Too Little Equity Traps Homeowners

Many would love to sell their houses but are trapped due to relatively low prices and high debt.  Our real estate market won’t truly normalize until this changes and trapped home owners can easily sell.  Why are they trapped?  Lack of equity prevents selling as a non-short sale, and refinances can be difficult, due to low or absent equity and/or poor credit, leaving many to scratch their heads for a good solution.  Eventually the situation will resolve, but it will take awhile.

In round numbers, we’ve lost about 1/4 of our value in the real estate market in Eugene Springfield, since peak values in summer of 2007.  If real estate appreciates at a typical value of 3-4% per year, it will be years, not months until we’re back at previous values.  So, prices will eventually rebound, but over time.  Reduction of mortgage debt is also part of the solution.  With every payment, the amount of the home mortgage decreases, which also helps.  Rebounding home prices and a reduction in the mortgage amount are one cure for the problem.  How long until these trapped sellers are set free?  I’d guess perhaps 5 years.

Just how big is the problem?  Nationwide about 1 in 4 mortgages are underwater, which is to say that more is owed than the house is worth.  In Portland, it’s thought to be about 1 in 5.  Statistics aren’t available for Eugene Springfield, but it’s reasonable to assume we’re somewhere between the national average and Portland.

So, what can the trapped homeowner do?  Refinancing is great if you can do it.  We’re at very low mortgage interest rates, and if you can refinance it may well indeed lower your monthly mortgage payments.  Refinancing can involve a myriad of rules and requirements and lenders are the best ones to answer questions.  Some general information on different types of refinancing is below:

FHA Streamline refinancing

  • Your current loan has to be insured by FHA.
  • Often, no appraisal is required.  This means house value, in particular if you are underwater, isn’t considered.
  • Your mortgage payment history is key.  Paying over a month late hurts.
  • A good credit score may not be necessary.
  • Income verification is not necessary.

VA Streamline refinance

  • The VA program is called IRRRL (pronounced “earl” by lenders) which stands for:  Interest Rate Reduction Refinance Loan.
  • You need to have an existing VA loan.
  • No appraisal is required.
  • No income verification is required.
  • You don’t need to occupy the home currently, but do need to have occupied it in the past.

HARP

  • The mortgage must be owned by Freddie Mac or Fannie Mae. The mortgage must have been acquired by Freddie Mac or Fannie Mae on or before May 31, 2009.
  • You may avoid an appraisal (it’s case by case, determined by Fannie or Freddie), but they will refinance your loan even if you’re way underwater.

HAMP refinance

  • Your loan must have been originated before or on January 1, 2009.
  • You must have sufficient documented income to support the payment.
  • You must have a documented hardship.
  • Designed to help people in danger of foreclosure.

The above loan programs actually have more specific rules and guidelines, and I just mentioned a few of the highlights.  A good lender will know more and be able to answer your questions.

I have worked with clients who want to convert their current residence with a mortgage to a rental then purchase another house to live in.  It’s not that it’s impossible to do this, but it is much more difficult than it was in the past.  Each situation is unique, but some of the problems that derail this plan are:  too much debt to income, inability to count rental income if there is insufficient equity in the rental house, and needing in some cases 6 months PITI for the rental and new purchase.  Mitigating factors such as a job transfer helps in this plan.  It’s worth investigating turning your house into a rental, but it’s a more arduous task these days.

When home owners need or want to sell when they’re underwater, some will turn to a short sale.  In some ways, short sales are similar to a regular sale:  the house is listed with a Realtor and offer(s) are accepted by the seller.  In other ways, they are much different:  sales proceeds are short of what is owed (short sale; clever, huh?) and the sale is contingent on the lender’s approval of the short sale.  The lender will want documentation to prove that the seller can’t afford to write a check for the deficiency (difference in sales proceeds and mortgage debt.)  The timing is also much different.  Non-short sales typically close in about 5 weeks from the accepted offer.  Short sales are typically 3 to 6 months.  As I understand it, in Oregon, lenders aren’t allowed to seek deficiency judgments on the first mortgage of a primary residence; this is not the case for second mortgages, though.  Sometimes, but not always, lenders will do “cash for keys,” which is when they give you a small amount of money to assist in moving out.  I always try for this on my short sales, but honestly don’t often get it.  Surprisingly, your credit seems to recover pretty rapidly after a short sale.  I have a client right now that is purchasing a new home after I short-sold her last house 24 months ago.

