Before making any major decisions, homeowners should consult with financial and legal professionals, including accountants, real estate attorneys and financial advisors.  Any major change to a mortgage situation could lead to serious and unanticipated consequences involving taxes, contract law, credit scores, ability to borrow in the future, potential for lawsuits and much more.

As with many investments, the best time to get in is when most others are sitting on the sidelines. 

Mortgage rates are at a 40 year low, and homes in many areas are ultra-cheap.  Meanwhile, demand for rentals has risen in more than 500 cities.  With this increase, it has allowed landlords to charge more.  Hotpads.com, a real estate research firm, reports that rents nationwide jumped 11.6% in 2010 to $1,320 a month. 

You’ll need that rental income to tide you over until home prices bounce back; in fact, the typical investor today plans to hold for 10 years, according to a survey by the National Association of Realtors.  If you can hang on that long, you have got a good shot at solid gains, especially if you are financing the home. 

Filing were up 7% compared to July, but were still 33% lower than a year ago. 

According to Realty Tract’s report, 228,098 homes in the US received some kind of foreclosure filing in August.  Foreclosure auctions and bank repossessions, which come later in the process, both fell slightly. 

The increased in default notices may signal that lenders are starting to finally push through foreclosure paperwork that was previously delayed by “robo-signing”. 

The good news is that bank repossessions have been falling.  Lenders repossessed 64,813 homes in August, a six-month low and a 37% decline after they hit a peak in September last year.

Meanwhile, foreclosure auctions were scheduled for 84,405 homes, the lowest number in more than three years. 

Nevada, California and Arizona housing markets are the hardest hit by foreclosures. 

Information from CNNMoney.com

The Lawyer’s Committee is starting to file complaints against Nathanson Law Center and other alleged loan mod scammers.  The suit claims that the defendants lured desperate homeowners into paying up-front fees to secure them loan mods, and then did little or no work to follow up on their promised services.  While homeowners were offered 100% guarantees that their funds would be returned if a modification could not be obtained, the defendants later refused to turn their fees.  Many of the victims lost thousands of dollars – or worse, their homes. 

If you believe you have been the victim of a loan mod scam, you are encouraged to call (888) 995-HOPE or visit www.preventloanscams.org and click “Report a Scam!”  Victims are being represented free of charge.

Remember that owning rental property is time consuming, expensive, challenging, and many investors lose money. 

Mistake 1:  Confusing a cheap deal for a good deal – You can buy homes at a low price but that doesn’t mean you can rent them out.  They usually aren’t any more appealing to rents than they are to buyers.  Also less-desirable school districts may hamper renting your property. 

Mistake 2:  Overlooking key costs – Knowing potential rent is not enough.  You should also factor in closing costs 3-6%, costs to fix up the place and maintain it, and your holding costs.

 Mistake 3:  Forgetting that time is money – You lose money when your home is empty, whether you are trying to rent it, in between tenants or painting.  You may be better off accepting a lower rent than waiting for a higher-paying tenant. 

Mistake 4:  Assuming you will sit back and watch the rent roll in – You are a rent collector and sometimes tenants lose their jobs and stop paying rent.  Evicting them can take several weeks without rental income coming in. 

Mistake 5:  Underestimating repair costs – Carpet in rentals typically must be replaced every five years and you may have to repaint after every tenant.  The National Association of Residential Property Managers suggests setting aside six months of expenses so that you will have funds if a major repair is needed. 

Mistake 6:  Assuming that owning a rental is the same as owning a home – You might put up with flaws in a home that a renter won’t tolerate.  A property manager can handle most headaches, but you should expect to pay up to a month of rent for finding and screening tenants and up to 10% of the monthly rent for management fees.

Separately, last month, the Experian, Equifax and TransUnion, began providing estimates of consumer income as a credit report option.  And, earlier this year, Experian began including data on on-time rental payments in its reporting. 

This new information could either help some potential homeowner’s to obtain a loan or could be detrimental to those who are on the board of qualifying for a loan.

The CoreLogic – FICO partnership won’t result in a credit score that will rule out a borrower for a mortgage backed by Fannie Mae, Freddie Mac or the FHA, which together own or guarantee at least 90 percent of the mortgages being written.    That’s because the Experian, Equifax and TransUnion “tri-merge” report required for such a loan does not rely on CoreLogic data.  But it could mean either more or fewer mortgage fees or a higher or lower interest rate charged by lenders that in today’s cautionary lending environment have heartily adopted risk-based pricing.

A survey by the Pew Research Center found that 36% of Americans believe that it is ok to walk away from their mortgage (short sale or foreclosure) under certain circumstances. 

They also found that 59% of Americans state that it is wrong to stop making their mortgage payments and return their homes to their lender, 19% feel it’s acceptable and 17% stated it depended on the circumstances.

 This survey was close to the same results from CoreLogic which finds that 11,000,000 borrowers or 23% are underwater.

• Get three different contractor’s bids
• Check the status of Contractor’s License at https://www2.cslb.ca.gov/OnlineServices/CheckLicenseII/checklicense.aspx.  License must be an active A, B, C-10, or C-46 in order to meet the eligibility requirements for the California Solar Initiative (CSI)  Program
• Check the Better Business Bureau or personal references of contractor
• Look for feedback from previous customers, talk to customers who have used the contractor and conduct an internet search to find out about the Contractor and Company
• Find out what the average project costs, how much contractors charge per watt, etc. by downloading CCSE program data at https://csi.powerclerk.com/Default.aspx
• Don’t pay more than 10% or $1,000 whichever is less, as a down payment
• Hire only licensed contractors and ask to see their license
• Don’t hire the first contractor who comes along
• Don’t rush into repairs
• Don’t pay cash, and don’t let the payments get ahead of the work
• Get a written contract

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So next time you give your word, mean it.  Wouldn’t you rather have someone tell you the truth?  Do you want to be known as the one who always says they will call you back or be there and everyone knows you won’t?  Take a step forward and think about the benefits derived from making your “word” count for something (a promise kept).   If you can’t call them back, or you can’t make it, be up front and just tell the truth that you can’t make the appointment or you have appointments and won’t be able to call back right away.  Sometimes, the truth will set you free.

How Delinquencies Impair Credit Scores
Fair Isaac, which developed FICO scores, used a comparison between two people to explain how mortgage delinquencies affect credit scores.

Fair Isaac derived these numbers from a theoretical calculation based on hypothetical borrowers – one with an initial score of 680 and one with an initial score of 780. FICO scores range from 300 to 850.

The hypothetical person behind the 680 score had six credit accounts, while the person with the 780 score had 10. The consumer with the 780 score had no missed payments other than the mortgage; the 680 example had two late payments before they failed to pay the mortgage.

After a mortgage delinquency, the two scores would look like this:

• After 30-day delinquency, 680 score drops to 620 to 640; 780 score declines to 670 to 690.

• After 90-day delinquency, 680 score falls to 595 to 610; 780 score goes to 645 to 665.

• After foreclosure, short sale, or deed-in-lieu, 680 goes to 575 to 595 and 780 drops to 620 to 640.

• After bankruptcy, 680 drops to 530 to 550; 780 declines to 540 to 560.

Source: CNN, Les Christie (04/22/2010)
Posted in REALTOR magazine (04/22/10)