The answer may be surprising.

In general terms there has been considerable support for lower FHA loan limits for several reasons.

First, lower FHA limits mean more opportunities to sell private-sector loans.

Second, the FHA has long been considered a program for entry-level and middle-income borrowers. Huge mortgage amounts suggest that the program has evolved into a financing vehicle for the upper class, something which doesn’t quite pass the sniff test for a program that evolved from the Great Depression.

Third, it’s thought that the FHA should not be making big loans because such financing is inherently more risky than smaller loans.

The first two items are matters of opinion and preference, but what about the third? Are big loans really so risky?

We asked HUD to provide the latest delinquency and foreclosure figures by loan amount. As of mid-September 2011 the results were probably not what most people expect.

Risk

If we’re going to discuss “risk” we must ask how the term should be defined. The best approach is to look at different stakeholders.

Borrowers: Bigger loans for borrowers are only “more” risky than smaller mortgages if financial qualifications are missing. If Smith can comfortably afford a bigger loan there’s no problem. If Jones has a small loan but can’t pay, then that’s a concern.

Lenders: Lenders love the FHA program for a very simple reason: The loans are 100% guaranteed by the FHA. If a loan goes bad the lender knows it will get back its principal as well as other costs. Thus, on the matter of risk, you would have to say lenders have little to none.

The FHA: For the FHA loan size is not really an issue as long as the borrower is properly qualified. It’s true that a $600,000 FHA mortgage is a bigger loan than a $100,000 mortgage, but it is also true that the FHA will collect a bigger up-front mortgage insurance premium and a larger amount in terms of the annual mortgage insurance premium (MIP). In effect, there’s a balance between size and insurance premiums.

Where matters get dicey is when things go wrong. You can objectively lose a lot more dollars with a big loan. The catch is that the threat of loss does not exist in a vacuum, you also have to also look at marketplace results.

In other words, what’s the failure rate for FHA loans by mortgage size and what percentage of the FHA loan portfolio is represented by loans of a given size?

Real Numbers

A look at the chart shows that big loans are not a big deal in terms of FHA risk for two reasons:

First, big loans are a tiny percent of the overall FHA portfolio. Loans for $500,000 or more are just .75 percent of all FHA mortgages outstanding.

Second, few big loans fail. Only 1.32 percent of all loans above $500,000 have been foreclosed, compared with an overall average of 2.47 percent.

You see the same thing with bankruptcies: The percent of FHA borrowers in bankruptcy is 1.22 percent. The percent of big borrowers in bankruptcy is just .27 percent, about one-fourth the rate of other borrowers.

Why are there relatively so few foreclosed borrowers with big FHA loans? Most probably the answer is that borrowers with big loans have big incomes and presumably better savings and more assets than entry-level borrowers.

One question raised by the FHA figures is this: If big loans represent relatively little risk then why do lenders charge higher mortgage rates for “jumbo” mortgage products? Combine big loans with above-market rates and below-market risk and lenders have a sweet deal.

Are Big FHA Mortgages Really Risky? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: bankruptcy, depression, entry-level, FHA, foreclose, foreclosure, HUD, jumbo, loan, loan limit, middle-income, mortgage, premium, rich, Rick, risky

According to Ohio State Attorney General Richard Cordray:

“Judge Charles Pater of the Butler County Court of Common Pleas issued an order denying GMAC’s motion to ratify a judgment because ‘neither the Ohio Civil Rules nor the local rules of this court provide a procedure for or authorize a court to “ratify” a final appealable order’ and stating that “the proper course of action would be for GMAC to first file a motion to set aside its judgment and then, once the court grants that motion, to refile its motion for summary judgment with a correctly executed affidavit in support.”

Cordray adds that “it is improper for the plaintiff to ask the court to ratify a foreclosure judgment based on a false affidavit after the fact by simply substituting or supplementing what plaintiff now claims is a proper affidavit.”

Instead, he argues that “vacating the judgment is the proper way to handle these cases, as it removes a judgment based on a false affidavit and gives the homeowner an opportunity to contest a new motion for default or summary judgment.”

