The Financial Crisis and What it Means to Military Homeowners and Buyers
By Joe Gladden, VR SAM®, Captain USN (retired), Realtor
Veteran Realty Serving America’s Military, Inc.
And
Susan Wallace, Senior Loan Consultant, Jacob Dean Mortgage
Where Are We?
The financial news, mostly bad, has dominated the media the past month like never before. On the heels of the Fannie Mae and Freddie Mac government takeover, financial giants, Merrill Lynch and Leyman Brothers, joined Bear Sterns and Indy Mac in the “disappearing act.” Insurance giant AIG, deemed too critical to the national and world economies to fail, was bailed out by the government who recently legislated a $700 billion bailout to “right the country’s, and world’s, financial ships.” It is dominating world politics and our national elections and President Bush has acknowledged that our economy is serious trouble. But what does the “bailout” mean to the Military Homeowner and prospective Home Buyers? If effective, the “bailout” will enable the government to buy “failed and at risk” mortgages from banks in order to stabilize the banking industry and free up money to originate loans for home buyers as well as lend to commercial real estate markets, college loans, and continue consumer credit. It means that Military Homeowners may in the very near future be able to modify the terms of their loans to avoid foreclosure.
How Did We Get Here?
Just about everyone has an opinion on this, or at least an opinion on whom to blame. It is indeed extremely complex and in all likelihood, only a handful of economists and government officials fully understand the dynamics and complexities of the situation. But a few things seem pretty clear. The mortgage market crisis was clearly the catalyst for the events of the past month. The high volume of subprime mortgage failures resulted in a dramatic rise in the home inventory nationally at wholesale prices. When these foreclosures flooded the housing market, the laws of supply and demand forced home prices spiraling downward. At this point, even homeowners with “prime or A paper” mortgages found they could neither sell nor refinance their loans! Clearly this impacted millions of American families. Unfortunately, it had a disproportionate impact on our Military Homeowner Families, including many of you reading this article, forced to move when issued PCS orders.
So, Is This Really a Good Time to Buy?
Almost every expert agrees that it is. While no one can predict the precise bottom of any market it is hard to imagine a more favorable time to purchase a home. Interest rates and home prices (on the average) are very low and home inventories are high. You should expect to pay more money down and undergo tighter underwriting scrutiny than in the past. You should also consider how long you expect to be in the home and not expect to see the appreciation rates from earlier in the decade.
Recently the stock investor sage Warren Buffet was quoted as saying: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” I believe he would agree that you make your money when you buy whether investing in a home or equities.
Is There Any Hope on the Horizon for Military Homeowners?
We think so. We are very hopeful that you will soon have better options! For the past 18 months to present, your options have been extremely limited and very undesirable if you are “upside down” and must sell due to PCS orders. Essentially, you could: pay the difference “out of pocket” IF you had the cash, attempt to “Sell Short,” or endure the humiliation of foreclosure. All have huge consequences and if considering any of these options consult competent legal advice! However, we believe as the processes are refined to implement the recent legislation over the next few months (if not sooner), far better options will be available to our Military Families facing this situation. While there may be variations of such programs, the most likely form relief will take is a “loan modification.” In fact, the Certified Mortgage Planning Specialist Institute (CMPS) reports that “House Resolution 3221 (section 1403) passed in July 2008, already requires lenders to modify loans for homeowners who meet the following criteria:
Default on the mortgage either has already happened or is “reasonably foreseeable”
The home owner is living in the property as his / her primary residence
The lender is likely to recover more through the loan modification or workout than by forcing the homeowner into foreclosure
This law REQUIRES the loan servicers to act in the best interest of all their investors and obligates them to modify your loan if you can afford the modified loan terms AND if they are likely to recover more than going through the foreclosure process!”
Furthermore, the CMPS Institute recommends that when negotiating with your lender (servicer), you take the following steps:
Deal only with the lender’s loss mitigation department
Write a letter clearly explaining the circumstances that explain the impending default. While not specified, we believe government issued PCS orders would certainly qualify.
Demonstrate your ability to pay the loan with modified terms by documenting your income with employment records / tax returns / income statements, etc.
Send the lender / servicer a current appraisal, market analysis, or other evidence of the value of your homes.
If your lender / servicer does not cooperate, consult an attorney experienced in debt relief. But a word of caution! There is a growing number of “debt relief” companies that charge very high rates with enticing promises. Please be extremely careful about engaging these services.
As you can probably tell, writing legislation will be the easy part. The interpretation and the implementation of the law by the various lender / servicers will likely prove far more challenging and will require persistence and patience.
You surely have noted that a loan modification is not a “buy out” program and falls short of the parity with other Federal Employees that VR SAM® continues to advocate...but it is a start! Hopefully it will enable many Military Homeowners to keep their house at a reduced monthly payment that would make renting the house feasible until we return to a more balance market.
We are extremely encouraged by growing interest of certain Congressmen about the unique circumstances of Military Families. They are listening to your letters and calls and our proposals!
VR SAM® has established a link on our forum (below) to update the changes and status as they emerge and we encourage feedback from your experiences as well . As always, we appreciate your feedback and questions and sincerely appreciate your service. For more information and updates, please visit us at: http://vrsam.conforums.com/ www.vrsam.com or www.moresam.net
Email VR SAM® at: homesformilitary@vrsam.com
Contact Susan Wallace: http://www.loansbysusan.net/
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Reproduced with the expressed permission of Military.com, Inc.
Reproduced with the expressed permission of Naval Reserve Association, Inc.
Copyright 2008