Equifax Finance Blog » Real Estate

Are Lenders Loosening Up on Those Buying a House?

Steve Cook — Fri, 11 May 2012 00:04:33 +0000

If you’re thinking about buying a house and you haven’t applied for a mortgage since 2006, you’re in for an unpleasant surprise. The lax standards of the real estate boom era—like “no doc” loans, approved without supporting documentation, and “stated income” mortgages, where no proof of income was required—are history. If you want a mortgage today, get your credit score up, pay off debt, put some cash in the bank, and get your paperwork in order because you’re going to be asked to prove your income, assets, debts, and other financial commitments.

Today’s tighter standards have resulted in a greater percentage of loan denials and higher FICO scores. In 2010, for example, the nation’s 10 largest mortgage lenders denied 26.8 percent of loan applications, an increase from 23.5 percent in 2009, according to an analysis by The Wall Street Journal.

The leading reason a lender will deny your loan is because it has concerns that you can repay the loan. You’ll need to prove your ability to pay the loan before you receive any money from the bank by doing the following:

Prove you have steady employment or a reliable income stream. A new job or self-employment raises red flags.
Pay down your debt and don’t accrue new debt. A high debt–to-income ratio is a warning sign to lenders.
Show you have enough cash saved up for the down payment, closing costs, and cash reserves in case of an emergency.
Allow your lender to verify the source of the funds for your down payment.
Make sure your credit reports show no recent late payments or “charge-offs” to creditors who have not been paid according to the terms of their financing agreements.
Check your credit score; having a higher credit score is crucial.

Average FICO credit scores for loans approved by Freddie Mac and Fannie Mae today run in the 760s compared to 620 to 640 during the housing boom. Ellie Mae, a company whose software processes 20 percent of all U.S. mortgages, reports the average FICO score among denied applications has risen to 750 from 741 since August 2011. Even the FHA is requiring a minimum FICO score of 580 to qualify for a loan with a 3.5 percent down payment.

Some, notably the National Association of Realtors and the National Association of Home Builders, claim that these tough new hurdles are impeding the housing recovery by making it extremely difficult for qualified borrowers to get mortgages. A white paper issued by the Federal Reserve in January agreed, noting that mortgage lending has significantly declined among potential first-time homebuyers—an important source of incremental housing demand.

In February, Federal Reserve Chairman Ben Bernanke called for increased lending to creditworthy homebuyers and more loan modifications and mortgage refinancing to help revitalize the housing industry and economy. The NAR reported Bernanke said in a speech to home builders that tightened borrowing was necessary to protect banks, investors and borrowers during the housing crisis, but now the pendulum may have swung too far.

Is this pressure sending a signal to lenders that their tight lending policies may be doing more harm than good? As the spring home-buying season gets underway in earnest, can homebuyers look forward to more moderate lending practices and underwriting policies? Unfortunately, the answer so far seems to be no.

Avoid Foreclosure Scams with These Official Resources

Ilyce Glink — Fri, 04 May 2012 02:38:28 +0000

In the wake of the Great Recession and the damage done to the real estate market, many homeowners have an underwater mortgage or facing foreclosure. The government has set up programs intended to help, but unfortunately many scammers have also jumped on the bandwagon.

According to the Homeownership Preservation Foundation (HPF), an independent national nonprofit that helps homeowners avoid foreclosure, mortgage foreclosure scams are up nearly 60 percent this year. This surge coincides with the federal government’s newly launched programs.

“Regretfully, every new government initiative spawns a slew of foreclosure avoidance scams, often from the same cast of characters doing business under various names to avoid easy detection and identification,” warned Colleen Hernandez, CEO of HPF, in a press release.

“Most of these scams involve individuals supposedly offering mortgage foreclosure avoidance assistance that trained HPF counselors provide at no cost. Sadly, with most scams, no meaningful services are ever provided,” Hernandez said.