Cordray and Judge Pater are saying that as a matter of law robo-signing lenders cannot just change the paperwork for past foreclosure cases when documents were improperly prepared — and neither can courts. Instead, everyone must start from scratch with entirely-new cases. This means — if Cordray’s approach becomes widespread — that tens of thousands of foreclosure cases will have to be unearthed, reviewed and tried again if the original paperwork was faked. Large numbers of people who sought nothing but the best mortgage rates will be watching the process with great interest.

Lender Worries

Not only would new trials on a mass scale be a huge expense to lenders, lenders are unlikely to bat 1,000 and win every case. In those cases where they do lose it will then be necessary to explain how someone was thrown out of their house on the basis of a false affidavit or other error. Given the damage done if a falsely foreclosed owner is found, awards worth millions await borrowers who unfairly lost their homes.

And it could get worse. Imagine if vacated judgments begin to appear in other courts and in other states. Suppose bar associations begin to sanction attorneys who submitted falsified documents to force people out of their homes? And imagine if courts in various states look at falsified affidavits and think in terms of mass perjury?

National Foreclosure Rules

But, most likely, these things won’t happen. There’s now a movement in Washington to “unify” foreclosure standards around the country in the name of efficiency. Instead of 50 sets of state rules there will be one single national foreclosure standard operated from Washington.

Sounds pretty enticing — until you realize that consumers have virtually no rights in Washington and that the federal regulation of loan originations by national banks did absolutely nothing to prevent or stop the widespread use of toxic mortgages.

The movement to remove state-foreclosure courts is now underway. If it happens that state courts are shut down, who do you think will win when the rules are tailored to one party or another? Name one borrower PAC that will contribute to congressional races or impact decisions on Capitol Hill? Just think about the way the bankruptcy process has been distorted by congressional action, much to the joy of credit card companies and student lenders.

The foreclosure story mortgage lenders fear most is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: AG, bankruptcy, Cordray, court, foreclosure, judge Pater, loan, Michael Hudson, mortgage, national, Ohio, Ohio State Attorney General, Richard Cordray, rules, state, The Monster

A new study by TransUnion shows that the use of bank-issued, general purpose credit cards has fallen significantly during the past year. “This deleveraging,” says the company, “is believed to be due in part to charge-offs in the higher risk segments of the population, more conservative spending in the low-risk segments, and significant efforts by consumers across the board to maintain the health of their credit card relationships as a financial cushion.”

TransUnion says “consumers with higher incomes were just as likely as consumers with lower incomes to suspend their use of this payment option.”

“In 2009,” says TransUnion’s Ezra Becker, “well over 70 million consumers did not have an active, general-purpose bank issued credit card. During the course of one year, more than 8 million additional consumers joined these ranks, making it one of the fastest growing consumer segments. Consumers who do not have or use bank-issued, general purpose credit cards still have a need for other payment vehicles, a fact which is beginning to attract significant attention from credit and debit providers alike.”

Mortgage Ratios

Credit card debt is one of the factors considered when individuals apply to finance or refinance real estate. Lenders look at the “front ratio” and “back ratio” when qualifying borrowers. The front ratio includes the monthly cost for mortgage interest, mortgage principal, property taxes and property insurance — also known as PITI. The back ratio includes the front ratio plus regular monthly costs such as student loans, car payments and credit card obligations.

For instance, FHA guidelines allow ratios of 31/43. If the Smiths earn $6,000 per month before taxes it means that as much as $1,860 can be used for housing costs (the front ratio) while $2,580 can be used for housing costs plus monthly obligations.

In this example, the Smiths can spend as much as $720 per month on consumer debts ($2,580 less $1,860). That’s not a lot when one figures the cost of auto debt, student loans and such.

No Use – But Rising Balances

Credit card interest continues to accrue on outstanding debt whether or not a card is used. To lower monthly costs consumers must take two steps to get ahead: First, reduce if not pay off existing credit card balances. Second, not borrow from other sources such as checking account lines of credit.

Discontinuing the use of credit cards can also be important for another reason: Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 credit debt is not forgiven if you spend $750 or more in the 70-day period before seeking bankruptcy protection.

