At present, there are more homes in foreclosure and with negative equity of 50% or more than there are "non distressed" homes currently for sale in the USA.
As both short and long term interest rates may likely soon rise due to the weakening Dollar, rising government debt, lack of positive results from the Fed's "Quantitative Easing" programs or other stimulus programs, then we may see an acceleration of properties headed toward foreclosure as adjustable rate mortgages may soon rise as well.
In 2011, the number of existing option pay ARM adjustable loans, 3 and 5 year fixed rate loans, and HELOC (Home Equity Line of Credit) 1st and 2nd mortgages may all soon hit their peak in terms of recasting to fixed rate or higher payment adjustable loans since most of them were funded approximately 3 to 5 years ago nationwide.
Many of the higher price jumbo mortgage loans typically found near pricier coastal areas tend to have the highest concentration of adjustable mortgages primarily since the payment options were more reasonable than even the best fixed rate mortgage back then. As a result, the higher end coastal regions found in areas like Southern California may have even higher mortgage default rates after many of these same adjustable mortgage loans recast into higher priced fixed rates this year and next in 2012.
For homeowners in properties which they may not seemingly sell since their current mortgage debt far exceeds the most recent current market value, here are some options (all these options have both pros and cons) which owners may wish to consider if a conventional home sale is not possible:
1.) Short Sale. List the home with an agent who may then try to convince the existing lender to reduce their existing debt in order to make a sale to a new home buyer. *** We will soon be offering legal services in which our experienced team of attorneys and credit repair specialists will negotiate the Short Sale with the bank while getting paid upon the sale of the home direct by the bank as well. In addition, my same affiliate legal and credit repair group may then work to legally delete any negative items on the owner's credit report(s) within 30 to 90 days.
2.) A Deed in Lieu of Foreclosure: The owner tries to convince the bank to take a "deed in lieu" which means that the property owner will then sign the deed back over to the bank so they may sell the home themselves. In many cases, banks may not consider this due to their internal company policies, title issues, or legal issues.
3.) A Strategic Default: In this situation, the owner may have the funds available to continue making the mortgage payments, but the same owner believes that they are so far "upside down" (debt exceeds the current value) that it makes more sense to "walk away". There may or may not be any additional financial penalties for choosing this option depending upon the state, and whether or not the existing mortgage debt was "purchase money" or "non purchase money" (i.e. a cash out refinance loan, or a 2nd mortgage also funded more than one day after the original purchase date). There may or may not be some tax penalties as well so the owner should seek out some accounting advice as well.
4.) Refinance the home: In today's tougher lending world, cash out 1st and 2nd mortgage loans are much more difficult to qualify for these days. For traditional bank lending, a homeowner may qualify for a cash out loan in the 50% to 65% LTV range. For private money, a homeowner may be lucky to qualify for more than 65% of the most recent appraised value. ** If an owner is more than 60 days late on their mortgage, then recent housing studies have noted that the odds of refinancing into a new mortgage are very close to ZERO (0%) percent.
5.) Rent the own. Will a tenant's new rent be able to cover the existing PITI (Principal, Interest, Taxes, and Insurance) on the home?
6.) Sell the home to a new buyer using creative seller financing techniques such as "cash subject to the existing mortgage", an AITD (All Inclusive Deed of Trust), or a Land Contract or Contract for Deed (an unrecorded wraparound mortgage). Since many people now don't believe that they may be able to qualify for a new mortgage due to the much tougher underwriting guidelines, then this may be an attractive selling option as well.
There are a few other options to consider as well for homeowners. As the Credit Crisis continues to worsen here in the U.S., then the housing market continues to worsen as well. It is important to consider as many options as possible while weighing both the potential positives and negatives associated with each and every decision.
It is better to plan and act, though, than to react to all of life's many challenges one way or another.