San Diego Law Today

Recent headlines read, “Total Mortgage Debt Decreases Nationally,” and it is about to be even lower next year. What does this mean to the consumer and ones who are purchasing a home or thinking about it? Lower interest rates, lower mortgage principle.

Homeowners who have sold their property, or whose homes have gone through a short sale or foreclosure, no longer have that daunting task of scrambling for every penny to make the house payment they had previously been saddled with. They now have income to address the necessities of keeping a household together, like food and clothing, or little lifestyle luxuries like that bicycle or running shoes.

The downturn of the housing market has had varying degrees of impact on every economic level, in every household, market and institution — from the gas pump to the corner grocery store. However, the fact that less money is being spent on inflated mortgages has acted as an economic stimulus in other areas of the economy, say some experts.

As this trend continues, which it will, more cash will be saved and used by those who are looking to jump into the housing market. This will then result in lower interest rate as those who have saved will have far better bargaining power. Which will then, in turn, mean less of the mortgage payments being allocated towards interest, and more towards the principle balance.

For those who are not looking to purchase real estate, more will be saved than spent on mortgage interest. Not a bad thing at all. More of the credit card debt will then be addressed, so overall, the average credit card balance in the average household should also be reduced, and this is a very good thing.

Prior to the most recent economic down turn, mortgage lending institutions like Fannie Mae and Freddie Mac were backed by the Federal Government by insuring the mortgage loans of a home buyer. Of course, there were limits to the amount of the mortgage and the price of the home being purchased. When the housing prices stated to fall, and the mortgage industry needed some financial assistance, the Federal Government covered the losses. This became commonly known as “Bail Out Money”.

The limit for insured mortgage loans is about to be lowered even further. No longer will the Fed be insuring higher-end mortgages. The Federal Housing Administration and both Democrats and Republicans agree that there is no right to a Federally backed mortgage if the mortgage is beyond the national average. In other words, if you want to live in a very expensive home, the lender will be free to make that high of a mortgage, or not, without the assistance of the Fed.

What does this mean to the average San Diegan?

In San Diego, this means the housing crunch will no longer be limited to homes valued at under $500,000. The higher-priced homes in pricey neighborhoods will now feel the pressure as well. Prices in those areas will drop considerably as the ability to purchase those homes will be less because the lenders will be very cautions about lending large amounts for mortgages. Additionally, the cost of lending in the form of interest rates will also go up. This will result in more higher-end homes going into foreclosure, and the ability to purchase or refinance those homes will be lessened.

More bad news: More affluent home buyers are about to get hit with watching their home value drop, and new borrowers will be required to come up with down payments of 30 percent or more while showing greater assets, higher credit ratings and lower debt-to-income ratios.

It may be a great time to stay in the smaller home that you now own and wait to upgrade to that larger, more expensive home.

Tags: Foreclosure, mortgage

San Diego County has seen a decrease in the foreclosure rate, but that may not be such a good thing to be seeing for a variety of reasons.

First, the mortgage lenders now have added the staff to complete the foreclosure process to sale. Meaning that more homes are being sold at auction.

Secondly, this has motivated homeowners who are struggling with their mortgages to sell before they go into foreclosure in an attempt to get the best price for their property.

Home sales are up as is the number of building permits, which clearly indicate a slow recovery. Interest rates are at one of the lowest rates which have helped boost home sales.

The nationwide trend may be a little different, however. The governmental plans to assist home owners have failed miserably. There is no other way to state it. The Federal Government has a complete inability to watch over mortgage lenders to ensure they comply with the regulations and help distressed property owners. Mortgage lenders are unmotivated to make the process timely or efficient. This only leads to a completely frustrating experience.

The trend is called “Strategic Default” and it effects even the most reluctant and proud homeowner. Once they have concluded that the existing mortgage is not going to be adjusted to make the home affordable, they plan the timing of the foreclosure. Often times this planning involves the school year, graduation, work relocation, etc.

The major question becomes “How much longer can I remain in my house until I am forced out?” This is where the engagement of a professional is so critical. Once the move becomes a reality, the timing of the move becomes the focus.

As an article about strategic default practices said, severe negative equity is a massive and corrosive problem across the country. If the value of the home is far less than the balance of the primary mortgage, then there is negative equity. If there is a second mortgage on the home, then the negative equity is far more acute. The problems that are associated with a second mortgage can be even more devastating as the second mortgage holder may, and probably will, pursue the collections of balance of their loan after foreclosure. This could also result in a heavy tax liability in the form of a capital gain for forgiveness of debt.

It is critical to engage the services of a professional San Diego bankruptcy firm early, long before the foreclosure begins and long before the liquidation of any retirement accounts.

Tags: Bankruptcy myths, Foreclosure