The increase in strategic defaults will have a huge impact on the recovery of the housing markets.  "Strategic defaults", the intentional non-payment on the borrower's behalf to avoid making payment on a home that has an upside down mortgage, but still makes the credit card payments and auto loan payments on time. 

The Morgan Stanley report estimates that 12% of mortgage defaults in February were strategic. Other reports estimate an even higher proportion of this type of loan default.

The problem with with strategic defaults is that is causes a contagion effect.  According to Sam Khater, senior economist for CoreLogic, a provider of consumer, financial and property information, as more and more homeowners watch friends and neighbors walk away from their homes, it becomes more socially acceptable to do so.  The result? Serious ramifications on personal credit histories, the health of neighborhoods, and the entire future of mortgage lending.

"If you know someone who has defaulted strategically, you're more likely to declare you're willing to do it," said Luigi Zingales, professor of entrepreneurship and finance at the University of Chicago's Booth School of Business.

There are many options available to avoid foreclosure.  We have put together a number of guides with information on seller options to include:

Avoiding Loan Modification Disasters and a HAFA short sale guide on the new government short sale program.  It includes information on relocation assistance money and lease-purchase home options.

How Much Time Do You Have?

Help is available for homeowners who own a home with a mortgage insured by the Federal Housing Administration (FHA).  If you are finding it difficult to keep your mortgage payments current or if you are actually in default, you may be able to take advantage of the FHA Pre-foreclosure Sale (PFS) Program to sell your home.  What does it require?

To participate in the program, homeowners must be willing to commit to actively market their home for 3 months.  During the marketing of their home, the lender will delay foreclosure proceedings.  Once the home is successfully sold close to present fair market value, the homeowner may receive a cash payment from FHA of up to $1,000.00 to help the homeowner transition to more affordable housing. 

A similar program is available for homeowners with a mortgage guaranteed through the Veterans Administration.  The VA Compromise Sale Program will help homeowners avoid foreclosure. 

 Some of the requirements for the VA Compromise Sale include:

• The property must be sold at fair market value.
• The closing costs must be reasonable and customary.
• The compromise sale must be less costly for the Government than a foreclosure.
• There must be a financial hardship on the part of the seller.
  

Do you need more help?  Do you need more information on this program and other programs to avoid foreclosure?

Yes, I need more help.  I need information on short sale, HAFA, HAMP and loan modification programs.

Many home buyers have found themselves at the closing table surprised at the difference in closing costs due from what was originally quoted to them.  A Good Faith Estimate(GFE) is just that, an estimate.  Mortgage brokers and lenders provide loan applicants with these figures within three days of making an application for a home loan.   New federal rules were adopted on January 1st regarding the GFE, driven by the Department of Housing and Urban Development.  These new rules mandated the redesign of a simplified Good Faith Estimate form. 

Previously, lenders had no standardized format on how these fees were explained.  "Fees were communicated in multiple ways, which adds to the confusion when comparing costs," says Keith Gumbinger, a vice president at HSH Associates, which tracks the mortgage market. Under the new rules, lenders will all be required to use the same form for their Good Faith Estimates - a three-page document issued by HUD.

There are also new rules capping increases in costs that are disclosed on the Good Faith Estimate and guidelines so that fees listed on the initial GFE reflect the actual cost at settlement. "Those fees on the GFE at the beginning of the process will be the same on HUD-1 form [final settlement statement] at the end of the process," says Mr. Gumbinger.

Here is the summary of information on what changes to expect with the new federal rules regarding good faith estimates:

1. Fees that cannot change from the original GFE to final settlement.

2. Fees that can increase up to 10% at settlement.

3. Fees that can change without limit.

Borrowers may see an increase in the overall costs that lenders charge to originate a loan.  These new rules will cost lenders in the way of new software, new documents and new training. 

 If you would like current mortgage information, please click here for more information.