Other Findings

For the third quarter of 2010 TransUnion also found:

• The incidence of credit card delinquency was highest in Nevada (1.28 percent), followed by Florida (1.09 percent) and Mississippi (1.06 percent). The lowest credit card delinquency rates were found in North Dakota (0.48 percent), South Dakota (0.53 percent) and Nebraska (0.56 percent).
• Only two areas showed an increase in credit card delinquency — the District of Columbia (19.67 percent increase) and Mississippi (1.92 percent increase). The two areas of the country with the largest quarter-over-quarter drop in delinquency were Alaska (-19.2 percent) and Nebraska (-17.6 percent).
• National average credit card borrower debt (defined as the aggregate balance on all bank-issued credit cards for an individual bankcard borrower) edged upward for the first time in six quarters by 0.28 percent to $4,964 from the previous quarter’s $4,951, but down 11.54 percent compared to the third quarter of 2009 ($5,612).
• The highest state average credit card debt remained in Alaska at $7,159, followed by Hawaii at $5,716 and North Carolina at $5,640.
  The lowest average credit card debt was found in Iowa ($3,807), followed by North Dakota ($4,103) and South Dakota ($4,196).
• All but 15 states showed an increase in average credit card debt from the prior quarter. The largest increases in average credit card debt over the previous quarter occurred in West Virginia (2.81 percent), Wyoming (2.2 percent) and Hawaii (2.19 percent).
• On a year-over-year basis, national credit card originations increased for the first time since the recession began in late 2007. Only nine states showed decreases in originations since the third quarter of 2009. The states with the greatest year-over-year increases were Delaware (21.3 percent), Oklahoma (16 percent), and Pennsylvania (15.8 percent).
• The areas with the steepest declines in year-over-year credit card originations were the District of Columbia (-10.3 percent), Minnesota (-9.6 percent), and Michigan (-4.2 percent).
• As credit card delinquency trends differ between the national and state economies, metropolitan areas can also show different credit dynamics relative to the state level. Approximately 77 percent of metropolitan statistical areas (MSAs) showed a decrease in their 90-day credit card delinquency rates since last quarter, which is generally consistent with national trends.
• The area with the largest drop in delinquency since the last quarter was the Dubuque, Iowa Metropolitan Statistical Area (-48.4 percent). The area with the largest increase in delinquency since last quarter was the Lewiston, ID-WA Metropolitan Statistical Area (92.7 percent).

8 million consumers drop credit cards, improve mortgage standing is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: back ratio, bankruptcy, credit cards, debt, finance, foreclosure, front ratio, guidelines, lender, loan, mortgage, PITI, qualification, refinance

If you want a mortgage, Esteemed has one for you. Recent bankruptcy? No problem? A foreclosure last month? So what. Less income? They can work with you.

And help with short sales? Who could possibly do a better job than Esteemed?

“We guarantee a loan to fit every situation,” says Esteemed. “Our qualified loan specialists have been helping people just like you find the best interest rates and loan terms possible for your unique situation. We will guide you every step of the way to get you the loan you need. You can lower your current payments on your mortgage, refinance existing debt, and even get extra cash to pay for unexpected expenses.”

And getting a loan is hardly more difficult than going through a car wash.

“Even if you’ve been turned down by other lenders because of a less than perfect credit history, we can help. It’s time to act and start saving money today. Apply now and let us help you start on your way towards a debt-free future!

“it’s easy to qualify and 100% FREE to apply.”

There are two things about this lender which stand out. First, its “line” sounds a lot like some other lenders we’ve heard. Second, the company is a fraud.

“These scammers may create professional-looking websites, use trustworthy-sounding names and promise you loans to help meet your needs or live your dreams, even if you’ve had credit problems,” says the FTC.

“The catch comes when you apply for a loan or credit card and find out there’s a fee you have to pay first. If you pay, it’s unlikely you’ll see the promised loan, and you run the risk of someone using your personal or financial information to steal your identity.”

Six Warnings

The FTC says borrowers should be aware of six rad flags when looking at online mortgage sites:

• A lender who isn’t interested
  in your credit history. Ads that make claims like Bad credit? No problem, We don’t care about your past. You deserve a loan, Get money fast, or even No hassle — guaranteed often indicate a scam.
• Fees that are not disclosed clearly or prominently. Legitimate lenders disclose their fees clearly and prominently; they take their fees from the amount you borrow; and the fees usually are paid to the lender or broker after the loan is approved.
• A loan that is offered by phone. It is illegal for companies doing business in the U.S. by phone to promise you a loan and ask you to pay for it before the loan comes through.
• A lender who uses a copy-cat or ‘wanna-be name.’ Crooks give their companies names that sound like well-known or respected organizations and create websites that look slick to try to convince you they’re legitimate.
• A lender who is not registered in your state. Lenders and loan brokers are required to register in the states where they do business. Checking registration does not guarantee that you will be happy with a lender, but it helps weed out the crooks.
• A lender who asks you to wire money or pay a particular person. Legitimate lenders don’t ask anyone to do that.

