Despite some of the optimism that has been generated from an increase in home sales recently, in Massachusetts and nationally, an epidemic of upside down mortgages is casting a long shadow on the housing market.
According to Zillow.com 25% of all mortgage holders are currently under water, owing more than their home is worth. This figure could climb to 30% by the middle of next year if foreclosures continue to take their toll.
Existing-home sales in the Northeast jumped 15.0 percent during the second quarter which may have been fueled by historically low interest rates coupled with an $8,000 tax credit to first time buyers. While it may be instinctive to jump on this good news, the fact is that the climate for buying a home now is currently better than the climate for paying one off.
In an attempt to ease this situation, the Obama administration's "Making Home Affordable" program was introduced in February. It was designed to help troubled homeowners to obtain loan modifications from participating lenders. These institutions would agree to allow those borrowers who are current on their mortgages the opportunity to refinance their loans, even if they owe more than their home's current value.
The program is for borrowers with loans backed by Fannie Mae and Freddie Mac and was, initially, limited to anyone whose mortgage did not exceed 105 percent. However, it has now been expanded to include borrowers whose mortgages exceed 125 percent of value.
So far, the plan has been stalled somewhat by lenders who have been slow to adjust their processing systems and who are understaffed to handle the large amount of borrowers seeking assistance.
Another glitch has been with Fannie Mae and Freddie Mac. When the government expanded financing eligibility to mortgages with a loan-to-value up to 125%, FNM and FRE announced that they would not be buying those until September 1 and October 1. As a result, many lenders have been unwilling to write these loans yet.
There has been much criticism about the sluggish results from these anti-foreclosure programs and banking executives have complained about the "confusion and delay" with how the government has been setting the rules.
Along with these complaints is the frustration experienced by some troubled homeowners who are slipping through the cracks because they do not meet the eligibility requirements to receive any help.
Claudette Millette, President, TheBuyersCounsel.com, 800-392-1446, E-mail
Serving Home Buyers in: Ashland, Holliston, Hopkinton, Natick, Newton, Northborough, Framingham, Sherborn, Southborough, Sudbury, Wayland, Westborough
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