My New Blog

It can be a pretty sobering and depressing experience to speak with some many folks who now face the simple fact that their homes are now worth less than they owe on then. This term is called being "underwater".  For the people that have not experienced the joys of home ownership yet, it equates to the same thing as your car being "upside down" where you actually owe more that its worth.  Homeowners are facing more and more of this situation across the country, especially in cities and towns that underwent re-evaluations during the boom years of 2004 thru 2006. The worst situation would be for new homeowners that built during that same period of time. They have the highest evaluations, because everything is new, and in most instances, the house cannot be sold for anything near to the appraisal done at the time the home was bought.

For people in these situations the choices are not pleasant, and can be quite disheartening. If they have the ability to maintain the mortgage payments and the household, then it will take a few years before the value of the house again matches and hopefully surpasses the value needed to sell the home without incurring a loss. This means the house must be able to support the 6-8% real value in legal fees, conveyance taxes and sales commissions to sell the home.

In a normal economy, the value of a home should appreciate in a value similar to the lost of living adjustments changes which should be between 3-4% each year. This usually means that a homeowner would need to keep a home 3-5 years in order to not incur a sales loss. As the average homeowner sells their home every 7-10 years the numbers should work to their advantage.

If the family’s income drops, for whatever reason, then the failure to keep the mortgage payments would result in either a short sale, if lucky, or the inevitable foreclosure

A third option which is starting to take formation and could prove to be a stabilizing option for some homeowners is tied to the government’s stimulus package. This is called The Homeowner Affordability and Stability Plan (Hope Now). The requirements are minimal, and the banks will require all your financial information to see if you can qualify.

Not all financial institutions have a finalized plan in place but it looks like most are very close to closing that gap. It should be noted that from the explanation received from one of the mortgage reps it appears that the banks will somehow assess the market value of these troubled assets and modify the loan amount to current market values and work out terms that are advantageous to the homeowners and investors based on their financial conditions and ability to pay. This could mean dropping the interest rate to some acceptable value and thus reducing the payment s for a period of time. I would assume that the bank will require periodic visit, again with the financials to verify current status, but until we get rolling in the right direction, it’s a fix that would keep people in their homes and help to stabilize the economy. 

If you’re in doubt as to the value of your home in the current market then a Broker’s Price Opinion would be one way of judging. This would not be an indication of how much you might make on the sale of the house, but would be just the value of the home against current sales activity in the marketplace. This number that would most closely reflect the impact of foreclosures on current home prices. Another way to determine your homes value would be to get a formal appraisal, which would be similar to the appraisal method used by the bank to determine mortgage value. At any rate, if there’s a question as to your ability to maintain a home, get involved with your lender as soon as possible to try and hold off drowning