With more than 5 million home owners unable to make their monthly mortgage or currently in default, lending giant Fannie Mae has started to get tough on strategic default.
At the end of June, Fannie Mae announced that it would no longer look the other way from borrowers who walk on their mortgage. They also announced that the penalty would be a seven year ban from the GSE (Government Sponsored Enterprise) program. Additionally, Fannie plans to take legal action against borrowers who strategically default on their loans.
While Fannie Mae is standing tough on their decision, the reality is that with unemployment still at 9.5% or higher in some regions and a sluggish economy is having many home owners feel that they have no choice but to walk away from mortgages that they have no hope of catching up on.
“We’re taking these steps to highlight the importance of working with your servicer,” said Terence Edwards, Fannie’s executive vice president for credit portfolio management. “Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting. On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time.”
Here’s how Fannie breaks it out:
Deed-in-Lieu of Foreclosure> — reduced from four years to two years with 20% down; four years with 10%.
Pre Foreclosure Sale — two years with 20% down; four years with 10%.
Short Sale— will be the same as pre-foreclosure sale
Strategic Default (Walk Away) — seven years.
Many experts are fearful that this move will contribute to the already dismally depressed home market by cutting out the government backed borrowers. Fannie Mae and Freddie Mac, fund more than 90% of new mortgages and so far, Freddie has not followed suit.
One of the requirements that mortgage lenders will request during the home buying process is a real estate appraisal. For many first time buyers, there may be some misconceptions as to exactly what this is. A real estate appraisal is a detailed report that is created by a licensed appraiser in your state and establishes the market value of a residential property. This is a very important aspect and several different considerations go into an official appraisal, and it forms the basis of the bank’s determination of the loan value. While appraisals do consider market comparisons, the actual appraisal value comes from much more than a market analysis.
Here are the components of a residential appraisal:
Comparisons to at least three similar properties
Evaluation of the market conditions in the area
Environmental conditions that could decrease the property’s value
Structural issues that could decrease the property’s value
Estimate of time on the market
Status of the home site – new development, established neighborhood, acreage
Appraisals are owned by the lender and not the buyer
Assessed values don’t necessarily match market value
Realtors do not provide appraisals
Consumers do have the right to question appraisal facts and contest them
Understanding the neighborhood and ‘comps’ are an important part of your buying experience, but you are also bound to the official appraisal given to the lender. Work with your realtor, lender AND appraiser to make sure you understand all the details in the appraisal report of your new home.
The current real estate market is one that favors buyers. Record low interest rates, low home prices and a large inventory are all favorable for potential homebuyers looking for a new home. The problem facing thse homebuyers is that is obtaining financing for a new home can be a challenge in this difficult economy. Many mortgage lenders have tightened their requirements. However, it is important for homebuyers to realize that it isn’t always the lenders fault. Of course they would like potential customers to assume that they will be approved but the loan industry is a very risky one right now and they have to protect their assets.
Many potential homebuyers are finding that their application has been denied, so if you have been denied recently or in the past for a loan, it’s time to take control of the situation. Educate yourself, ask questions and do your research to help change that NO answer to a YES answer! Here, to help you out are some suggestions.
Consider a co-signer if your income simply is not high enough to qualify for the actual loan. The co-signer’s income can possibly be considered as an amount towards your loan regardless if the person is living with you or helping you pay the actual bill. In many cases, the cosigner might also be able to compensate for your low credit. It is important however to understand that there are risks for your cosigner and if you default on your mortgage, the lender can actually in turn go after your cosigner for the full amount!
Wait it out. Sometimes the best advice you can get, especially if the conditions in the housing market is slow or the economy is bad, is to simply wait. Oftentimes when conditions improve in the economy, the lenders will be more willing to let you “borrow” the money for your loan. While you are waiting, you can take this time to work on your credit score. While you are waiting, home prices could also drop!
Consider a less expensive property. We all want what we want, but you might have a better chance of being approved if you switch to a less expensive option. For example, if you wanted a house, but you cannot wait and you cannot qualify for the loan, you might consider switching to a smaller home or to a town home instead. Later on down the line when your financial situation improves, then you can trade up the property and move to the location and home you really want to.
Apply with a different lender. The world is full of lenders, if you don’t like what one says or you get denied – try someone else! However, if every single lender you go to denies you, you should become aware that it is for a reason – in fact, if they all list the same reason then you will know what you need to fix. Use common sense and stay away from predatory lenders. We have heard some pretty scary stories about these places – so just don’t do it. You could literally be signing your life away.
If you are denied, it is important to not give give up and keep trying! Work on your credit and then in a few months try again! With a little time, patience and understanding, you could be able to turn the situation around to your favor!
Recent trends for financing to encourage renewable energy and conservation are becoming more popular in Wisconsin, as city officials and utilities are pushing residents to be more energy efficient. Milwaukee has developed a new solar loan program that will provide revolving loans that homeowners can repay on their property tax. The city will provide $135,000 for the initial loans to Milwaukee Shines, the city’s solar project. Qualified residents will receive loans between $5,000 and $20,000, and they will contain an interest rate of 5.25 percent, which is two percentage points higher than the prime rate. “The big barrier to entry for people has been the significant upfront cost, and that’s the strongest part of this package,” says Alderman Tony Zielinski. “For as little as $300, they can have a solar system installed on their homes and they have 15 years to pay back the city. The money they save on reduced costs for energy, those dollars can be used to pay back the city.”
Other initiatives also are being announced, including River Falls Municipal Utilities, which is allowing residents in Pierce County, Wis., to extend payments for renewable energy upgrades. The residents would see a decrease in their electric bill similar to the loan payment. Racine, WI, will allow residents to fund energy-efficient retrofits in the Retrofit Racine program. The idea behind focusing on older buildings, such as the ones in Racine, will allow residents to see that older buildings are so inefficient that they pay too much on their utility bills. Studies have shown in Wisconsin and elsewhere that energy efficiency is the cheapest way to lower emissions of carbon dioxide.