Experts say a 2008-style housing crash is unlikely to happen now, if only because lending standards are much tighter than they were before the Great Recession. Still, foreclosures are starting to increase.
ATTOM, a real estate data company, said that in May there were fewer than 31,000 homes nationwide with foreclosure filings – that is, homes with notices of default, homes planned for the auction block or those already taken up by the lenders. That’s just 1% from April – but it’s 185% more than May of last year.
And while the share of borrowers at any stage of delinquency was at an all-time low in the first quarter, CoreLogic reports that more than a third of delinquent mortgages are six months or more in arrears.
Fortunately, if you’re one of the borrowers who can’t make their payments, there are plenty of options available to you, whether it’s getting permission from your lender to miss a few payments until you rebuild or sell your home before the hammer slams.
But you have to go fast. Waiting too long could cost you dearly, especially since home values may soon start to drop in some places. Even if you think your financial problem will only last a few months, don’t hesitate.
What to do first
Your first step is to call the loan officer: the company that collects your payments, pays your taxes and insurance, and otherwise administers your mortgage. Depending on your situation, the repairer may offer you several choices. Each case is different, but you will usually have one of four options:
You could temporarily suspend or reduce your monthly mortgage payments for a set period of time until you feel you can start paying again.
You can also pay any overdue amount by adding a percentage of it to your regular payment over a set period until your mortgage becomes current.
Another option would be to carry overdue amounts until the end of your loan term and keep the same monthly amount of principal and interest.
Finally, you can also look to change the original terms of your loan – perhaps the payment amount, loan term, or even interest rates.
Each of these alternatives has its advantages, but all allow you to stay in your home and avoid foreclosure. However, you still need to qualify. If the repairman determines that there is simply no way to dig, no help will be given.
Another choice would be to refinance. But with the average lending rate bouncing around the 6% level recently, this alternative is basically irrelevant. According to data firm Black Knight, refinancing currently makes sense for less than 500,000 homeowners nationwide – the lowest number in more than two decades.
House prices are not falling
All is not lost, however, because at this point you can still sell your home, possibly even at a profit depending on when you bought the place.
Two key points are worth emphasizing.
First, property prices are not falling yet, but neither are they rising at the dizzying speed of the recent past. Some anxious sellers reduce their asking prices, but for the most part they eat away at their appreciation – not falling below what they originally paid for their seats.
Of course, if you just bought your house recently, there probably hasn’t been much appreciation and you have less paper profits to dig into. Which brings us to the next point: foreclosure is not an event; it is a process.
Depending on where you live, it may take months or even years for the sheriff to knock on your door. That alone gives you a bit more leeway.
Be careful who you tell
You can sell during the foreclosure process, up until the judge gavel, but it’s far better to do so before the process begins. Whatever you do, don’t disclose that you’re having trouble making your payments. Be honest with your agent, of course, but otherwise keep the situation under your hat. If a potential buyer gets wind, they’re likely to assume you’re desperate and underestimate their offer.
If you manage to sell for a profit, you simply pay your lender what you owe, pocket the rest, and move on. But if you’re selling at a loss and can’t pay your lender in full with the proceeds, you’ll need to persuade the lender to approve what’s officially called a pre-foreclosure sale.
Getting the repairman’s blessing for a short sale can sometimes take weeks or even months. You must prove that you have long-term difficulties; that you were unable to sell at a price that would cover what you owe; that you are or are about to be seized; and that you can no longer afford to live there. You will also have to fill out what may seem like mountains of paperwork.
If your lender accepts your short sale, you land a buyer and the sale closes, the proceeds will go to the servicing agent and you will receive a deficiency waiver releasing you from liability for any remaining balance.
Your credit score will suffer. But if not, you’ll be free to move on.
Lew Sichelman has been covering real estate for over 50 years. He is a regular contributor to numerous shelter magazines and housing industry and housing finance publications. Readers can contact him at [email protected]