If you are facing foreclosure you are not alone. Thousands of people have lost their homes to foreclosure in the last year and thousands more will face financial hardship leading to foreclosure before things balance out.

The Mortgage Melt-Down

The increase in foreclosures began with the subprime mortgages that ultimately led to the mortgage melt-down. Many are placing the blame on the mortgage industry; however, no one could have predicted this. The adjustable rate mortgages, known as ARMs were one example of creative financing methods that were great for some people. The benefits of this plan included 100% financing at a low interest rate that was only fixed for 3 years. The plan was to refinance before the ARM reset and rates were increased.

Unfortunately, the economy took a devastating turn; unemployment was up and real estate values declined. When people lost their jobs and were unable to keep up with their mortgage payments, this meant that they would not be able to qualify for a new mortgage to refinance their home. Those who were fortunate enough to keep their jobs were also unable to refinance because their home lost so much value that they owed more on their mortgage than the home was worth

The Foreclosure Crisis

The devastation continues as people are walking away from their homes. Investors are taking a huge loss and mortgage guidelines are getting strict. Even people with very high credit scores are finding it difficult to get a new, fixed rate mortgage.

Unfortunate things happen to responsible people. Foreclosure is painful, no matter what the cause. People who face losing their homes to foreclosure feel helpless as they wonder who to turn to for help. Many are tired of the phone calls and letters from their mortgage companies demanding payment.

To make matters even worse, distressed homeowners are flooded with mail from companies who promise to help with guarantees to save their home or stop the foreclosure process. There are reputable foreclosure consultants who offer solutions, but most of the companies who approach people that are in default on their mortgages are offering a scam. They charge outrageous fees and perform little or no service. These predators can get your name from the legal news or a foreclosure list that they have subscribed to.

Foreclosure Help

Now that I have explained how we got into the foreclosure crisis, I will cover some of the options available to you. One is to just walk away. Though many people are doing this, it should be your last resort. A foreclosure is very damaging to your credit report and it is one of the items that take the longest time to be removed from your credit history. There are cases where this is your only option, but there are others to consider as well.

Some people are able to negotiate a mortgage modification plan with their lender to make their mortgage more affordable. The lender/servicer may agree to reduce the interest rate or extend the mortgage term. In some cases, lenders have been known to stop the foreclosure process and write off late fees, accrued interest, escrow shortages and even some of the principal. They might allow the borrower to start over with a whole new mortgage. Years ago, this was not common; however, things have changed drastically and so have lending practices.

You might list your home to see what people are willing to pay in todays market. It is likely that you will not get an offer that will cover your balance owed as market values have declined. If the lender is willing to accept a short sale, then this is a much better option than foreclosure. In a short sale transaction, the lender accepts less than what he is owed because he knows that as values continue to decline, hell take a larger loss if he lets the foreclosure run its course. By the time the redemption period is up and the homeowner is evicted, the house will continue losing value and may not sell at all.

Homeowners can negotiate with their lenders to reach a solution; however, many do not know how to go about it, or they are just too stressed out and emotionally drained to handle the task. It is important that you know what to say and how to present your case so your lender will be willing to cooperate. There are reputable companies who provide these services for a reasonable fee.

With current depressed property values in the Pinellas County Florida Area, it is prudent for the homeowner who has purchased his property within the past 36 months to obtain a current Market Value Appraisal of His/Her property from a Highly Qualified Pinellas County Appraiser.

The current system has HUGE inequities in the tax burden for homeowners. Taxing authorities base taxes on the most recent transfer price.

If you purchased your home more than 5 years ago, you have a very low annual real estate tax. If you purchased your property during the height of the property appreciation, you have annual taxes that are well above the current valuation.

A current appraisal from a qualified appraiser, should be purchased from a Pinellas or Hillsborough County Appraiser, who has experience in property tax disputes.

A suggestion for choosing an appraiser is to check for professional designations, indicating that they have extended education and qualifications. The best place to check for professional designation is the Appraisal Institute. It is suggested that the homeowner look for an appraiser with either the SRPA or SRA designation. Both are residential property specialists. The Appraisal Institute can be found at appraisalinstitute dot org

In preparing for the appraisal, the homeowner should have their current mortgage survey handy for the Pinellas Appraiser to look at and a list of recent renovation or remodeling completed. It is best to use those items completed in the past 3 years.

Don’t shop for an appraisal based on the fee quoted, shop based on experience. In the appraisal business, qualifications and experience will serve you well in your appraisal requirements.

Marten W. Davis, SRPA

When your appraiser comes to do his/her physical incpection, it is important that you have things ready. If you have some important items ready for the appraiser it will make his job much easier.

All items might not be available in all cases, but those that are available will be extremely helpful to your appraiser.

These items that you should look for are: Mortgage Survey which is a small piece of paper with a drawing of the lot with the building outline. This document is usually prepared by a surveyor and has his stamp on it. The information on this document includes the specific measurements of improvements and lot, the legal description and the flood zone specifics.

