July 2009

Selling Your Home When You Are Upside-Down in a Short Sale Could Save You $500,000

by julie on July 14, 2009

Don’t we all love the home we live in? Our kids are in established schools, we have lots of memories in the house, we love our neighbors, we’ve redecorated. The list goes on. Moving would be hard. Letting our neighbors know that we are facing financial difficulty would also be really hard.

So if you are faced with a negative equity position in the current home you live in – you owe $400,000 and it’s worth $200,000, which is common in many San Diego neighborhoods where we work – there is both an emotional and financial decision to be made. Many who are facing foreclosure do not want to give up the house, yet the cost of keeping it could set you back for years to come, rather than just selling it via a short sale in San Diego. The pre-foreclosure market has heated up and ironically it may save you $500,000 to sell your home rather than keep it.

A loan modification is attractive for many people because of the emotion attachment to the house. After all, it is your home, not just some investment to be dumped at a whim. But what if I told you that financially it will cost you about a half a million dollars just to hold that home instead of selling it through a short sale?

Let’s do the math.

Your house is in San Diego, California and your loan is for $400,000.
It was originated in July of 2007 when you bought your house in Carlsbad, California at a 6.5% fully amortizing rate (meaning you are paying down the loan).
If it is a 30 year loan you will pay $510,177 in interest alone for the loan when it pays off in 2037.
This coupled with paying all the principal would cost you $910,177 to payoff the loan.

That’s a lot of money! If you needed to sell the house before the paydown of the loan to sell it at today’s price in San Diego you wouldn’t be able to do that until 2027 – that’s 18 years from now! Hopefully prices will go up in San Diego in 18 years, but what if you needed to sell in 5 years? In 5 years you would still owe $365,000 – that $162,000 in negative equity to be made up in a very short period of time.

What if lenders are not granting short sales at that time? You will still not have made any money on that house, you will have paid out $30,339 in interest and principal – AND YOU WILL GET NONE OF IT BACK. The bank still might take your home.

So let’s look at the scenario where you got out today in a short sale, and bought another house in 1 year, which is possible if you are aggressive with your credit repair.

Sell the house for $200,000 – that’s $200,000 forgiven.
Expect a credit hit, but in one year houses will still be dirt cheap.
In San Diego houses are still experiencing a decline in prices. So say in one year that house is now worth $175,000 and you buy a similar one in the same neighborhood with 10% down.
Your loan would be $157,500.
For comparison sake let’s assume the interest is 6.5%, fully amortizing for 30 years.
Your total interest paid for the life of the loan would only be $200,244.
To pay off the entire loan over 30 years you would end up paying $357,244.

That’s a savings of $552,993.00 – a half a million dollars!

So by moving on, particularly if you are facing a financial difficulty, you will not only get out of your negative equity situation (and essentially be losing money), but you will save over $500,000 by getting out and getting back in.

What would you do with that money? Pay for college education for your kids? Save up for retirement? Pay off other debts?

Let me ask you, does it financially make sense to stay in the home? I know you love it, but separate out the emotions from the finances.

What ultimately will be better for you?

NODs on the rise in California

by admin on July 13, 2009

A total of 135,431 default notices were sent out in the January- to-March period. That was up 80.0 percent from 75,230 for the previous quarter and up 19.0 % from 113,809 in first quarter 2008, according to MDA DataQuick.

Last quarter’s total was a record high for any quarter in DataQuick’s statistical data, which for defaults return to 1992.

There were 121,673 default notices filed in 2nd quarter 2008 and 94,240 in 3rd quarter 2008, during which a new state law took effect requiring banks to take added steps targeted at keeping uneasy borrowers in their houses. “The nastiest heap of California home loans appears to once have been made in middle to late 2006 and the foreclosure process is working its way through those.

Back then different risk factors were getting piled on top of one another. But if you mix these elements into one loan, it’s toxic,” asserted John Walsh, DataQuick president. The average origination month for last quarter’s defaulted loans was July 2006. That is only 4 months later than the mean origination month for defaulted loans last year, in first quarter 2008. That advocates a period where underwriting standards were especially slack. Of the 3.7 million home loans made in 2004, less than one % have since ended in a bank filing a default notice. Of the 3.7 million loans came from 2005, 4.9 p.c have caused a default notice so far. Of the 3,000,000 in 2006, 8.5 p.c have so far led to default. An especially poisonous period appears to have once been Aug thru Nov 2006 which had more than a nine percent default rate.

Of the 2.1 million loans made in 2007, it’s 4.6 p.c – a percentage that is certain to rise seriously during the remainder of this year. Less than one p.c of the home loans came from late 2006 by Citibank and BOA have since gone into default. Lots of the originating lending establishments no longer exist. While most first quarter 2009 foreclosure activity was still concentrated in cheap inland communities, there are signs that the difficulty is slowly migrating into other areas. The cheap sub-markets, which represent twenty-five % of the state’s houses, accounted for over 52.0 % of all default activity in 2008. On first mortgages, California owners were a median 5 months behind on their payments when the bank filed the notice of default.

