If you’d bought your home between 3 and 5 years ago, there is a good chance that you have a problem right now. The loan you took out on that home is now higher than the current appraised value of your home. This is known as being underwater. Obviously, when there is not enough physical equity to cover a loan, banks are not likely to grant a refinance.
So, what do you do if you are underwater?
Several things:
1. Apply for a Refinance: The first step in recovering from an underwater mortgage situation is attempting to relieve the pressure through conventional means. The most conventional way to reduce your monthly payments, or decrease your overall loan amount, is by refinancing.
2. Assess Long Term: If a refinance is impossible, assess your long term homeownership goals. Eventually, housing prices will improve. Ask yourself, “Can I afford to stay here until then?” If so, staying put might save you the most in the long run. Of course, while you wait there is no harm in proceeding with the step below.
3. Look into Loan Modifications: If neither option will provide you with relief, you may be able to get a loan modification. These are granted by government funded programs and can help underwater mortgage holders of all types. Loan modifications will help you move away from debt and into a mortgage that is no longer underwater. In order to receive a permanent modification, however, you will have to undergo a yearlong process.
Mortgage Grade Team Blog
In foreclosure surveys of over 200 cities across the nation, it was found that filings increased by over 70% in 2010. The study, which was conducted with cities of over 200,000 residents, confirms beliefs that foreclosure isn’t just a problem for the biggest losers of California, Michigan, and Florida, but all Americans.
The problem that we all face is well represented in Mississippi. In 2009 the town of Jackson was the forerunner on foreclosures for the year. In 2010 however, Jackson saw a decline of over 20% in filings. The Gulfport and Biloxi area on the other hand, suffered an increase in foreclosure filings of almost 75%.
When you look at these numbers one thing becomes painfully clear. Foreclosure is a problem that all homeowners are going to have to deal with in one way or another. Throughout the U.S. filings on foreclosure in 2010 reached 2.87 million, which tops records set in 2009 by over one and a half percent. This, along with the shift in locale for foreclosures in places like Mississippi, tells us a couple things:
- Foreclosures are happening on a national scale. Few cities will be excluded from the problem.
- Housing prices will drop in areas where more foreclosures are hitting the market.
Unfortunately the only real solution to these problems is time. As the glut of bank owned homes is emptied, value will return and sellers may once again be able to expect at least fair market value for their real estate.
Mortgage Grade Team Blog
Well, it’s here. 2011 is well underway and many homeowners are asking the same question:
“What can I do to improve my homeownership situation this year?”
Unfortunately, there isn’t an easy answer. Home values are headed in the wrong direction in almost every area, and you likely won’t get much out of a home improvement project as far as adding equity to your home. So, why remodel? It’s simple:
1. Housing Materials are Cheap: Along with home prices, building materials for homes have also decreased. Plywood, drywall, and even framing lumber have all been reduced by over 20% from peak prices several years ago. When these costs rise, your savings will increase. Right now is a great time to buy materials for your home renovation.
2. Contractors are Waiting: When real estate is booming, contractors have more than enough work. They will gladly hike prices when competition for their work is high. When it’s low however, many will offer discounts (by as much as 20%). You also will have an increased number of bidders during so periods. The extra competition will also help to drive the base price on your renovation down.
3. You get to Reap the Rewards: Not only will you see the fiscal reward once home values improve, you will also receive the non-monetary value of living in your newly renovated living space. You get to live and enjoy that space while it appreciates. This is, by far, the best advantage of remodeling this year.
Mortgage Grade Team Blog
Consumer Spending Increases: Will it Affect Home Sales?
Regardless of how we would like to look at our national economy, the truth is that consumers will always drive the market. If they aren’t spending, fewer industries are profitable. Since 2007 smart consumers have been saving, not spending, and protecting those assets which they really care about. Lately, however, that has begun to change.