Previous appraisals are helpful for physical characteristics information. If the dwelling is newer, any floor plan drawings (blueprints) is extremely helpful to the appraiser.

List your recent improvements, date and cost. These will be helpful to itemize those items that have been upgraded and modernized. If you have a recent home inspection report, that would also be very helpful.

Any easements which the property has like shared driveways, etc. should be presented to the appraiser.

The appraiser can get the specifics of the property detailed much more accurately if you present the suggested items at time of inspection.

Marten Davis, SRPA

There was a time when vacant, board-ups were few and far between; now we see several empty homes on every street in many neighborhoods. It doesnt matter if were in lower-class, urban areas or in the middle to upper-class neighborhoods; there are many empty houses that are difficult to sell.

Declining real estate values and the troubled economic times have forced many responsible people to be at risk of losing their homes. Unemployment, pay cuts and the decrease in job benefits has caused millions of homeowners to face foreclosure; millions more are expected to struggle before things improve.

Though the crisis seems to be temporary, something still needs to be done to assist distressed homeowners. Sure, we will find a balance as prices continue to decline and the demand for real estate goes up, but until then, we need to decrease the number of foreclosures which add to the problem.

Vacant homes, littered with debris, are an eyesore to the neighborhood and a danger to the community. Children and teens find these empty houses attractive as they go in to explore or play. They can be injured or, heaven forbid, fall victim to predators who may be waiting inside or force them inside.

New Programs Provide Hope for Homeowners

The Obama Administration launched several new programs in March, 2009, to offer assistance to as many as 9 million homeowners who continue their effort to make their mortgage payments. The plan is to reduce the destructive impact of the housing crisis on families and communities. The Making Home Affordable program was designed to support a recovery in the housing market and ensure that responsible homeowners will be able to continue making their mortgage payments.

This program brings together government, mortgage holders, investors and homeowners to share the responsibility toward preventing more Americans from losing their homes.

New Home Affordable Refinance Program

This program is expected to help about 5 million responsible Americans refinance their homes by reducing their interest rate; therefore, reducing their monthly mortgage payment. Under this new program, homeowners cannot owe more than 105% of their homes current market value. Though many people paid at least 20 percent down when they purchased their homes, and some people are in the habit of making extra principal payments on their loans, many still have trouble refinancing because values have declined sharply. The Obama Administration has launched this program to help responsible homeowners, whose loans are guaranteed or owned by Freddie Mac or Fannie Mae, refinance their mortgage to make their home more affordable.

The Home Affordable Modification Program

It is anticipated that this $75 Billion program will reduce foreclosures and help responsible families keep their homes by modifying the terms of their mortgage as the Treasury Department cooperates with federal agencies on a comprehensive, multi-part strategy.

The Home Affordable Modification Program is expected to help millions of homeowners who struggle to make their mortgage payments, but are unable to refinance due to declining real estate values. So many responsible homeowners have found themselves upside-down with their homes being worth far less than they owe on their mortgage. It is hoped that this program will provide security for families and stability for communities hardest hit by foreclosures.

The beauty of this program is that it brings together all parties involved, including lenders, investors, servicers and borrowers and the government to share in the cost of ensuring that responsible homeowners can afford their monthly mortgage payments. This will result in reduced foreclosures and to avoid further downward pressures on overall home prices.

How it Works

The Treasury will partner with financial institutions and investors to reduce homeowners monthly mortgage payments.

Provided the lender agrees to a loan modification, the borrowers payment will be reduced to a level of no more than 38 percent of their income.

The Treasury shares the costs of reducing the payment further, from 38% of the borrowers income to 31% of the borrowers income.

The modified payments are kept in place for 5 years. After 5 years, the interest rate can be gradually increased by 1% per year until it reaches the capped rate in place at the time of the modification.

In order to reduce the monthly mortgage payment, the lender can agree to an interest rate as low as 2% and/or a mortgage term extended to up to 40 years. If the monthly payment still does not reach the target amount, the principal can be reduced; this is a last resort.

Lender Incentives to Cooperate

Lenders and servicers will be awarded $1,000 for each loan modification which meets the guidelines established under this new plan. They will also receive an additional $1,000 per year, for three years, if the homeowner is successful in maintaining the new agreement.

Servicers will be offered similar incentives if they modify FHA, VA or Agriculture Department loans, or refinance loans according to the Hope for Homeowners or similar FHA programs.

Studies have shown that modifications are more successful if they are done before borrowers are behind in their payments; therefore, incentives are being offered to lenders who cooperate before the mortgage is in default.

Hopefully, things will begin to improve as homeowners take advantage of these new programs. Preventing foreclosure will result in stabilizing areas already suffering due to vacant homes.

The multitude of recent news reports out of Washington results in a lot of questions concerning President Obamas plan to reduce foreclosures. I will attempt to minimize this confusion by briefly explaining the highlights of Obamas plan. The government estimates that this plan will assist up to nine million distressed homeowners. As the Mortgage Bankers Association indicates that there are about 51 million first mortgages in the US, this means about 18 percent may qualify for this program which was launched in March, 2009. This is a summary of a very detailed program which you can learn more about by going to the US Government website at financial stability.gov.

