Homeowners Falling Behind on Mortgage Payments

Homeowners Falling Behind on Mortgage Payments

More American homeowners are slipping behind on their monthly mortgage payments, especially those who had subprime credit histories and scores when they applied for their homeloans. Roughly one of every 20 homeowners with a mortgage -- 4.7 percent -- was at least 30 days late during the third quarter, according to the Mortgage Bankers Association's national delinquency survey released last week. The survey examined payment performances on over 42.6 million active home mortgages.

One of every eight borrowers with subprime credit histories was late during the same quarter. Subprime borrowers who took out adjustable rate mortgages were even more likely to be behind -- one in every seven were delinquent last quarter.

In economically hard-hit areas, such as the industrial upper Midwest, late payments were far more commonplace. In Michigan, for example, 21.5 percent of all subprime homeowners with adjustable-rate loans were delinquent, and one of every 10 were in the process of foreclosure. In Indiana and Ohio, 17.5 percent of subprime ARM borrowers were late, and more than 10 percent of them in foreclosure.

Katrina-ravaged Mississippi homeowners(27.3 percent delinquency rate) and Louisiana homeowners(24 percent) also registered exceptionally high rates of late payments on subprime ARMs.

Even homeowners with the best credit -- so called prime borrowers -- saw their delinquency rates inch up in the latest survey: 2.4 percent were 30 days late or more during the third quarter versus 2.3 percent in the preceding quarter. Prime borrowers in a handful of states -- primarily in the Western region -- continued to lead the nation in on-time mortgage payment performance.

In California homeowners just 1.1 percent of prime-credit homeowners were late on their monthly payments -- less than half the national delinquency rate. In Hawaii, the rate was 1.2 percent and in Oregon 1.3 percent.

Contrast that with prime borrowers in Puerto Rico, where 8 percent were delinquent by 30 days or more. Or Mississippi (6.1 percent), Louisiana (5.6 percent), Michigan (3.8 percent), Ohio (3.7 percent) and Indiana (3.6 percent.)

Though the overall trend in delinquencies is upward, Mortgage Bankers Association chief economist Doug Duncan said the slightly higher rates were expected as the housing boom wound down. They are also well below the recent high points reached during the 2001-2002 period.

The subprime late payment jumps, however, "were noticeably larger" than projected, "particularly for subprime adjustable rate mortgages." The reason for the spike: "subprime borrowers are more likely to be susceptible to the cumulative increases in (short-term) rates we've experienced, and the slowing of home price appreciation that has resulted," said Duncan.

But "it is important to remember," he added, "that delinquency and foreclosure rates have been quite low the last two years."

The national foreclosure rate of 1.05 percent during the third quarter was up slightly compared with the same period the year before. But today's rate is well below the 1.6 percent level reached in early 2002, when subprime foreclosures hit 8 percent.

The practical effect of the higher delinquency rates in the subprime sector: Higher rate quotes for new subprime mortgage applicants. Subprime loans traditionally have been priced at 2 to 3 percentage points above prime. Now that gap is likely to increase, said Duncan, as "investors demand higher returns in the form of wider credit spreads, particularly for (subprime) loans originated in the second half of 2006."



Foreclosure Scams

Foreclosure Scams

How to avoid being the next victim to lose your house to "consultants" who claims they will pay your mortgage.

More than 1 million borrowers have seen their homes put in foreclosure so far this year. And with more foreclosures, "foreclosure rescue" scams are also on the rise.

1: How it works
First, let's take a look at what the trends are. There is a triple-digit percentage gains of foreclosures from last year in places like Nevada, Wyoming and Alabama. Generally, areas under economic stress tend to have more foreclosures.

As a general rule of thumb, foreclosure rates tend to go up in colder months simply because fewer houses are sold, according to Rick Sharga of RealtyTrac.

Foreclosure rescue scams are deals that proclaim to "save your house" or "pay your mortgage." Don't be fooled.

In one foreclosure scam scenario, the homeowner surrenders the title to your house thinking you'll become a renter and buy the house back over a few years.

For the most part, you'll lose your house and won't be able to buy it back...and the scam artists walk away with all your equity. Sometimes homeowners just sign a bunch of documents, not even realizing they've signed over ownership of the house.

In other cases, scammers will call themselves foreclosure consultants. They'll promise to persuade your lender to negotiate, or they promise to find a buyer for the house.

2: Contact your lender stat
If you have received a foreclosure notice, or even if you feel you won't be able to make your mortgage payments, contact your lender immediately. You may be able to negotiate your payment schedule.

Lenders do not want to foreclose because it's expensive for them.

3: Know the warning signs
The Department of Justice outlines a few red flags that you should keep in mind if you find yourself behind on your mortgage payments or facing foreclosure.

First, be suspicious of any person or company that calls itself a mortgage consultant or a "foreclosure service."

Be wary of marketing procedures. Don't trust anyone who uses flyers or solicits for business door-to-door. Be suspicious of offers to lease back your home, so you can buy it back over time. These offers are weighted against you.

