Lets talk about the “f” word – Foreclosures. We’ve seen a lot of attention lately paid to President Obama’s plan to help distressed homeowners recover from foreclosure, and relieve the pressure of these below market value homes on the market. And of course, we’ve seen this rant – and this response.
What does this mean for you, the buyer of a condo here in Boston? Is a Boston foreclosure a good deal for you? Will action by Congress keep you from getting an unbelievably good deal?
First, the basics of the plan. The Homeowner Affordability and Stability Plan will not go to speculators, and is intended for owner occupied homes. The Treasury will partner with lenders to reduce monthly payments, bringing down rates so that the monthly payment is no more that 38% of the borrowers monthly income. Then further reductions will be matched dollar for dollar with the lender, to bring the interest down to a 31% debt to income ratio. The modifications will be in effect for 5 years.
These apply to conforming loans only – jumbo loans, non-conforming loans don’t qualify. If your mortgage is not held or guaranteed by Freddie Mac or Fannie Mae, or if your loan is more than $417,000, you won’t qualify for relief. If foreclosure is imminent, further incentives are offered to lenders to consider alternatives, such as short sales. If the loan is not guaranteed by Fannie or Freddie, then the lender may rewrite the loan, but this is voluntary. While there are incentives for them to do this, it is not a guarantee.
Because of the sheer number of foreclosures pressuring the market in some areas of Florida and California, housing prices have dropped so much that there is no way to rewrite the loan and have a reasonable loan to value ratio. The plan proposes to cap the ratio at 105% – far too low for some home owners who have seen a 50% drop in their home value since they obtained a mortgage.
So a homeowner who bought in 05-06, in a market where $417,000 plus a down payment bought very little for the money, likely has a non conforming mortgage. Their property value has declined steeply, and they are in trouble and staying in trouble.
But the Homeowner Affordability and Stability Plan will help some people, and give lenders the incentive to accept alternatives to foreclosure. For buyers, the prices now are great, whether you buy a short sale of a Boston foreclosure. But you want to build equity further down the road. Reducing the number of foreclosures and distress sales on the real estate market will relieve the pressure on prices – and give us a truer sense of the market value of our homes.
Ultimately, a total economic recovery will stimulate the real estate market, because people will have jobs, income, and not be selling their homes due to “distress”.
Here in Boston we can show you condos in your price range that are a great buy now, and likely to build equity for you later in a recovered market. Some are distress sales, short sales, and some are Boston foreclosures. And, they’re wonderful places to live. Call us, and remember, when you buy your home with Condodomain, we give you money back at closing.