Home Owners | Welcome to Dynamic Property Partners

Will Covid-19 Mortgage Forbearance Lead to a Housing Crash?

Aubrielle Madia — Wed, 03 Feb 2021 05:27:05 +0000

The COVID-19 health crisis has created unprecedented circumstances, one of which has the been the financial burden Americans are experiencing. Throughout the crisis, mortgage forbearance plans have played an important role in helping homeowners manage their finances by providing short-term liquidity to mortgage borrowers. Mortgage forbearance temporarily removes the obligation for borrowers to make their monthly mortgage payment. These plans are used by borrowers when they experience a financial hardship such as job loss, or reduction of income; both of which have been a product of the pandemic.

In the beginning of the economic disruptions caused by the health crisis, the government immediately put forbearance plans into place to preserve home ownership. Today, almost three million households are actively in a forbearance plan. Though 29.4% of those in forbearance have continued to stay current on their payments, many have not. According to Yanling Mayer, Principal Economist at Corelogic, roughly one-third of borrowers in forbearance are at least 150 days behind on payments.

During mortgage forbearance, homeowners are given the option to not make their payments, but it raises the question: how many homeowners will be able to catch up on their mortgage payments after their forbearance programs end? There’s currently widespread speculation that a forthcoming wave of foreclosures and short sales could be the result, potentially leading to another crash in home values. Fortunately, today’s situation is different than the housing crash of 2008 since many homeowners have higher amounts of equity in their homes.

What are the experts saying?

Over the past month, several industry experts have weighed in on this subject:

Michael Sklarz, President at Collateral Analytics stated that if there is a flood of borrowers unable to catch up on their payments, he believes more homeowners will take advantage of the competitive real estate market and list their homes for sale rather than undergo foreclosure.

Odeta Kushi, Deputy Chief Economist at First American weighed in on the foreclosure process and expanded on the two major components of foreclosure – both economic shock and delinquency. However, she did state that delinquency is not enough for foreclosure to take place and signaled the importance of equity. She continued further by stating that with equity, sale, or refinance of the property, the homeowner can weather the economic shock.

Don Layton, Senior Industry Fellow at the Joint Center for Housing Studies of Harvard University stated that since we are seeing a greater cushion of equity, homeowners have more options to access the funding they need through refinancing, credit lines, or even a loan modification. He continued by declaring that in a worse-case scenario, they will be able to sell the house and monetize their increased net worth while reducing their monthly payment obligations – suggesting that there will only be a modest increase in foreclosures.

As you can see, even though many homeowners may be facing a financial burden, the increase in homeowner equity is acting as a safety net for them; giving them more creative options to access the funds they need. There is, however, a possibility that not all homeowners will be able to use their equity to their advantage, suggesting there will be some that may face foreclosure, but most homeowners will be able to save themselves from this burden through their equity.

Won’t the additional homes on the market impact prices?

Due to the remaining highly competitive real estate market and low interest rates, distressed homes (abandoned homes, homes in need of significant repairs, tax delinquent homes, foreclosed homes, and short sales) which normally sell at a discount, will result in a minimal impact in the housing market as home values and equity have resisted the economic shock.

In addition to increasing home and equity values, there is also currently an unprecedented lack of inventory on the market. Per realtor.com, economists have found that the number of homes for sale was down 39.6%, amounting to roughly 450,000 fewer homes for sale than last December. As a result, the lack of inventory and increasing buyer demand will force higher home prices. But even if inventory begins to increase, economists also predict that the market has the potential to absorb 500,000 homes this year without it causing home values to depreciate.

Clearly the pandemic has led to both personal and economic hardships for many American households. The overall residential real estate market, however, has weathered the storm and will continue to do so in 2021.

Why Home Ownership is the Key to Building Wealth

Aubrielle Madia — Thu, 21 Jan 2021 09:22:26 +0000

Why Home Ownership is the Key to Building Wealth

It is an established financial principle that homeownership is the key to wealth building. In fact, most recent data certifies that home ownership, regardless of income level, is one of the biggest positive drivers of wealth creation. The Federal Home Loan Mortgage Corporation recently quoted home ownership as the cornerstone to the “American Dream,” as it provides families with a place that is their own as well as an avenue for building wealth over time. This wealth is accrued by the creation of equity, the difference between the market value of your home and the amount you owe the lender who holds the mortgage. As you continue to pay down your principal balance and your property appreciates over time, you enhance your financial stability.

Is homeownership truly a better path to wealth than renting?

Many argue that homeownership is not a viable investment, and rather a liability as it’s taking from your income instead of generating income. While others argue that renting is the route to stress-easy living, but when it comes down to it, renting does not build your wealth as you aren’t generating passive income for yourself, and your payments aren’t being invested towards a hard asset. Rather, your rental payments are being invested into your landlords’ wealth via his/her mortgage and their additional expenses (property taxes, insurance, repairs, etc.), along with a profit margin. Homeownership will always be a better path to wealth as it will contribute to your net worth.

In support of this, the latest Home Equity Insights Report from Corelogic reported four major findings that supported in the link between homeownership and wealth:

U.S Homeowners with mortgages have seen their equity increase by a total of $1 trillion since the third quarter of 2019.
The average homeowner gained approximately $17,000 in equity over last year.
The average household with a mortgage now holds at least $194,000 in home equity.
There’s been a 10.8% increase in equity over the last year.