The borrowers owed a median $12,926 on a median $346,400 mortgage. On home equity loans and credit lines, borrowers owed a median $4,229 on a median $63,600 line of credit. However the quantity of the line of credit that was basically in use can’t be determined from public records. MDA DataQuick is a division of MDA Lending Solutions, a division of Vancouver-based MacDonald Dettwiler and Associates. Notices of Default are recorded at county recorders offices and mark step 1 of the formal foreclosure process.

Though 135,431 default notices were filed last quarter, they concerned 130,718 homes because some borrowers were in default on multiple loans ( e.g. Multiple default recordings on the same home are trending down, DataQuick reported. Mortgages were most unlikely to go into default in Marin, San Francisco, and San Mateo counties – the historic norm. The chance was highest in Riverbank , Merced and San Joaquin counties

Budget deficit tops $1 trillion for first time

by Simon on July 13, 2009

If you think this recession is getting better read below. The US debt is almost imaginable, how did we get in to this situation? Is is not only the sub prime market that created this mess but massive greed from wall street.

Don’t think about just modify your loan unless you intend to stay in your house for a long time, this recession is going to take a long time to recover from. A wise decision maybe to short sale your house, get into some form of credit repair and buy a new home in 2-3 years or more.

Federal budget deficit tops $1 trillion for first time, could reach $2 trillion by fall

WASHINGTON — The federal deficit has topped $1 trillion for the first time ever and could grow to nearly $2 trillion by this fall, intensifying fears about higher interest rates, inflation and the strength of the dollar.

The deficit has been widened by the huge sum the government has spent to ease the recession, combined with a sharp decline in tax revenues. The cost of wars in Iraq and Afghanistan also is a major factor.

The soaring deficit is making Chinese and other foreign buyers of U.S. debt nervous, which could make them reluctant lenders down the road. It could also force the Treasury Department to pay higher interest rates to make U.S. debt attractive longer-term.

“These are mind-boggling numbers,” said Sung Won Sohn, an economist at the Smith School of Business at California State University. “Our foreign investors from China and elsewhere are starting to have concerns about not only the value of the dollar but how safe their investments will be in the long run.”

The Treasury Department said Monday that the deficit in June totaled $94.3 billion, pushing the total since the budget year started in October to $1.09 trillion. The administration forecasts that the deficit for the entire year will hit $1.84 trillion in October.

Government spending is on the rise to address the worst financial crisis since the Great Depression and an unemployment rate that has climbed to 9.5 percent.

Congress already approved a $700 billion financial bailout for banks, automakers and other sectors, and a $787 billion economic stimulus package to try to jump-start a recovery. Outlays through the first nine months of this budget year total $2.67 trillion, up 20.5 percent from the same period a year ago.

There is growing talk among some Obama administration officials that a second round of stimulus may eventually be necessary.

That has many Republicans and deficit hawks worried that the U.S. could be setting itself up for more financial pain down the road if interest rates and inflation surge. They also are raising alarms about additional spending the administration is proposing, including its plan to reform health care.

President Barack Obama and Treasury Secretary Timothy Geithner have said the U.S. is committed to bringing down the deficits once the economy and financial sector recover. The Obama administration has set a goal of cutting the deficit in half by the end of his first term in office.

In the meantime, the U.S. debt now stands at $11.5 trillion. Interest payments on the debt cost $452 billion last year — the largest federal spending category after Medicare-Medicaid, Social Security and defense.

The overall debt is now slightly more than 80 percent of the annual output of the entire U.S. economy, as measured by the gross domestic product. During World War II, it briefly rose to 120 percent of GDP.

The debt is largely financed by the sale of Treasury bonds and bills.

Many private economists say the administration had no choice but to take aggressive action during the financial crisis.

“We have a deep recession hammering tax revenues and forcing the government to provide a lot of help to the economy,” said Mark Zandi, chief economist at Moody’s Economy.com. “But without this help, the downturn would be even more severe.”

History shows the dangers of assuming too soon that economic downturns have ended.

President Franklin D. Roosevelt made that mistake in 1936. Believing the Depression largely over, he sought to reduce public spending and to balance the federal budget, but that undermined a fragile recovery, pushing the economy back under water in 1937.

Japanese leaders made a similar mistake in the 1990s when they temporarily withdrew government stimulus spending, prolonging Japan’s recession into one that lasted a full decade.

Republicans in Congress are seizing on the deficit — and the persistence of the recession — to attack Democrats.

