Borrowers who owe more money than their homes are worth sometimes can get out from under by negotiating a short sale with their lender. A short sale is when a lender agrees to accept less than is owed on a property and in result, the borrower can walk away and avoid foreclosure. Yet, short-sellers are branded as high-risk borrowers, so new loans will not come quickly or easily. Fannie Mae, the federally controlled mortgage investor, sets a minimum amount of time that must elapse before a short-seller is eligible for another loan. For example, for those who can only put down 10 percent on their next home, Fannie Mae requires a four-year waiting period. Yet, borrowers who can put down 20 percent of their next home, the waiting period is shortened to two years. This waiting period is a penalty on borrowers who did not fully repay a previous loan and even if you could put 30 or 40 percent down, you would still have a two-year borrowing period. Short-sellers who are getting back into the housing market should keep detailed records of their income sources and should avoid loans which require very little money or no money down.
A Fix for the Mortgage Market?
The Senate Banking Committee is set to vote on a bipartisan bill, which aims to rejuvenate the housing market while guarding against the excesses of the past. This bill has been named the Housing Finance Reform and Taxpayer Protection Act of 2014, with the goal to ensure broad and steady access to sustainable and affordable mortgages by providing an explicit government guarantee to attract investment in 30-year fixed-rate mortgages and other loans. In addition, this bill includes a new financing provision, a fee on government-guaranteed securities, to generate money for affordable housing. Essentially, this bill would end Fannie Mae and Freddie Mac—federally backed mortgage companies with implicit government guarantees and confusing ownership status—but would continue vital federal support for mortgages though the Federal Mortgage Insurance Corporation. Overall, this bill hopes to ensure that mortgage loans are broadly available, while giving taxpayers a housing market that serves the long-term interests of families and the broader economy. Yet, this bill is overly complex and is subject to being misinterpreted and falling short, especially on the subject of fostering affordable mortgages.
Fallout from Refinancing
Homeowners who refinanced when fixed mortgage rates dropped below 4 percent are less inclined to put their homes on the market as interest rates increase. As a result, the limited property supply already impending sales in many markets may not ease anytime soon. A recent survey by Redfin showed that even recipients of low-refinance rates who decided that they want to move may want to make money by renting out their own homes while waiting for prices to rise, rather than selling right away. Most borrowers cannot afford to buy another home without using equity from their first down payment. Yet, those who take advantage of low refinance rates tend to be “premium consumers” with very good credit and stable income. Before these people decide to rent out their homes, they may want to consider a few other factors. For example, managing a rental property is a very large effort. In addition, there is a greater financial risk for those who own two homes in the same market if home prices take a dive. Lastly, the reasons for renting a home always change.
Contact Our Office
We provide a free initial consultation to anyone with concerns about foreclosure or who is involved in foreclosure proceedings. To schedule an appointment, call our foreclosure hotline at 855-289-1660 or contact us online. Evening and weekend meetings can be arranged upon request. We will travel to your home if necessary to meet with you.