Here’s a breakdown of the year-over-year equity gain by state:

Source: https://www.keepingcurrentmatters.com

When can you cash in on your housing wealth?

Your home equity is part of your wealth as a homeowner. There are many ways homeowners can leverage their wealth, but the two most common ways for homeowners to cash in on their housing wealth are by selling and/or refinancing.

When selling your home, the equity you’ve built up over time will be yours at the end of the sale. To paint the picture lets have an example, if you had a mortgage of $235,000, you paid off $105,000 of the mortgage and sell the house for $275,000; you would receive a gross profit of $145,000, before seller closing and other transactional costs.

When refinancing your home, you can either refinance to reduce your interest rate, cut monthly payments, or tap into your home equity. The most popular refinance is a cash-out refinance, where you can take out some of the equity you have accumulated. When refinancing, you get a new mortgage. The new mortgage pays off the balance of the old home loan, and normally you’re able to cash out 70-80% of your loan to value. But when refinancing, its required that you apply for the loan to then qualify. You’ll have to file an application for refinance, go through the underwriting process and close on the transaction.

How can these options help homeowners?

Throughout these difficult times, many households have been struggling with their housing and living expenses. Fortunately, homeowners have the upper hand here, where many who have experienced a financial hardship can qualify for mortgage forbearance and repayment plans. Additionally, homeowners who have substantial equity in their home have even more alternatives. Deputy Chief Economist at First American, Odeta Kushi, recently stated that homeowners impacted by the pandemic will not necessarily be faced with foreclosure because with equity, homeowners have the option to sell their home or tap into their equity through refinancing to help weather the storm.

What might the future bring?

Budget experts are predicting home prices will continue appreciating as we move forward. The Home Price Expectation Survey, a survey of a national panel of over one hundred economists, real estate professionals, and market strategists, reported that appreciation of home prices will continue for at least the next five years. By using their projection, the graph below shows the equity build-up a potential buyer is projected to earn when purchasing a $300,000 house this January:

Source: https://www.keepingcurrentmatters.com

For many Americans, home equity is the quickest way to build household wealth. Building home equity, however, is a long-term investment but this wealth gives homeowners more options during both good and difficult times, all while continuously contributing to their overall net worth.

What Happens When My COVID-19 Mortgage Forbearance Is Over?

Dynamic Property Partners — Thu, 15 Oct 2020 04:06:00 +0000

If you are a homeowner that took advantage of the COVID-19 mortgage forbearance provided by the 2020 Cares Act, you may be wondering what next steps to take as we are nearing the end of the year. First and foremost, you should begin by planning to discuss available options with your mortgage lender. As everybody is undergoing a different financial situation, it would be to your advantage to reach out to them to assess your situation and define the next steps sooner rather than later. Some lenders are placing the unpaid mortgage balance onto the end of a borrower’s loan, while others are requiring homeowners to make one large lump sum payment once their forbearance expires. Which, depending upon your situation, could be the worst-case scenario. Fortunately, there are other options available to you. Some other options can include:

1. Repayment Plan

2. Loan Modification

3. Refinancing

4. Reaching out to Dynamic Property Partners

Repayment Plan

One plausible option you could consider with your mortgage lender is setting up a repayment plan. On average, a repayment plan term length can vary from 3-6 months, depending upon your lender, and would not alter your current mortgage terms in any way. All the repayment plan would do is structure the delinquent amount from the mortgage forbearance to be added onto your regular monthly bill, temporarily increasing your monthly payment for your agreed upon term length.

Loan Modification

A loan modification could be something worth exploring if you have experienced a permanent hardship due to the COVID-19 health pandemic. A loan modification is a change made to the terms of an existing loan by a lender. It may involve a reduction in the interest rate, an extension of the length of time for repayment, a different type of loan, or any combination of the three. Fortunately, due to the current circumstances brought on by the COVID-19 health pandemic, many banks are offering broader loan modification criteria to help owners, so this is the time to take advantage, if need be.

Refinancing

You may be able to refinance your home loan and take advantage of low interest rates if you have not missed any mortgage payments other than those included in your mortgage forbearance. Refinancing your home loan is defined as the replacement of an existing debt obligation with another debt obligation under different terms. Fortunately, due to COVID-19 circumstances, you’re able to negotiate some refinance expenses with your mortgage lender, including but not limited to, the application fee and the commitment fee you’re charged that guarantees the loan can be negotiated. If this is something you qualify for, it would be a great opportunity to take advantage of record low interest rates while having the common miscellaneous fees waived.

Reaching Out to Dynamic Property Partners

Here at Dynamic Property Partners, we want to help homeowners find a plausible solution to their real estate situation. When we work directly with a home seller, what we provide can not only make for a smooth transaction, but it can also add up to thousands upon thousands of dollars in savings as compared to selling a home through traditional means. With the ability to directly purchase homes and make cash offers, we can create extremely fast and hassle-free transactions. There are many creative ways to help you out of any situation. We pride ourselves on our reputation for working one-on-one with each customer to handle each individual situation; and it is our goal to make each client feel like we achieved a WIN-WIN scenario.

For the best results, it is imperative to contact your servicer before your forbearance ends so you can secure the best possible transition. Beginning to have these discussions with your mortgage lender, where you talk about available repayment options, varying loan terms, or even different loan options will be highly advantageous to you in the long run.