If pressed to answer all your questions individually with nothing more than my personal opinion, here are my answers:
Interest rates can't go much lower than they already are. People in a position to take advantage of them SHOULD take advantage of them.
I'm sticking with my few REIT investments, yes. Never wanted to own certain types of REITS such as those heavily invested in office space, so didn't pay the price for such REITS anyway when times were good.
Will all stock prices fall some more? You asked about mortgage funds--I assume you mean Freddie and Fannie. I assume their stock prices might fall along with other stock prices, but wouldn't underestimate their earnings or viability. See story that I pasted below, about foreclosures, workouts, and what Fannie and Freddie are doing to help the housing market.
As for your question about locking in gains....believe that every stock trader knows to take some money off the table after making a decent gain. The time to take money off the table in builders' stocks was definitely several months ago---that's a cyclical business.
As for jumping on board, have not advised that. But if "jumping on board" means investing in real estate, rather than real estate stocks, this is a good time to start shopping around for bargains. That's the way the smart real estate investors work the real estate cycle. And this cycle will turn up long before some people even recognize that it has.
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Holding On To Your House
For Late-Paying Borrowers, There's Help Before Foreclosure
By Sandra Fleishman
Washington Post Staff Writer
Saturday, October 6, 2001; Page H01
With unemployment levels climbing before the Sept. 11 terrorist attacks and the economy plunging since then, it's no wonder people are starting to get nervous about paying bills and mortgages.
The jobless rate before the attacks had risen to the level of 1997.
Credit-card delinquencies already were the highest they had been in two decades. The percentage of borrowers falling behind on mortgage payments had reached the point where it was in 1992, in the wake of the last recession. The number of homeowners behind on loans from government agencies, such as the Federal Housing Administration and the Veterans Affairs Department, was setting records then.
In a slumping economy, unemployment and foreclosure rates are expect to climb even higher. Before you panic, however, experts say it is important to remember that there are ways to recover from delinquencies and that there are lenders who will work with borrowers in times of crisis, such as death, divorce, illness or job loss.
Housing experts say heading to a counselor when you are in trouble is a smart idea. They recommend, however, that you contact your lender first -- and that you make the call as soon as you can, even before you get an official layoff notice.
Most lenders want to work with borrowers on payment alternatives rather than take the house, they said.
"The earlier the lender knows, the more alternatives there are to keep the borrower in the house," said Joseph Sakole, vice president for loss mitigation at secondary mortgage-market company Fannie Mae, which buys many of the nation's loans.
If, for example, a borrower misses one $1,500 payment and calls immediately to report a temporary hardship, the debt can be repaid over an agreed-upon period of time without raising concern that the borrower is a deadbeat.
But "if you don't contact the lender and another month goes by and perhaps a couple more, then you're $6,000 in arrears and now you've got a real serious problem," Sakole said. "How many people can bounce back from a $6,000 debt?"
A Fairfax County resident, who requested anonymity, blames her lender for putting her in that very spot.
The saleswoman was three months behind on her $120,000 mortgage in July because she had no sales and, thus, no sales commissions. She contacted the lender and offered a repayment plan, she said, "but it sat for two months without them doing anything."
Now the lender has rejected her proposal and suggested she refinance her car loan and make other financial changes she might have done earlier, she said.
With what has become a six-month, $6,000 delinquency, she is considering a high-interest refinance, but is hoping first to get advice from the Consumer Credit Counseling Service of Greater Washington. The nonprofit service is funded by credit companies and banks.
"I'm really pretty discouraged that they wouldn't work things out," the borrower said.
She did not seek help in the beginning, she said, "because I thought it was a temporary problem."
What she thought was temporary, though, dragged on. Lenders want to know about such crises early, said Sakole, so they can help plan a realistic way out. And most lenders have business reasons for wanting to help.
"Loan servicers and lenders really want to keep people in their homes," Sakole said. "If the borrower is foreclosed on, they would lose a valued customer, they would lose the ability to cross-sell other products and they would lose their servicing income." That is the money lenders pay others or their own subsidiaries for keeping up with the paperwork.
Many lenders also try to avoid foreclosure because of the considerable costs of taking over a property, experts say.
"A foreclosure is always very expensive to the servicer," Sakole said. The lender must pay for legal fees, the advertising of the foreclosure sale and for the auctioneer. If the property is abandoned, the lender also has to pay to maintain the house until the foreclosure sale.
If the property has lost value because of neglect, the lender may be stuck for even more. Of course, if the property has jumped in value, that can be a good thing for the borrower -- instead of going into foreclosure over a small debt, it is possible to refinance and draw cash out of the house or to sell and pay off the debts owed, experts say.
"It's a win-win situation to keep the loan on the books," Freddie Mac spokesman Brad German said. The borrower saves his house and the lender saves the foreclosure costs, he said.
The loss on foreclosures averages $2,500 per house, according to industry figures. Fannie Mae says its average loss dropped to $3,800 in 2000 from $9,400 in 1998 because of rising house values.