So how do you know when you’re dealing with the real thing? I recently provided a list of loan scam red flags, and now I’m also providing a list of the government programs, and their official sites, below. It is important to note that homeowners can get access to all of these programs directly, without paying a third party for the information.

Making Home Affordable (MHA) programs

HARP: The Home Affordable Refinance Program is designed for underwater mortgage homeowners who are current on their payments but who wish to refinance based on the current value of their home. Fannie Mae or Freddie Mac must own the mortgage, and the current loan-to-value (LTV) ratio must be more than 80 percent.

Find out if Fannie Mae owns your loan.

Find out if Freddie Mac owns your loan.

HAMP: The Home Affordable Modification Program is available to employed homeowners who are struggling to make their mortgage payments. To be eligible, you must have a mortgage payment that is more than 31 percent of your monthly gross (pre-tax) income, and you must be delinquent or in danger of falling behind on mortgage payments.

UP: If you are unemployed, the Home Affordable Unemployment Program may be able to reduce your mortgage payments to 31 percent of your income or suspend them entirely for 12 months.

PRA: MHA’s Principal Reduction Alternative is designed to help homeowners who are upside down on their loans. To be eligible, Fannie Mae or Freddie Mac cannot own your loan, and your home must be worth significantly less than what you’re paying on it.

To see the full list of programs and requirements, visit the Making Home Affordable official site.

Independent Foreclosure Review

The Independent Foreclosure Review was commissioned by the Office of the Comptroller of the Currency (OCC). The program allows homeowners who were foreclosed on to request a review of the process. To be eligible, the foreclosure action must have taken place on the primary residence between January 1, 2009, and December 31, 2010, and a participating lender must have serviced the loan.

Homeowners can complete or download the review form directly on the Independent Foreclosure Review site. If a third party is asking you for money to assist you in the process, it’s probably a scam.

To see the full list of requirements and list of participating lenders, visit the Independent Foreclosure Review official site.

Help With My Bank

Having trouble dealing with your bank? You don’t have to pay someone else to get things done—you can get them moving yourself. Through HelpWithMyBank.gov, the OCC gives you resources to file a complaint against your national bank online and to get answers about everything from mortgages to bank record-keeping.

If you’d prefer to have a third-party advocate to your bank on your behalf, check out HUD.gov for a list of HUD-approved counselors in your area.

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and at the Home Equity blog for CBS MoneyWatch.

Spring Real Estate Outlook: Inventory Worries

Steve Cook — Fri, 27 Apr 2012 13:51:06 +0000

Home sellers and buyers have reason to be skeptical about predictions that this is the year that home prices will finally bottom out and begin to rise for good. Last year was supposed to be the breakthrough for buying and selling a home; instead, we saw a double dip in prices in the first quarter and another decline at years’ end.

While it seems as though hope for a revived housing economy springs eternal, sellers and buyers in most markets will find that this spring will look a lot like last year with one big exception: affordable rates and prices, though the selection may be less.

Even in the best markets, sellers can anticipate only a slight price improvement. In most markets, prices are lower than they were a year ago at this time. According to some reports, buyers are accepting the marketplace realities. More than half (51 percent) of 600 real estate agents in a recent Coldwell Banker survey reported that sellers are more willing to price their homes competitively than they were at this time last year. Forty-five percent said that sellers are more willing to change the appearance of their homes to entice buyers than they were one year ago. Last year, by contrast, many sellers refused to budge on their prices.

Buyers can also expect a repeat of the conditions that made last year a good time to buy a home: record low interest rates and affordable prices. But unless inventories replenish quickly, buyers in most markets will have a diminished selection of “fair value” or non-foreclosures homes from which to make their selection.

It’s normal for the supply of homes for sale to fall as fewer people are selling or buying a home in the colder climates, but this winter, inventories dropped precipitously. On a year over year basis, the total listed inventory in January was 20.6 percent below 2010, according to the National Association of Realtors (NAR). Realtor.com, the largest homes for sale website, listed 23.20 percent fewer homes in January than it did a year ago.

