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.


  • 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.

Short Sales in Eugene and Springfield

Short sales in Eugene and Springfield are becoming increasingly commonplace.  While difficult, both buyers and sellers put up with them.  Why?  For sellers, short sales damage their credit less than other options.  For buyers, they represent great values.

Even expensive homes aren’t immune to short sales.  Below is an example of a short sale I recently did.  It sold for nearly ¾ of a million dollars.  At 8 acres and 1/8 mile of McKenzie River frontage it was a great buy.

If short sales in Eugene or Springfield intrigue you, get a hold of me.

Foreclosed properties selling for less

Though the present real estate market may look fairly abysmal, there are still some great deals out there for buyers. On average foreclosed properties sold for 34% less, with short sales averaging around 15% less. While these are national trends, they still demonstrate how much houses are discounted once they have been foreclosed upon. While many of these properties are discounted because they are in bad shape, it is still possible to find heavily discounted homes that are in great condition. There is no shortage of supply either, in Lane County 30% of all sales were foreclosures, and national foreclosure rates have jumped 2,500% in the past four years.

Foreclosures remain high in lane county

According to a new study, foreclosure and short sale’s remain high in Lane County. Nearly a third of all recent home sales in Lane County were either short sales or foreclosures. The majority of these foreclosures are occurring because of loss of income, which has equally affected both the rich and poor. Because houses that are foreclosed upon or short sold sell for about 15% less than other houses, the entire market has become depressed. The situation here is similar to that of the rest of the nation, as a whole, with around 31% of sales in the US being foreclosed or short sold.

Short Sales

In case you haven’t been watching the real estate market lately, foreclosures have far from gone away. In fact, according to a recent report the number of foreclosures in Eugene Springfield jumped half a percentage point, to 1.6 percent in April. This trend is reflected nationally, with the number of homes owned by banks in March being estimated at around 522,000, and recent projections indicating that the number is on the rise. So, what are the alternatives to foreclosure?

Loan modification, deed in lieu, and short sales are the practical alternatives. Short sales occur when you owe more money than the house is worth. One advantage to a short sale is less damage to your credit than a foreclosure. You’’ll need a realtor to help with a short sale, but the commission is included as part of the sale; in other words it doesn’t cost you anything.

Of course, if you’’re a buyer, foreclosures and short sales aren’t such bad news; these are some of the best deals around. The house shown below was one of my listings. It’ was clean and a great deal, listed at $149,000.  Affordable housing in Eugene is still around.

Affordable housing is still available.

Fewer Distressed Sales in Eugene than Nation

1 in 5 homes in the US recently sold were foreclosed and bank owned, according to CNN. I looked at recent sales in the Eugene Springfield area, and we are faring better. In the last month, about 1 in 10 sales of houses were bank owned (11%), and about 1 in 10 (9%) were short sales. Why? Perhaps because our market didn’t rise or tank to such extremes as others in the country.

1 in 5 Sales in Eugene Springfield Were Distressed.

Pre-foreclosure in Santa Clara

This bargain was a pre-foreclosure, or short-sale, house in Santa Clara listed for 299K that sold quickly. It’s a really nice house and a great deal. It’s 2300 square feet, and only 5 years old. Someone will enjoy making a new home here.

If you’d like to see it, give me a call at 517-6543 and I’ll be glad to show it to you.

Good deal on recently listed short sale in Santa Clara

Eugene Entry Level Houses Strong

As my colleague Jared Helton pointed out in response to my last post, he expects the market for Eugene Springfield houses priced at 225K or less to remain strong through the end of the year. I think he’s right on the money; this is the market segment that has shown the most life this year. Granted, our predictions are only 5 months out, but that’s a lot these days.

Here’s an example of the type of house you can get for the money. It was a short sale (or pre-foreclosure), 2,300 square feet, nearly new, and I had it listed at 229K, or under $100/s.f. That’s a good deal in any market, and it sold quickly.

If you’d like to know about the good deals in Eugene Springfield give me a call at 517-6543.

Short Sale priced at under $100/s.f.

Short Sale priced at under $100/s.f.