“Washington Democrats keep borrowing and spending money we don’t have,” said House Republican Leader John Boehner of Ohio.

So far, interest rates have remained low.

This is partly because the Federal Reserve has kept a key short-term rate at a record near zero. Also, all the economic troubles in housing and the rest of the economy have depressed demand for credit by the private sector, meaning the government’s borrowing costs are relatively low.

The benchmark 10-year Treasury security has risen by about a percentage point in recent weeks, but analysts note it is still trading at historically low levels of around 3.35 percent.

Geithner travels later this week to Saudi Arabia and the United Arab Emirates, where he is expected to face questions about the U.S. deficit. As he did during a visit to China last month, Geithner will try to reassure investors in the Middle East that their U.S. holdings are safe from a calamitous bout of inflation.

The deficit of $1.09 trillion so far this year compares to an imbalance of $285.85 billion through the same period a year ago. The deficit for the 2008 budget year, which ended Sept. 30, was $454.8 billion, the current record in dollar terms.

Revenues so far this year total $1.59 trillion, down 17.9 percent from a year ago, reflecting higher unemployment, which cuts into payroll taxes and corporate tax receipts.

Under the administration’s budget estimates, the $1.84 trillion deficit for this year will be followed by a $1.26 trillion deficit in 2010, and will never dip below $500 billion over the next decade. The administration estimates the deficits will total $7.1 trillion from 2010 to 2019.

Is Deed in Lieu of Foreclosure Really A Foreclosure in Disguise?

by julie on July 5, 2009

Unfortunately a homeowner that voluntary deeds the house back to the bank are still hit with a foreclosure on their record. There is so much misinformation out there that homeowners are often confused on what the best choice is for them when facing foreclosure. We have had many San Diego and Orange County, California homeowners facing foreclosure ask us about “deed in lieu”, so we are addressing this “foreclosure-avoiding” technique in this article – and de-mystifying the myth!

What is deed in lieu of foreclosure?

Deed in lieu of foreclosure is essentially a homeowner giving the house back to the lender instead of the lender proceeding with the home foreclosure. This is a voluntary action by the defaulting homeowner to stop or prevent the foreclosure process.

When is it possible to use this technique to avoid foreclosure?

To stop the foreclosure some lenders accept the reconveyance of the deed to the house instead of having to go through the costly foreclosure process. To be eligible for deed in lieu, a borrower generally must have only one mortgage, and not have any other liens against the house. So if you only have a first mortgage, this may be possible. In San Diego and Orange County, many homeowners who bought with no-money down between 2004-2007 generally have two loans – a first and a second. Generally a lender does not want any other liens against the house at all, particularly in high priced markets such as San Diego and Orange County, California where home prices have fallen dramatically.

What is the downside of a deed in lieu of foreclosure?

The biggest myth of this name is what the latin word “in-lieu” signifies – it means “instead of foreclosure”. Unfortunately this is not true. It is still reported as a foreclosure on your credit report. The big advantage to the lender is that it is less costly than hiring an attorney to proceed with the foreclosure.

Do all banks accept the deed in lieu of foreclosure?

Unfortunately not. Different lenders have different requirements. The first step is to contact the bank to see if it is possible. The will then request a written offer from the borrower that states you are doing this voluntarily. This letter essentially protects the lender from possible future claim against them, or that the lender acted in poor faith or pressured the homeowner to give back the house. Once that is received and a verbal is given from the lender both sides may proceed with the settlement negotiations. In California a deed in lieu of foreclosure grant deed will need to be prepared by yourself or a local title company. You will need to notarize this and send it to the lender. Once accepted you will send in your keys and be required to move out.

What are the advantages of a deed in lieu?

If a Notice of Default has not been issued then it prevents the public from knowing your particular situation.

What is better a short sale or a deed in lieu of foreclosure?

By far a short sale is superior to a deed in lieu. A deed in lieu is reported as a foreclosure on your record. A short sale has less negative ramifications both to your credit score and is seen in a more favorable light to other creditors. The process of selling your house via a short sale can be lengthy, but enables the borrower to stay in the house for a reasonable amount of time while this takes place. This allows the borrower to save up for moving and other expenses that they will need once the house is sold.

MOUNTAIN OF DEBT: Rising debt may be next crisis

by admin on July 3, 2009

Are you struggling to pay your mortgage, you have options that are not open to the US Government.

Troubled Property Solutions can help you sell your house even if it has no equity.

Give us a call today on 1-619-631-4546 or Visit us on the web HERE

MOUNTAIN OF DEBT: Legacy of debt from Founding Fathers not celebrated on Independence Day

WASHINGTON (AP) — The Founding Fathers left one legacy not celebrated on Independence Day but which affects us all. It’s the national debt.