The serious matter of foreclosure has caused enough stress without the annoying number of acronyms being applied to the subject. Even real estate professionals and mortgage specialists are overwhelmed with these government acronyms, including TARP, TALF, H4H, GSE, FNMA, FLHMC, PITI, FHA, VA, USDA, just to name a few! Unfortunately, I must make use of them throughout this article as they are widely used within the industry.

There are essentially 2 parts to the program: The first is a plan to refinance eligible mortgages and it is being referred to as Home Affordable Refinance. The other part deals with loan modifications and is known as…Home Affordable Modification. Its just a matter of time until these are called HAR & HAM I am predicting.

First the HAR (Home Affordable Refinance):

The current mortgage must be owned or guaranteed by either Fannie Mae (FNMA) or Freddie Mac (FLHMC). If you are not sure if your mortgage meets this first requirement, you can call (800) 7FANNIE or (800)7FREDDIE between 8am ” 8pm EST. The property MUST be your primary residence. Second Homes and Investment Properties do not qualify. The borrower(s) have sufficient income to qualify. The mortgage must be up to date with no 30 day delinquencies in the last 12 months. The first mortgage cannot exceed 105% of the current market value. Example: If the property is worth $100,000, the maximum that can be owed is $105,000. If there are additional mortgages (Second Mortgage, Home Equity Line of Credit, or other liens), the other lien holders must be willing to subordinate their liens in writing to the new first mortgage. Subordinate simply means that the first mortgage will retain its superior lien position. It is OK if the total owed exceeds 105% of current value, as long as the first mortgage refinance does not exceed the 105% rule. The program officially started 3/4/2009.

A Summary of the HAM Program:

To be eligible, the Lender must be willing to participate. Investor/Lender & Servicer participation is voluntary on their part. The intention of the program is to avoid foreclosures whenever possible. Each case is evaluated separately and borrowers must prove that they can afford the modified payment. There must be a steady source of income to be eligible. There must be a documented financial hardship to qualify. The current monthly PITI (Principle, Interest, Taxes, & Insurance Total) must exceed 31% of the borrower(s) gross monthly income. No jokes allowed about the PITI acronym. The borrowers do not need to be current on the monthly payments. Again, each situation is unique and will be evaluated on a case-by-case basis. The goal of the plan is to reduce the total housing PITI payment for all mortgages to no more that 31% of gross income. This includes any second mortgages or HELOCS who must be willing to participate and subordinate their liens to the new modified mortgage. The subject first mortgage must be for the Borrowers primary residence. Second homes and investment properties are not eligible. The subject mortgage must have been made before 1/1/2009 and it cannot exceed $729,750. I am sure there is a reason that they used $729,750 as the maximum, but I cannot find any information about how the government arrived at this amount. The payment reduction will be achieved by reducing the interest rate, extending the term of the loan, or by a principle reduction (last resort). Remember, this is voluntary on the lender/investor and/or servicers part. Modifications are for a 90 day trial period. If the borrower(s) honor all of the terms during the 90 day trial, then the modification will be extended for a term of no less than 5 years. Beginning in year 6, the interest rate can be increased by no more than 1% per year until the note rate reaches the Freddie Mac Primary Mortgage Market Survey Rate on the date that the modification is executed.

This is a brief summary, highlighting the terms and conditions of these new programs. For more information, you can visit the website at financialstabiltiy.gov.

Lets all hope that this new initiative is more successful than the Hope for Homeowners Program (H4H) that started October 1, 2008. The following article was published recently by Time Magazine:

Grade: F The Plan: Enacted on Oct. 1, Hope for Homeowners was to be the main foreclosure rescue plan from Congress, which allocated $300 billion for the effort. Supporters in Congress, like Massachusetts Representative Barney Frank, said the program would allow hundreds of thousands of borrowers, perhaps millions, to refinance into lower-cost loans by cutting the amount they owed, which for many at-risk-of-default homeowners was more than their house was worth.

The Result: So how many people have Hope for Homeowners saved from foreclosure? Zero. There have been 326 applications in the three months since the program started, but none of those people ” let alone the nearly 6 million homeowners who, by some estimates, may face foreclosure in the next few years ” have received a new mortgage or a modification for the one they have. What’s more, none of the major mortgage lenders, such as Bank of America, Citigroup and Wells Fargo, has signed on to the loan-principal-reduction program ” which gives Hope for Homeowners little chance of being successful anytime soon. “Foreclosure is the problem we have to spend a lot more effort trying to solve,” says the Economic Policy Institute’s Robert Scott. “We need to put a floor under housing prices, and stopping foreclosures is the way you do that.”

Keep in mind that this article is my understanding of the new programs; all information should be independently verified. This is a government program; therefore, subject to modification. Research and educate yourself