And of course, don't fall for promises that seem too good to be true. Watch for promises that lure homeowners into deals. These offers may include promises to "save your credit" or maybe the company promises to "find a buyer within seven days."

4: Get it in writing
Never be pressured to sign a contract. Review the paperwork with a lawyer and don't sign anything that has any blank lines or spaces. Information could be added later and you won't know about it.

Remember, verbal agreements don't mean anything. You'll want to get everything in writing and make copies of the paperwork. You can also check out the company at

Remember, legitimate companies will sit down with a homeowner and collect documentation. They will put together a package and present it to your lender.


Toronto Real Estate

Toronto Real Estate

Resale home transactions remained robust in the first half of August, as mid-month figures showed a three per cent increase over the same timeframe last year, Toronto Real Estate Board President Dorothy Mason announced.

The 3,290 sales to mid-month surpassed the 3,196 sales recorded to mid-August 2005, while real estate prices increased four per cent over the same timeframe to $333,396 at mid-month.

It was also announced that real estate is showing stability through the latter half of the summer. At a time when we traditionally see a moderation of activity, sales to mid-August are up marginally over July's mid-month figure of 3,285.

North of Toronto, Central Vaughan (N08) showed an overall sales increase of 41 per cent compared to mid-August 2005.

In Mississauga, 37 per cent more overall transactions took place in the eastern portion of Streetsville (W19) compared to last year's mid-August figures, fueled by increased sales of townhomes.

In Toronto's east end, Scarborough's E09 district showed a 61 per cent increase in overall real estate sales compared to mid-August figures a year ago, as condominium sales more than doubled.

Condominium activity nearly doubled on the east side of North York Centre (C14), as overall transactions in the area went up 40 per cent compared to mid-August of last year.

Condominium apartment sales as a share of total resale volumes have edged higher over the past year. This is largely due to rising detached home prices and continued condominium apartment completions, particularly in Central Toronto. Improved job prospects in core Toronto areas and a stabilization in Toronto's rental vacancy rate are also factors contributing to a strong pace of condo sales to both end users and investors alike.

Consistency and stability are the keys to this. We are seeing steady performances backed up by strong fundamentals, and that means it's a great time to be involved in real estatet.



Mortagage Loan Appraisals

Mortagage Loan Appraisals

When the real estate market is hot, home sellers get upset when the mortgage loan appraiser comes in too low. And when the market is slow, potential buyers (and sellers) object to the low value which the appraiser places on the house.

You plan to purchase a condominium unit, and enter into a contract with your home seller to pay $500,000. You give the real estate agent $10,000 as the "good faith deposit," to be held in escrow until settlement takes place. Because this is not a single family house, and the major structural systems are in the control of the condominium association, you decide not to make the contract contingent on a home inspection. You plan to obtain a 90 percent home loan ($450,000) and put down the difference of $50,000 (plus closing costs) in cash. Your lender has advised you that you will qualify for such a mortgage loan, but that the availability of the home loan is contingent upon a satisfactory appraisal.

You ask your real estate agent whether you should include a contingency for financing in the home sales contract. The real estate agent agent tells you that other units in the area -- and indeed in the same complex -- have sold for $500,000 or above, and that there should be no problem with the appraisal. In reliance on these statements, and because you really want the unit, you do not include a financing contingency.

Your lender obtains an appraisal, and it comes in at only $460,000. What rights do you have?

Since you opted not to include the contingency for obtaining a mortgage, you may be stuck. Your lender will still lend you 90 percent -- but it will be based on the appraised value, not the contract price.

This means that although you may have to pay the full $500,000 for the unit, you will only get a loan of $414,000 and instead of paying $50,000 in cash for the difference, now you have to cough up $86,000 -- whether you have this kind of money or not.

There are several steps which you should take.

First, talk to the Home Seller. Even though there are real estate agents involved, I would try to communicate directly with the Home Seller, and not go through the various intermediaries. Explain that the appraisal came in very low, and you just cannot afford to put up the cash difference. While you are obviously reluctant to lose your $10,000 deposit, that may be the only alternative.

Your Home Seller recognizes that this now a slow real estate market. Your $10,000 deposit -- which by the way will most likely have to be split with the real estate agents -- will not go too far. The Home Seller needs the home sales proceeds in order to purchase another property.

Thus, you may be able to negotiate a lower price with the Home Seller. My definition of a dispute settlement is where both parties walk away unhappy, but nevertheless walk away. Perhaps you can agree to split the difference between the contract price and the appraised value; this arrangement would be consistent with my definition.

You should also ask to obtain a complete copy of the appraisal report. Perhaps the appraiser did not fully do his homework. Did he physically inspect the property? Are the comparables which were used appropriate? Is the appraiser licensed in the jurisdiction where your unit is located, and does the appraiser know and understand the neighborhood conditions?

It has recently been written that "lenders are tired of appraisers slapping together reports with limited research and analysis." A number of "gotcha" traps which lenders are using to catch the most lazy and dishonest appraisers, have been listed.

