Is it Wise to Stop Paying my Destin FL Real Estate Mortgage?

Destin FL real estate as well as other niches across the country have been seeing an increase in “strategic defaults.” This is defined as borrowers who owe a significant amount more on the home they have purchased than the current value decide to stop making mortgage payment, but stay current on other loans such as vehicles and credit cards. According to a report by Morgan Stanley, approximately 12% of mortgages that were in default in February were “strategic.” The health of Destin FL real estate and many other areas of the country could be affected as well as mortgage lending in the future.

Influencing others who own Destin FL real estate could be a result of “strategic default.” People who see their neighbors and others doing this and begin to consider this option rather than waiting for many years to realize the equity in their homes. The high number of foreclosures on the market has taken away much of the social unacceptability attached to defaulting on a mortgage. In addition, in areas where the prices of homes are far lower than surrounding areas, this could become far more common.

Looking at Destin FL real estate in the future, this could have an even more extensive effect. Lenders would have no choice but to figure this into the rest of the risks they take when providing home loans and this would likely translate to higher interest or more of a down payment.

The people using “strategic default” is increasing. However, this is not easy to pinpoint with numbers. A conservative estimate is that 25% of those with negative equity in their homes begin to look at the home in the light of an investor rather than a homeowner. The higher the negative equity goes the higher the default rate.

Using data from TransUnion, reports from Morgan Stanley as previously stated, citing “strategic defaults” at 12% in February were higher among those with a larger balance on their loan as well as borrowers who had higher credit scores. The more time a Destin FL real estate owner must wait for a recovery in home prices, the more likely they are to default. If home prices drop again, this could have a dramatic effect on “strategic defaults.”

Last week CitiMortgage announced they would suspend foreclosures (primary residences) to help distressed homeowners in the Gulf of Mexico region. Borrowers with first mortgage loans owned by CitiMortgage and who meet certain other criteria will not be subject to foreclosure sales or foreclosure notifications. According to CitiMortgage, borrowers occupying residences in zip codes within approximately 25 miles of affected coastal areas will be eligible for the program. The suspension is effective from June 17 thru September 17.

This is good news for short sale sellers as they will have more time to get their property sold. Make sure you are priced “aggressively” based on other sales in your area. No amount of marketing will sell an overpriced property.

I applaud CitiMortgage for really “stepping up to the plate” and taking action. Hopefully, others will follow.

If you haven’t heard the news…Up to 10 properties are now allowed for the “bona fide” investor. Better late than never. The tax credit isn’t going to do anything for the investor and it’s the investors that will help buy up the inventory. Fannie Mae even admitted that these experienced investors will play a key role in the housing recovery. They want to serve these individuals who have a history of owning rental property.

The following guidelines must be met:

1. 25% down payment
2. No bankruptcies or foreclosures in the last 7 years
3. No Mortgage lates within the last 12 months
4. 2 years tax returns showing rental income from ALL rental properties
5. Minimum credit score of 720
6. 6 months of PITI reserves on EACH of the financed properties

All investors are also required to sign a form granting lenders permission to verify the tax returns that have been supplied, against the official IRS filed version.

Let’s remember that the banks are holding record numbers of foreclosed properties on their books….while the most likely buyers of these homes, the investors, have been unable to obtain financing. Investors want to buy and Fannie Mae, now our Government, made it impossible. The change is meant to extend banks and lenders a “lifeline,” bringing back experienced investors.

When the 4-property restriction went into effect, it was made on the Friday before Fannie Mae’s nationalization. This date has come to be known as “The Day Before the Refi Boom Started.” On Monday, rates dropped and homeowners with 5+ properties found themselves ineligible. They couldn’t refinance their primary or investment/vacation homes. TODAY, that is NO longer the case for the high-credit, “bona fide” real estate investor….let the games begin!

This change is GREAT for everyone, the banks, the investor, and the real estate agents.

To search for properties in Destin, Florida and surrounding areas, visit my website.

Debbie James
850.450.2000