Spending always increases around Christmas. This is something we can all expect. Through the end of 2010, this was exactly the case. Some believed that this spending trend might spill over into 2011, but so far it has not. In the first couple of weeks of the New Year, consumer spending on average was below where it was in January 2010 by about $13 per consumer. This number may lead you to believe that we are still not ready to spend, but there are some other trends which show the opposite.
Signs of Consumer Spending
Over the course of 2010, eating out once again gained popularity. Consumers today are also starting to travel more using planes and vehicles alike. Unlike the huge drops in the wealth of the average household over 2008 and 2009, 2010 saw an increase in the average wealth per household and a reduction in their overall debts. Your household may not be feeling the ease in pressure, but it is happening.
Will it Spill into Housing?
At this point, it doesn’t look like it. Marginal increases in spending tell us that consumers are still wary to part with large amounts of cash. Shrinking household debt is indicative of homeowners making monthly payments, not adding new payments to their finances. It may be some time before we see consumer spending actually affect housing.
Mortgage Grade Team Blog
The halt in foreclosures last year has created something called shadow inventory. How big is this inventory, you ask? Reports say that there could be as many as 1.7 million homes in foreclosure proceedings waiting to hit markets across the country over the next year or two.
It’s All about Supply and Demand
Recent reports show that housing inventory has actually been declining as we moved into 2011. Now that foreclosures have once again begun to move forward, many believe the housing market will once again become overstocked. When this happens, the stock can only get cheaper in order to become competitive. If foreclosures entering the market outweigh home sales, the oversupply will move home values one way – down.
Homeowner Options
Those who currently hold mortgages have two basic options right now. You can either hold out for a while and see how long it takes for the oversupply to run out and home values to return to normal levels, or you can head to the refinance window now. Interest rates aren’t as low as they were a few months ago, but they are likely to increase over this year. Add that with low home values, which are expected to drop further in the coming months, and you have a narrowing timeframe to act. Either way, it’s wise to assess your personal mortgage situation and decide exactly what you want to do about it.
Mortgage Grade Team Blog
Undoubtedly the weakest link in home sales in the most recent report is with existing homes. Fewer consumers bought older homes than any other year in the 21st century. You’d have to track back to 1997 in order to find a worse year. Reports like this show us that housing recovery is a long and slow process that will take more than a stable year to overcome.
Home sales fell just under 5% for last year in total. This means that less than 5 million homes were sold in the U.S. throughout 2010. That number reflects fewer sales than in 2008 when the housing crisis began. It’s clear we aren’t out of the woods yet when it comes to home sales.
What’s the Problem?
Well, unemployment stats are being cited as a major culprit. Thought they dropped in December, overall for the year they remain a big factor. When consumers aren’t making money, they have little to put towards such as large a purchase as a home. Expectations for 2011 include unemployment numbers in and around the 9% mark for the majority of the year.
The other issue is that houses are just not a safe investment when the market is so volatile. Home prices are expected to drop another 5% or more in 2011. This does nothing to help boost sales in an already depressed market.
The last major factor for home sales in 2011 is foreclosures. Not only do they fill the ranks of unsold houses, they also remove a large number of consumers from being capable of becoming a homeowner for the next few years. One million homes were lost to foreclosure in 2010 and economists believe that number will increase over 2011.
Mortgage Grade Team Blog
Over the last month of 2010, housing prices in California took a nose dive. A 4% dip in prices statewide was a wakeup call to many cities who may have been thinking that the end of falling home values was near. It is clear that the most distressed states like California will be forced to withstand another slumped year in housing.
Overall sales for the state were down 13% from the numbers of the previous year. This comes after a 15% year over year gain in the month previous. The fact that these numbers basically cancel each other out shows us that the yearend upward trend did not last. Over 1 in 3 homes sold in December 2010 were foreclosures. This number is up slightly from the month previous, but less than during the same period in 2009.
