Having trouble paying your mortgage? What if you got an ad in the mail asking you to join in a lawsuit against your lender? The ad looks like a government form and claims you can get large principal reductions or other monetary relief by joining the suit.
Bad news: Idaho State Attorney General Lawrence Wasden is warning consumers that .
“The scam is a pretext to collect an unlawful $5,000 upfront fee from homeowners,” Wasden says. “The representations in the solicitations are false and are designed to prey on vulnerable homeowners. My office is currently investigating this company.”
The company named in the AG’s press release is Corvus Law Group.
Here’s a copy of the letter.
The ads, which appear to be “notices,” may be mailed to homeowners or posted on their doors. Typically, the business asks for a “retainer fee” and may ask homeowners for their credit card numbers or offer to set up a weekly payment plan.
State and federal laws prohibit companies from charging upfront fees for foreclosure rescue or mortgage modification services.
Beginning September 1, .
“I encourage homeowners who have lost money to this business or other mortgage rescue companies to file complaints with my Consumer Protection Division,” Wasden said. Complaint forms are available at
or by calling (208) 334-2424.
The Attorney General’s Office recently updated its consumer education manuals regarding home buying and foreclosure prevention. The manuals are available at.
Homeowners who are having difficulties paying their mortgage loans may qualify for a mortgage modification and can visit the federal government’s website at www.makinghomeaffordable.gov for an application packet. Idaho homeowners who are having difficulties communicating with their mortgage loan servicers about their loans can call the Idaho Attorney General’s housing specialist at (208) 334-4536 for assistance.
The US Department of Housing and Urban Development (HUD) also offers help to people having trouble paying their mortgage. For an office nearest you, go to www.hud.gov. Menu options at this time are placed on the left side of the page and include Avoid Foreclosure, Learn about Reverse Mortgages for Seniors, and Talk to a Housing Counselor.
HomeSteps, the real estate sales unit of Freddie Mac, is launching a nationwide winter sales promotion for its inventory of foreclosed homes in select locations starting today.
For HomeSteps Winter Sales Promotion details and conditions, visit
Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation’s residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.
SOURCE Freddie Mac
A new report on still-falling home prices today highlights the fact that the lower those prices go, the more American borrowers fall into an negative equity position; that is, they owe more on their mortgages than their homes are worth.
Most analysts will tell you that negative equity is the number one problem in the housing market today, even worse than foreclosures, because it causes foreclosures, stymies consumer spending and traps potential home buyers and sellers in place.
Negative equity rose to 28.6 percent of single-family homes with mortgages in the third quarter of this year, according to Zillow. That’s up from 26.8 percent in the second quarter. In real terms, that’s 14.6 million borrowers.
Many of those borrowers are already behind on their mortgage payments, and some are likely already in the foreclosure process. The rest of them are in danger of defaulting, not because they can’t pay their mortgages, but because they either won’t want to (seeing as they will never see any real appreciation in their investment) or because any change in their economic or personal situation might force them into default (change of job, divorce).
While 14.6 million might seem like a lot, it’s not the real number when you consider negative equity in housing’s recovery. That’s because it doesn’t factor in “effective” negative equity, which is borrowers who have so little equity in their homes that they cannot afford to move.
Consider the following from mortgage analyst Mark Hanson:
On US totals, if you figure average house prices use conforming loan balances, then a repeat buyer has to have roughly 10 percent down to buy in addition to the 6 percent Realtor fee to sell. Thus, the effective negative equity target would be 85%. You also have to factor in secondary financing, which most measures leave out.
Based on that, over 50 percent of all mortgaged households in the US are effectively underwater — unable to sell for enough to pay a Realtor and put a down payment on a new purchase without coming out of pocket. Because repeat buyers have always carried the market as the foundation, this is why demand has not come back. It’s as if half the potential buyers in America died over a two-year period of time.
The foreclosure crisis grabs most of the media attention these days, but in order for housing to recover, the market needs to see activity.
It’s as simple as buying and selling. Negative and effective negative equity are causing stagnation, which may in the end be far more detrimental than foreclosures. The argument to solve this problem is principal forgiveness, and it is gaining traction politically and somewhat less in the banking sector.
Principal forgiveness, or lowering the balance of a large chunk of the nation’s mortgages, would be costly at best but could be catastrophic at worst. “Those thinking principal reductions are a panacea have never originated a loan, done the street level re, and do not really know the borrowers behind their data,” argues Hanson. “More than likely it would create a far greater number of new strategic defaulters than the number it would legitimately save from Foreclosure.”
