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3 considerations before abandoning underwater home

REThink Real Estate

By Tara-Nicholle Nelson Inman News®

Editor’s note: This is  the second of a two-part series. Read Part 1: “When it makes sense to keep an underwater home.”

Q: At the top of the  market, I owned three properties: my first home (in a marginal neighborhood, now  about 100 percent upside down), my own residence (a big fixer in a great  neighborhood), and a triplex I bought as an investment (an OK neighborhood,  needed some work, fully rented, but now upside down by about 30 percent).

When the market  turned, I had a couple of bad tenants in my first home and the triplex that set  me way back financially, and I was unable to borrow the money I needed to fix  the house I lived in. I did a short sale on the fixer and got temporary loan  mods on the other two, and moved back into my first home.

The problem is, they’re  both so upside-down and don’t seem likely to come back up anything soon … should  I just sell everything and start over?

A: Last week, we covered the preliminary step I want you to  take with respect to your personal residence, of examining whether the home  still works for you, for the most part, as a personal residence,  notwithstanding the fact that it’s upside-down.

Many a homeowner makes the wise decision of staying put in  an underwater home on the grounds that the home is functioning well as a home  for their family, is affordable and looks like it will remain functional on  those counts for the foreseeable future.

I’m aware, though, that your situation is complicated by  your perception of both of the properties at issue, at least in part, as  investments that now seem likely to have outlived the purpose for which you  bought them.

I can’t give you a black or white answer in terms of whether  you should sell or hold either or both of your properties. But I can give you a  set of considerations to factor into your decision. After you evaluate the  life-property fit of the home you currently live in, consider these three  things:

1. Your options.  One of the biggest, most stressful mistakes we make, as humans, is to agonize  over decisions without a complete understanding of the full spectrum of options  that are available to us. So, educate yourself!

Get online and do your reading,  talk with your own lenders to see what options they might have available, and  then also talk with local professionals you trust — at the very least, include  a real estate broker, a mortgage pro, an attorney and a tax expert on this  list. They might know of options you don’t, and they might be able to help you  understand the timelines and feasibility associated with each option.

For example, banks seem to be granting short sales at higher  rates than before, but they still take a long time, and the exemption from  federal income taxation on the debt forgiven via a short sale is currently set to  expire at the end of 2012. That might suggest you should list your properties  for sale and apply for short-sale approval, stat.

On the other hand, there have been a number of governmental  foreclosure relief program developments that might offer help for you, some of  which are available only in the hardest-hit states.

The pros can also help you get a deep understanding for all  of the tax, credit, financial and even legal implications of all the options  available to you. Get the information and professional input you need to fuel a  clear, complete understanding of your options before you move forward with your  decision-making process.

2. Your values. The  decision whether to hold or sell your properties is a hybrid business/personal  decision that will impact the overall “after” picture of your life.  While you can and should factor in input from professionals and even personal  advisers whom you trust are knowledgeable and have your best interests at  heart, only you can decide what’s really important to you in a way that drives  the ultimate decisions you make.

(And decision really should be decisions, plural, because you could  very well create an action plan that involves putting the place on the market  as a short-sale listing while you apply for a loan modification, or some other  set or sequence of actions.)

So, when I say to factor in your values, I’m simply  encouraging you to get clear on what is important to you. Owning the place you  live? Tax advantages? Reducing your expenses? Saving up to secure your  retirement?

This phase of the process will help you get out of the very  common real estate decision trap of doing things for their own sake: owning  because ownership is good, or getting out of the market because that’s the  supposedly smart thing to do.

Whether you decide to hold, sell, or try to make  some other changes to your situation then sell as a backup plan, it’s important  that each action step you build into your plan be set in service of some higher  life aim, goal or value.

3. Your priorities.  Once you do a deep dive into your values and even list them out in writing, one  essential truth will quickly become very evident: You can’t (likely) have them  all. Early on in this decision process, you’ll need to rank your values and  objectives in order of importance, and communicate that to the professionals  you look to for advice.

