Mortgage Confusion

A survey conducted on behalf of the AFL-CIO yielded some surprising and ominous returns regarding what homeowners understand about their mortgages.

The survey conducted by Peter D Hart Research Associates questioned 500 homeowners with adjustable rate mortgages. It found that a majority of those surveyed fail to understand the most basic points of their loan programs:

• 18% of those surveyed don't know their current interest rate
• 20% don't know how their rate is determined
• Almost half (47%) don't know what factors will determine the amount of their rate adjustment
• 73% don't know how much their monthly payment will increase the next time their rates adjust.
  

Not surprisingly, many of the respondents expressed dissatisfaction with their lenders or loan officers:

• 49% say they aren't very informed about their mortgage terms and conditions
• 56% don't recall their lender telling them how much they would pay when their rate adjusts
• 40% say they don't know where to turn for help and guidance should they experience difficulty paying their mortgage.
• 77% say the government should do more to regulate the mortgage lending industry in order to protect consumers
  

In general, borrowers who obtained their loans directly from a lender or bank fared better than those who worked with a mortgage broker.

Not surprisingly, lower income borrowers were worse off than their high-income counterparts. Regarding their rate adjustment:

• 80% said they will likely have to cut back on essential items once their rate resets, compared to only 20% of high income borrowers
• 37% of low income borrowers said they may face foreclosure
• 18% say they may have to give up health insurance because of payment increases

Following the results of the survey, the AFL-CIO has announced a "Save My Home Hotline" 1-866-490-5361 to offer free advice and counseling from the US Dept. of Housing.

More Short Sale Info

I've written a bunch about short sales recently. They are, unfortunately, becoming common in today's market. Here are two more articles that shed some light on this type of transaction. Phoebe Chongchua writes that short sales may be the solution for delinquent homeowners. And Broderick Perkins discusses the tax ramifications of a short sale.

I will be posting more information on this trend in the coming days. If you have questions, don't hesitate to email me and I'll be happy to discuss your specific situation further.

HUD rules against seller funded down payments

Lew Sichelman writes that HUD says "no" to seller-funded down payment assistance. Sellers are, by FHA rules, not allowed to fund the downpayment necessary for any FHA loan. DPA's are a way for buyers to roll the required 3% down payment into their mortgage by writing a contract for 3% above the agreed upon price. The seller then gifts the 3% surplus to a non-for-profit organization who, in turn, gifts that money to the buyer. It's 100% legal and it really works.

I should know. When I bought my first home in 2001 I was a hard working professional musician with outstanding credit and no money for a down payment. My lender told me and my wife at the time about AmeriDream, one of the non profits mentioned in the article. 7 years and two houses later I have been very successful in my personal real estate ventures. I never would have been able to do it without programs like these.

I hope that the FHA reconsiders their position. I am living proof that there are responsible would-be home owners out there who can and should buy a home--they just need help with the downpayment.

Pricing strategy

Correct pricing is crucial to selling a home in any market. Particularly in slower times, it is even more important to price the home realistically based on the most up-to-date market statistics. Many home sellers are obsessed with the idea of over pricing their homes in order to leave "negotiating room" or because they "have to get" a certain value for their home.

The harsh truth is the market doesn't care how much you need from the sale. Period. A good real estate agent will give you a detailed analysis of your home's value based on recent closed sales. If the fair market value of your home is less than what you need you have options: not selling, selling and paying the difference at closing, readjusting your plans for your sale proceeds, etc. The one option you can't count on is a buyer giving you more than what the home is worth!

Of course, it is typical to list the home slightly above market value, but it is important that the seller be realistic in their mark up. In Chicago, the average home sells for about 4-5% less than list price. Therefore, homes that are obviously marked up higher than 5% are at risk for being ignored. By pricing close to market value, you actually increase your chances for showings, offers and, ultimately a quick sale at the best price a seller could reasonably expect.

M. Anthony Carr recently wrote in the online news service Realty Times:

"If you price right, actually you don't have to come down at all. Many of the houses in our market area are selling for the asking price. These are the houses belonging to sellers who dared to meet the buyers in the market instead of hoping the buyers would come up out of the market to make an offer.

Forget nudge room, fudge factor, and space for negotiation. Place the house on the market at a bold price -- then hold the line."

Truer words have rarely been spoken. You home sellers out there take heed!