Lenders who do not want to work with borrowers are another story. If a lender balks at considering repayment alternatives, the homeowner may be forced to seek help from regulators and government agencies or to sue. Consumer groups and regulators concerned with rising complaints about predatory lenders encourage borrowers to try to stay out of harm's way and a bad lender's clutches by taking classes or talking with counselors before taking out loans or refinancing.
The most common workout alternatives are repayment plans that suspend or reduce payments and give the borrower time to repay.
Lenders also offer mortgage modifications that lump deferred payments into the principal due on the entire loan. Occasionally the loan term or interest rate might be adjusted.
Sometimes, though, there is no alternative to giving up the house. If a borrower has no chance of recovering financially, then a lender has no reason to expect debts to be repaid, even reduced debts.
Instead of foreclosing, some lenders may occasionally agree to let the owner sell the property for less than is owed or to take the deed back.
D.C. public schools employee Rosa Hodges of Northeast can testify to how one event can trigger a crisis -- and to how a borrower can work with a lender.
After being injured in a car accident in the spring of 1999, Hodges, then 48, underwent back surgery and could not work.
She tapped out her 401(k) account in about two months to handle her mortgage and medical bills not covered by insurance because she had already borrowed once from that retirement fund after her mother died. Because she had to pay penalties and taxes for both fund withdrawals, she had exhausted her savings.
When the retirement fund was emptied, Hodges said, she had no way to pay the $1,200 a month she owed on a three-bedroom house while she waited for the insurance settlement from the accident.
With advice from a lawyer and from HomeFree USA, a local, federally approved housing counseling service, Hodges persuaded the lender holding her first trust to postpone payments until the insurance settlement arrived.
Because the holder of the first trust would not foreclose, the second-trust lender had to wait, too. Hodges paid off the debts a year ago.
"I don't think I would have been able to keep the house if it weren't for HomeFree USA," Hodges said. "Because of the accident, I couldn't get around very much. . . . The counselor, Geoffrey Tate, came to my house, which I found very impressive. Most people wouldn't do that."
Fannie and Freddie, the two largest sources of home mortgage money, do more than encourage lenders to work out problems, they require them to do so, through lending guidelines and report cards.
If the lenders want to keep doing business with the big loan buyers, they have to play the game.
As an incentive, Fannie and Freddie also pay lenders for good track records.
Freddie paid more than $12 million in incentives last year, said German. The result of the prodding and the payments: 50 percent of problem loans this year have been worked out, compared with 37 percent in 1999.
Fannie's workout ratio was 53 percent last year, meaning 15,000 borrowers seeking help were able to stay in their homes. The rate was only 35 percent in 1997.
Fannie has paid $20 million in incentives over the past three years.
The two loan buyers also have teams of specialists who help lenders structure solutions. Fannie and Freddie use sophisticated computer models based on credit behavior patterns to help lenders identify borrowers heading for trouble.
Countrywide Home Loans Inc., the nation's largest independent mortgage company and one of the largest loan servicers, for example, worked out 4,000 government-backed loans last year.
The company, which services 3.2 million loans, would not say how many conventional loans were worked out or how many times it foreclosed.
The Department of Housing and Urban Development, another big source of home lending money, has been heavily criticized for not doing more to force Federal Housing Administration lenders to work with borrowers, but the agency is getting tougher, said Wayne Hodges, head of the D.C. Metropolitan Association of Housing Counselors.
In the last few months, said Hodges, the FHA loss-mitigation program "is working a lot better." The agency can fine uncooperative lenders $5,000 per loan. Proposed rules that could take effect this winter would increase the penalties to triple the amount FHA paid the lender in the foreclosure.
In a foreclosure, FHA pays lenders for legal fees and for the difference if the property sells for less than the original mortgage.
Lenders do get to set the rules in any workout, experts said. A District borrower who tried to offer partial payments of her own devising found that out recently.
The borrower, a District health insurance company employee, who requested anonymity because she said she was embarrassed, said her plan was to cut her payments and then catch up when she could. The lender refused, however, to accept the partial payments and threatened to foreclose.
The 39-year-old single parent said she fell behind in 1995 on a house in the Trinidad neighborhood of Northeast after her 14-year-old son was murdered and her mother died eight months later.
"The two funerals, back to back, cost about $8,000," the woman said. "After paying for all of that, things just got back."
When the lender got serious about foreclosing in 1997, the woman contacted HomeFree USA. It negotiated got an agreement that the lender would tack the arrearage onto the principal. "Now I'm back to where I'm supposed to be," she said.
Marcia Griffin, founder of HomeFree USA, said her counselors generally find legitimate lenders cooperative, but "it's been hell trying to help seniors and minorities out of bad home improvement loans" and other high-cost, predatory loans.
"We're currently working with a lot of people in the Trinidad area who have been victims of predatory lending, mostly from the home improvement side," said Griffin.
AARP consumer lawyer Jim Sugarman agreed that the fundamental nature of working out a loan "changes if the loan appears to be fraudulent."
In those cases, he said, borrowers often have to turn to consumer protection and fair housing laws. The District has a new anti-predatory lending law that guarantees borrowers the right to challenge an upcoming foreclosure in court on the grounds that it is predatory.
© 2001 The Washington Post Company |
