first answer the question of whether you want to pay off your mortgage early. Here are six simple questions to consider:
- Does your employer match any retirement funds you save?
- Do you have any debt other than your mortgage?
- Do you have at least 24 months of living expenses in liquid assets?
- Do you currently owe more on your mortgage than your home is worth?
- Does the amount of your mortgage bother you?
- Do you think you could get a better return on your money if you invested it in other things?
If you have considered the pros and cons of paying off your mortgage early and have decided that it is a goal, then it is time to start evaluating different payment strategies. Some of the more common options include:
- Bi-weekly mortgage payments
- Making extra principal payments
Bi-weekly mortgage payments
Bi-weekly payment programs are often offered by your lender, and in the event that your lender doesn’t offer a bi-weekly payment program, there are third-party services available.
Bi-weekly payments are popular because many people get paid “every two weeks,” and the bi-weekly mortgage payment schedule coordinates with their payday schedule. There isn’t really a secret to the bi-weekly program; it is simply structured so that you essentially end up making one extra payment per year — and you might be surprised at how much that can cut off your mortgage.
Low on Down Payment Cash? FHA Not Only Option
Justin McHood | Zillow Blog | August 22, 2012 | link
With interest rates at historical lows and home prices being more affordable than they have been in decades, many people know that now is a great time to buy a home, but they may be worried about large down payment requirements.
When looking to finance a home, two of the most common questions asked include:
- What loan options require a low (or no) down payment?
- Is down payment assistance available?
Traditional loan options
While it is true that a 20 percent down payment is still required to avoid mortgage insurance for conventional loans, there certainly are mortgage options that require a low or no down payment. Almost all mortgage lenders offer at least these options:
- VA mortgages requiring zero down.
- USDA mortgages requiring zero down.
- FHA mortgages requiring 3.5 percent down.
- Conventional mortgages requiring 5 percent down.
Down payment assistance
In many parts of the country, down payment assistance programs are available. These programs usually work in conjunction with a local government in the form of a bond, government grant or community development program.
The U.S. Department of Housing and Urban Development maintains a database of state and local home buying assistance programs on its website.
Justin McHood | Zillow Blog | October 3, 2012 | link
When buying a home and shopping for a mortgage, many people will be faced with some decisions regarding private mortgage insurance (PMI). Common questions include:
- What is mortgage insurance?
- How much is mortgage insurance?
- Is there a way to avoid paying mortgage insurance?
PMI requirements vary by loan type, loan duration and/or down payment amount. Knowing these four facts can help you make the right decision and possibly save money each month by avoiding mortgage insurance all together.
Mortgage insurance is for the lender, not for you
Lenders will require mortgage insurance in certain instances — for example, when you put 5 percent down on a home instead of 20 percent down. The lender will require that you pay PMI each month, and in the event that you default on the loan, the mortgage insurance company agrees to an arranged payout to the lender for its loss.
Mortgage insurance doesn’t protect you from a loss; it is designed to help protect the lender for any loss incurred.
Mortgage insurance requirements vary by loan type
Different loan types will have different mortgage insurance requirements — and some have no requirements at all. Simple rules of thumb for popular loan programs include:
- FHA loans: Require mortgage insurance to be paid up front (UFMIP) as well as monthly (MI) if equity is less than 20 percent.
- VA loans: Do not require mortgage insurance.
- USDA loans: Do not require mortgage insurance.
- Conventional loans: Require mortgage insurance if equity is less than 20 percent.
Making the Choice Between a Good School and a Better House
Sheree R. Curry | AOL | July 29, 2013 | link
How much house would you give up to make sure your children are going to a good school? “I lived in a house with a large modern kitchen and four bathrooms,” says AnnaMarie Ronning of Minneapolis, “But if I can find a house in the area I want, I will deal with an older style kitchen and survive with one bathroom with the possibility of adding another one later.”
Ronning is looking to move from a two-bedroom apartment in the upscale Linden Hills neighborhood and move into a single-family home nearby with her three school-aged children, but she’s facing some hard and limited choices, and she’s far from alone. It’s the kind of choice that 60 percent of homebuyers in a recent survey by Realtor.com said has a big impact on their decision to buy a home.
“Homebuyers are willing to pay more and give up certain home features for a home located in their district of choice,” said Leslie Piper, consumer housing specialist at Realtor.com, which today released its Back to School survey results aimed at showing how much weight schools have in the homebuying decision. What are homebuyers willing to sacrifice? “They are especially willing to give up accessibility to shopping and nearby parks and trails among other amenities, to reside within school district boundaries of choice,” Piper said.