Successful Homeowners Since 2009

Good news: those who bought homes in 2009 and later have become one of the most successful groups of homeowners. Mortgage default rates have been exceptionally low.
Bad news: the loan approval process has become so strict since 2009 that only super-high credit score individuals are able to obtain mortgages. A good chunk of middle-class borrowers have therefore been shut out of the market.

Is there any hard factual evidence to show that lending standards are just way too tight? Well, the Federal Reserve’s white paper, released last week, explicitly emphasized the need to ‘remove some of the obstacles preventing creditworthy borrowers from accessing mortgage credit’ in order to upgrade the economic growth prospects.
As for the data, consider the following loan performance by the vintage year after one year from the time of origination on Fannie and Freddie backed mortgages. Loan default rates were 0.3 to 0.4 percent in the more normal housing years of 2002 and 2003, well before the developments of a bubble. The default rates then rose to 2 and 3 percent in the immediate years of the bubble crash in 2007 and 2008. For those who took out loans in 2009 and 2010, the default rates came in at 0.1 and 0.2 percent after one year of seasoning – exceptionally low figures. The data for 2011 is not yet available, but several indications point towards possibly an even better loan performance than in 2009 and 2010. Though headline mortgage default news is driven by the souring loans from the bubble years, the default rates among recent borrowers have been at historic lows. Banks and the regulators need to understand this important distinction and permit more loans to flow into the market.

A good rental history can help borrowers

First-time home buyers planning to purchase a house later this year may have a better chance of qualifying for a mortgage if they have had a history of paying their rent on time.
Making sense of the story

• Last year, credit-reporting agency Experian added a section to millions of credit reports showing on-time rent payments and raised the credit scores of many people.  The company said that this year it would add in negative marks, including mentions of bounced checks or of tenants’ leaving before a lease was up.
  
• Incorporating rental payments into credit scores could affect millions of people who have not established credit histories through credit cards, student loan repayments, and other credit sources.
  
• Almost half of consumers considered “high-risk” experienced an increase of 100 points or more after their positive rental history was added, according to Experian’s rent bureau.  Those with average or higher scores did not experience major movement.
  
• Although it is still too early to show the effects of the new credit report, which began in December, the changes are intended to allow lenders and consumers to have greater transparency, according to Corelogic.
  
• People who have lost their homes to foreclosure and are now leasing may be able to rebuild their credit histories by being responsible renters.
  
• However, consumer groups and advocates are skeptical, noting that reports are sometimes riddled with mistakes and some landlord-tenant disputes may be difficult to capture in a credit report.  Rent may not have been paid, for example, because the furnace was left unrepaired for months.

6 WAYS TO SAVE YOUR UNDERWATER HOME

What seemed like a housing market downturn is now nearly universally seen as the new normal. Accordingly, many homeowners are taking a tough look at their mortgage situations in this stark light.

This New Year's season, I've received a massive influx of reader questions -- quasi-challenges, really -- asking me why they shouldn't just walk away from their underwater homes and upside-down mortgages. If you've read my work at all, you'll know that I almost never give an absolute answer to such an important question. The decision whether to walk away from your home is too big and too personal, and there are simply too many variables -- legal, financial, credit, tax, personal, lifestyle, family, etc. -- at play for me to give a glib black-and-white answer.  If you're trying to make this decision now, it absolutely behooves you to consult with a reputable real estate broker, mortgage broker, local attorney and local tax professional -- at minimum.  However, I've also noticed that most upside-down homeowners don't really want to default on their mortgages. If you count yourself in that number, I thought I'd take the opportunity this New Year's week to encourage you to harness the renewed energy and commitment that comes along this time of year and provide you with some direction for it, in the vein of avoiding foreclosure if you decide that is the right path for you.  Here are six alternatives to walking away, some more obvious, some less, but all underutilized, from my vantage point.

1. Get rid of your credit card debt. Again, this might seem obvious, but I've encountered a number of people who say they can't afford their mortgage payments who actually could afford them if they dealt with their credit card and other debt.
Call your creditors and make an effort to settle your debt; many will take a lump sum payment much lower than your balance. While this might have tax and credit score implications, it might also help you keep your house. Or work through steps No. 2 and No. 3, below, to just eliminate those balances, by any means necessary.

2. Get a second job. This seems obvious, too, but I believe it's simply not done nearly as often as it should be, mostly out of pride and emotional defeatism.
You already work 40 hours a week. You're already tired. But you know what? I know MBAs who got into a bad debt situation and are climbing their way out with high-end, table-waiting tips. It won't last forever and, again, could be very much worth it.
If you're not up for this sort of hustle, and you're a white-collar professional, there are tons of consulting or contract gigs out there to be had, which can help you catch up on missed mortgage payments or bring down your debt.

3. Start a side business. Sites like Etsy, TaskRabbit and elance allow people to monetize their spare time, quirky hobbies and special skills. I know a journalist who nearly matches her day-job income dog-sitting while she writes.

4. Rent a room -- or two -- out. Put your man cave on Trulia or Craigslist for rent. If you can't stomach the idea of a permanent roommate, check out Airbnb and see if you can generate some extra cash renting out your rooms to those visiting for short periods of time.

5. Apply for everything. Decide right now to simply refuse to be deterred by the first roadblock that comes up in your pursuit of a loan modification -- and there might be many. Commit, instead, to applying for everything for which you might possibly qualify, and don't make assumptions about what programs might work for you (many loan mod programs have loosened their guidelines or gotten more efficient over time).
Apply through your lender to the federal HARP program, and also to the lender's own loan mod program. Visit this federal site to determine whether there are additional state programs available to you under Treasury's Hardest Hit Fund. Apply to the wildly successful (as these things go) Home Save program run by NACA.

It ain't over till it's over.

6. Short-sell it. Banks are now taking a couple of years, on average, after the first missed payment to foreclose on and repossess a home. If you list your home for sale with a local agent who has experience closing these transactions right this moment, your chances of selling it and having the short sale complete in time to qualify for the income tax exemption that expires Dec. 31, 2012, are actually better than your chances of qualifying for the exemption if you stop making your mortgage payments right now.
Again, it's ubercritical that you work with professionals, from the folks at NACA to a local agent and attorney and certified public accountant (CPA) if you're seeking a loan mod or a short sale. Beyond advising you about implications to be wary of, the pros can help educate you about the full scope of options available to you.

Your best bet is to run even getting a second job past your trusted advisers before you do it, as it might impact your prospects of getting relief from your lender.  Fortunately, your options for avoiding a foreclosure are not so limited as they might seem at first glance.

Happy New Year!!

Wishing you a Healthy, Happy and Prosperous New Year!