More Bogus Sites

The FTC has created a number of fake sites in addition to Esteemed Lending Services. For instance, there’s FatFoe which will help you lose weight without diet or exercise and, of course, there’s also Glucobate???????, the all-natural diabetes breakthrough. Glucobate uses “Cucumis melo — or Elixir of Muskmelon — an all-natural sugar regulator with none of the side effects of the medications that break your budget without curing your condition.”

The FTC is using bogus sites to make a point: The fact that something is on the Internet and has a really nice web page does not mean a product or service is anything but an outright fraud. Use common sense, check around, speak with licensed professionals and hold on to both your wallet and your wonder when you see claims which seem to good to be true.

This Mortgage Lender Is A Fake (Don’t Just Take Our Word For It) is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: bankruptcy, Esteemed Lending Services, fake, Federal Trade Commission, foreclosure, fraud, FTC, loan, mortgage, short sale

Facing Foreclosure

In the first case we have an owner who may lose his or her home, perhaps someone with a toxic loan or maybe an owner who has lost a job, been through a divorce, had an accident or faced a medical crisis. Whatever the situation, you can pretty much bet that payments for various bills have been late or unpaid and as a result credit is shot.

In such circumstances one reaction is to use retirement funds such as Keoghs to stay afloat. If retirement money can get you through a short-term crisis, fine. However, if pension reductions merely postpone the inevitable loss of a home then such withdrawals should be avoided. Here’s why: If you have a bankruptcy pension funds are generally protected against creditor claims.

If foreclosure looms owners may seek to refinance their homes. However, with weak credit no legitimate lender will offer financing. The alternative is to seek help from friends and family, perhaps a religious congregation.

Hard Money Lenders

In addition, there IS money available for those facing foreclosure. It comes from hard money lenders who will make a deal that looks like this: Financing equal to 50 to 70 percent of the property, four or five points plus an interest rate 5 to 10 percent above prevailing rates.

For example, if you have a home with a fair market value of $300,000 a hard money lender will advance $150,000 to $210,000. For a $210,000 loan with five points the loan will be discounted by $10,500 at closing (a “point” equals 1 percent of the mortgage amount, so $210,000 x 5% = $10,500). If interest levels are at 5 percent you will pay, perhaps, 12.5% or $2,241.24 per month for principal and interest.

Does such financing make sense? Will it pay off the current loan which is in default? Can you afford $2,240 per month plus taxes and insurance?

Hard money lending certainly makes sense for the hard money lender. They’re getting cash up-front from the points they charge and if the loan cannot be repaid they have plenty of equity to re-sell the home at a profit after they foreclose.

The Sane Alternative

Hard money mortgages make sense for few owners. The alternative is to seek a loan modification through the federal government’s Making Home Affordable program. Entry into such a program will at least postpone a foreclosure for several months if you are not successful meeting program terms. However, the program should result in substantially lower monthly payments and can lead to permanent and affordable refinancing.

In addition, contact community housing organizations, state governments and your state attorney general to see if other modification programs are available.

Foreclosure Refinancing

The other form of foreclosure refinancing is associated with those who have bought a foreclosed property and now wish to refinance, perhaps because the property has been improved or to get better rates and terms.

Good news: What you have is a piece of real estate. If your credit is good then refinancing a foreclosed home is no different than refinancing any other property. Lenders are interested in your cash, credit and equity, not the cash, credit and equity of a former owner.

How Can I Get Foreclosure Refinancing? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: bankruptcy, family, foreclosure refinancing, friends, hard money, lender, loan to own, refinance

Interestingly enough, as provisions of the newly-minted Patient Protection and Affordable Care Act go into effect we are likely to see both fewer bankruptcies and fewer foreclosures. Why? Because people who can’t pay their medical bills can’t pay their mortgages.

