About a month into 2012, the Obama administration has recently come out with news of new initiatives to both punish banks for mortgage improprieties and help homeowners stay in their homes. Sounds great on the surface, but there are still folks in Hawaii staring down the barrel of a judicial foreclosure. What kind of help is there? Let’s look at the different options:
Loan Modification — A loan modification is when your lender changes the terms of your mortgage, usually by lowering your interest rate. Homeowners are normally given a trial period to show the ability to make modified monthly payments for 3 to 6 months, after which the new plan stays in effect or they are rejected from the “loan mod”. Unfortunately, banks today have very little incentive to grant a successful loan mod. A colleague of mine and former REO broker recently informed me that banks make only about $500 per successful modification. Think that motivates them at all? Neither do I. This means the homeowners often find themselves back where they began. I’ve talked to people right here in Hawaii who went through THREE loan modification trials only to be rejected.
Short Sale — A short sale occurs when your bank or lender allows you to sell your property for less than the mortgage balance. In this situation, your lender is taking a ‘short’ position on the transaction, even if the sale itself could take 4 to 6 months or longer as your agent or short sale processor negotiates with the bank on your behalf to accept an offer. Short sales are a different breed of real estate transaction and are beyond the skill set (and patience!) of many professionals, whether agents or investors (I don’t mind them, though!). Ask any homeowners who’s attempted a Hawaii short sale, and they’ll likely tell you horror stories of being routed through 10 people at the call center and faxing in the same stack of paperwork, only to see it collapse at the last second because a BPO (broker price opinion) came in too high and the buyer left, or they were working with someone who didn’t understand the intricacies of a short sale. Make sure you work with a pro.
Forbearance — A forbearance occurs when your bank or lender takes your past due amount (arrearages) and rolls it into the current loan. This increases your monthly mortgage payment and/or extends the life of the mortgage. You’re not getting debt forgiveness — you’re essentially getting a form of loan modification or restructuring. A forbearance may reinstate your loan into good standing, although you may be putting lipstick on a big if you’re saving a mortgage you’re better off not keeping around for the next 20 years, like an adjustable rate mortgage (ARM) that was popular not too long ago.
Remember, just because you can save a house and mortgage doesn’t mean it’s best to do so. That’s a personal decision to make with your family (and your attorney and/or CPA) after weighing all your options.
Sell Your House (non-short sale) — This is really only an option if you have equity in your house, which is not the case for most Hawaii homeowners caught in the foreclosure process. However, if you have equity but just haven’t been able to keep up with your mortgage payments, then you may have the option of selling it outright with the help of a realtor or directly to a Hawaii real estate investor. Depending in your debt to equity ratio, you might even profit well from the sale. The primary advantage, however, is that you keep both a foreclosure and a short sale from your credit history.
Click here for “Options for Avoiding Foreclosure in Hawaii — Part 2“…..