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Wednesday, February 25, 2009
In Bloomberg Interview, Harris of Barclays Capital Says President Obama is doing the "Right Thing" for U.S. Housing
- Too much total consumer debt including real estate and non-real estate debt.
- A natural waning of housing prices after a "too good to be true" run up in real estate prices.
- A decline in the secondary market for debt instruments largely due to concerns about issues above.
- Swapping out all the residential mortgage debt held by US Banks (totals approximately $11.3 Trillion) in exchange for US Treasuries with a guaranteed yield of say 2.5% with provisions for the banks to sell of the Treasuries in controlled allotments in order to raise cash. Currently the total value of all US Federal debt is $10.76 Trillion. Therefore, this plan would essentially double the national debt. However, since it is really a debt swap the total of all US public and private debt would remain the same at about $53 Trillion.
- The Fed would then alter the terms of all the mortgages "purchased" so that all people current on their mortgages and have equity would receive a reduced interest rate of 3%. People who are current, but have no equity would receive 3.5%, people who have equity, but are delinquent (assuming they can pay the mortgage after the reduction) would get 4% and people who have no equity and are delinquent (assuming they can pay the mortgage after the reduction) would get 4.5%. Any people with negative equity would have been dealt at the time of the Fed's "purchase" of their mortgages since the Fed would be paying a discounted amount for their mortgages (i.e. the banks would take a haircut by reducing the face values of these assets). The delinquent homeowners with negative equity would also share the pain by agreeing to pay the Fed 10% of future home appreciation in order to make up for the higher rate of default.
Tuesday, February 24, 2009
Top 10 Things to Do When You are or Will be Behind on Your Mortgage Payments or are already in Foreclosure
The purpose of this blog is to help people who are or will be behind on their mortgage payments, or are already in foreclosure. I know that being in that situation is very stressful. I have seen it first hand as I have helped many clients through those difficult times. I welcome questions and comments from people needing assistance.
As a first attempt at providing some assistance, I came up with the following list of the “Top 10 Things to Do When You are or Will be Behind on Your Mortgage Payments or are already in Foreclosure”.
- Take a step back to reflect - Take a deep breath and regain your composure. Getting behind on your mortgage payments or being in foreclosure is a difficult problem. You cannot solve any problem if you panic and are not capable of reasoned thought.
- Relax - What is the worst that can happen? You will lose your home and possibly have to move in with relatives, or into an apartment at least for some time. It might be embarrassing and even humbling, but it is not the end of the world. No one is going to throw you in jail. Your life is not over. You can and will rebuild your life after you get through this.
- Gather information - Put together a monthly budget of all your income and expenses. Use your net take home pay (i.e. after taxes). Be sure to include all your living expenses (i.e. food, health insurance, housing payment, vehicle payments, gas and vehicle repairs, meals, grooming, pet expenses, entertainment, child support, alimony, etc. You need to know exactly where your income is going and how much you are really short each month.
- Be honest with yourself - Ask yourself some difficult questions and be honest with yourself. How did you get here? Did you buy more home than you could reasonably afford? Do you buy too many things on credit? Are you a shopaholic? Can you do without things?
- Analyze - Put together your monthly budget (income and expenses). Analyze your budget to see if you can eliminate things from your budget. After cutting your budget see if there will be enough money left each month to pay your mortgage/housing payment?
- Make your plans - If you cannot afford your home with your current mortgage even after you have trimmed your budget, you have 2 basic options: (1) contact your mortgage company to see if they will modify your loan terms. (2) Sell your home.
- Decide - If you prefer to try and stay in your home then a loan modification is your first option. Call your mortgage company and tell them that you cannot afford your housing payment and that you need a loan modification. They will likely send you to their loss mitigation department who will then fax or mail you their loss mitigation package, which you will need to fill out. Your mortgage company will then review the information to see if a loan modification is desirable for them.
- React promptly - If the mortgage company does not offer you a loan modification (or offers one that still will not help enough) then you need to sell your home.
- Decide - You will need to make a decision to agree to the loan modification, or accept the sale of your home. If you need to sell your home price it lower than any other home to get it sold fast. Buyers will not pay retail prices for homes in foreclosure, or homes where the mortgage balance is greater than the market value (a short sale) due to the “as is” risk or to the lengthy time involved for a response in the case of a short sale. In either case, you will need to price your home with this in mind.
- Act – Regardless of what you decide to do you need to act quickly and decisively. Letting the bank foreclose on your home will severely harm your credit for several years and in many states the bank can still come after you for their net loss after liquidating your home as an REO (this is called a deficiency judgment). If you opt for the short sale you should be able to lessen the impact to your credit and eliminate the threat of a deficiency judgment.