From where I am sitting, I am still seeing a relatively high number of foreclosures in our area.   I think our market tends to lag the general market by about a year to 18 months. 

Some predict a further mushrooming of this effect as many banks have been waiting to test the water and see what is coming next.

Montrose Colorado is a beautiful place to live and was growing at a good pace and is still expected to double in size over the next 10-20 years. 2 Years ago this was easy to believe.  Now I think it will be pushing clear to the 20 year mark, unless the money supply situation straightens itself out.

Banks supposedly have money to lend (hundreds of millions of it financed off the tax payers backs).  But Banks are not lending as much as they want to because of new regulations and policies enforced by underwriters to ensure safer loans.  Whether you are for or against this doesn’t really matter. Tight lending it is stopping people from buying and selling homes, that would of otherwise been bought rather than rented.

At the same time Credit Card companies are squeezing already strapped people (including me), by cutting their credit limits down and raising interest rates.  Eliminating peoples “Cushion” or “Float” Capital.  This is particularly important for the small business owner with one or two employees who’s cash fluctuates with jobs as they come and go or pay or delay… 

This means people like Realtors and small contractors who rely on credit to finance their business are unable to finance their business and are tapping into any savings or reserves they may have.    They are probably losing out on some jobs because of this lack of available credit.

Many also do not understand that once their credit limit is cut, if their balance exceeds 50 % of the allowable credit, then it docks their credit score, possibly preventing them from getting a home loan.

The credit crunch is real and its affecting hundreds of millions of people and guess who is making money off of it… The banks, the same banks that got us into this mess.  I know there are thousands of “preachers” out there who support that everyone have a “strong” or even entirely cash position and boy wouldn’t that be nice, but Credit is a lot like a drug, they get you hooked and used to using it and then when they cut you off you are in real trouble.  Its unfortunate that they are using the current housing crisis as a time to try to make more money off the backs of the struggling American and that they have overtightened the money supply for home loans.

Montrose Colorado really didn’t have a foreclosure problem, until the money supply dried up.  This stopped construction and caused lots of layoffs and for people like Realtors, their income was halfed, quartered or even eliminated, leaving the them with a deficit.

I personally had a sizable chunk of savings and available credit for “down times”, but it has been eroded and used up and I can’t just force people to use me or to even decide to buy a house. 

I have never worked harder and been paid less in my life.

There is a glut of inventory on our market and many prices have not fallen yet to where I feel they will actually be purchased.   Most shoppers are looking for a 50 cent on the dollar deal…  Few exist.  Those that do are offered from “motivated” banks, but they usually require a great deal of repair and fix up, so this usually cuts out the first time home buyer and focuses on the investor.

Then President Obama decides that we will incent or attempt to force banks to do Loan Modifications with their borrowers, but the process is extreamly slow, uncharted territory and many are getting ripped off by shisters advertising on the radio, internet or otherwise that they will take care of everything and they are not, the people still get foreclosed out.  Others upon ill advice of attorneys or other counselors or spinners are suggesting to people to miss a payment to begin negotiations.  While this kinda makes sense it is just increasing the problem and it screws ones credit up BAD for about two years.  This is basically the same as a short sale on your credit based on my understanding. 

If you are going to do a Loan Modification, either do it yourself or call the state hotlines first.  Get references for companies from real people (preferably in your area and trust me its worth your time particularly if you REALLY want to keep your home).   Ensure that the hired negotiator will take no upfront moneys from you.  They only get paid when they get the Loan Modification with the exception of a small fee (under $150).  If they want more upfront money be very careful and require joint notification of each submittal and call the bank yourself to follow up with it.

Of course you can always call a Realtor for advice!  Ask a few questions to see if they know what they are talking about and if your not convinced, try another.

You can reach me at (970) 209-0252. 

Thanks Chris

Cease Making Payments?

The State of Colorados Position Statement on Loan Modifications that was just revised and released to the general public indicates that some people are advising consumers to cease making mortgage payments even when are already delinquent on payments.

First realize if you want advise on this type of thing I recommend you talk to the government counselor first and then an attorney or accountant if you have one.

The Basic Options

Earn enough income, keep paying on your mortgage and eventually you will own your own home or sell it when you want hopefully for a profit and payoff the balance of the mortgage at the sale.  You are happy the bank is happy. 

If you don’t pay your loan or mortgage, then you are in default.  The bank will indicate this on your credit report and you will most likely not be able to get a home loan or a typical refinance for at least two years.  It is my understanding that this is the same effect on your credit as a Short Sale.   Where a Foreclosure will stay on for at least 7 years and a Bankruptcy for 10 years.  

I am no credit expert, but these are the things I hear consistently from the people who claim to be.