It’s remarkable that in the U.S. if you get sick you can lose your home and your savings. The new legislation should greatly broaden the availability of healthcare for most and thus reduce the financial distress of disease, illness and accidents.

Some will scream from their bunkers that the new legislation is “socialism,” but this is the same argument made when Social Security was passed. Today you can’t find a lawmaker willing to introduce legislation to get rid of Social Security. If people were seriously against “socialism” you’d think they would want to do away with VA benefits and Medicare but magically that doesn’t seem to be on the agenda.

The reality is that we don’t have a purely capitalist country. We have what’s described as a mixed economy, taking the best from whatever system and approach makes the most sense.

Others are incensed about the cost of widespread health insurance. These same people were utterly silent about the eight years of Bush/Cheney administration when the federal deficit increased by $4.35 trillion. And certainly these folks have had nothing to say about the money and human cost of the Iraq war, a war that was contrived and unnecessary.

You can bet with absolute certainty that 20 years from now we will have real national healthcase, something better than the bill just passed — and that no elected official will favor its repeal.

The bottom line is that in 2008 the country overwhelmingly rejected the politics of the extreme right, politics which virtually bankrupted the country and policies for which we are still paying. Now the Obama Administration has delivered at least some of what was promised in the way of healthcare. Next, what about banks and credit cards? Wall Street? Immigration?

Stay Tuned.

How Foreclosures, Bankruptcies & Healthcare Are Tied Together is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: $4.35 billion, bankruptcy, Bush, Cheney, deficits, foreclosure, health insurance, socialism

Huh? How come there were not supposed to be so many bankruptcies.

Well, to put this as nicely as possible, the so-called Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was supposed to end many if not most bankruptcies — and it did.

The “consumers” protected under the legislation were banks, mortgage companies, credit card companies and student lenders. As we have reported, among other goodies for big lenders, the new law provided that most student loans can no longer be discharged. If your income exceeds the state medium you can be forced to file under Chapter 13 (a repayment program) and not Chapter 7 (a discharge and forgiveness plan). Credit debt is not forgiven if you spend at least $750 in the 70 days prior to seeking bankruptcy protection — say a cash advance to pay off a looming mortgage payment.

Perhaps most importantly for mortgage borrowers, the 2005 legislation says homeowners must obtain credit counseling and develop a budget analysis in the 180-day period before filing for bankruptcy. The result is that many borrowers will have lost their homes to foreclosure before even getting into a courtroom.

There were 1,597,462 bankruptcies in 2004 and 2,078,415 bankruptcies in 2005. As for 2006, bankruptcies declined 70 percent to 617,660 cases.

In 2009, despite massive efforts to manipulate the system and protect creditors, the Administrative Office of the U.S. Courts says there were 1,473,675 bankruptcies, up 31.9 percent from 2008.

Interestingly enough, as provisions of the newly-minted Patient Protection and Affordable Care Act go into effect we are likely to see both fewer bankruptcies and fewer foreclosures. Why? Because people who can’t pay their medical bills can’t pay their mortgages.

it’s remarkable that in the U.S. if you get sick you can lose your home and your savings. The new legislation should greatly broaden the availability of healthcare for most and thus reduce the financial distress of disease, illness and accidents.

Some will scream from their bunkers that the new legislation is “socialism,” but this is the same argument made when Social Security was passed. Today you can’t find a lawmaker willing to introduce legislation to get rid of Social Security. If people were seriously against “socialism” you\’d think they would want to do away with VA benefits and Medicare but magically that doesn’t seem to be on the agenda.

The reality is that we don’t have a purely capitalist country. We have what’s described as a mixed economy, taking the best from whatever system and approach makes the most sense.

Others are incensed about the cost of widespread health insurance. These same people were utterly silent about the eight years of Bush/Cheney administration when the federal deficit increased by $4.35 trillion. And certainly these folks have had nothing to say about the money and human cost of the Iraq war, a war that was contrived and unnecessary.

You can bet with absolute certainty that 20 years from now we will have real national healthcase, something better than the bill just passed — and that no elected official will favor its repeal.

The bottom line is that in 2008 the country overwhelmingly rejected the politics of the extreme right, politics which virtually bankrupted the country and policies for which we are still paying. Now the Obama Administration has delivered at least some of what was promised in the way of healthcare. Next, what about banks and credit cards? Wall Street? Immigration?