The decline in the NAR’s numbers was so dramatic that it drove the national inventory picture down to a 6.1 months supply, the lowest it has been in years. “Months supply” is a calculation of the number of months necessary to reduce inventories to zero at current demand levels. A six-month supply is considered a balanced buyers’ market and sellers’ market. Realtor.com reported the median time in inventory for listings fell to 103 days. What does this mean? Buyers may not have a home to buy.

When and how will inventory levels change?

Those buying a home won’t have to wait long to see a change. The inventory shortage may remain with us through the year, but it won’t stay at these low levels for two reasons. First, the seasonal re-supply of homes going on the market in the spring will restore 5 percent to 10 percent. Second, foreclosures are going to increase again.

A major factor in the low inventory levels is a decline in REOs, or foreclosures listed for sale by lenders. RealtyTrac reported that foreclosure activity declined 24 percent last year, largely due to the slowdown of processing by lenders awaiting the outcome of the negotiations between the largest banks and state attorneys general. Now that an agreement has been reached, the parties are developing new standards for processing procedures that will diminish lenders’ legal liability in implementing foreclosures. When that’s complete, sometime this spring, look for the first of the 1.6 million to 2 million properties that have been stuck in the foreclosure pipeline.

Foreclosures for sale have already been on the rise. At least two major banks, Wells Fargo and JP Morgan Chase, began processing their backlog last fall, before the agreement was signed. Will the rest follow and create a flood? Last year, only 4.5 million existing homes were sold in America; adding 2 million foreclosures to the inventory could have a drastic impact on values, which would only hurt the lenders trying to sell them.

Most experts expect lenders to parcel out foreclosures so as not to disrupt local markets, which will also have the effect of creating a greater foreclosure inventory for the next two to three years. The impact will be felt greatest in “judicial” states like New York, New Jersey, Florida, Connecticut, Illinois, Ohio, and Maryland, where the delays in processing foreclosures have been greatest.

Yet even with the rise in foreclosures, prices may stabilize this year and, on a national average, begin to appreciate. However, as always, every real estate market differs. Take some time to study price, demand, and inventory trends in your market to understand how they affect your plans for buying or selling a home this season.

Steve Cook is Executive Vice President of Reecon Advisors and covers government and industry news for the Reecon Advisory Report.

During his 30 year career in public relations and journalism, Cook has been a print and broadcast news correspondent, served two Members of Congress as press secretary, was a senior executive in the world’s largest independent public relations firm in Washington and Chicago and was vice president of public affairs for the National Association of Realtors from 1999 to 2007.At NAR, Cook supervised external communications including news and editorial coverage, video production, speech writing and communications strategic planning. He helped to manage NAR’s multimillion dollar network advertising program.

Cook is a member of the National Press Club, the Public Relations Society of America and the National Association of Real Estate Editors, where he served as second vice president. Twice he has been named one of the 100 most influential people in real estate. He is a graduate of the University of Chicago, where he was editor of the student newspaper. In addition to serving as managing editor of the Report, Cook provides public relations consulting services to real estate and financial services companies, and trade associations, including some of the leading companies in online residential real estate.

Make the Most of Your Home Improvement Projects

Ilyce Glink — Tue, 24 Apr 2012 03:45:42 +0000

Whether you’re sick of your laminate countertops or you just want to spruce up your bathroom, you might want to consider whether your remodeling projects will yield much money when you’re ready to take the steps toward selling your home.

With housing prices continuing to decline, it’s important to think about the return on investment of renovation projects—and to then find ways to maximize your investment.

“Aside from making sure a house is structurally sound, things that are usually very important to a potential buyer are going to be the bathrooms and the kitchen,” says Brian Zeldes, a certified remodeler with BKZ Contractors in Philadelphia and spokesman for the National Association of the Remodeling Industry.

