3. How Buyer-Clients Can Prevent Foreclosure

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3. How Buyer-Clients Can Prevent Foreclosure

• In this module
• Educating consumers
• Choosing the right loan
• Understanding nontraditional loan programs
• What to do if payments fall behind

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• Becoming Educated
• Education is a consumers best self-defense.
• Encourage buyers to take advantage of free
  pre-purchase counseling offered by agencies
  and/or organizations approved or certified by HUD
  and/or NeighborWorks Center for Homeownership
  Education and Counseling (NCHEC).

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Becoming Educated The following consumer
brochures are available from www.realtor.org
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Choosing the Right Loan
Mortgage Pluses Minuses
Conventional 30-year, fixed-rate mortgages Good for buyers who want the security of a fixed principal and interest payment and plan to stay in a home long-term. Higher overall interest than 15-year loans. May need to refinance if rates fall significantly.
Conventional 15-year, fixed rate mortgages Appeals to buyers who can afford higher payments and want to build equity quickly and pay less interest across a loans life. Payments remain the same over the life of the loan. Payments that are 25 percent to 30 percent higher can be a burden if income changes.
Bi-weekly mortgages Good for buyers who want to reduce the time needed to pay off a loan. By paying half the monthly payments every two weeks, the approach produces 13 monthly payments, rather than 12, per year. Little flexibility if income changes or emergencies arise.
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Choosing the Right Loan
Mortgage Pluses Minuses
Adjustable-rate mortgages Low interest in the first year. Good for those who know their income will rise over the coming years or those who are moving in a couple years and arent concerned with a rate hike. Allows borrowers to qualify for a higher loan amount. Monthly payments can increase significantly if rates rise, although most adjustables have some form of interest-rate cap.
Multi-year fixed, with balloon Lower closing costs than fixed mortgages low payments. Need to refinance at end of fixed-rate period, no matter what interest rates are.
FHA and VA Lower down payment requirements than conventional loans. Often easier to qualify for those with low incomes. Requires additional inspections and insurance. In case of VA loans, limited to veterans.
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Staying Aware of Predatory Lending Practices

• Mortgage fraud practices
• Ignoring the right of rescission
• Using inflated appraisals and fake documents
• Selling to straw buyers
• Phantom second loans
• Predatory lending practices
• Guaranteeing approval and not verifying income
• Charging high fees and penalties
• Delaying closing
• Asking borrowers to sign blank documents or ones
  they dont understand

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Understanding Nontraditional Loan
Programs Non-traditional loan products are
suitable for certain situations and fully
informed borrowers. What is the appeal?

• Payment flexibility
• Maximize cash flow
• Minimize affects of vacancy
• Leverage to payoff personal bills
• Leverage to buy more property

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• Interest-Only Loans
• Appeals to buyers who
• have income in the form of infrequent commissions
  or bonuses
• expect a significant increase in earning in a
  future years
• plan to invest the savings

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• Option ARMs
• Reverse equity
• Borrowers are capped on , not rates
• Appeals to buyers who
• Have variable incomes
• Purchase homes they otherwise could not afford

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2/28 and 3/27 ARMs Gives the borrower a fixed
payment for the initial two- or three-year period
before adjusting the mortgage up as often as
every six months. Promoted as vehicles that allow
borrowers to repair their credit until they can
refinance to a mortgage with more favorable
terms.
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FHASecure Proposed program will give 80,000 ARM
borrowers an option to refinance their existing
mortgage. Borrowers must

• Have made their mortgage payments for the six
  months prior to their loan resetting
• Be delinquent on their mortgage as a result of
  the interest rate reset
• Have at least 3 percent equity

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• Discussion Question 2
• What can you do in your local marketplace to help
  reduce the rate of foreclosures?

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What to Do if Payments Fall Behind

• Contact the lender immediately
• Be objective about the reason
• Investigate forbearance remedies available
• Make partial payments or interest-only payments
  for a time
• Catch up the arrearages
• Add the delinquent amounts to back of loan
• Re-cast the loan

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Mortgage Loan Workouts Borrowers and lenders
agree to a financial plan (workout) to avoid
foreclosures.
"We dont want anybodys home," says Bill
Garland, president of Utah-based Fairbanks
Capital Corp., a giant national mortgage
servicer. "Everybody loses when theres a
foreclosure."
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• Discussion Question 3
• What are the benefits for a homeowner?
• What are the benefits for a lender?
• What are the opportunities for investors?

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• Deed-in-Lieu of Foreclosure
• Conveys title to lender to avoid foreclosure
• Avoids foreclosure, but still affects credit
  score
• Advantages offers a solution, saves time, money,
  energy
• Disadvantages lender must hold property in
  inventory, likely loss for lender, shows up on
  borrowers credit history

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• Discussion Question 4
• If you were Mary, how would you respond?
• What position should a seller representative take
  when counseling a seller on a deed-in-lieu of
  foreclosure?
• How does the role change if the buyer
  representative is representing a buyer-client in
  a purchase of an unlisted property and the seller
  is considering a deed-in-lieu of foreclosure?

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• Short Sales
• Borrower sells the property for less than the
  mortgage balance owed on it.
• If the lender cancels a portion of the mortgage
  debt, the borrower could receive a 1099-form from
  the lender. That means the borrower will have to
  pay tax on the phantom income.

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• Discussion Question 5
• Describe at least three options for the
  Ragsdales situation.
• Which of the options involve the mortgage
  lender(s)?
• Should Shar agree to list the property? Why, or
  why not? If so, what duration?