Stay Tuned.

Bankruptcies Rise 32% in 2009, 1.5 Million Went To Court is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: Administrative Office of the U.S. Courts, bankruptcies, bankruptcy, credit cards, foreclosure, mortgage, student loans

What is a “deed in lieu” of foreclosure and is it good or bad?

Good & Bad

In basic terms, a deed in lieu of foreclosure works like this: The borrower has a mortgage which cannot be paid. Rather than get foreclosed, the borrower agrees to simply give back title to the lender. Symbolically the result is “jingle mail” as in the sound keys make when held in an envelope.

Sending in the keys is not enough, however. The lender — and the world — need to get proper paperwork to show that title to the property was transferred. Because of the need for this paperwork (and because the lender wants to avoid the higher costs of a foreclosure) the borrower may actually have some leverage to negotiate a better bailout with the lender.

What’s negotiable with a deed in lieu of foreclosure?

First, the lender wants the property returned in good condition. The alternative in the worst case is a “trash out” where the property is left in ruin and stripped of appliances, pipes and anything else vandals can get.

Second, the lender wants paperwork so that the transfer of title is legal, legit and cheap. A foreclosure can be a huge expense for a lender, perhaps as much as $40,000 to $80,000 per property according to one congressional report.

Third, the lender may actually want the owner to remain in the property to avoid maintenance issues.

Okay, so what about the owner?

Owner Demands

The owner has some leverage and might ask for:

• Time to move so there’s no eviction and household goods are not dumped out on the street. In fact, an owner might actually ask for the opportunity to rent the property.
• A release of all liability so there’s no obligation to repay any debt which remains after the lender sells the house.
• Some sort of better credit mark than one would get with a foreclosure. This is a cosmetic matter because credit is likely to be woeful by the time an owner gets to the point of considering a deed in lieu of foreclosure.
• Cash in the form of a moving allowance. (You can always ask…).

For specific information in your jurisdiction please consult an attorney or legal clinic — this is not a do-it-yourself job and you can bet that the lender has 800 lawyers working on its behalf. Free and low-cost legal services may be available from state bar associations, community housing organizations and local law schools.

When speaking with an attorney be sure to ask about foreclosure, short sales, bankruptcy and a loan modification as alternatives to a deed in lieu of foreclosure.

What’s A “Deed In Lieu” Of Foreclosure? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: bankruptcy, deed in lieu of foreclosure, foreclosure, jingle mail, moving allowance, negotiate, paperwork, short sale, title, trash out

In general terms a condominium is a property where there are units with individual title and financing as well as common areas which are owned by the condo association. All unit owners are members of the condo association and have a right to use common areas.

A cooperative is different. With a co-op a corporation owns the entire property. Individuals own shares in the co-op, have the right to use common areas and also have an exclusive right to use their own specific unit.

Condos and co-ops generally get into trouble in two ways: First, owners do not pay their monthly co-op or condo fees. Without money the condo or co-op cannot be pay its debts and obligations. Second, a major repair is required, a repair so large that the condo or co-op does not have sufficient reserves to pay and so it bills owners for a special assessment.

If bills cannot be paid by a condo, then a creditor could force the condominium into foreclosure and bankruptcy. The common areas of the condo could be lost to a creditor. However, because the individual units are separately titled and financed the condo creditor could not seize those units to pay off the debt.

However, a condo unit can be foreclosed if there’s a condo fee or special assessment which is not paid. In that case, the fee becomes a lien against the unit and if unpaid can lead to the condo foreclosing the unit owner. (The same, of course, is true if a condo owner does not pay the mortgage.)

With a co-op it’s possible to be foreclosed or bankrupted if bills aren’t paid. Because the co-op actually owns and has title to the individual units, co-op owners could lose both the value of their shares in the co-op as well as all rights to their unit. In effect, they could become renters — if allowed to stay. In particular, co-ops often have an underlying mortgage secured by all units. If the underlying mortgage is not paid then the entire property can be lost.

What to do?

___ Never buy a condo or co-op without asking about the budget, reserves and special assessments. Ask for a letter from a certified public accountant (CPA) saying that the financing for the property is in good shape.

