Loan modifications…are they the answer homeowners are looking for?

Real Estate Agent with Realty World Premier Associates
I have been visiting a lot of homeowners in distress lately and most of them are hoping for a loan modification. But I wonder; are loan modifications really in a home owner’s best interest? After all, in Monterey County most homeowner’s who purchased their home between 2002 and 2007 owe more than twice what it is worth. Let say your lender creates a plan that gives you a payment you can afford, at least for the next several years, what happens when you are at the end of the modification period and you can’t refinance? Really wanting to do what is best for my clients and my community, I have been doing a lot of online research trying to find out how long it will take a homeowner who is under water to accrue any equity, or at least be at the breakeven point. There wasn’t a lot of information on the subject, but here’s a study I found: Brent T. White, from the University of Arizona James E Rogers College of law, published a paper in October 2009 called “Underwater and not walking away.” It appears that he did extensive research. In his paper he references a couple from Salinas. They owe $585,000.00 on their home that is now valued at$187,000.00. According to the author the couple would save $340,000.00 by walking away, assuming they planned to stay in the home for ten years. He further states that if we assume that the Salinas market has hit bottom and their home “appreciates at the historical appreciation rate of 3.5% annually,” it will take more than 60 years for them to recover their equity. Sixty years with no equity. Wow. In the past, home owners have used the equity in their homes for things like home improvements, putting a kid through college, and paying off other debt. In the past when a homeowner retired they could sell their home and pay cash for something smaller. If this couple chooses to stay in their home, they will never be able to borrow against it. They will not be able to leave it to their children because they would be leaving them a liability, not an asset. They will not be able to sell it and pay cash for a smaller home. It is no longer a “nest egg.” It will be a liability for the rest of their lives. This study confirms my reasoning that a short sale is a much better option for underwater homeowners. That is why 3 years ago, I decided to become a Realtor who specializes in short sales. While my fellow Realtors were telling me “I was nuts” because a short sale transaction can be very difficult and frustrating, I knew it was the best way for me to serve my clients and my community. While everyone one was trying to get those easy REO listings, I was fighting for my client’s credit and their ability to buy a home in the future. If you have been trying to get your loan modified, take some time to think about the negative equity in your home. Is it worth hanging onto? The reality is that if you short sale your home, Fannie Mae guidelines state that you can buy another home in two years. I have had short sale client’s whose credit was 710 or better one year after their short sale. Not many in the real estate industry think that prices are going to go up by much in the next 2 years and if you have taken care of the rest of your credit, you will be able to buy a home that will have a chance to grow equity. Fannie Mae guidelines also state that you can buy another home right away if you have not missed a payment. The sad truth is that if you owe 2 or 3 hundred thousand dollars more than your home is worth, it is unlikely that your home will ever be an asset. Also remember that it is just a place to live. If you choose to short sale your home, you get to take everything that truly matters with you. A house is just a house; it is the love of family and friends that make it a home.

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