There are trade-offs involved in virtually every real estate  decision. For example, you might have to give up some tax benefits of property  ownership to cut your costs and save your financial acorns for the winter of  retirement.

You might have to sacrifice free time and get a side job to  make your real estate obligations if you decide to keep the triplex after the  mortgage adjusts (if you’re currently paying only interest, a mortgage  adjustment that happens in January might involve a decrease in interest rate but still increase the overall payment if you have to begin paying toward  principal).

Only you can know what’s important to you, in your finances  and your life, to make the critical decisions you now face. So get clear on  your full range of options and the implications thereof, build out a strong  sense of your own values and life vision, then prioritize and rank the  things that are important to you. Once you have these inputs, your action plan  should soon become clear.

Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

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It’s official. The Federal Housing Finance Agency (FHFA) unveiled a new, revamped government mortgage refinancing program Monday.

The initiative involves a series of rule changes to the Home Affordable Refinance Program (HARP) to allow more underwater homeowners to reduce their mortgage debt by taking advantage of today’s rock-bottom interest rates.

Mortgages backed by Fannie Mae and Freddie Mac, and originally sold to the GSEs on or before May 31, 2009 are eligible for the program.

Under the revised HARP guidelines, the 125 percent loan-to-value (LTV) ceiling has been eliminated. Previously, only borrowers who owed up to 25 percent more than their home was worth could participate in HARP. That limitation has now been removed. The program will continue to be available to borrowers with LTV ratios above 80 percent.

The new program enhancements address several other key aspects of HARP that industry participants say have restricted its impact, including eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers, as well as allowing mortgage insurers to automatically transfer coverage from the original loan to the new loan.

In addition, Fannie Mae and Freddie Mac have done away with the requirement for a new property appraisal where there is a reliable AVM (automated valuation model) estimate already provided by the GSEs, and they’ve agreed to waive certain representations and warranties on loans refinanced through the program.

Not only are loans eligible for HARP considered “seasoned loans,” but a refinance helps borrowers strengthen their household finances, reducing the risk they pose to the GSEs. Thus, FHFA feels reps and warranties are not necessary for some of these loans.

With Monday’s announcement, the end date for HARP has been extended from June 30, 2012 to December 31, 2013.

The GSEs will release program instructions to lenders by the middle of next month, and FHFA expects some lenders will be ready to accept applications by December 1.

Since HARP was rolled out in early 2009, approximately 1 million homeowners have refinanced their mortgage loans through the program. FHFA estimates that with the revised guidelines, another 1 million will be able to take advantage of the program.

To qualify, borrowers must be current on their mortgage payments, but government officials believe by opening HARP up to more homeowners with higher thresholds of negative equity, it will help to prevent foreclosures by erasing the primary motivation behind strategic defaults.

Economists at the University of Chicago Booth School of Business estimate that roughly 35 percent of mortgage defaults are strategic. Numerous industry studies have found that homeowners who owe significantly more than their home is worth are more likely to throw in the towel and walk away from their mortgage debt even if they have the ability to continue making their payments.

“We anticipate that the package of improvements being made to HARP will reduce the Enterprises credit risk, bring greater stability to mortgage markets, and reduce foreclosure risks,” FHFA stated in its announcement Monday.

Fannie Mae and Freddie Mac also released statements in response to the announcement.
Michael J. Williams, Fannie Mae’s president and CEO, called the program a “welcome development.”

“By removing some of the impediments to refinance, lenders can more easily participate in the program allowing more eligible homeowners to take advantage of the low interest rates,” Williams stated.

Charles E. Haldeman, Jr., CEO of Freddie Mac said, “These changes mark another step on the road to recovery for the nation’s housing market.”
For more detailed information, please visit:

http://www.dsnews.com/articles/administration-announces-refinance-program-for-underwater-borrowers-2011-10-24

Authors: Krista Franks and Carrie Bay
Source: DSNews.com

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