___ Always ask if the condo or co-op expects to charge for a special assessment during the next two years.

___ Always ask if the condo or co-op is now being sued or has any reason to expect that it might be sued.

___ Get advice from a real estate attorney when buying a condo or a co-op — and make any purchase depend on the approval and satisfaction of your lawyer.

___ If you see a building with a lot of empty units beware — a unit with a low price may not be a bargain if you might also face huge fees and assessments.

Can A Condo or Co-op Go Bankrupt? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: bankruptcy, co-op, condo, condominium, cooperative, foreclosure, mortgage, ownership, special assessment, title, underlying, unit

Such community standards actually have a financial value. If walking away from a mortgage becomes socially acceptable then lenders will have more risk, interest rates will rise, monthly mortgage costs will increase and foreclosure levels will shoot up.

Unfortunately, there has been an increasing willingness by consumers to simply abandon their homes in the face of rising mortgage costs, a willingness that has not gone unnoticed. Fitch Ratings says that “the apparent willingness of borrowers to ‘walk away’ from mortgage debt has contributed to extraordinarily high levels of early default, which is particularly noticeable in the 2007 vintage mortgages.”

While there are no scientific studies regarding the matter, there’s little doubt that the idea of “walking away” from a mortgage has begun to gain traction. As 60 Minutes explains, when it comes to foreclosure “there is a certain cold logic to just walking away.”

Changing Standards

The usual barriers to walking away from a mortgage are not only social, they are also practical and financial. However, these barriers have begun to fall in the past few years, making “jingle mail” (when keys are mailed back to a lender) and “trashouts” (when homes are abandoned with faucets running and garbage everywhere) more common.

How can this be?

A foreclosure is not a minor one-time event, an experience somewhat akin to a flu shot. Foreclosures instead have traditionally been life-altering experiences with negative consequences that can stretch for years and even decades.

However, in the past few years the nature of the foreclosure process has changed in ways that have made walking away more palatable and easier to rationalize.

Bankruptcy

Federal bankruptcy rules traditionally allowed courts to modify mortgage contracts. However, with the passage of the astonishingly one-sided Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 the standards changed: Judges no longer had the right to modify mortgage agreements, meaning that consumers lost important leverage when contesting lenders. While judges could change the terms of financing for yachts and second homes, revisions to loans for prime residences were suddenly off the table.

No less important, the 2005 law also required homeowners to obtain credit counseling six months before filing for bankruptcy. In many jurisdictions foreclosures can be completed well within a six-month period so that by the time a borrower could even go to court their home had been auctioned.

The 2005 changes to the bankruptcy law were widely seen as nothing but a sop to the lending industry by political allies in Washington. In fact, the proposed revisions were regarded as so unfair that ING Direct, a bank, took out a major ad in the The Washington Post which said the bankruptcy reform bill then before Congress “fails to encourage and enable America’s savers as it’s written today. It doesn’t even protect them. In fact, the only real protection it offers is to lenders, institutions that have little interest in a saving public.”

With great foresight, ING said “we believe that lending institutions should share responsibility with the people to whom they lend. Through aggressive marketing, irresponsible lenders create their own problems. When something goes wrong and irresponsible lending has played a role, lenders should shoulder their share of the consequences as surely as they do the profits of that lending. It’s only fair.

“As originally envisioned more than a century ago, our bankruptcy laws were intended to allow hard working Americans to make a new start. Bankruptcy doesn’t just happen to people who are careless or deliberately irresponsible. It also happens to people who work hard, save their money, and despite this simply have more bad luck than they can afford. If the Bankruptcy Reform Bill fails to protect them, it robs America’s savers of the hope that makes them strive for financial independence.”

Imputed Income

For many decades one of the great oddities of the tax code has concerned something called “imputed income.” Virtually no one was impacted by this obscure rule — except homeowners who failed to repay their mortgages.

Imagine a situation where Smith gets a $300,000 loan, loses his job at a time when home prices are falling and is then only able to pay $250,000 to the lender. This is essentially what happens with a short sale — or a walk away.

What used to happen is that the property owner got a form at the end of the year explaining that the lender had reported to the IRS that he had received income worth $50,000. Income? The money not paid to the lender — the money the borrower didn’t have and never received — is now regarded as taxable income.

