Beyond the Headlines

The New York Times

Writing the “hardship letter”
Homeowners having trouble paying their mortgage are often required to write a hardship letter when applying for a loan modification.  Such a letter is a requirement for modification applications under the government’s Making Home Affordable program.

Making sense of the story

  • A hardship letter is not the basis for modification approval – that depends on the borrower’s financials and the intricacies of the various government and in-house lender programs.  The purpose of the hardship letter is to explain upfront why borrowers missed payments, and what they propose as a solution.
  • Some housing experts recommend that homeowners write short letters, using the philosophy that “less is more.”  The lenders’ loss mitigators, faced with mountains of modification requests, are unlikely to spend time reading more than the first few lines of each letter.  Also, there is the risk that borrowers who go on at length could unknowingly trip themselves up with unnecessary details that raise red flags for a mitigator.
  • The hardship letter should open with a succinct explanation of why the borrower stopped paying the mortgage.  The letter should cite a specific hardship, like a lost job, illness, or reduced income.
  • Next, the letter should briefly cite any steps the borrower took to avoid defaulting on their loan, like cutting household expenses or tapping in to savings.
  • If the borrower’s financial situation has since improved, or is likely to, borrowers should mention that as evidence that their hardship was temporary and won’t hamper their ability to make payments on a modified loan.
  • Finally, the letter should state exactly what borrowers are applying for.  Is the proposed solution a lower interest rate, for example, or a principal reduction?
  • Borrowers who are underwater – those who owe more on their mortgage than their property is worth – may ask their lender to consider a short sale, in which the house is sold to another buyer for less than the amount owed.

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In other news …
San Diego Union-Tribune

Mortgage debt relief extended for homeowners
A law that gives financially strained home-sellers tax relief on forgiven mortgage debt has been extended through 2013 as part of “fiscal cliff” talks.

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The Los Angeles Times

Good news about real estate: Home equity is growing again
After hitting a low of $6.45 trillion in the final quarter of 2011, Americans’ combined home equity jumped 20 percent during the next nine months to $7.71 trillion.

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Wall Street Journal

Home prices poised for growth in 2013
Home-listing prices were up 5.1 percent nationally in December on a year-over-year basis, according to Trulia.

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The Los Angeles Times

Foreclosures declined nationally in November
Foreclosures dropped 23 percent in November from the same month in 2011, a report by CoreLogic shows, indicating housing continues to mend.

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The Washington Post

Housing a sweet spot for economy as rebound extends to 2013
U.S. home sales and prices are poised to rise in 2013, solidifying a recovery that began last year after a half-decade slump, according to analysts and economists surveyed by Bloomberg.

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The Los Angeles Times

Ten banks to pay $8.5 billion to settle foreclosure abuse review

Ten of the nation’s largest mortgage servicers have agreed to an $8.5-billion settlement with federal regulators to end a review of foreclosure abuses.

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San Diego Union-Tribune

Freddie Mac economist makes ’13 housing predictions
Housing activity began to turn around in 2012 and will continue to pick up in 2013, according to Frank Nothaft, chief economist for Freddie Mac.

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The Los Angeles Times

2012 a banner year for housing affordability
The NATIONAL ASSOCIATION OF REALTORS® reported that 2012 will probably go down as a record year for housing affordability, according to its affordability index.

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Talking Points

  • Homeowners who haven’t refinanced recently are probably paying a higher interest rate on their mortgage than is necessary.  Borrowers should take advantage of today’s record-low mortgage rates while they last.
  • With mortgage rates near the bottom and home prices on the rise, it’s still a perfect time to buy a house.  Buyers should get a mortgage preapproval before beginning the house hunt.
  • Credit standards remain tight, and as new mortgage rules are unveiled this year, the standards are not expected to loosen.  Borrowers planning to get a mortgage anytime soon are advised to treat their credit score as one of their most valuable assets.  Most borrowers need a credit score of at least 720 to get the best rate.  Borrowers with a credit score of 680 or more can still get a good deal.