Ask Our Broker: Defaults Down, Housing Up?

QUESTION:

Given the drop in

foreclosures late last year, does that mean the worst of the housing crisis is over?

ANSWER:

In the last quarter of 2010, the pace of foreclosure filings fell significantly but this had nothing to do with better economics or more housing demand. Instead, what happened was that as a result of the robo-signing scandal lenders halted foreclosures in many states to check and revise documentation. At the same time, many courts instituted stricter procedures and requirements, thus slowing the process.

In essence, the number of homes at risk did not decline. The foreclosure filings that were delayed in late 2010 will inevitably make their way to auctioneers at some point, thus boosting foreclosure totals in 2011.

QUESTION:

Local real estate values have fallen, so to get the a new and lower interest rate we want to take money from savings and refinance with a smaller mortgage. Is this common?

ANSWER:

Freddie Mac reports that in the fourth quarter of 2010, 46 percent of those homeowners who refinanced a first-lien mortgage paid in additional money at closing. This is the highest “cash-in” percentage since 1985, when Freddie Mac began keeping records on refinancing patterns.

One reason for the cash-in surge is that given low returns on savings you might get a better financial result by using the money to pay down your mortgage. Another reason is that by refinancing you will be able to capture today’s lower interest rates. A third reason to refinance is to trade-in an unstable “affordability” mortgage product (of the type sold for several years) for a safer, non-toxic conventional FHA or VA mortgage with lower monthly payments.

However, you also may be able to get a mortgage modification without a cash infusion. Borrowers with good payment histories might want to look at the government’s Home Affordable Refinance program which is designed for borrowers with good credit, little equity and even negative equity.

See: http://www.makinghomeaffordable.gov/refinance_eligibility.html for details.

A caution: If a lender suggests that you should purposely miss a mortgage payment to “qualify” for a mortgage modification, go elsewhere.