But in a cost-conscious market, those projects don’t offer the best return on investment, according to Remodeling magazine’s Cost vs. Value report for 2011-2012. Replacement projects—doors, windows, roofing, or siding—will increase the value of your home while often carrying lower price tags.

Midscale renovations are where the best investment lies in interior remodeling. In a kitchen, upgrades like refurbished cabinets, new countertops, a new coat of paint, bright lighting, and a clean floor will go farther than a complete overhaul, Zeldes says.

Avoid luxury items if you want to see your investment pay out when you sell. Having top-of-the line appliances or a pot filler faucet may be worthwhile for you, but few buyers will be willing to pay extra for your pet projects. Instead, focus on your market. In an area where outdoor living spaces are the norm, for example, adding a backyard deck can go much farther than a kitchen upgrade.

If you’re looking to remodel and are thinking about selling your home soon or sometime in the future, try these projects for the best return on your investment.

1. Replacement projects. These are not flashy, but they are cost-effective and have an above average cost-value ratio of 71.6 percent. Replacing your front door or installing a new garage door are two of the least expensive repairs, but they ramp up curb appeal and can both increase security and save on heating and cooling costs. Even better, they can carry a return on investment anywhere from 80 to 100 percent of the cost. Window and roofing replacements, especially with the addition of spray foam insulation, offer the same benefits, but at a slightly higher price tag, notes Zeldes.

2. Kitchen remodeling. Minor facelifts in the kitchen—like new cabinets or a replacement countertop—can go a long way toward improving the resale value of your home. Limit these renovations to less than 20 percent of the total value of your home to maximize the value.

3. Adding a new space—without adding more house. By adding a deck, converting an attic to a bedroom, or finishing a basement, you can add more livable space to your home without increasing its footprint. While these are some of the priciest home remodeling projects, they are also carry some of the highest returns of investment, topping 70 percent cost recouped. While a basement refurbishment could cost upwards of $45,000, a wood deck addition carries the lowest cost at around $7,000.

READ MORE:
Signs of Life from a Struggling Real Estate Market
Buying a Home: Are You Ready?
Buying or Selling Your Home? Local Real Estate Markets
Buying or Selling Your Home? Real Estate Price Predictions

Buying a Home versus Long-term Renting

Ilyce Glink — Fri, 20 Apr 2012 03:34:23 +0000

While becoming a homeowner has long been a cornerstone of the American Dream, the recent recession has caused many Americans to question if buying a home is still the right move.

For some, renting a home and saving the money that would have been spent on a mortgage has become the new American Dream, and making the decision to buy or rent a home has become less about money and more about lifestyle.

Considerations about renting a home

“For a long time, we have been thinking that owning a home was the surefire way to financial success,” says Bill Deegan, CEO of Renter Nation, a national renter’s organization. “But people shouldn’t view their home as an investment, they should view it as a place to live.”

After owning four homes, Deegan abandoned homeownership for renting and now advocates for the latter. He believes that renting offers unparalleled flexibility and mobility.

For example, if your lifestyle suddenly changes—you get a new job or find out a new baby is on the way—your lease may be the only thing nailing you down. And breaking a lease is a lot easier than selling a home in today’s market.
Buying a home comes with a lot of expenses—and not just the down payment and monthly mortgage. You need to plan for ever-increasing property taxes, insurance costs, and regular maintenance, as well as unexpected repairs that often require hefty cash on hand.

However, if you are renting a home, your monthly rent is usually your bottom line. If your roof leaks, your landlord fixes it and your savings account is left alone.

But what exactly do you gain by renting? Not much, according to Cynthia Joachim, one of the regional vice presidents with the National Association of Realtors. “There’s very little financial value to renting,” she says. “That’s the basic truth. If you can afford to buy and stay in a home, you should.”

The benefits to buying a home

There’s a bevy of reasons to buy a home, from design flexibility to building equity, but the income tax breaks may be the most financially attractive.

