By Ilyce R. Glink with Samuel J. Tamkin
Saturday, August 8, 2009
It almost feels as though there are two economies.
We have big financial companies crowing about billion-dollar profits, paying $100 million bonuses and repaying warrants. But the other economy is reflected in the e-mails I get from Main Street, where people can't get lenders to call them back about loan modifications, jobs continue to be lost by the tens of thousands, home values continue to fall, net worth is destroyed and foreclosures continue to rise.
In which America do you live?
I'll argue that the vast majority of Americans are overwhelmed by debt, sinking house values and retirement accounts that have not recovered quite as well as the bonus culture on Wall Street. These Americans suspect that Wall Street and Capitol Hill can't wait to declare an end to the recession so everyone can get back to business and bonuses as usual.
I'm not sure we're making the right kind of economic progress just yet. We can say that the housing crisis might have turned the corner, that prices rose a little in different markets and for some types of homes, and that more people are starting to buy new homes again.
Or is that quite right? The June figures from the Commerce Department for housing starts and building permits, which purported to show a significant rise in new construction, carried this annotation: "The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero." In other words, maybe there was a rise in new construction numbers, and maybe there wasn't.
Of more concern are the dozens of letters I receive each week from homeowners who are still being told by their mortgage servicers that they don't qualify for a loan modification under President Obama's Making Home Affordable plan unless they are delinquent. Or they're being told that "foreclosures come first," and that if there's time later, they'll get to the loan modifications. Or they're told they don't qualify at all, without being given a reason.
And despite a financial incentive for second lenders to participate in loan modifications and refinancings, they remain slow to come to the table -- if they come at all.
What's going on here?
This week, House Banking Committee Chairman Barney Frank (D-Mass.) said loan-modification programs may be helping more people but they aren't anywhere near the level they should be.
Earlier this year, "cramdown" legislation, which would have permitted bankruptcy judges to modify primary home loans, passed the Senate but didn't survive the House. Frank said the law wasn't passed because mortgage lenders promised they'd take care of the broad problem of helping families avoid foreclosure.
"People in the servicing industry and in the broader financial industry must understand that if this last effort to produce significant modifications fails, the argument for reviving the bankruptcy option will be extremely strong, and I think there is a substantial chance that the outcome will be different," Frank said in a statement.
This month, many cities passed the double-digit mark for official unemployment. The U-6 unemployment rate, a truer picture of joblessness than the official number, is probably close to 16 percent nationwide and at or past 20 percent in some smaller metropolitan areas.
If, as the latest RealtyTrac foreclosure survey suggests, the rise in unemployment is correlated to the record numbers of foreclosures, Main Street is going to feel recessionary for some time to come.
Q: I am 64 years old and had hoped to retire at the end of this year. My plan is to move to another state to live near my daughter and her family. The development I want to move into is age-restricted (55 and over).
I live in a townhome that I paid $327,000 for in February 2007. Today, townhomes in my subdivision are selling for $295,000 to $315,000. But the base price of the home in the community I want to buy in has also fallen, to about $258,000.
Because of the recession and housing crisis, I'm now planning to work until the end of 2010. If real estate prices have not greatly increased, should I go ahead and sell my townhome here at a loss, since I can buy into the new community at substantial savings?
A: You should consider what's best for you in the short and long term. It seems that you are basically at an even-trade position for the property you want. You may have to come to the table with some extra money to close if you have a mortgage balance on your home that's higher than what you can now get for it.
But if you can sell your home for just a little less than you paid, while paying a lot less for your new home, you may wind up ahead of the game.
I'd try to sell soon. If you wait, you might find that the property you want to buy has also jumped in price.
Q: I have been trying to refinance my loan since February. We paid the fees asked of us and were told we qualified for the 105 percent mortgage refinance.
But now, five months later, the value of our property has dropped again. We were told we no longer qualify for a loan. But isn't there a program that allows you to refinance if your loan is up to 125 percent of the value of the property?
