Tag: recession

Forbearance Versus Loan Modification: Don’t Lose Your Home on a Technicality

Posted on by Erika George & Kari McGee

With 15 million Americans having lost their jobs since the onset of the coronavirus pandemic, we’re seeing unemployment numbers pushed to their highest levels since the great depression. We are carefully following what options are out there for homeowners who are unable to make their mortgage payments. We want to be sure that if you find yourself struggling to make your mortgage payment, you take the time to really understand what is being offered to you. We would be heartbroken if you lost your property due to fine print and technicalities that weren’t clear to you when making your mortgage “stop-gap” decisions.

First, we have to say that we are not financial lawyers or advisors, so please call an expert in this field before you commit to anything in writing. Having said that, Kari worked the last recession and learned a thing or two that might be of help, and Erika is a lawyer who specializes in contracts (While Erika is not authorized to provide legal advice while serving in her capacity as real estate agent, we can provide you with recommendations for lawyers who can help you!)

How Forbearance Works

There is a big difference between forbearance and a loan modification. In most cases, forbearance only temporarily suspends your obligation to make your mortgage payment. The general term of suspension right now seems to be 90 days but it can be as much as one year, or as little as 30 days. With a forbearance option, you will be expected to pay back the amount you owed, but did not pay. That can mean a big, ugly balloon payment, required by your lender at the end of your forbearance term. This option will likely be very problematic for most people who aren’t able to come up with the funds for the balloon payment.

Do not assume that the amount you owe, will be added to the “back end” of your loan. Some lenders are expecting this payment at the end of your suspension period! Our advice is to ask detailed questions of your lender and make sure you understand the expectations of how and when you repay the amount you owe.

Be sure to ask what happens if you still are unable to pay your mortgage payment, once the forbearance term runs out. Find out what your options will be in advance if possible.

How Loan Modification Works

A loan modification is a negotiation undertaken with your lender to renegotiate the terms of your loan. That can mean a principal reduction, a lower interest rate, or an increase in the length of time the bank will allow you to pay back the loan. This will be the option you need if you are facing long-term financial hardship and can document your long-term hardship. If you can show your lender proof of a lengthy period of hardship, you may be able to change the terms of your loan to reduce your payments in some way, or your overall obligation.

Keep paying any amount you can towards your monthly mortgage payment. Even a small monthly payment sent to your lender, will put you in a better bargaining position, versus just stepping out. Showing your lender that you are responsible and trying to work out a payment plan, is a good negotiating tool.

Many lenders will want you to start with a forbearance option before offering you a loan modification. Keep as much documentation as you can regarding your hardship. Plan to speak with an attorney or a reputable loan modification company to assist you in your negotiations. A little money spent up front for knowledgeable counsel can save you a lot in the long run.

Please call us if you find yourselves in this position. We can help direct you to the appropriate professional to help you make a plan that will get you through these difficult times.

A Recession Does Not Equal a Housing Crisis

Posted on by Carrie Struss

A Recession Does Not Equal a Housing Crisis

Recently, there’s been a lot of news surrounding an impending recession. However, the same experts predicting an economic slowdown also believe it will not be caused by the housing market. If you’re thinking of buying or selling a home, there’s no need to panic- let’s get together to address your concerns and talk about what’s really happening.

Is 2019 the Right Time to Buy a House?

Posted on by Erika George & Kari McGee

We’ve broken down buyer trends for 2019 to help you decide whether or not it’s a good time to for you to buy a house. From questions about interest rates to concerns about another recession, we cut through the noise and outline a practical approach to decide whether or not it’s the right time for you to buy a home.

2019: An Equal Market for Buyers and Sellers

In Portland we saw a 2.4 increase in home prices from 2017 to 2018. While to many, this felt like a big slowdown in the market after five years of astronomical growth, these rates still show an increase in value on top of the huge growth experienced in previous years. What this means for 2019 is a balanced leverage market for buyers and sellers. As realtors, we’re happy to have a balanced market for the first time in years.

 

How Do Interest Rates Affect Mortgages?

At the end of December the Federal Reserve raised interest rates for the fourth time in 2018. The Feds are currently in a “wait and see” stance on interest rates, and as of January 10, 2019 say they plan to hold off on interest rate hikes until at least May. Today’s mortgage interest rate for a 30 year fixed mortgage is 4.75%. This is good news for buyers this year because although interest rates have increased from the historical lows of 2016, they are still very low and are likely to stay that way through April.

It’s important to know that Fed hikes in interest rates do not always cause mortgage rates to increase at the same rate. The fed hike at the end of December caused the ten year treasury yield to tumble, which is what mortgage rates follow. One of our amazing loan officers, Jen Bell, reported that this actually caused an improvement in loan rates. She locked a jumbo loan at 4.5% with no points.

 

What About a Recession?

Some buyers are scared to get into the market right now. They wonder if it’s a risky market where property prices could go down because of a recession. Oregon historically has had a recession about every nine years, which means we are overdue at this point. Having said that, there are many analysts who think that Portland’s population growth will continue on an upward trend and as a result, real estate values will also continue to follow that trend.

The 2008 financial crisis can provide a blueprint for decision making in 2019. For people who bought at the height of the market in 2007 or early 2008, it took five years to recover the value of their homes and start seeing an increase in the value of their property by early 2013.

We understand buyers’ desires to plan for a worst case scenario, so here’s why it still can make sense to purchase a primary residence now.

 

Is 2019 a Good Time to Jump Into the Market?

In 2019 we recommend buyers plan to remain in their new homes for at least four years. Ask yourself these questions to help determine if 2019 is the right time for you to buy a home:

  • Financially, will I be able to afford to pay a mortgage for four years?
  • Is my income stable enough to pay the mortgage for four years in a worst-case scenario recession where my property losses value?
  • Are there any changes on the horizon in the next four years – retirement, a new job or a reason I will need to move?
  • Am I going to be both a buyer and seller – selling my current home and buying a new, better home for myself and my family?

If you can afford to pay your mortgage and you are not planning on moving for four years, then there’s absolutely no reason to delay in buying a house in the current market.

A delay in purchasing is just a delay in building equity in your house. Although there are many emotional and lifestyle reasons to buy a new home, financially the end goal is building equity in your home. Eventually you can leverage that equity to build an accessory dwelling unit (ADU), finance college education or even purchase an additional investment property. If you are currently renting, then you are paying money for a roof over your head without building equity in your own property.

If you are considering both buying and selling in 2019, again there’s no reason to delay. When you are buying and selling in the same market, you may have more leverage as a buyer and less leverage as a seller, or vice versa, depending on the market. Either way, your leverage will balance out (remember 2019 is shaping up to be an equal market for buyers and sellers). If your goal is to secure a home that is going to be better for you and your family for the next four years, then now is the time to make that move.

On the other hand, if there is uncertainty on your horizon – a job opportunity elsewhere or other life changes that could impact your income – then it’s probably not a good time for you to purchase a new home.

If you have questions about buying or selling your home, please reach out to us! We are happy to discuss your financial situation and goals in depth. Reach us at 503-349-5449 or karianderika@livingroomre.com.