For most homeowners, property taxes and some interest on one’s mortgage are deductible. These breaks eventually pay off. In a few short years, a homeowner can be saving money by paying a mortgage rather than paying rent.

“Don’t look at real estate as if it’s a short-term investment,” Joachim says. “It was always intended to be at least a 30-year investment. That’s why we have 30-year mortgages.”

Since you’ll want to stay put until selling your home is at its most advantageous, you should not only have a stable lifestyle but also stable finances. Make sure you have good credit and solid savings before you begin house hunting. If you are approved for a mortgage, put down as much as you afford, and buy less home than you are qualified to buy. You should also always consider how long you can keep making payments if your income is jeopardized.

Renting versus buying? It’s a good time to be looking into your options as a potential homeowner or long-term renter.

Spring Real Estate Market Predictions and News

Ilyce Glink — Thu, 19 Apr 2012 14:03:46 +0000

There’s a lot happening in the real estate market these days, and the jury’s still out on whether or not we’re in a real recovery. Foreclosure rates remain high despite a national dip in foreclosure activity, and the mortgage industry continues to struggle. To top it off, the $25 billion settlement between the states and banks may not do much to help homeowners.

Foreclosures

According to RealtyTrac’s foreclosure activity report, foreclosure filings—which include default notices, scheduled auctions, and bank repossessions—decreased 2 percent from January to February and 8 percent year-over-year.

It’s good news, but there are still problems. The year-over-year decrease is the lowest since October 2010, and ten of the nation’s 20 largest metro areas by population experienced an increase in foreclosure activity. Those with the highest foreclosure rates were Riverside-San Bernardino, Calif., Atlanta, Ga., Phoenix, Ariz., Miami, Fla., and Chicago, Ill.

According to Brandon Moore, CEO of RealtyTrac, it’s just the beginning. “The foreclosure and mortgage settlement filed in court earlier this week will help pave the way to a property functioning foreclosure process…. That should result in more states posting annual increases in the coming months,” he said in a press release.

With more foreclosures hitting the market in the coming months, we could see another drop in home prices. If we’re lucky, timing will work in the real estate market’s favor: it’s home buying season, and the combination of low prices and interest rates could mean foreclosures will sell faster than in previous months.

Mortgages

This was another mixed month for mortgages, according to a recent weekly survey by the Mortgage Bankers Association. The market composite index, which measures loan application volume, was down more than 2 percent month-over-month in the week ending March 9, 2012. Applications for refinances also decreased, down 3.29 percent from four weeks previous. The refinance share of mortgage applications is at its lowest level since November 25, 2011.

Michael Frantantoni, vice president of research and economics for the Mortgage Bankers Association, thinks the decrease is tied to upward trends in mortgage rates but insists those who need help are getting it. In a statement, he said, “HARP volume continued to grow as a share of total refinance volume, reaching roughly 30 percent of refinance activity in the last two weeks. Typical HARP loans had loan-to-value ratios above 90 percent, indicating that lenders are reaching out to underwater borrowers.”

Let’s hope underwater homeowners are getting help somewhere. Most would agree that the government’s plan to help housing, like the Making Home Affordable program—which includes HARP and HAMP—hasn’t done enough to help struggling homeowners.

Freddie Mac

One of the biggest issues at hand right now is the stability of Freddie Mac, the secondary mortgage market giant. According to its latest financial results, the government sponsored entity (GSE) made $1.5 billion in the fourth quarter of 2011. But that wasn’t enough to cover the $1.7 billion dividend due to the Treasury in that same quarter, and Freddie’s asking for yet another bailout—this time to the tune of $146 million. To date, Freddie Mac has received $72.3 billion in Treasury outlays and has paid back only $16.5 billion.

The bailout is just the beginning of Freddie’s problems. The company reported a total loss of $1.2 billion for the full-year 2011, compared to a total comprehensive income of $282 million for the full-year 2010. The GSE also suggests it may need an additional bailout as changes in home prices, interest rates, mortgage security prices, spreads, and other factors put more stress on its finances.