A:The rules have changed many times since February and are still changing. The good news for you is that the 125 percent home-loan-to-value ratio for refinancing is in effect for those whose loans are securitized by Fannie Mae or Freddie Mac. The mortgage interest rate you pay shouldn't be any higher than it would be at the 105 percent home-loan-to-value ratio.
You can find out more at MakingHomeAffordable.gov. This plan was initiated by the Obama administration to assist people in your shoes.
Traditionally, a lender might want to lend or refinance up to 80 percent of a home's value. This requirement freezes out thousands of homeowners who have seen the value of their home drop precipitously during this housing market meltdown.
After educating yourself, call your lender back.
Q: I entered into an agreement with an investor-real estate agent in 2006 in which he was to purchase my home and pay off my loan if he was unable to sell my home in 12 months. It has been three years, and he hasn't sold my home. Not only that, this person has also placed the title of my home in his name and left the mortgage in my name. What can I do?
A: Honestly, I can't believe it has taken you three years to ask for help. The moment the so-called investor asked you to put the title to the property in his name but keep the mortgage in yours, you should have refused and immediately picked up the phone to call the police or the FBI.
You've been scammed. What you describe is a classic mortgage fraud.
Contact a lawyer immediately to find out if another loan has been taken out for the property and whether you need legal action.
Q: I recently filed for bankruptcy. The sheriff has seized my property. Do I still have mineral rights to the property?
A: My sense is that when you lose your property -- and I'm inferring from your e-mail that you lost it as a result of a foreclosure, nonpayment of real estate taxes, or other legal issues that allowed the sheriff to seize it -- you also lose all mineral rights, just as you would lose any other rights, such as riparian, water or air.
Bankruptcy alone wouldn't necessarily cause you to lose your property, especially if you filed for a reorganization rather than liquidation. But if the sheriff has seized your property for some of the many reasons we are all reading about in the news these days, then you would lose all rights to the property.
If you gave someone a mortgage to your property and included all rights to the property, including the mineral rights, the lender has the right to foreclose on that property and thereafter sell off the property with those rights.
Please consult with a real estate lawyer for more details.
Q: I want to take out a home-equity line of credit. Would the process be easier using my current mortgage lender or should I shop around? We only have one mortgage.
A: In the current market, getting a home-equity loan (HEL) or home-equity line of credit (HELOC) has become quite difficult. In some cases, that difficulty is due to declining real estate values. But many lenders just don't seem to be as enthusiastic as they once were about approving home-equity loan and line-of-credit applications.
Go to your lender's Web site to see if it offers them. If it does publish rates for these loans, compare them with rates offered by other lenders in your area. If your lender's rates are significantly higher than those of other lenders, it's a good bet that your lender isn't particularly interested in this kind of business.
You can go to BankRate.com to figure out what local and online lenders are offering. You should also check with a credit union, if you belong to one or can join one. Credit unions usually offer better rates on home and auto loans.
In past years, if you had a good credit score you could basically walk out of a bank with a HELOC of up to $30,000 with just about no questions asked. Today, you should expect a lot more due diligence.
How much can you get with a HELOC? Some lenders will give you a line of credit up to 70 percent of what the bank thinks your home is worth. If values have been declining in your area, you might not even qualify for a HELOC in any amount if your home's loan-to-value ratio is too high.
If you know that your home-loan-to-value ratio is somewhat less than the 70 percent figure, you might be able to get a small line of credit -- but at a higher interest rate. Today, HELOC rates can be as high as the prime rate (currently 3.25 percent) plus 2 percent or more, for an effective interest rate of 5.25 percent.
Some lenders will offer lower rates for higher lines of credit, so it pays to shop around.
Ilyce R. Glink is an author and nationally syndicated columnist. Her latest book is "100 Questions Every First-Time Home Buyer Should Ask." Samuel J. Tamkin is a real estate lawyer in Chicago. If you have questions for them, write to Real Estate Matters Syndicate, P.O. Box 366, Glencoe, Ill. 60022, or contact them through Glink's Web sites, www.thinkglink.com and www.expertrealestatetips.net.