FORECLOSURES AND FALLING HOUSE PRICES, WASHINGTON
Foreclosures are continuing to rise across Washington with no end in sight, and according to Barclays Capital, U.S. foreclosures will peak in the second half of 2010 with home prices continuing to decline through the end of that year. According to S&P/Case-Shiller, U.S. home prices have dropped 33 percent since July 2006. Amidst a growing number of discounted foreclosures, homeowners attempting to sell their homes are finding themselves trapped in a losing situation. If the current trend continues, 2009 will become the lowest year for new-home sales since the Census Bureau began taking records in 1963.
According to Michelle Meyer, an economist at Barclays Capital in New York, "Home prices are likely to continue to fall, albeit at a slowing pace, even after the economy technically emerges from the recession." Based on the S&P/Case-Shiller home price index of 20 U.S. cities, the prices of homes may drop another 7 percent, leaving thousands of Washington homeowners "underwater," owing more than their homes are worth on the market. Nearly 22 percent of all mortgage holders in America were underwater in March 2009, while around 15 million homeowners currently owe more than the value of their homes. [Bloomberg, 7/02/2009]
As a result of the mounting threat of foreclosure faced by homeowners, the government has announced an adjustment to the Making Home Affordable program. Unfortunately for the majority of homeowners looking to refinance their mortgages, the plummeting value of homes has made new government programs unavailable to them. Refinancing activity is already in decline due to the rising interest rates. At the current moment, homeowners owing 5% more than the value of their homes can refinance mortgages through Fannie Mae and Freddie Mac. According to USA Today, Housing Secretary Shaun Donovan said on July 1 that the program is being expanded to allow homeowners who owe 25% more than their homes are worth on the market get refinancing help through the federal agencies. [USA Today, 7/02/2009]
As interest rates are presumed to skyrocket, refinancing no longer makes financial sense for a growing number of homeowners looking to find a lower fixed-rate mortgage. According to Freddie Mac, the average rate on a 30-year fixed loan has increased from 4.82% on May 21 to 5.42% as of June 25. Unable to secure a lower interest rate, and while their home value falls, homeowners are left with only one option: loan modification.
Without new fixed rates lower than 5%, at the current rate refinancing does not make sense without modifying the loan itself. As the interest rates continue to rise, refinancing activity is quickly diminishing with the realization that loan modification is the only cure.
Most of Washington's troubled homeowners now qualify for hundreds of dollars in monthly savings with a loan modification under the Obama administration’s “Making Home Affordable” plan. Thanks to the HAMP program, a homeowner’s mortgage payment cannot exceed 31% of their gross income, and because most home loans exceed 31%, the majority of borrowers are eligible for assistance.
Every homeowner now facing foreclosure, or about to be, should immediately begin exploring all the options available to them, including the new government programs designed to help you get a successful loan modify.