Foreclosure settlement

In February, 49 state attorneys general and the nation’s five largest lenders reached a settlement worth $25 billion. In addition to requiring changes in lending practices, the settlement also gives each state a share of the money, which is intended to be used for programs to help struggling homeowners and victims of foreclosure fraud.

It sounds good, but it looks like that’s not happening. Before the settlement was even approved by the U.S. District Court, some states announced they would be diverting funds from the settlement to prop up other areas of their budgets. In Missouri, for example, Gov. Jay Nixon plans to use nearly all of the state’s $41 million settlement payment to offset some of the “challenging budget cuts [he] was forced to make.”

Missouri’s not alone. Pennsylvania, Georgia, Vermont, Maryland, and Wisconsin all plan to use the money for something other than its intended purpose, and more states could follow suit in the coming months.

Universal Design: Good Design That Makes Homes More Livable

Eve Becker — Fri, 30 Mar 2012 12:36:02 +0000

When buying a home, building a new home, or remodeling an existing home, keep in mind design concepts that make your home welcoming for everyone, regardless of age or ability. You may find that such inclusive concepts, dubbed “universal design,” make sense both socially and for your budget.

Universal design holds that new environments and products, to the greatest extent possible, should be usable by everyone regardless of age, ability, or circumstance. The concept goes beyond making houses handicapped-accessible and transcends “aging in place,” a recently coined phrase that refers to the modifying of homes so older owners can stay in one place longer. Universal design is a more proactive approach to building—incorporating good design that’s usable for the greatest number of people.

Universal design emphasizes open space with more maneuverability, no-step entries, and easy-to-use fixtures—all features that can be appreciated by a broad brushstroke of the population, potentially increasing the value of a home.

For example, including a no-step entry in the building of a house means that Aunt Sadie can come to visit with her wheelchair, a mother can push a stroller into the house, or a teen can roll a suitcase from the living room to the car. Instead of an unsightly ramp taking up the front yard, a builder can create a slightly elevated driveway with a gradually sloped, landscaped walkway to the front door—without any entry steps. It’s design that’s functional as well as stylish.

“Universal design, by definition, is making spaces that are convenient, comfortable, and inviting to people of all ages, regardless of their ability,” says Bill Owens, president and owner of Owens Construction in Powell, Ohio. As a certified aging-in-place specialist (CAPS), Owens develops and teaches universal design and aging-in-place curriculum nationwide through the National Association of Home Builders.

“These spaces benefit people of all ages, sizes, and abilities. Done well, it’s largely transparent. It’s not in your face. It has to be appealing. It has to have a transparent feel to it or mainstream America is not going to invest in it,” Owens says. “We try to insert good design in all that we do so it accommodates to the largest extent possible—that’s probably the key phrase—so you have an area that is convenient, comfortable, and inviting to the greatest extent of folks who might occupy that space.”

Benefits of incorporating universal design

Universal design features make good sense for people of all ages. Varied-height kitchen workspaces, for example, allow great flexibility, says Louis Tenenbaum, CAPS, universal design expert, aging-in-place coach, and independent living strategist.

“Why not have a place where you can sit down and cook and chop things?” he says. “If you have a countertop that is lower, a grandson can use that countertop when visiting, and he can help Grandma cook; you can sit and cut, instead of standing after a long day; a person who can’t stand can use it. It opens possibilities.”

A Chicago-based writer and editor, Eve Becker writes about personal finance, health and other topics. She is a former managing editor of Tribune Media Services.

When Selling a Home, End the Emotional Ties

Eve Becker — Fri, 16 Mar 2012 13:17:45 +0000

When selling a home in an unfavorable market, it can be hard to face some facts. Most likely, your home will not command the price you want. It might be hard to cut your losses and move on. And you may find you have more emotional ties to selling your home than logical ones.

