HAS THE REAL ESTATE TIDE TURNED? WHY I AM OPTIMISTIC AND MORE ON THE OBAMA PLAN LOAN MODIFICATION CHANGES

In our last blog entitled OBAMA’S LOAN MODIFICATION PLAN, MAKING HOMES AFFORDABLE PROGRAM, (HAMP), HALLELUJAH THE RULES HAVE CHANGED, we talked about the HAMP Tier II program, which was supposed to go into effect on June 1, 2012. Obviously, the implementation will be based upon particular servicers and how quickly they can adapt.

The big change of course was the reduction in income requirements to qualify for one of these modifications, the exact extent of which is still not clear, but we do know that people who have been turned down initially for HAMP because of inadequate income can reapply, and the amount in income needed will be significantly less. The other significant change was the encouragement of principal reductions. The incentives now available to mortgage servicers and lenders with existing loans are so significant that the prognosticators are universally suggesting that these incentives will substantially increase principal reductions.

Pricewaterhouse, in its April 2012 analysis of Obama’s “PLAN TO HELP RESPONSIBLE HOMEOWNERS AND HEAL THE HOUSING MARKET,” predicted a high likelihood that loan servicers and their investors will expand principal reductions significantly because of these new incentives. See Consumer Finance Point of View at www.pwc.com/consumerfinance.

This change and my own “on the ground” observations of the real estate market in South Florida suggest to me that, at least as far as my corner of paradise is concerned, there are significant objective reasons for optimism. The inventory of high rise condominiums in the Miami Downtown area is rapidly shrinking, due primarily to foreign investors who, despite the gloom and doom of the credit rating agencies, have concluded that the good old U.S.A. is the safest place to stash their money. The single family housing market has also significantly improved, at least in the upscale portions of Miami such as Pine Crest and Doral. This is probably due to the fact that rich people are still rich, and there is an influx of foreigners and money; (these are foreigners coming through the front door, not stuffed into the back of a trailer truck coming across the Arizona border), and despite the curious fact that while the human race keeps reproducing and expanding, there has not been a lot of construction of shelter in the last few years.

The only thing that seems to be missing is the ability of people to get mortgages. All of this brings me to conclude that, it is in the best interest of most individuals who are homeowners to try, as hard as they can, to remain in their homes and to do so by aggressively seeking a loan modification. Their goal should be to reduce mortgage payments to something that they can afford for the foreseeable future; principal reduction is the frosting on the cake.

Most of us, who have taken a hit during this economic downturn, are not going to be able to qualify for new mortgages in the foreseeable future and yet, most of us would prefer to live in a structure as opposed to a tent or to move back in with our parents. (Some of us are already there.)

So the takeaway is modify, modify, modify, and modify. Go to the internet; download whatever forms you can find from your mortgage servicer and print them and send them in. Give them everything they want, call them up, be the squeaky wheel, and keep track of your efforts.