Home Buying in 2011
When a large market like California stays depressed, one thing is likely to happen. Some sellers will get desperate and sell at a highly reduced price, and some buyers will take advantage of low interest in housing and bid the lowest price they can to maximize their investment. As we move forward into 2011, being diligent about what you are willing to accept as a seller or a buyer is going to be an important part of entering the housing market. Those without specific goals are liable to get burned. As always the best way to avoid a raw deal will always be good preparation. Have you checked your Mortgage Grade lately?
Mortgage Grade Team Blog
1. Meet Credit Score Requirements for the Best Loans
If you want to make sure that your first home purchase is a success, you need to have top credit marks. For those who have had over 10 years of strong credit stats, a FICO score of over 700 is not uncommon. Those with a score lower than 700 will likely be required to pay a larger down payment and a higher interest rate.
2. Bump Up Savings
There will be closing costs, insurance fees, title fees, and inspection fees – not to mention the down payment and home maintenance cash you will need once you are in your home. You can never save enough for homeownership. As you prepare to enter into homeownership, remember that your savings will likely dictate your success.
3. Calculate How Much Home You can Afford
Most first time home buyers assume that by getting pre-approved for a loan amount, they can afford payments on that loan. This is not the case. Ask yourself, “How much can I (or we) afford to pay into a mortgage each month?” Using a mortgage calculator, you can find out what that would work out to for a specific loan type such as a 30-year fixed rate mortgage.
4. Find A Home that Fits
The last must do for a virgin house hunter is to find a home that fits, not only the financial criteria, but yours as well. If you don’t like a house, don’t buy it. It’s just that simple.
Mortgage Grade Team Blog
Foreclosures may be saturating markets around the country, but on average, market values are being adhered to according to recent reports. Only eight of the country’s largest centers remain overpriced, while fiftteen are currently underpriced of the 100 cities in the study. Let’s have a look at who fell where:
The Most Overpriced
Three centers in New York state were among the eight overpriced markets, including NYC. Los Angeles, Anaheim, and San Jose all represented California on the most overpriced list as well. The two surprises for me were Portland, Oregon and Edison, New Jersey, which were both overpriced by 20% or more.
The Most Undervalued
Las Vegas, Nevada topped the charts for the undervalued cities. The strongest overall showing for undervalued cities by state was Ohio, with five cities on the list including Akron and Cleveland. Both cities claimed second and third spots respectively. Warren and Detroit made the list for Michigan, as did Stockton and Bakersfield for California.
Undervalued isn’t Always a Good Investment
While you may think that this means that Vegas is a great place to buy a cheap home, the reality is that local economy will likely keep that market low for some time. In fact, if you buy this year, you may find that home values will drop even further. This is obviously not the type of investment you want to make. Sometimes the best deals are in those other 77 cities that are currently selling homes at a fair value.
Mortgage Grade Team Blog
Mississippi was only glanced with the blow real estate took in recent years. This did not help the foreclosure rate, which skyrocketed over 100% from ’08 to ’09. In the last year however, foreclosure filings in the state have actually decreased. While the number (2.3%) is small, it is one of the rare drops in the annual foreclosure rate for a state in 2010.
The Good
Only 1 out of every 240 homes in Mississippi received foreclosure paperwork last year. That’s 5 times less than the national average in 2010 and a total of over 5,250 houses statewide. Mississippi was ranked the 45th state in the nation for their home per foreclosure filing ratio.
The Bad
The overall picture for 2010 was favorable for Mississippi, but the last couple of months of the year were not. In November, filings rose over 100% from the year previous and well over 50% in December. If you compare that to the national figure, which was relatively flat for November and over 25% lower in December, you can see that Mississippi is going in the wrong direction.
The Future
As for many states around the country, 2011 will be a rebuilding year for Mississippi. With over a thousand home seizures in the last quarter of 2010 alone, it is likely that we will see more in the near future. Mississippi may just hold some great investment opportunities however, and should not be overlooked this year.
Mortgage Grade Team Blog