We all remember the heady days from late 2003-2005. It was a market where, despite the realities, just about anyone could get into the investing or purchasing of a new home without really making all the motions necessary to protect themselves from the "worst case scenario. But just like common rules of economics dictate, markets with high profitability soon will get flooded with competition. Unfortunately, millions of innocent families got swept up in the rush, either buying property that had low "teaser" rates, or just plain buying above market price, sometimes both. Lenders point fingers at their financial pools and investors, many pointed the finger at Wall Street, real estate brokers, underwriters, and homeowners alike.
It hurt the situation even more that builders were going through periods of unprecedented and unrestricted growth. I used to conduct research of active neighborhoods and could see this influx of new homes NOT followed by an increase in jobs or demand. So what did everyone do? Teaser rates they advertised, sell the loan they said. Many unqualified people bought a loan and not a house.
In the wake of the "perfect" real estate storm which will most certainly reset the credit and commercial paper industry, there are new rules emerging from the federal government that we will be playing by for some time to come, many affect the average homeowner facing tough times
- 1. Banks will want to choose who they will work with (but only to an extent) - As many banks wake up with a mortgage hangover, they will increasingly admit to a problem with the lending practices they they once used to drive business. They have the option of restructuring the loan or letting the deed pass to their loss mitigation departments. With an overflow of work, mitigators are increasingly coming to the table with markdowns already in hand. Bottom line, the banks and investors will take the worst hit from a foreclosure market and reset market price for homes they have in their inventory. So what does this mean for you? In the end, you can get a more receptive audience to your plight, you'll just have to prove your hardship to the bank.
- As lending gets tighter, debt consolidation will become more widely available - The best way to save your house and your credit is to prevent foreclosure. When you receive a lis pendens (Notice of Default), ACT, and don't push it to the side. You will have to deal with it eventually. Think of your future and those around you. Fortunately, experts are already becoming trained in debt consolidation, forbearance, and other types of loan modification. With an action plan in place, your debt can be reduced quicker and easier than you thought. You'll save your house, keep the black marks off your credit, and breathe a sign of relief when it's all done.
- Banks will need to see a history - In the coming months and years, it's my prediction that banks will try to work with only those that can prove steady employment, and rental history, so keep all your records in a safe, dry and clean environment. If you have a scanner, make all the necessary files available digitally so you can send them through e-mail. A solid rental history, referrals from old landlords, and a concerted effort to stop foreclosure and work with the banks shows good history. Trust me, you'll need this one!
- Uncle Sam will step in (eventually) - The good news about the bad news is it's become so big that the next presidential debate will focus on the issue. Take comfort for a minute that, while it's bad to be in the sinking boat, you aren't alone, and the distress signal was received. Research shows foreclosure help is on the way, especially for those who only had a temporary hardship and are behind only a few months. There are bills and committees at work right now trying to restructure the industry. The government knows now that according to the Mortgage Bankers Association, 5.12% of outstanding loans were in default in the second quarter, a rate about 17% higher than a year ago. With that kind of epidemic coming, the government knows it's time to provide regulation to an industry that basically just had 3 years of partying, only to wake up with a bad hangover.
- Your credit will matter more now than ever - Seriously, this is a big one. If you do one thing today, figure out your credit. It literally saves you thousands of dollars to be able to qualify for lower interest loans. Everything these days is based on credit, so secure your future by getting your credit report and securing it against ID theft or foreclosure. Take the hard steps necessary now to help promise the future. You won't regret it!
