Having Trouble Selling Your House?

Good Evening Folks

I thought I would hop and share a few interesting reads with you:

My hometown Baltimore Sun had two interesting reads. If any of you are having trouble selling your home I suggest you give this article a read. It describes 5 innovative ways to sell your house. None of these ideas are very appealing, but it beats being stuck in a McMansion. I wanted to highlight the effect on your credit score on each of these solutions if some of you decide to go down this route:

"Credit score implications:

Here's a look at how disposing of your unwanted home can affect your credit score, according to Barry Papergo, consumer operations manager with the Fair Isaac Corp., the company whose FICO system is the most popular credit scoring formula in the nation.

Foreclosure: Your credit score "is going to take a dive," said Papergo, of more than 100 points but less than 400 (the maximum score is 850).

Short sale: If the mortgage was reported by the lender as paid in full, you're probably OK, except for skipped mortgage payments. If it was reported as settled, that will ding your credit, probably less than a foreclosure but it depends on the debt amount.

Rent: Makes no difference as long as mortgage payments are on time.

Auction or raffle: As long as the mortgage is satisfied, the sales method is irrelevant to the score.

Deed in lieu: That's negative; same as short sale or foreclosure."


My Take:

The way I see it, the effect on your credit score with some of these options isn't as bad as I had thought. If you are stuck and live in a bubble area I would try working out a short sale with your lender. I think you might find them to be much more open at this point to negotiations as their REO's continue to pile up.

If you can find a buyer at a lower price and the bank can avoid the pain of a foreclosure, they may be willing to let you slide on the balance of the mortgage. If you are getting several lowball offers on your house, I suggest that you go to your bank with them and play "Lets make a deal" on a short sale.

You have some leverage now because the lenders are all filled up to their eyeballs in foreclosures. If you can do this and not get whacked on your credit score I think its a no brainer.

You are making a big mistake in my opinion if you are refusing to sell because you think your house is worth what it was a few years ago. The equity that you think you deserve unfortunately never really existed. It was a bubble! Get over it!

Get out now via a short sale while you still can. Once the waterfall of foreclosures hits the market, short selling is going to get much tougher.

A Sneak Peak into the Obama Housing Plan

Here is the second article from the Sun's Ken Harney around the new housing plan that Obama plans on rolling out next week:

"Using an example supplied by the White House, say you bought a house for $475,000 in 2006 with a $350,000 mortgage at 6.5 percent that was acquired by Fannie Mae. In three years, the market value of the house has dropped to $400,000, and you've paid down the principal to $337,460.

If you applied for a refinancing to take advantage of today's 5 percent rates - which would save you several hundred dollars a month in payments - you'd have difficulty because your LTV, currently at 84 percent, exceeds Fannie's 80 percent ceiling.

But under the Obama refinance plan, Fannie would essentially waive that rule - even for LTVs as high as 105 percent. In this example, you'd be able to qualify for a refinancing of about $344,000 - your present balance plus closing costs and fees - at a rate just above 5 percent.

James B. Lockhart III, director of the Federal Housing Finance Agency, spelled out several key restrictions on those refinancings:

•No "cash outs" permitted. This means the new loan balance can only total the previous balance, plus settlement costs, insurance, property taxes and association fees.

•Loans that already had mortgage insurance will likely continue to have coverage under the existing amounts and terms, thereby limiting Fannie and Freddie's exposure to loss. But loans where borrowers originally made down payments of 20 percent or higher will not require new insurance for the refinance.

•The cutoff date for the entire program is June 10, 2010."

My Take:

Oh boy, isn't this plan just dandy. Lets fix a cheap money problem by using even cheaper money. This is the equivalent of using lighter fluid to put out a fire.

If this is the only answer they could come up with we are really screwed. Ambrose Evans Pritchard from the Telegraph came up with a similar conclusion: Cheaper money is the only way out. I don't see how it solves anything: Whats going to happen to the value of these homes when inflation flares up down the road as a result of creating all of this new money for these bailouts, and we need to raise borrowing rates up to 7% or higher? Umm I'll answer that Alex: Ever seen a waterfall?

This is not the solution! I understand why they are doing this. Keeping people in their homes should continue to be the key priority. However, I would have much preferred to see them "cramdown" the mortgages to affordable levels. Cheap money is what got us here folks! This bad debt needs to be defaulted on and disappear!

The millions that take advantage of this plan will be in no better shape. They will still be stuck with an asset that's worth much less than what they paid for it. When the cost of borrowing increases down the road due to inflation from all of these ridiculous bailouts, they will be even further underwater than they are now.

The bottom line here is the consumer is still bogged down with too much debt. They are not going to resume consuming as a result of saving a few hundred dollars a month on their mortgage. This solution does nothing but kick the can a little further down the road.

Haven't we done enough of this already?