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What to Expect From a Housing Counselor

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | September 21st, 2012

Joy and Andrew Giordano thought they could save their Baltimore home from foreclosure without any help. But in the end, they couldn't.

To avoid foreclosure, the Giordanos applied twice to their lender for refinancing under the government's Making Home Affordable program. Twice, they were turned down.

"We were not getting the right information from our bank," says Joy, who had to close her advertising specialties business because of the economic downturn. "We did everything we were told to do. But each time, we were not approved because of this or not approved because of that."

A friend suggested they speak to a housing counselor, but they were hesitant. On top of being embarrassed over their plight, the Giordanos didn't like the idea of pouring out their hearts to a total stranger.

"We thought we were doing a pretty good job on our own ratcheting things back," Joy recalls. "But through no fault of our own, we were on the verge of losing our house."

They called the counselor their friend recommended. But even that didn't help. They talked to the counselor several times, but she was too "overwhelmed" trying to help so many people in the same situation to offer much guidance.

Finally, out of desperation, the Giordanos gave counseling one last shot. This time, it worked.

The second counselor was "absolutely wonderful," says Joy, whose husband, a retired police officer, lost his job as an older-adult fitness specialist when a grant ran out at the college where he was working.

"We were pulling out money from our pensions and investments to make our house payments, and we got to the point where we realized we could not only lose our house, we could lose everything. But (the second counselor) worked with us and helped us put the package together into a format the underwriters could understand. And we got approved," Joy says.

Study after study has found that the Giordanos are not alone. For any number of reasons, people are way too timid when it comes to housing counseling.

Some view their situations as hopeless, while others think they can resolve their problems without any outside help. Still others are reticent to divulge their financial messes, are worn down by unresponsive lenders or have been burned by unscrupulous businesses that charge high fees but deliver no service.

Some even believe they cannot afford to ask for

assistance.

But research shows that counseling works if you embrace it. According to one Department of Housing and Urban Development study, nearly seven out of 10 families were able to retain their homes with the help of a HUD-certified counselor. More than half cured their defaults and became current on their loans.

Want more proof? A Federal Reserve study found that counseled borrowers were more likely to obtain a loan modification and with better terms than uncounseled borrowers. And the Harvard Joint Center for Housing Studies reports that counseled owners were more likely to remain current once a modification was won.

Still, seeking help from a government-approved counseling agency is a big step. So, to help you understand the process and ease your fears, here is what you can expect.

-- Beforehand: You can help the dialogue with the counselor by having the following information at your fingertips: your monthly income and expenses, a list of debts and assets, the name of your mortgage servicer, the date the loan was issued, your payment amount, the interest rate and balance due, and the day and name of your last contact with the servicer or the company collecting your payments.

-- Contact: The phone call will last about an hour and will begin with a privacy disclosure. Once you understand your rights, the counselor will collect the above information and take the time to answer any questions or concerns you have. You will be asked to discuss your "hardship," or the reason you are having difficulty making your payments.

-- Choices: Based on a review of the information you provide, the counselor will explain all the options available to you. These might include a loan modification, in which your lender agrees to any number of changes, including principal reduction. Or they might include ways to dispose of your property and ease you out of your tenuous situation.

The discussion also could cover nonprofit resources and services of which you may not have been aware.

-- Action plan: The counselor will work with you to create an action plan to be used in preparing a recommendation to your lender.

You can take it from here, or your counselor can call the lender on your behalf to go over his or her recommendation and determine whether the lender is willing to help. If the counselor calls, you can listen in on the line or not. It's your choice.

-- Pay dirt: If the lender agrees, or if you and the lender find another alternative to save your house, you, with the help of a counselor, have succeeded where you alone might otherwise have failed. If the lender cannot help for some reason, you will be told what to expect and perhaps offered post-foreclosure counseling or even a cash stipend to ease your transition out of the house and into another dwelling.

All this is free. No charge. Gratis. If you happen to reach someone who asks for money upfront, hang up and go elsewhere.

You can find a list of HUD-certified counselors at the HUD website (www.hud.gov) and at www.nfcc.org, the National Foundation for Credit Counseling.

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Rise in Per-Square-Foot Prices Signals Revival

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | August 31st, 2012

Prices on a per-square-foot basis rose in 78 of the nation's 100 most-active housing markets, another signal that a recovery is afoot, according to the latest figures from the field.

