In 2009 only 34,440 home loans were modified, that jumped to 311,680 in 2010. Why is this significant? Because those modified loans are about to begin adjusting up now that the five year cycle has completed. Loan modifications are set to expire and we have seen some areas being hit again by a fresh crop of short sales. The Federal Home Affordable Modification Program, which has reduced interest rates to as low as 2 percent for nearly 900,000 struggling borrowers, has a five-year shelf life before resetting. The first modifications were granted in the fall of 2009, meaning they started to expire in September of this year.
Homeowners are being notified now that their payment is going to adjust – and the question for them is going to be, “Can I afford the new payment”? Although the economy has stabilized and many homeowners who were underwater, when the modification was offered, now have equity in their homes; normal pay increases did not increase enough to absorb the extra monthly expenses. Coupled with the fact that many homeowners were given reductions in property taxes at the same time they were given a modification, the property tax reductions are starting to reset as well. Adding an extra monthly expense that they did not have in the past five years.
Banks do not have an incentive to go through a second round of modifications if the homeowner does not show a significant reason to do so. Because the real estate market has made a recovery in almost all of Los Angeles, banks can see a way out by encouraging the borrower to short sell without penalty.
We, as consumers, will have to retrain our expectations of what short sale pricing really means. The banks are smart, they have the same data as the general public and can see that a ‘low ball’ price is not the value of the home in today’s market. Expect short sale pricing to be about 10-15% lower than market pricing, but if the house has a lot of great features, expect this market to bid it up to the value of the property.
If you know anyone who might need help, please give them my information. I have done quite a few of these and can help provide the best possible solution to a stressful situation!
Best to you and your family in 2015!
Gigi Santoro
President
Santoro And Sons Real Estate Group
(818) 237-5687