This week brought both positive and negative news on mortgages. While the number of homeowners three or more payments behind on their mortgages has continued to decline, the number of those just starting to fall behind is increasing.
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A mixed bag of news came this week from the mortgage front. While the number of homeowners three or more payments behind on their mortgages has continued to decline, the number of those just starting to fall behind is increasing.
"While overall mortgage delinquencies increased only slightly between the first and second quarters of this year, it is clear that the downward trend we saw through most of 2010 has stopped. Mortgage delinquencies are no longer improving and are now showing some signs of worsening," said Jay Brinkmann, the Mortgage Bank Association's chief economist. "The good news is the continued decline in long-term delinquencies, those mortgages that are three payments or more past due. The bad news is that drop is offset by an increase in newly delinquent loans one payment past due."
The increase of homeowners just starting to fall behind can be tied to an uptick in the unemployment rate, the report said. The rate was 8.8% at the beginning of the quarter, but climbed to 9.2% by the quarters' end.
Jerry Feeney, a real estate lawyer in New York City, said some borrowers underwater or stuck in delinquency with no pay day in sight may want to consider a short sale of their home as an alternative to ending up in foreclosure.
"The reality of strategic default becomes a part of the marketplace they live in," Feeney said. "People realize it's easier to do a short sale than it used to be, so people will enter into that category even if they wouldn't have normally done so. It's an option when you're underwater on your property."
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Feeney said there are three things to consider before attempting a short sale:
No. 1: Are you underwater on your mortgage? Feeney said this factor may sound obvious, however borrowers may not even realize that they are in fact, underwater on their mortgages.
"They don't have a handle on closing costs," he said. "Being underwater means that if I were to sell the property today for market value, after paying off everyone that needs to [get a cut], I [wouldnt have] enough money to pay off the bank."
If a borrower is underwater on their mortgage, a short sale is an option, if they have experienced a financial hardship and are not able to continue making payments, Feeney said.
No. 2: Do you have a financial hardship? If so, is it such that the bank will agree to take less than what is owed on your house or apartment?
Feeney said if you believe you meet these criteria, meet with an experienced broker and try to get a buyer to make an offer that the bank will accept.
"Sometimes with a short seller, the bank would rather get these loans out of default mode and into payment mode," he said. "[The offer] needs to be fair market value, but the banks are a lot more reasonable than they used to be."
No. 3: Create a timeline for yourself. A short sale may be the most appealing option, but it is not a guaranteed solution for those struggling to make ends meet, Feeney said. He suggests figuring how long you are willing to attempt a short sale on your home before moving to another option like bankruptcy or foreclosure.
Also, remember, "short selling may be the best alternative, because you can quickly repair your credit," he said. "A foreclosure or bankruptcy can take many years to repair, but the credit damage from a short sale can sometimes be remedied in less than two years."