BAIL OUT FOR HOMEOWNERS - WITHOUT WALL STREET

149 years ago today, Abraham Lincoln stated an important fact for today's financial crisis.  But first a word of hope.  It is human to think that when times are good, they will stay good. And when times are bad we all hope for good times.  King Solomon went on a quest to find one item that would remind him to realize that good times or bad times, neither is permanent and to be prepared for the other.  He found a ring imprinted with the saying, "this too shall pass".

"This too shall pass"

Wikipedia has some comment on this phrase: Many versions of this folktale have been recorded by the Israel Folklore Archive at the University of Haifa. Heda Jason recorded this version told by David Franko from Turkey:  "King Solomon once searched for a cure against depression. He assembled his wise men together. They meditated for a long time and gave him the following advice: Make yourself a ring and have thereon engraved the words "This too shall pass". The King carried out the advice. He had the ring made and wore it constantly. Every time he felt sad and depressed, he looked at the ring, whereon his mood would change and he would feel cheerful."

The phrase "this too shall pass" and the associated ring story were made popular in America by Abraham Lincoln in his 'Address Before the Wisconsin State Agricultural Society, Milwaukee, Wisconsin' on September 30, 1859:  "It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words: "And this, too, shall pass away." How much it expresses! How chastening in the hour of pride! How consoling in the depths of affliction!"

The opposite is also appropriate.  When times are good, look at the ring and be humble and prepared, for sad times are coming.  Such is the way of the human existence forever in the past and forever in the future.

2008 Bailout Options without Wall Street

Our Congress is having a hard time on a "bailout" of the housing and intertwined financial markets.  I won't even bother to become political at this point (I have put myself on a very very short leash).  The purpose of this article is to give professionals and consumers some resource material to help in this troubled time.

Usually my articles are about short sales.  This article touches on short sales but it is really about preparing the distressed homeowner for the various options and alternatives to foreclosure.

FHASecure

Beginning today, October 1, 2008, a new program is initiated by special funding from the Federal Government of up to 300 BILLION dollars for additional funding to the FHA program called FHASecure and related foreclosure avoidance programs.  The FHASsecure program is for homeowners that meet certain criteria, such as having a financial distress situation and housing (debt) expenses that are greater than 31% of the household income.  A Frequently Asked Questions sheet is available through the hud.gov website or the link at the beginning of this sentence.  The program essentially requires the existing lender(s) to allow a reduced payoff of the mortgage and then FHA comes in and provides a refinance with a government guarantee.  The existing mortgage lender can be the new lender under the program or you can use an entirely new lender.  The catch is that this is essentially the same as a short sale - but the homeowner does not sell the home and instead (theoretically at least) gets a reduced principal mortgage with (theoretically) a lower mortgage payment.

Hope for Homeowners

Distressed homeowners should also be aware of the Hope for Homeowners program - this is the program that was specifically passed by Congress this summer and goes into effect October 1^st.  The Hope for Homeowners program website says the following:

Families should not wait to seek mortgage relief.  Right now, homeowners can determine if they are already eligible for mortgage assistance through FHASecure, FHA's existing refinancing program.  They can obtain information through either of the following options:

1. Contact a local, HUD-approved housing counseling agency at HUD.gov;
2. Contact the HOPE NOW Alliance at 1-888-995-HOPE

Hope for Homeowners maintains FHA's long-standing requirement that new loans be based on a family's long-term ability to repay the mortgage.  FHA only allows owner-occupants to be eligible for FHA-insured mortgages.  Borrowers must also meet the following eligibility criteria:  

• Their mortgage must have originated on or before January 1, 2008;  
• Their mortgage debt-to-income must be at least 31 percent;
• They cannot afford their current loan;
• They did not intentionally miss mortgage payments; and
• They do not own second homes

Features of FHA-insured loans under the new program include:

• 30-year, fixed rate mortgage; 
• Maximum 90 percent loan-to-value ratio;
• No prepayment penalties;
• $550,440 maximum mortgage amount;
• Extinguishment of any subordinate liens; and
• New home appraisals from FHA-approved appraisers.

FHA will continue to offer lenders an alternative to foreclosing on borrowers.  Similar to FHASecure's recent expansion, lenders will be encouraged to write-down the outstanding mortgage principal balances to 90 percent of the new value of the property.  In many cases, reductions in principle will cost lenders less than the losses associated with foreclosure.

HUD also provides suggestions on Steps to Take If You Cannot Pay Your Mortgage at the hyperlinked website.

And there is the Hope Now Mortgage Servicing Guidelines - the Hope Now Alliance (via HUD) which shows an alliance of the top 27 mortgage lenders (see the list for your lender) and provides a timeline (of 45 days) for a loss mitigation (such as a modification or short sale) resolution.  Our experience is that almost none of the lenders on that list have provided anything close to a 45 day turnaround - most are more than double that amount.

A Word of Caution - Pitfalls

Distressed homeowners should be wary of mortgage scams and "save your home" scenarios promoted by investors, mortgage brokers and attorneys.  The homeowner should not give away the title to their home, or enter into a scenario that will ultimately cost them more monthly payment than the current amount that cannot be afforded anyway.  And delay of foreclosure without a definitive plan for daylight and resolution is not a plan, it is a way to pay an attorney for needless work.

Find a Solution - Not a Band-Aid

Distressed homeowners need a solution, not a band-aid.  Consult with a knowledgeable credit counselor.  Consult with a knowledgeable attorney.  Don't accept being forced into anything - examine and understand the options.  If you the borrower is married, this should be a mutual decision.  Find out if one or both spouses are on the promissory note.  Understand the mortgage obligations.

Do whatever makes sense to find a solution and avoid foreclosure and bankruptcy.  Bankruptcy should be reserved to the absolute last resort when all other possible solutions have been tried and failed or worked temporarily and now cannot be fulfilled (like a repayment plan or residual promissory note after a short sale).

Remember, provided a distressed homeowner works to find solutions to the problems and challenges immediately being faced, this too will pass and the sun will once again shine on those that try to help themselves.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader. 

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660  RPZ99@FLORIDA-COUNSEL.COM - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  Shortsales@Florida-Counsel.com

Copyright 2008 - Richard P. Zaretsky, P.A.