Real estate: Are the loan changes working in the Tahoe area?
December 15, 2008
In the past, banks have rarely changed the terms of a home loan. If you were unable to make the monthly payments, you were foreclosed on.
Recently, however, banks have been willing to change the terms of a loan to prevent foreclosures and keep borrowers in their homes.
For example, in the last six months, lenders have been modifying loans backed by Fannie Mae and Freddy Mac, the government-owned companies whose loans make up about 58 percent of single-family mortgages nationwide.
Under Fannie and Freddy’s streamline loan modification program, if your homeownership costs exceed 38 percent of your gross monthly income ” the benchmark debt-to-income ratio lenders are looking for ” then you are a potential candidate for adjustments including a lowered interest rate, reduced principal and extended repayment up to 40 years.
But according to Dave Giocomini, President of Truckee’s Sierra Mountain Mortgage Inc., he has had difficulties getting loans modified.
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Out of the 10 loans Sierra Mountain Mortgage Inc. has submitted to be readjusted, not one has been approved by a lender.
Incline Village’s Tahoe Lending Group has seen similar problems with the success rate of loan readjustments, according to Owner Bill Ferrall.
Out of the 20 cases the group has dealt with, six have turned out successful while the rest are still waiting for the lender’s judgment.
Because of the high amount of second-home ownership, foreclosure problems are not as rampant in Tahoe as they are in Reno and Sacramento. (There are 29 bank-owned properties in Incline Village, said Ferrall.)
And as banks only recoup about 70 cents on the dollar for a foreclosed property, it makes sense that they would rather have the borrower stay in their home and pay the mortgage then foreclose on the property.
“It can be a good thing for a homeowner committed to staying in their home,” said Ferrall.
But According to Giocomini, meeting the standards to qualify for a loan modification are difficult.
“The problem is unless you have been delinquent for more than 30 days they won’t talk to you,” he said.
Giocomini also added that some loan modifications have been denied because the debt-to-income ratio is too high.
According to Bill Herr, Plumas Bank’s Chief Lending Officer, loan modifications are more trouble then they’re worth.
“They don’t work well,” he said, “I guess with some folks the relief is a good thing, but it just postpones the inevitable.”
But as some are simply giving up hope ” defaulting on their loans, renting an apartment and waiting to build credit to try again ” loan modification could be a real help for those committed to staying in their homes, he said.
According to a report released earlier this month by the Office of the Comptroller of the Currency ” the federal agency that charters, regulates and supervises all national banks ” more than half of the “rescued” mortgages have defaulted, or as many are calling it “re-defaulted.”
“After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due,” Comptroller John Dugan said in a statement. “After six months, the rate was nearly 53 percent, and after eight months, 58 percent.”
The Mortgage Bankers Association also filed a report earlier this month that shows a record 1-in-10 American homeowners with a mortgage were at least a month behind on their payments or in foreclosure at the end of September. What’s worse is the report reflects conditions prior to October’s stock market plunge.
While loan modifications have not been helping the majority of people with mortgage problems stay in their homes, the Federal Reserve and the Treasury Department are looking to make it affordable for first-time buyers to get a home loan.
If the Fed and the Treasury succeed, residents could see interest rates for a 30-year home mortgage as low as 4.5 percent ” a level home buyers have not seen since the early 1960s.
But while this plan to lower mortgage rates for first-time buyers is just that ” a plan ” some lenders think the rumors are putting buyers on hold.
It is this train of thought that causes people to be on the sidelines in the real estate market, said Ferrall, adding that many people are going to be disappointed when the two government agencies are unable to produce such a low rate.
“They are putting a roadblock to recovery in place,” Ferrall added.
If the current rate for a 30-year home mortgage is around 5.5 percent, who wouldn’t want to wait for 4.5 percent?
But as Herr sees it, lowering the rates, in theory, should stimulate the bottoming out of the market.
“The idea is to have more people qualifying for loans,” he said. “The lower you drive the interest rates, the more people can afford to buy a home.”
And when people see the bottom is coming, Herr said the “psychology of the market” will change.
“What’s holding people back is they don’t think prices are at the bottom,” he said.
“When Good Morning America and the evening news says we have hit the bottom, then the public will start to believe it and will start buying homes.”