Help for Underwater Mortgages

Real Estate Agent with Simply Vegas

house, floatWhile many mortgage holders are finally being offered relief to prevent foreclosure, two groups of borrowers are often left out.  Those who can pay (even with difficulty) get little sympathy, as well as little thanks for doing what they agreed to do when they signed the loan.  The other group, those with negative equity or "underwater mortgages" have gotten attention, some sympathy, but little help.  Fortunately, this is changing.

Here's the scenario.  Joe Homeowner bought a home for $300,000, maybe during the boom years from 2004-2006 and maybe for no money down.  Or maybe he bought it earlier, but seeing that similar homes in his neighborhood were selling for $425,000, he took out a big home equity loan to put in a deck, buy an SUV, and see Paris in the springtime on his 15th anniversary with his wife.  Now that the market has tanked, area homes are going for $250,000 for lucky sellers, less for others.  Joe is paying his mortgage (or paying off his home equity loan) on the larger amount.  While it's true that he is liable for what he agreed to pay, he signed for the mortgage under what was a reasonable assumption at the time: home values were escalating, so he was buying into a great investment. 

If Joe plans to stay in the home over the long run and avoids financially devastating life crises like illness, job loss, or divorce, he may weather the storm as the housing market will rebound in time - though not quickly and probably not to 2004 levels.  However, if he wants or needs to sell the home, he potentially faces a huge loss.  If his circumstances change so he can't pay the note, he could easily become a foreclosure statistic.  It is estimated by real estate analysts First American Core Logic that over 11% of homes purchased within the 2004-2006 timeframe are "underwater" like Joe, with more to come.  Since not everyone in trouble bought within those years, the scope of the problem is even larger.

Lenders want their money but are increasingly aware of the enormous costs to them when homes are foreclosed.  Therefore, they are becoming more willing to explore options to prevent foreclosure and have started to welcome underwater mortgage holders into their loan modification programs.  For those who want to remain in their homes and have sufficient income to pay a reasonable mortgage on a refinanced loan, lenders will work our new terms with delinquent or even troubled borrowers.

For those who don't want to stay in the home, who can't afford to make even reduced payments on the home they are in, or who can't qualify for refinancing, one way out of the problem is through short sale.  Through this process, the lender agrees to accept a reduced amount as payment in full for the loan from a qualified buyer. This still results in a loss to the lender but it also saves them from having yet another foreclosed home on the books to maintain and resell.  The seller reaps no profits from the sales but is free and clear of the debt with no tax consequences thanks to 2007 legislation and suffers less long-term damage to his credit report.  The short sale process is long and tedious, so requires a good real estate agent to see it through.

For information on beautiful homes in Clark County, including short sale and bank owned properties available at great prices, contact your Prudential Americana Group Realtor® Yonas Woldu at (702) 236-8997 or visit The N&Y team, lead by partners Nebi Adhanom and Yonas Woldu, is always ready to serve you.


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Yonas Woldu

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