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Jobs are supposedly plentiful yet 2.1 million Americans with a home loan missed
at least one payment at the end of 2006. That seems pretty hard to me. And
it's going to get a lot harder paying that mortgage when ARM interest rates
reset and unemployment starts to rise. Both are going to happen.
Kiss the easy button goodbye.
Here is the new button.
Things Hard
- 100% financing
- Subprime loans
- No doc loans
- Stated income loans
- Cash out refis
- Selling real estate, especially condos
- Living on no commissions
Some of the things in the above list are not only hard, but next to impossible.
Hotlines for Hard Times
There are a number of foreclosure prevention hotlines serving various states
and cities as well as a national hotline to which people can turn for help.
A quick search turned up the following list.
Don't Borrow Trouble
Boston started a "Don't Borrow Trouble" campaign to warn borrowers about predatory
lenders. Minnesota and Virginia have similar campaigns.
Eleven Tips
from Freddie Mac
- Say NO to "easy money." Borrowers should beware if someone claims "credit
problems won't affect the interest rate." Avoid solicitations for loans that
sound too good to be true. If it sounds too good to be true, it probably
is. If a solicitation is really interesting, get it in writing!
- Shop around. Borrowers should talk to several lenders to find the best
loan for which they qualify. A loan product or lending practice may not seem
predatory until compared with a similar loan product offered by other lenders.
- Understand the loan terms. Borrowers should compare loan terms from different
lenders. Understand the best loan terms available in the marketplace and
compare the APR (annual percentage rate) of loans from different lenders.
The APR takes into account both the interest rate and the points and fees
of the loan. A nonprofit housing counselor or a lawyer can review the information
with a borrower.
- Find out about prepayment penalties. Borrowers should know if the loan
offered to them has a prepayment penalty. Prepayment penalty should be a
choice, not a requirement.
- Make sure documents are correct. Be cautious of someone who offers to falsify
a borrower's income information to qualify for a loan. Borrowers should never
falsify information or sign documents that they know to be false.
- Make sure documents are complete. A borrower should not sign documents
that have incorrect dates or blank fields. Be wary of promises that a lender
will "fix it later" or "fill it in later."
- Ask about additional fees. Borrowers should question any items they didn't
ask for. Borrowers should also beware if they are told that single premium
credit insurance is required get a loan, or that purchasing it will help
loan approval. Review every fee and compare different lenders' fees to ensure
the most competitive loan terms.
- Understand the total package. Ask for written estimates that include all
points and fees. The situation may not seem abusive until everyone gets to
the closing table. If any fees or charges differ from what was previously
disclosed, delay the closing until all terms of the loan are clearly understood.
- Work with credit counselors. A borrower should get all the facts before
deciding to combine credit card or other debts into a home loan. Beware of
scam credit counseling/ credit consolidation agencies - unfortunately, not
all credit counseling agencies are acting in your best interests. Talk to
a community-based consumer credit counseling agency or housing counselor
before signing the loan documents.
- Protect home equity. If borrowers are taking equity out of their property,
they should take out the minimum amount needed. The equity in a home is a
source of wealth, which builds up slowly over time.
- Get advice first! Talk to a community-based consumer credit counseling
agency or housing counselor.
Hot Water
Not only is Beazer struggling to sell homes but things are starting to get
a little hot for Beazer as well. The Charlotte Observer is reporting Beazer
arranged loans are under federal review.
Federal housing officials will review whether Beazer Homes USA complied
with federal rules in arranging government-insured loans for buyers in its
subdivisions.
The Department of Housing and Urban Development, responding to an Observer
investigation, will look at lending records from Charlotte and other cities
where a large share of Beazer loans ended in foreclosure, officials said
Friday.
Beazer's case is different. The company worked as a mortgage broker, matching
lenders with borrowers. And almost all its loans were insured by the Federal
Housing Administration, which promised to pay the lender if the borrower
did not.
An Observer investigation published last week charted Beazer's actions in
Southern Chase, a Beazer development in Cabarrus County where 77 buyers have
lost homes to foreclosure in a neighborhood of 406 homes.
The Observer found Beazer acted in ways that made a high rate of foreclosures
inevitable. It arranged larger loans than some buyers could afford. That
allowed it to include the cost of financial incentives in the price of homes.
Some of the company's actions violated federal lending rules, the Observer
found.
In Mecklenburg, a record 2,500 owners lost homes last year. Foreclosures
this year are up 8 percent over the same time last year.
The problems are concentrating in starter-home developments of low-priced
homes built in the last decade. The Observer found at least 35 such developments
in Mecklenburg with a foreclosure rate above 20 percent.
Beazer built nine of those starter-home developments, with average property
values below $150,000, and one more with slightly higher values. No other
single company has built so many Mecklenburg developments with such high
foreclosure rates, the Observer reported last week.
Ohio officials said last week that the state will refinance about 1,000
owners facing foreclosure into loans with lower interest rates, using a $100
million issue of municipal bonds. Ohio has the nation's highest foreclosure
rate.
It will be interesting to see what happens to Beazer. If they have to buy
back those homes because they violated federal lending rules then perhaps we
will be able to kiss Beazer goodbye. Lennar is
arguably in a similar situation over defects.
Things are hard and about to get harder for those trapped in a shoddy home
a builder refuses to fix, for those trapped in a mortgage they can not afford,
and for those trapped in a house or condo they can not sell.
The best advice for anyone struggling to pay the bills is to avoid borrowing
more trouble at terms that are difficult to understand. For those already in
trouble the best advice is to talk to the lender before things get worse. The
last thing a bank wants to be forced to do is sell a bunch of foreclosed properties
at a loss in a declining market.
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