Such traps include: if you report a source and claim no prior sales and there is one: "Gotcha!"

appraisers should read the purchase contracts to determine if there are any home sales concessions that may have an affect on value. "An appraiser who claims to have read the contract, but missed the concessions -- Gotcha!"

in the form appraisal report which is used, the appraiser is asked to discuss the marketing of the property. The appraiser must address such issues as how long the property was listed, pricing and price changes. "If the contract price is higher than the last list price, (the appraiser) will need to discuss why that happened or -- Gotcha!"
Appraising real estate is not a science. At best, it is an art, and often subject to the subjective interpretations and conclusions of the person retained by the lender to evaluate your condominium unit. Go back to the appraiser and ask him to review his report. Point out any discrepancies, such as three bathrooms instead of the reported two.

This may help. If the appraiser is unwilling to cooperate, ask your lender to get a second opinion from another appraiser.

Finally, you start to blame your real estate agent. She told you that the property was worth $500,000, and you relied on those representations. Can you file suit against her? A recent District of Columbia Court of Appeals case (Carleton v Winter, June 15, 2006) gives us some guidance.

In the Carleton case, a real estate agent recommended a home inspector to a potential buyer. She described the inspector as "great" and "particularly suited for young people who were first-time home buyers ... ."

It turns out that the recommended inspector may not have been as "great" as promised by the agent. But when the Carleton's sued the agent for misrepresentation, the DC Court of Appeals denied their claim, stating:

"Fraudulent misrepresentation requires, inter alia, a false representation as well as knowledge of the falsity ... . There is nothing in the record to show either that these representations by Winter were false or that she knew they were false... . Moreover, we have noted on previous occasions that 'a prophecy or prediction of something which it is merely hoped or expected will occur in the future is not actionable upon its nonoccurrence."

Unless you can prove that your real estate agent falsely and deliberately misrepresented the value of your condominium unit, you do not have a cause of action against that person.

In the final analysis, our potential home buyer has no one but himself to blame. He should have insisted on including a financing contingency in the home sales contract.


Real Estate Investment Trends

Real Estate Investment Trends Indiana real estate Idaho real estate Maryland real estate

If you’re tracking where home real estate investors are putting their money these days, forget Miami, Naples, Vegas, San Diego and LA, start thinking about lower-key places like South Bend, Indiana; Pocatello and Boise, Idaho; and the northern Maryland panhandle.

According to a new analysis of mortgage data for the first quarter of 2006 nationwide, investors in those four local housing locations accounted for higher percentages of total real estate purchases than anywhere else in the country: More than one out of five real estate purchases in each went to investors.

The study was done by Loan Performance LLC, a subsidiary of First American Real Estate Solutions. Loan Performance has access to a vast database comprised of millions of active, ongoing mortgages, through cooperative agreements with virtually all major lenders and Wall Street investment banks. That huge database allows it to essentially look inside the mortgage market in real-time, observing emerging trends in delinquencies, types of loans being originated, loan to value ratios, credit scores and many other characteristics on a market-by-market basis.

In the latest analysis, covering new mortgages originated for home purchases between January 1 and March 31 of this year, a stunning 25.8 percent of all mortgages financing home real estate purchases in the Cumberland, MD-eastern West Virginia market went to people who identified themselves as investors, not primary owner-occupants. In South Bend, Indiana, investors accounted for 23 percent of all new purchasers. In Boise, Idaho it was 20.8 percent and Pocatello 20.2 percent.

By contrast, Miami and Naples, Florida, where real estate investor purchases of condo units and preconstruction contracts were all the rage during the peak boom years of 2003-mid 2005, real estate investors accounted for just one out of six new purchases during the first quarter of this year.

Although Loan Performance offered no theories about current investor patterns, the top several hot spots -- at least as percentage shares of the total local market -- appear to share some common characteristics. Real estate prices in all of them are moderate by national norms, and rental properties tend to cash flow better than, say, Miami condos, which come with high price tags and negative cash flows for real estate investors. Also real estate appreciation in places like Boise, the northern Maryland panhandle and West Virginia never went off the charts during the boom years, but maintained steady, moderate growth. Second home purchases may also have played a role in the Idaho, Maryland and West Virginia markets.

Markets with the highest percentages of higher-risk negative amortization and interest-only mortgages during the first quarter of 2006, were also looked at. West Virginia topped the neg-am list with more than half of all new home loans -- 51.4 percent -- carrying negative amortization options. In Wyoming 26.2 percent of all new purchase loans were neg-am, as were 22.5 percent in Nevada, 21 percent in California and 15.6 percent in Florida.

Neg-am loans allow home buyers to make monthly payments that are less than the amounts needed to amortize or pay off the debt over the stated term of the home loan. Typically neg-am loans either require balloon payments at some point during the term, or in the case of popular payment-option loans, to "reset" at some point to a payment level sufficient to pay off the debt within the stated term of the mortgage.

By depressing monthly payments, neg-am loans allow purchasers to acquire properties that they might not otherwise be able to afford using a traditional mortgage. For that reason they are popular with real estate buyers and real estate investors in many locations, but also carry elevated risks of default should borrowers be unable to make payments after the "reset" date, refinance into affordable replacement loans, or make balloon payments.

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