For the most part, price-per-square-foot increases were in single digits. But several "core-based statistical areas," including formerly downtrodden places like Phoenix and Fort Myers, Fla., notched strong double-digit gains, according to data from Pro Teck Valuation Services of Waltham, Mass. (Uncle Sam defines a core-based statistical area, or CBSA, as a geographic "micropolitan" area of at least 10,000 people who are tied to the urban center by commuting.)

Price per square foot is the great equalizer when it comes to studying housing prices, because it adjusts for product mix. Median house prices are interesting, says Michael Sklarz of Collateral Analytics, which supplies Pro Teck's data. "But if you want to know how much houses are selling for, you need to know their price per square foot," he says.

That's why this column is switching horses, from quarterly reports on median prices supplied by the Federal Housing Finance Agency to Pro Teck's numbers. FHFA's data have been the basis for the Housing Scene's price columns since it began more than 30 years ago, long before Case-Shiller and other rip-and-reap reports became popular.

But the government's numbers are highly susceptible to the vagaries of the market. The FHFA has reported surges of 40 percent or more in median house prices for some metropolitan areas during reporting periods when many more higher-cost homes than usual changed hands. Likewise, sales of an unusually large number of lower-priced dwellings can distort the average on the downside.

Granted, Pro Teck's data also can show huge changes. But price per square foot "normalizes" for swings in product type and size, which presents a truer picture of the market.

Pro Teck's figures have another advantage in that they are more current than anything else available. Numbers from other indexes can be three to six months old. But Pro Teck says it catches sales data almost immediately from 850 multiple listing services nationwide. Once a deal closes, it is captured in Pro Teck's database, which is updated at least daily and culled 15 days after the end of each month.

Like the FHFA's figures -- the ones from its Mortgage Interest Rate survey of the nation's largest metro areas, not its monthly House Price Index, which is another lagging indicator -- Pro Teck's figures cover jumbo loans over the conforming loan limit. To do otherwise, as the oft-quoted House Price Index does, would be to underreport a big swath of sales, especially on the coasts.

Pro Teck's numbers also are more detailed than any others, drilling deep into ZIP codes and neighborhoods. National numbers make for great headlines, but they are absolutely worthless for buyers and sellers who need to know what's going on in their local markets.

Pro Teck's numbers are not without their drawbacks. For example, new-home sales, which tend to lead the market up and follow it down, are not fully captured. But in that savvy builders these days are listing their products on local multiple listing services -- 790 of the 9,292 current listings in the immediate Washington, D.C., area are for brand-new houses -- Pro Teck catches at least some builder sales.

Another shortcoming is that the Massachusetts company sells its data to investors, lenders and loan servicers. Government figures are preferable to those from a private company trying to make a profit from them.

That said, Pro Teck's statistics are as good as they come. Here's what the company's figures for the latest three months as of Aug. 1 tell us:

Phoenix and Fort Myers are rebounding very well, as are San Jose, Calif., and Detroit. The median price per square foot paid in the Phoenix-Mesa-Glendale CBSA rose by a whopping 31.2 percent from the same period a year ago, from $64.03 to $84.01. Interestingly, the median house price in the Phoenix CBSA was up 31.4 percent over the same period, from $118,000 to $155,000. In the Fort Myers-Cape Coral CBSA, the median square foot cost was up 19.4 percent, from $59.46 to $71.

In the San Jose-Sunnyvale-Santa Clara CBSA, the median square foot cost rose almost 19 percent, from $377.86 to $449.51. Nearly $450 a square foot is a lot to pay for a house, which is why the median house price in San Jose was $765,375 as of Aug. 1. But it's even more expensive in the neighboring CBSA of San Francisco-San Mateo-Redwood City, where the median price per square foot is $476.95, up 5.9 percent from a year earlier.

The Detroit area also is showing signs of a strong recovery. The average cost per square foot in the Detroit-Livonia-Dearborn CBSA rose 16.4 percent, from $41.54 to $48.34, while the price in Warren-Troy-Farmington Hills increased 10.3 percent, from $68.01 to $75.

Overall, square-foot prices were up by double digits in eight CBSAs. On the flip side, none of the 22 core areas that registered lower prices per square foot over the last three months saw more than an 8 percent decline. The largest slides were in Gary, Ind., down 7.8 percent, and Birmingham, Ala., at minus 6.4 percent.

For what it's worth -- and it isn't worth much -- the median price per square foot for the 100 most active markets combined was $89.75 as of Aug. 1, a 2.6 percent increase from $87.44 at the same time a year ago.