SOURCE: CNBC Realty Check
With housing prices and mortgage rates still near historic lows, now could be a great time to become a homeowner. I recently talked to a caller on our Financial Helpline who had a great credit score and could afford the mortgage payment for the home value she wanted since it would be about the same as her current rent. (In many parts of the country, it’s actually cheaper to buy than to rent right now.)
There was one problem though. The traditional down payment is 20% of the home value but she only had enough to put down about 10% and was worried about missing years of building equity if she tried to save up the rest over time. If you’re in a similar situation, here are some thing to consider:
You Need More Than the Down Payment
Keep in mind that you’ll also probably have to pay at least some closing costs, which are generally about 2% of the price of the home. You’ll also want to have an emergency fund with at least 3-6 months and ideally 6-12 months of necessary expenses. That’s because the last thing you want is to lose your home to a foreclosure if an unexpected emergency makes it difficult to pay the mortgage.
An Insured Mortgage
You might be able to put down less than 20% by having your mortgage insured against default. One way to do that is with a government guaranteed mortgage. For example, the FHA loan program uses more lenient credit criteria than traditional mortgages, requires only a 3.5% down payment, and has the seller pay most of the closing costs.
Sounds pretty good, huh? Of course, there are costs to this. First, to qualify you typically need 2 years of steady employment with a stable or increasing income, a minimum credit score of 620 with no more than 2 30-day late payments over the last 2 years, no bankruptcies in the last 2 years, no foreclosures in the last 3 years, and a mortgage payment no more than about 30% of your gross pre-tax income. Second, there are limits on how much you can borrow based on where you live. Finally, you have to pay a premium of up to 1% of the loan amount at closing (it can be rolled into your mortgage but that would increase your monthly payments) and a monthly premium of up to .9% of the loan amount each year.
VA loans are another type of government guaranteed mortgage but only veterans on active duty in World War II and later periods are eligible. The loan limits are determined by the lender but generally max out at $417k except in certain high-cost counties. No down payment is usually required at all and there are no monthly premiums. However, there is a one-time funding fee of up to 2.4% that is reduced based on the size of your down payment.
Alternatively, you can get private mortgage insurance. The premiums can vary but are reduced the more you put down. The best part is that unlike with the government programs, the premiums can disappear altogether once you have 20% equity in your home, whether by you paying down the loan, the property rising in value, or (hopefully) both.
Confused? Don’t worry about it. Your mortgage lender can help you decide which programs you qualify for and which one might be most beneficial for your situation.
In this scenario, you would get 2 loans. One would cover 80% of the home value and the other “piggyback loan” would cover the rest minus your down payment. The advantage is that you can avoid paying for mortgage insurance with less than 20% down. The disadvantage is that the piggyback loan has a higher interest rate and often has a “balloon payment” at the end. This is a final payment that’s considerably larger than your normal payments so be sure to save up for it if you’re going to keep the loan that long.
Using Your Retirement Accounts
Finally, there are several ways you can use retirement funds for a down payment. If you have an IRA, you can withdraw up to $10k penalty-free to purchase a home if you haven’t owned one in the last 2 years. This is a lifetime limit for the total of all your IRAs so only use it if you must. If it’s a Roth IRA, the earnings can also be withdrawn tax-free if the account has been open for at least 5 years (the contributions can always be withdrawn tax and penalty free). Otherwise, the withdrawals could be taxable.
If you have a retirement plan at work, you may be able to take a hardship withdrawal or a loan. A hardship withdrawal doesn’t have to be paid back but it’s taxable and subject to a 10% penalty if you’re under age 59 1/2. A loan isn’t taxable but must be paid back with interest. The good news is that the interest goes back into your account and the payments for a loan used to buy a home can often be spread over a longer time period than a regular loan.
The real cost of using your retirement accounts isn’t the taxes or interest you pay but that those funds aren’t growing for your retirement. The more aggressively you’re invested, the greater that opportunity cost is likely to be. On the other hand, you have to weigh that against the value that owning a home can add as an asset that you can later sell or borrow against to help provide for your retirement.
The Bottom Line
If you want to take advantage of today’s real estate market and record low interest rates but don’t yet have the full 20% down payment, be sure to explore all of your available options. Figure out how much each option would cost you in mortgage premiums, interest rates, taxes, and lost investment earnings. Of course, you could always decide to stick with the tried and true old-fashioned method: save for it.
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