The country first got into debt to help pay for the Revolutionary War. Growing ever since, the debt stands today at a staggering $11.5 trillion — equivalent to over $37,000 for each and every American. And it’s expanding by over $1 trillion a year.

The mountain of debt easily could become the next full-fledged economic crisis without firm action from Washington, economists of all stripes warn.

“Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,” Federal Reserve Chairman Ben Bernanke recently told Congress.

Higher taxes, or reduced federal benefits and services — or a combination of both — may be the inevitable consequences.

The debt is complicating efforts by President Barack Obama and Congress to cope with the worst recession in decades as stimulus and bailout spending combine with lower tax revenues to widen the gap.

Interest payments on the debt alone cost $452 billion last year — the largest federal spending category after Medicare-Medicaid, Social Security and defense. It’s quickly crowding out all other government spending. And the Treasury is finding it harder to find new lenders.

The United States went into the red the first time in 1790 when it assumed $75 million in the war debts of the Continental Congress.

Alexander Hamilton, the first treasury secretary, said, “A national debt, if not excessive, will be to us a national blessing.”

Some blessing.

Since then, the nation has only been free of debt once, in 1834-1835.

The national debt has expanded during times of war and usually contracted in times of peace, while staying on a generally upward trajectory. Over the past several decades, it has climbed sharply — except for a respite from 1998 to 2000, when there were annual budget surpluses, reflecting in large part what turned out to be an overheated economy.

The debt soared with the wars in Iraq and Afghanistan and economic stimulus spending under President George W. Bush and now Obama.

The odometer-style “debt clock” near Times Square — put in place in 1989 when the debt was a mere $2.7 trillion — ran out of numbers and had to be shut down when the debt surged past $10 trillion in 2008.

The clock has since been refurbished so higher numbers fit. There are several debt clocks on Web sites maintained by public interest groups that let you watch hundreds, thousands, millions zip by in a matter of seconds.

The debt gap is “something that keeps me awake at night,” Obama says.

He pledged to cut the budget “deficit” roughly in half by the end of his first term. But “deficit” just means the difference between government receipts and spending in a single budget year.

This year’s deficit is now estimated at about $1.85 trillion.

Deficits don’t reflect holdover indebtedness from previous years. Some spending items — such as emergency appropriations bills and receipts in the Social Security program — aren’t included, either, although they are part of the national debt.

The national debt is a broader, and more telling, way to look at the government’s balance sheets than glancing at deficits.

According to the Treasury Department, which updates the number “to the penny” every few days, the national debt was $11,518,472,742,288 on Wednesday.

The overall debt is now slightly over 80 percent of the annual output of the entire U.S. economy, as measured by the gross domestic product.

By historical standards, it’s not proportionately as high as during World War II, when it briefly rose to 120 percent of GDP. But it’s still a huge liability.

Also, the United States is not the only nation struggling under a huge national debt. Among major countries, Japan, Italy, India, France, Germany and Canada have comparable debts as percentages of their GDPs.

Where does the government borrow all this money from?

The debt is largely financed by the sale of Treasury bonds and bills. Even today, amid global economic turmoil, those still are seen as one of the world’s safest investments.

That’s one of the rare upsides of U.S. government borrowing.

Treasury securities are suitable for individual investors and popular with other countries, especially China, Japan and the Persian Gulf oil exporters, the three top foreign holders of U.S. debt.

But as the U.S. spends trillions to stabilize the recession-wracked economy, helping to force down the value of the dollar, the securities become less attractive as investments. Some major foreign lenders are already paring back on their purchases of U.S. bonds and other securities.

And if major holders of U.S. debt were to flee, it would send shock waves through the global economy — and sharply force up U.S. interest rates.

As time goes by, demographics suggest things will get worse before they get better, even after the recession ends, as more baby boomers retire and begin collecting Social Security and Medicare benefits.

While the president remains personally popular, polls show there is rising public concern over his handling of the economy and the government’s mushrooming debt — and what it might mean for future generations.

If things can’t be turned around, including establishing a more efficient health care system, “We are on an utterly unsustainable fiscal course,” said the White House budget director, Peter Orszag.

Some budget-restraint activists claim even the debt understates the nation’s true liabilities.

The Peter G. Peterson Foundation, established by a former commerce secretary and investment banker, argues that the $11.4 trillion debt figures does not take into account roughly $45 trillion in unlisted liabilities and unfunded retirement and health care commitments.

That would put the nation’s full obligations at $56 trillion, or roughly $184,000 per American, according to this calculation.

Treasury Department “to the penny” national debt breakdown: http://tinyurl.com/yrxrsh

Peter G. Peterson Foundation independent assessment of the national debt: http://www.pgpf.org/

“Deficits do Matter” debt clock: http://tinyurl.com/l6mvjb

Next Entries →