Such feelings are not a surprise, says retirement expert Jan Cullinane, author of “The New Retirement: The Ultimate Guide to the Rest of Your Life” and the upcoming “The Single Woman’s Guide to Retirement” (John Wiley & Sons, 2012). Business decisions often are more emotional than we realize. But understanding some basic theories of behavioral economics—how psychology affects economic decision-making—can help us all make better financial decisions.

“Leaving a home can be very emotional,” Cullinane says. Yet, she adds, when we need to sell a home in a down market, we need to understand the obstacles and the behavioral economic factors so we can cut the emotional ties.

“We’re much more emotional, like Homer Simpson in our thinking, rather than logical like Spock from ‘Star Trek,’” Cullinane says. “When it comes time to sell our home, it helps if we are aware of these factors and how we think.”

Being aware of the following behavioral economic concepts help with this difficult decision-making:

Status quo bias. “It’s easier to do nothing than to do something,” Cullinane explains. People don’t want to change things unless there are compelling reasons.

Loss aversion. In this market, you may have to sell your home for less than you thought. On the flipside, when you buy your next property, you’re likely to buy it at a discount. But that doesn’t always make us happy. “We feel worse about a loss than we feel happy about a gain,” Cullinane says. Recognizing our loss aversion can help us come to terms with the loss and appreciate the gain.

Endowment effect. “We put a higher value on something we own than on something we don’t own,” Cullinane says. The endowment effect can create a roadblock when putting a home on the market. It also means that others won’t value our home the same way we do.

Anchor. We all have an “anchor”—a fixed price for which we think our home should sell—and we don’t want to sell it for less than that amount. Often, our anchor is based on what we paid for the house and what we feel it should be worth now, even if market conditions have changed dramatically. We need to get past that emotional anchor. “Let’s face it, your home is worth what someone is willing to pay for it,” Cullinane says.

Sunk costs. When we have put money into something that we can’t get back, we have a tough time cutting our costs and moving on. For instance, if you remodeled your deck, you may not be able to recoup that money when you sell. You need to realize that money is a sunk cost—it already has been spent and you won’t get it back—and move on.

If you’re retiring, or moving for other reasons, it helps to realize that your home is not worth now what it once was. Those high sales prices aren’t coming back any time soon, but you can get a good deal on a new purchase.

“Knowing that you feel worse about a loss than you feel happy about a gain—and recognizing that intellectually—goes a long way to getting over that emotional hurdle,” Cullinane says. “Knowledge is power.”

A Chicago-based writer and editor, Eve Becker writes about personal finance, health and other topics. She is a former managing editor of Tribune Media Services.

Loan Scam Red Flags For Homeowners

Ilyce Glink — Mon, 12 Mar 2012 03:23:27 +0000

As more homeowners are struggling with buying a home, selling a home, or facing foreclosure, they’re more at risk for a loan scam. Watch out for these red flags for home loan and mortgage scams. Have you been a victim if a home loan scam? Leave your comments below. Read last week’s home loan scam story.

If people are desperate, they will be willing to give money to someone that is selling an idea they want to believe. Barbara Floyd-Jones from NeighborWorks America says she thinks homeowners are now more aware that scams exist and that they need to protect themselves, but they might not be aware of the warning signs and red flags to watch out for.

1. Being asked for payment upfront. Scammers want to get paid, and they want to get paid without performing the service they’ve promised. Keep your guard up when receiving loan counseling; Floyd-Jones warns that the scammers have gotten smarter. They might not want to scare you off right away, so they might not ask for money until the second or third visit.

2. Promising outrageous results. A blanket statement like “We’ve received great results for our clients” is a big warning sign. A legitimate housing counselor has connections to the lenders and can submit information on behalf of owners. Counselors can advocate, educate, and keep a regular contact schedule with the lender, but they can’t guarantee the lender will do anything to help you. A scammer will promise the world if it means a desperate homeowner will hand over money.