When People Ask Should I Pay?  I Say

When people have asked me what to do I tell them I cannot make that decision for them, but that there are some obvious options. 

If Current now, and you have the income, then Stay current on your mortgage and try to sell your home.  Save your credit.  If you need to short sale banks will consider a discount in some situations even if you haven’t had a late payment.  If you don’t qualify for a short sale due to other assets or earnings, you may have to bring money to closing or sometimes the Bank will agree to carry back the difference as an unsecured debt, that you repay over time (kind of a workout/sale combo).

If Current now but your income has ceased or shrunk to where you cannot make your payment.  You have three choices:

1. Borrow money elsewhere and make the payment planning to catchup with new lender later. 
2. Make a partial payment (what you can afford) and notify the lender of your inability to pay the full amount.    It is worth noting that a partial payment will sometimes be considered when the Bank is weighing whether or not to Foreclose.   It can also make the extra that needs scraped up later to stop the foreclosure from starting, smaller.   Be sure to note the month it is to be applied to (the one you are latest on).  NOTE - I believe a partial pay is the same as a late pay on your credit report.  BAD.
3. Make no payment to the bank and feed your family, pay your utility bills and keep trying to sell your house and/or find new sources of income.  NOTE - this will impact your credit very negatively for at least 2 years. 

How does a homeowner decide?

If the homeowner has no money to make the payment and they aren’t sure how to feed themselves or their kids and their home (in this market) is not worth what they owe on their mortgage.  Then I think they need to seriously consider if they should even try borrowing from a friend or family to make this payment.  They may need that avenue or last ”lifeline” call for funds later when they have lost the house.

In my opinion, no lawyer, mortgage broker, realtor, family member, counselor or anyone else can tell you what to do in this situation. 

You have to look into your soul.  Examine your morals.  Feel your faith about your future - Will it be better soon or will it be worse?   Can you visualize yourself on a path to financial recovery or not?

You must also think about where you will go.  An apartment usually requires at least 2 months rent to move in and with “Bad Credit” a late pay on your mortgage, they may require more and it may limit your options.  What is rent in your market?  Can you afford it?  How much reserve will you need to get back on your feet without getting evicted first. What is availability?   You need to know these things to figure out your plan and make your decision.  Moving is expensive, reconnection charges, change of addresses take time away from life and/or work.

I think if you have kids, then as a parent it is your responsiblity to try to do everything in your power to keep your kids off the street and if this means not paying the bank then don’t pay the bank.

I am a believer of positive thinking and attitude helping to steer your course.  However you can be overly optimistic.  If you just got fired from your high paying job and divorced in the same month or week and you think everything is going to be ok, you might be overly optimistic.  You might also be overly pessimistic.  Only you know your true capabilities, marketing abilities, desire, drive, etc. that will determine the correct path for you.

If you think realistically you will not have income for months, then just like in planning for a divorce or a bad economy or a disaster a person needs to watch out for themselves, have a reserve fund, know they can take care of their loved ones and consider what that is worth compared to their credit or even their home. 

A person also has to be able to look themselves in the mirror and sleep at night.  If the circumstances beyond your control are what is causing your problems, then I think you should be guiltless.  If it is something that you did on purpose or fraudulently then I think it will eat at you and screw up your karma. 

I seriously don’t believe that there are very many people out there (maybe a few) that intentionally buy a house and plan to lose it to the bank.  Lets face it.  It is always some type of circumstance that changes that affect income and ability to repay the loan.  To me, it doesn’t really matter who’s fault it is.  Because in reality,  if the homeowner doesn’t pay, the bank or investors lose.  The late-paying homeowner loses with a big sledge hammer ding on their credit report.  Should it go through to foreclosure they both lose even more.  The bank has a REO and foreclosed homeowner loses their home and is punished more by not being able to buy again for at least 7 years.    Plus the homeowner can either get forgiveness of debt phantom income or a deficiency judgement.

Is a SHORT SALE the Answer?

The short sale is one answer that is kind of a compromise, because it means:

The seller is going to lose their home and get nothing for it. 

They have typically already made the decision to stop making payments because of circumstances that have changed. But they know it is inevitable that they will sell for no profit or abandon their house eventually.  In this circumstance it seems to me, that the payments to the bank kind of don’t matter.  

At this point the homeowner should consider trying to get enough money scraped together to move into an apartment or in with a family or whatever, rather than trying to pay the Bank or lender any more money. 

Realize a short sale is a bit of a gamble though.  You have to find the buyer, you have to qualify with your lenders requirements, both in documentation, situation and in price based on their BPO and their ratios.

But the worst case of trying to do a short sale and failing is that the bank goes through with the foreclosure.  So if it fails, all it really costs is the time to put together the information and trying to sell your home (showings and yours or the realtor’s time.)