Foreclosures or a deed transfer in lieu of foreclosure are the last resort, at least in my opinion.  They are said to do the most harm to your credit rating and the effects persist the longest on your credit report.  If all other options are exhausted, though, this may be your last out.  It will certainly get you out of an unwanted house, but is a rather blunt instrument to solve an otherwise delicate problem.

Sometimes it can help to brainstorm with a good lender and/or Realtor when you find yourself trapped in a house with little equity.

My clients are purchasing this home 24 months after a previous short sale.

My clients are purchasing this home 24 months after a previous short sale.

Buying and Selling Real Estate in Lane County Oregon

Pastoral scene 3 miles from Eugene Oregon

Pastoral scene 3 miles from Eugene Oregon

Lane County continues to be a great place to live and to own real estate. Prices seem to have risen from their bottom at the great recession and are steadily climbing. Combine this with very low interest rates and many are buying and selling real estate in 2013.

I admit I’m biased, but I think Lane County is the best place to be in Oregon, and Oregon is considered a great place to live and to retire. Portland was recently ranked as number 2 in the nation for desirability for places to retire, and other Oregon cities often make the list.. Lane County is probably best known for its trees, water and Ducks. Natural beauty and recreation opportunities abound, and we’re a tourist hot spot. Eugene Springfield, Oregon’s second largest city, is known for both the University of Oregon and it’s relaxed eco-friendly lifestyle. Eugene is close to everything–both 5,000 ft. mountains and the awesome Pacific Ocean are only an hour’s drive away. And, our nice local airport makes everything in the world reachable within in a day or two.

Buyers and sellers of real estate in Lane County fall into a few broad categories:
• Retirees
• Vacation home owners
• Regular citizens living and working here
• Investors.

Lane County is a popular spot for retirement. Our cost of living is relatively low and our climate is mild. Taxes aren’t unduly high. We also enjoy low crime rates. Our health care system is good and we have the largest hospital between Portland and San Francisco. We’re also soon to get a very large V.A. hospital. On balance, Lane County stacks up well against other areas for retirement.

Vacation homes are also popular in Lane County. Some folks maintain a home in the city for doing urban activities or watching Ducks games. Florence and nearby areas have many coast cabin retreats. And, the McKenzie River is known for its beauty and fishing, so has quite a few vacation homes. Of course, Eugene, Florence and the McKenzie communities also have many year round regular residents.

Many find Lane County a great place to live and work. Our property values are relatively cheap compared to other cities on the West Coast, and jobs are available, although not always plentiful. Low crime, low commute times, and good schools make Lane County appealing.

Lane County has no shortage of real estate investors and investment property. Eugene Springfield are the main markets for commercial, industrial and housing real estate. Secondary markets are Junction City, Creswell, Cottage Grove and Florence. A subset of investment properties is student housing, which is found primarily in Eugene, the place with the most students, and to a lesser extent in Springfield, due to its proximity to Eugene. Occasionally, parents will buy their U of O students houses in which to reside while at school, although this isn’t overly common. Bell Real Estate is one of Lane Counties leading property management firms, and has been locally owned since 1964; we understand rentals, commercial and investment property.

Lane County has 350,000 residents, in round numbers. It’s at the southern end of the Willamette Valley, fairly close to the 45th Parallel, which is midway between the equator and north pole. It’s known for its temperate, if somewhat rainy climate. Geography ranges from flat coastal plains, to grass & pasture lands, to vineyards, to mountainous rugged wilderness areas. Over 1/2 of the population lives in Eugene Springfield, and the population density overall in Lane County is low. Over 1/2 the county is in forest, and about 1/2 of the land is owned by the government. Town size ranges from small and barely noticeable to the second largest city in the State, Eugene.

Notable towns in Lane County include:
• Eugene
• Springfield
• Florence
• Junction City
• Creswell
• Cottage Grove
• Oak Ridge.

When you are interested in real estate, whether buying or selling, a Realtor can be a great aid for you. Realtors know more about property, its values and idiosyncrasies than anyone else. If you are interested in real estate in Eugene Springfield, or anywhere in Lane County, Oregon, please contact me.  Or you can search listings here.

Low mortgage rates

As predicted here, nearly a year ago, the recession ended 3rd quarter, 2009. The government is keeping home mortgage rates low at least through March, 2010. How? It has been buying a large proportion of the mortgages issued, and says it will complete its plan to buy some 1.25 trillion dollars worth, slated to be complete March, 2010. If you’re looking for property, it is a good time to buy.

Home Mortgage Rates are at Historic Lows