Brian's Mortgage Minute

Born Again: When will you be eligible for a mortgage after a foreclosure or short sale?

 Did you miss the fact that foreclosure filings were up 71% in the third quarter?

This makes it a good time to remind everyone of the rules that govern when and how you'll be eligible for a mortgage after you've been foreclosed, surrendered a deed, or negotiated a short sale.

 For borrowers with a foreclosure, short sale, or deed in lieu of foreclosure on their credit history, the following timelines apply before they'll be eligible for a conforming, conventional mortgage (Fannie Mae/Freddie Mac):

 Foreclosure: 5 years from completion date, minimum 680 FICO and 10% down for 7 years, investment property, second homes, cash out refinances not allowed for 7 years.

Deed-in-Lieu of Foreclosure: 4 years, at least 10% down required for 7 years.

Short Sale: 2 years.  4 years for Freddie Mac

For what it's worth, under FHA rules your buyers have to wait two years before they are born-again.

Goes without saying that if you do wind up with a foreclosure (or one of it's close cousins) on your record, unless you handle the period after the foreclosure properly by re-establishing credit - no easy trick with a serious derogatory on your record - and accumulating a sizeable down payment, you are likely to be renting for a long, long time.

Or, another way to look at this: At some point in the next five years, buying may look really cheap, and you'll be locked out of the game.

Behind on Mortgage: What is a Delinquent Borrower to Do?

I've posted this once before, but given the number or search queries, emails, and phone calls we are getting asking the question posed in the title, I thought it was worth re-posting a summary of David A. Smith's excellent advice on what to do if you are, or are in danger of, falling behind on your mortgage payment.

Read the whole thing, there is a lot of insight on WHY these steps are important, but here are the high points, quoted directly, from the piece:

1. Announce the problem - in writing. Don't wait for the lender to come calling - once you know you're going to miss a payment or two, tell your lender this.

2. Come clean on your financial resources. When queried about your circumstances, come clean....Most people who can't pay hide assets, fib about their situation, or at the very least hem and haw. Few things create more credibility than owning up to the situation - and credibility is one of your most precious assets.

3. Figure out what you can pay. Even if you can't make full payments, you can make some partial payment. Figure out what it is. Tell the lender that.

4. Make regular partial payments. Even if you can't pay 100%, pay something - every month. And make it the same amount. That regularity is soothing to the lender, and establishes a baseline that adds to your credibility.

5. Keep detailed records of everything. Not only should you keep copies of all your correspondence to the lender, keep the lender's back to you. Judges and others are very sympathetic if you come in waving a sheaf of communications where you show you were a responsible borrower, trying to get the lender's attention, and the lender just kept sending you form notices.

6. Find a real person inside the lender. Companies are abstract entities; job titles are uniforms we put on each morning and doff each evening. In between, a company is represented by individuals...Your goal is to puncture the anonymity barriers...

7. Propose rescheduling your debt, including lowering your mandatory payments. You're delinquent, you can't pay everything you owe, but you're paying something. You're seeking a piece of paper, signed by you and your lender, which specifies a breathing interval.

8. Explore refinancing. Loan payments have two elements, interest and principal. Both of them can change - meaning lower - in a refinancing.

9. Offer to chip in new equity. A lender facing a bad loan assumes that (a) the property will be her only good collateral, and (b) before she can get to the collateral, she'll have to spend a bunch of money getting the borrower out of the way. If a lender thinks there's new equity capital that can come in - from family, friends, or government, in short, from anywhere - that's an automatic differentiator in your favor.

10. Look for financial help. Fortunately for the United States, we have a widely distributed network of assistance providers, particularly for homeowners. Credit counselors are one starting point; so are federal, state or local housing finance agencies all over the country.

11. Sell the property. Eventually, and sometimes even when all the preceding things are going on, you may wish to list the property for sale. If you do this, only good things can happen: You may get an offer that covers your debt and allows you to recoup equity, If you are marketing the property and you can't get anyone to take it off your hands, that too is great evidence you can use to persuade your lender to give you a workout respite.

12. Consider bankruptcy. Sometimes nothing works. Sometimes the right answer, financially ugly though it may be, is to let the property go. However, as I wrote 18 years ago in my second bout with workouts (my first was in 1976), there are some unusual times when bankruptcy is the best survival strategy.

I hope that these steps can be useful for you and you clients. 

 Features for the month of October!

 1. Any realtor that purchases or refinance their personal residence with Alera Financial in the month of October will have the commitment fee and appraisal fee waived saving you an additional 850.00 of closing cost!

2. Alera Financial will provide a free one year AHS Warranty for all buyers during the 10 day Coldwell Banker Sale that closes a home with Alera Financial!

3. Dinner at Ruth Chris for three agents on Alera Financial. Get your buyers PRE-APPROVED

 Have your best week ever!

Brian