Now, under the Mortgage Forgiveness Debt Relief Act of 2007, imputed income from unpaid mortgage debt on a prime residence is no longer taxable. While this new legislation makes enormous practical sense — the government had little hope of collecting the tax under the old rule — it also creates an unintended consequence: The ability to walk away from a mortgage and not worry about a tax bill from Uncle Sam.

State Laws

Foreclosure practices vary enormously by jurisdiction. One by-product of these distinctions is that in some states it can take six months, a year or even longer for a homeowner to lose title to their property once the foreclosure process begins. For instance, figures from RealtyTrac show that a typical foreclosure takes 445 days in New York, 300 days in Illinois and 290 days in Wisconsin.

If walking away is seen as increasingly acceptable, then — goes the thinking — why not stay as long as possible and not pay the mortgage? In effect, lengthy foreclosures can mean free rent for 10 months or longer in some jurisdictions.

California: The Special Case

In California, the nation’s biggest real estate market, a “purchase money” mortgage is generally a “non-recourse” loan under state rules. In other words, if Jenkins borrows $500,000 to purchase a home and must sell for $400,000, the lender has no right to pursue the borrower for any repayment shortage because the extent of the homeowner’s obligation is limited to the value of the home. This arrangement does not apply when a home is refinanced, to second liens or when a loan is originated on the basis of fraud.

The California rules create an unusual ripple: Imagine that Williams owns an $800,000 California house, has good credit but faces a mortgage re-set in a year. Williams places his home for sale, buys a $400,000 replacement home and moves from the first property. The first property does not sell and goes into foreclosure. Williams, however, already has a replacement prime residence with a new mortgage. He has a new home, no deficiency judgment and a smaller mortgage. As to the foreclosure, after a few years it will have no impact on his credit.

Negative Equity

The most significant reason not to walk away from a mortgage is the simple reality that for most borrowers during the past few decades a home has been a growing storehouse of value, something to keep if at all possible. However, in today’s market two factors have changed this equation:

First, recent buyers may well have bought at the top of local markets. In Florida, ABC News reports that condo investors often placed deposits on units that were not scheduled for completion for 18 to 24 months. Given recent price declines, these borrowers have no equity to lose. Borrowers in many markets with little or nothing down are in a similar situation.

“Some subprime borrowers with ARMs, who may have counted on refinancing before their payments rose, may not have had enough home equity to qualify for a new loan given the sluggishness in house prices,” says Ben Bernanke, Chairman of the Federal Reserve. “In addition, some owners with little equity may have walked away from their properties, especially owner-investors who do not occupy the home and thus have little attachment to it beyond purely financial considerations.”

Second, many toxic loans allow negative amortization. With negative amortization low monthly payments are possible during start periods because not all interest is being paid. Instead the interest cost not covered by monthly payments is added to the loan balance. Combine negative amortization with little down and falling home values the result can be a borrower with loan debt which is substantially larger than the home’s fair market value.

The Sting of Walking Away

Kenneth Lewis, Bank of America’s CEO, told the Wall Street Journal that “we’re seeing people who are current on their credit cards but are defaulting on their mortgages. I’m astonished that people would walk away from their homes.”

The idea of walking away from a mortgage remains far beyond the norms of either socially-acceptable or financially-responsible behavior. No less important, the act of walking away has substantial consequences.

For most borrowers the threat of a monetary judgment cannot be ignored. Under federal rules, judgments can remain on credit reports for seven years or “or until the governing statute of limitations has expired, whichever is the longer period.”

In many states, judgements remain in force for 10 years — a period which can be extended for an additional 10 years if the judgment is renewed.

Not only do judgments remain on credit records for many years, lenders routinely require that judgments must be repaid before new credit will be granted for larger loans, such as those used for cars and homes.

The result is that those who walk away from mortgages may be pauperized for decades because they will be unable to get credit at reasonable cost — if they can get credit at all.

“In the same way that we expect lenders to meet baseline standards of conduct, we must also have the same expectations with borrowers,” says Jim Saccacio, Chairman and CEO at RealtyTrac.com, the online foreclosure site that receives more than three million visitors each month. “The idea that walking away from a mortgage is somehow acceptable should be seen for what it is: A destructive notion that will result in sharply-higher mortgage rates for all borrowers, something any thinking person should vehemently oppose.”

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Published originally by RealtyTrac.com in March 2008 and posted with permission.

What If Mortgage Walk-Aways Become Socially Acceptable? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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