Boulder Colorado Real Estate Home Foreclosure Options

If the local Boulder Colorado real estate marketplace fits the picture, many of those homeowners who might be facing foreclosure have options. Unlike the unfortunate 103 foreclosures in Boulder County in August.

Many homeowners agreed to high risk loans during the peak of the housing boom in the last few years. Although we’ve seen a flattening of the market which really started a couple of years ago, many buyers continued to take the leap into high risk loans and are feeling the pain of the current credit crunch.

Even the Wall Street Journal today published an article suggesting that Bernanke is scrambling to figure out what his next move should be. To his credit, since his meeting on August 9th, he’s paying attention and taking into consideration advice from young investment bankers and Federal Reserve veterans alike as he collects opinions and data.

Further news shows that on Oct. 23, Countrywide Financial Corp., potentially one of the largest U.S. mortgage lenders, said it will offer to refinance or modify up to $16 billion of its sub-prime and prime loans for borrowers who are facing an adjustable-rate mortgage reset through the end of 2008.

Something that I notice again is that by the time the media is reporting a peak in urgency of any crisis in the mortgage and real estate industry the markets are often turning the other direction. Local and regional economists at a recent Countrywide presentation in Boulder forecast that our market should see activity and pricing strength similar to the strong year we had in 2000.

For those with a current problem such as an accelerating mortgage payment, or those simply having trouble keeping up due to personal financial or job changes, the WORST thing you can do is to sit by and hope it will go away. DON’T wait for the magic solution but instead take action NOW!

Here are some excellent suggestions from David Clucas’ article at the Boulder County Business Report:

While you read this, keep in mind that one of the top mortgage consultants, Nora Ziel, has helped many of my clients and friends (these often go hand in hand fortunately). You can reach Nora at 303-440-3533 or nziel@ccmc-net.com.

The Article in part:

Renegotiating the loan

A troubled borrower’s first call should be to the lender to try and renegotiate the terms of the loan, said Christopher Hudak, housing counselor coordinator for the Boulder County Housing Authority. Homeowners should call at the first sign of trouble – it’s easier to negotiate before the foreclosure process begins.

People also can call the Colorado Foreclosure Hotline at 1-877-601-4673 for assistance with the process. The advice is free and unbiased.

Upon reaching the lender, ask to speak to someone within the loss mitigation department. A lot depends on who owns the loan. To the surprise of some borrowers it likely isn’t the same company that originated it.

During the housing boom many loans were sold off – pooled together and repackaged as investments called mortgage-backed securities. While a bank may still service the loan that doesn’t mean it still owns it.

At U.S. Bank, for example, more than 80 percent of the bank’s loan portfolio is serviced for other investors, said spokeswoman Amy Frantti.

Two loans may have originated in exactly the same way, but depending on which investor they were sold to “different workouts are available,” Hudak said.

Results have been mixed, said Colorado Bankers Association President Don Childers. Sometimes it’s the luck of the draw – either the investors are willing negotiate a lower rate to fend off further losses, or they decide to stand firm on the higher rate.

“Have an open and frank discussion with your lender,” Childers said. Remember that a banker may not be the one making the final decisions. “Whoever is servicing the loan is bound to the terms of the owner of the loan. The servicing bank doesn’t have the authority to change the terms without consent from the owner.”
FHASecure loans

The U.S. Department of Housing and Urban Development’s new FHASecure loans may help borrowers who have trouble refinancing due to higher reset rates on their mortgage.

The new 30-year fixed rate loans are meant to give lenders the security of offering a U.S. government-backed mortgage.

FHASecure loans are much like any other refinance to a fixed rate mortgage. The main difference is these loans are available to those borrowers in trouble because of higher mortgage resets on their adjustable rate mortgages. It allows the lender to look past those recent troubles and provide a competitive rate – currently about 6 to 7 percent.

Borrowers can qualify for FHASecure loans if they were current on payments for six months prior to that reset, have at least 3 percent equity in the home or can equal that in a down payment. The loans do have limits – in the Boulder County area, they can’t exceed $348,460.

“People are coming back to FHA loans because there’s no more free lunch,” said John Carson, regional director for HUD in Denver. “FHASecure is a reliable product. We don’t have gimmicks. There are no hidden fees and no prepayment penalties.”

These loans can help borrowers who just barely got in trouble but are still in a stable financial situation. They do not offer discount rates. The fixed rate will likely be higher than the initial introductory ARM rate but lower than the reset ARM rate.

Don’t bank on lower rates

Some borrowers may see Federal Reserve Chairman Ben Bernanke as a white knight who can solve the problem. If the Fed lowers interest rates, it could make it easier to refinance at a lower fixed rate, including FHASecure loans.

Don’t bank on just lower interest rates, said Cathi Williams, director of the Colorado Division of Housing.

“I think people strictly look at interest rates when they’re considering to lock in a rate, but more importantly they need to look at property values,” she said. “You don’t want to get into a situation where you owe more money on the home than it’s worth.”

If a home loses value during the housing slump, and there’s no equity in it to begin with, many lenders will be unwilling to issue a loan on the home.
“We think it will be at least another two years before the housing market stabilizes,” Williams predicted.

Forbearance, short sale, deed in-lieu

If borrowers can’t renegotiate or refinance a loan, there are other options that can keep them in the home – or at least save their credit reputation, Williams said.

When a borrower is facing foreclosure due to a temporary financial situation, forbearance may be the best option. During forbearance the lender allows the borrower to postpone payments for a temporary period. Most lenders will ask for proof of the sudden financial strain and proof that the borrowers will be able to restart payments afterward.

A short sale is an option for borrowers willing to lose their home but save some of their credit standing. In this case the borrower finds someone to buy the home at a price below the loan’s value. The bank agrees to take the loss on the loan because the home gets sold rather than it having to sell the home after foreclosure.

A slightly different option is a deed in-lieu of foreclosure. Here the bank agrees to take control of the deed and not sue for foreclosure. A bank will likely only agree to this option if it thinks the home’s value is close enough to the loan’s value.

Avoid foreclosure, cut other costs

Foreclosure may seem like an easier option to many borrowers, but they should do everything they can to avoid it, Williams said.

“A lot of people think they can just walk away from the home,” she said. “But if that house has lost value, then your deed of trust says that the lender can come back and sue you for the deficiency.”

Foreclosure can also bring on tax consequences, Williams said. “If the lender writes off the debt, they will report it to the IRS, and that’s viewed as your taxable gain.”

Hudak said he advises people to try and cut costs elsewhere to remain in the home. People can surprise him, though – one person gave up on his home, rather than giving up on his truck, he said.

Beware of scams

All the housing officials warn homeowners facing foreclosure to be on the lookout for scams. Once a home enters the process of foreclosure the information becomes public and is easily searchable online. For advice, always contact a certified housing counselor.

Make sure to dial the right number, too. Some shady brokers have already purchased the phone numbers surrounding the Colorado Foreclosure Hotline’ number, Williams said.

As another option, consider finding an investor that might be interested in purchasing your home if you’re other options don’t pan out.

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