Tuesday, December 22, 2009

Luxury homes defaulting at a rapid rate: Is a Short Sale the anwer?

The poor economy has affected people of all income levels but there has been little help for homeowners with Jumbo mortgages. Homeowners with $1 million-plus mortgages are defaulting at almost twice the U.S. rate and many are turning to short sales.
Roughly 12% of mortgages exceeding $1 million were 90 days or more overdue in September, compared with 6.3 percent on loans less than $250,000 and 7.4 percent on all U.S. mortgages, according to data from First American CoreLogic Inc., a Santa Ana, California-based research firm. The rate of default for mortgages above $1 million was 4.7 percent a year earlier.
Nearly all of the government programs to help borrowers have been designed for the lower end of the market. The $8000 tax credit has spurred activity in starter homes. The Federal Reserve has purchased over a trillion dollars of bonds backed by home loans, which is why fixed rates for conforming loans are under 5%. The Fed purchases haven’t helped the high end of the market because they exclude jumbo loans. Mortgages above the $729,750 limit.
People with large mortgages and big expensive houses have lost their jobs and experienced financial hardship too.
The one huge benefit that helps homeowners of all income levels is the current regulation about dept forgiveness on a primary residence. Under normal circumstances getting debt forgiven is the same as earning income. Until 2012 debt forgiven on a primary residence is not taxable as income.
If you have experienced financial hardship and your mortgage balance is more than the value of your house a short sale is probably the answer. It is typical for us to get the bank to take a $400,000 to $500,000 loss and to completely release the borrower. Banks many times prefer a short sale to the other available options. Click here for a full analysis from a short sale specialist.

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