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Refinancing? Consider a Shorter Term

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | August 24th, 2012

Most people refinance to save money. That usually means jumping to a lower rate. But you also can save big bucks by trimming the term of your loan, possibly at the very same low rate.

Most lenders today offer the same 30-year rate on mortgages with terms of 20 to 29 years, according to Karen Mayfield of Bank of the West. And most offer the same 15-year rate on loans with durations of eight to 15 years.

You may not save any money immediately, at least not in terms of your monthly payment. But you could save a bundle in interest over the shorter life of your new mortgage. Plus, you'll build a nest egg that much faster.

The potential drawback to shorter-term mortgages is that your tax deduction for mortgage interest won't be as large. But that's a questionable disadvantage.

For one thing, interest is cash out of your pocket. Why spend the money if you don't need to?

For another, mortgage interest is not a dollar-for-dollar write-off. Rather, the deduction is based on your income-tax bracket. So if you are in the 15 percent bracket, you'll get back only 15 cents for every dollar in mortgage interest you spend.

Then there's the question of whether mortgage interest will remain deductible. Granted, it's a long shot right now that Congress would eliminate the benefit. But make no mistake, the once-sacrosanct write-off will be on the table if and when lawmakers ever reform the nation's tax code.

So, with the deduction argument out of the way, let's look at some possibilities using, for simplicity's sake, a loan amount of $300,000.

Say you have a 4-year-old, 30-year mortgage at 6.5 percent, with a monthly payment to principal and interest of $1,896. If you refinance at 4 percent into a new 30-year mortgage of $288,000 (your present balance of $285,179, plus $2,821 in closing costs wrapped into the loan amount), your payment will drop to $1,375, a significant monthly savings of $521.

But you'd be starting all over again. As a result, on top of the $76,196 in interest you've already spent on the original mortgage, you'd be paying an additional $206,984 in interest over the term of the new loan.

Sure, most people don't keep the same house, let alone the same mortgage, for 30 years. Indeed, the average life of a home loan is about seven years. But if you do, if this is your final castle, you will be paying for it for 34 years, not 30.

Now, suppose that instead of opting for a lower payment, you decide to shoot for the same monthly payment but reduce the term of the loan. A new $288,000 mortgage at 4 percent over 20 years will run $1,745 a month.

That cuts your monthly outlay by about $150 and saves a whale of a lot of interest -- $130,854 for the 20-year loan at 4 percent vs. $206,984 for the 30-year loan at 4 percent and $382,633 for your original loan.

Better yet, you are not starting over. Again, most people don't keep their loans forever. But as Mayfield rightly points out, people's lifestyles do change. And as they do, it's sometimes necessary to have a nest egg.

Say, for example, that 10 years from now, Junior wants to go off to college, or Priscilla wants to get married. Either way, you're going to need some cash. Good for you if you've been saving regularly for these kinds of events. But if you haven't, you still might be able to borrow what you need at the going interest rate.

Another option is to take it out of the equity you've built up in your house. Just how much equity might be available a decade from now will depend on two factors: appreciation, or how much your place has increased in value, and the term of your mortgage. Only one, the loan's term, is a sure thing.

If you opt for the new 30-year loan in the above example, you will have accumulated $51,102 in equity by making your payment every month over 10 years. Why so little? Because in the early years of any mortgage, the lion's share of the payment goes to interest. In fact, it isn't until the 20th year or so that more of the payment is earmarked for principal than interest.

Mortgages with shorter terms amortize, or pay down, faster than those with longer terms. So if you opt for the 20-year loan above, you will have amassed $115,624 in equity after 10 years. That's more than double the equity buildup.

Shortening the length of your mortgage isn't for everyone. But if you are comfortable making roughly the same payment as you are now, it is worth considering. "Do the math," Mayfield advises.

Another sometimes overlooked refinancing option, especially if you have a good idea how long you might keep the house, is a hybrid adjustable mortgage, one with a rate that is fixed for five or seven years before it begins to adjust annually.

Most people are jumping out of ARMs to fixed-rate loans these days because of the certainty the new loans offer. "Knowing your monthly payments won't rise in the future provides a lot of peace of mind," Mayfield says.

But hybrid ARMs offer a degree of certainty, too. And adjustable loans aren't nearly as dangerous as many people think.

With today's fixed rates at near record-low levels, the rate on ARMs surely will rise when the fixed-rate period expires five to seven years from now. But caps on the annual increase will limit the pain if you misjudge your expected moving date.

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