3. Having a fake affiliation with a real resource. The most dangerous scammers are the ones who have masked themselves in a cloak of legitimacy. Yolanda McGill, senior counsel for the Fair Housing and Fair Lending Project, said that last December more than 25 percent of the reports for home loan scams claimed the company had “law” in the name. Other scammers will pretend to be part of a non-profit organization or be associated with a bank, and it’s hard for a homeowner to see the scam coming. For example, a homeowner might be looking for HUD resources online and end up at a site that has HUD in its name but that has no affiliation with the real government resource.

4. Asking you to sign something you don’t understand. A legitimate organization, whether a government or non-profit resource, will make sure you understand what it is doing and what you need to do. Do NOT sign anything with the word “deed” in it or anything else you don’t fully understand. You could get yourself into a lot of trouble that goes beyond just giving some money to a loan scam operation.

5. Disappearing or refusing to answer communications. Once a scammer gets your money, he or she might stick around to get more payments from you, or the scammer could just disappear. If you think you’ve been sucked into a scammer’s trap, stop payment immediately. You might have to cancel the account completely because if it is a scam, the scammer is not going to just let you discontinue the payment. A smart tip for any kind of service: Use your credit card. With a debit card, the funds will come directly out of your checking account. With a credit card payment, if you find out later that you were involved in a scam, you can file a dispute with the credit card company. You might get your money back, and the credit card company can take the fraud up with the scam artist.

If you think you’ve been a victim of a home loan scam, file a report with a local housing counseling agency or at loanscamalert.org. With your report, local and federal law enforcement can take action, and you can start to seek the help you really need from a legitimate housing counselor.

Desperate Homeowners Tricked by Home Loan Scams

Ilyce Glink — Fri, 09 Mar 2012 02:14:48 +0000

Lots of homeowners are struggling through the real estate recession—their home values have been slashed, their mortgages are underwater, they’ve lost jobs, and they can’t pay their mortgages. Sound familiar? These homeowners are facing foreclosure or are attempting a last change loan modification—and they’re getting desperate.

The next year doesn’t seem to be looking any brighter as loan modifications and foreclosures are stalled. We can’t expect to see any major improvement while unemployment is high and people continue to struggle to pay their mortgages. There are legitimate resources and help for homeowners (see next week’s blog), but people need to know that there’s not a quick fix and that a too-good-to-be-true scheme is probably a scam.

Types of loan scams

Scammers are constantly changing tactics and looking for new ways to get consumers to fall for their tricks. Have you looked in your email spam box recently? There are probably a couple of good examples of scam artists in there.

Barbara Floyd-Jones, a program manager at NeighborWorks America, works primarily with foreclosure prevention. She says that there are several loan scams she’s seeing more frequently:

1. Lease back. In this scenario, an individual or an organization offers to pay your mortgage if you sign over your home. You will essentially be leasing the home from that individual or organization, and you are usually given the offer to buy the home back in the future. Unfortunately, most homeowners never qualify to buy back the home because the scammer inflates the home price out of range of the homeowner. In the worst cases, the homeowner loses his or her home because the other individual or organization was never paying the mortgage in the first place.

2. Inflated fees. A legitimate housing counselor can help guide you through the process, but he or she can’t do anything you can’t do for yourself. According to Floyd-Jones, 99.9 percent of the time when someone asks you to pay a fee for help with your loan, you are being scammed.

3. “Mass joinder” lawsuits. Do an Internet search for “mass joinder” and you’ll see a list of links warning you about mass joinder lawsuits. Companies will approach homeowners and ask them to join a lawsuit with others against a loan service or provider. Again, they’ll offer to include you—for a fee. The lawsuit is just a scam and a way to bilk homeowners out of their money. Nothing ever comes of the lawsuit, and homeowners are left disappointed at another dead end.

Next week we’ll cover red flags to watch out for to avoid these loan scams, and we’ll share legitimate resources to help struggling homeowners. What problems are you facing? If you’ve been approached by one of these scam artists, leave your comments below.