U.S. home prices fell 4.1 percent in 2010, according to a report from Clear Capital. The provider of data services for the real estate industry also said that home prices dropped in 70 percent of major markets, pressured by high unemployment and REO saturation above 22 percent during the year. REO saturation is the proportion of homes that are sold as bank-owned.

Is there a recovery?

Dr. Alex Villacorta, senior statistician with Clear Capital, said in a statement:

Some housing markets are well on their way to recovery, while others are experiencing a renewed downturn reminiscent of the housing crash only two years ago. Understanding which path a given market is likely to follow is dependent on several key factors, but the two clear drivers are local unemployment rates and the prevalence of distressed homes.

Housing markets change

Only eight major markets experienced double digit declines during the year, indicating that rapid and severe declines are subsiding. Those markets were Dayton, Ohio; Columbus, Ohio; Milwaukee, Wis.; Tucson, Ariz.; New Haven, Conn.; Jacksonville, Fla.; Virginia Beach, Va.; and Richmond, Va.

Of the 15 major markets that had price gains, six were in California, a state that has been hit hard by the housing crisis and had a lot of homeowners default on mortgage loans. Those markets were Riverside, San Diego, Los Angeles, San Jose, San Francisco, and Fresno.

Home mortgage applications

Some housing markets were lifted by home buyers taking advantage of a government tax credit. The tax credit encouraged many people to apply for mortgages while interest rates were at or near historical lows. Without the tax credit some homeowners may not have enough money saved up for a mortgage loan down payment and may put off buying a house.

Markets expected to continue struggling

The clear Capital data indicates that housing markets in the West may continue to struggle this year, and that Arizona may post double digit declines. Major Arizona cities have unemployment below the national average, but REO saturation in Tucson is more than 12 percentage points above the national level and more than 19 percentage points for Phoenix.

California markets that improved this year and posted gains may not experience that again this year. Also, housing markets in the South also are expected to struggle, with four of the 10 worst declining markets being in that region.

The state of the nation’s housing market is a frequent topic of discussion. Stories about mortgage rates, home prices, and foreclosures often lead the day’s headlines. If you are a renter you may be wondering if the time will ever be right to buy a home. Regardless of what happens with the broader economy, here are four questions to ask yourself when deciding whether or not to make the leap into homeownership.

1. Have you paid down debt? Or do you still have a lot of debt from credit cards, student loans, auto loans and other types of financing? When you apply for a home loan your finances are scrutinized by mortgage lenders. One of the factors they are going to focus on is your current debt-to-income ratio. So if you seem to be struggling to pay all the bills with your current debt level, it’s unlikely you are going to get approved for a mortgage. Work on tackling that debt before getting serious about shopping for a mortgage loan.
2. Do you have a hefty down payment? The more you have saved up for a down payment, the better off you are. When you make a down payment that decreases the amount of principal you have to finance with mortgage loan. Aim for a down payment of 20 percent of the purchase price to avoid mortgage insurance (MI) payments. While there are mortgage loan programs for buyers who don’t have a 20 percent down payment, do yourself a favor and take the time to save as much money as possible.
3. Can you afford a home? Do you have enough income to cover all the expenses related to owning a home? In addition to monthly mortgage payments for principal and interest, you’ll pay for homeowners insurance and property taxes. Depending upon the community to live in there may be monthly dues. There also will be expenses for routine maintenance and repairs, yard care, snow removal, etc.
4. Is it a smart move? Are you likely to move anytime soon because of a job change? If there is a good chance that you may have to move soon, buying a home at this time may not be the right move for you. If you’re refinancing, it’s important to look at how long it will take to recoup the closing costs involved with refinancing a home mortgage. Ideally, you would want to remain in the home for at least that amount of time.

Making the move to homeownership is a big step. While current mortgage rates may have you chomping at the bit to get a home loan, it’s important to make sure that your finances can really handle everything that is involved.

Mortgage loan fraud suspicious activity reports (SARs) rose 7 percent in the first half of 2010 to 35,135 from 32,926 a year earlier, according to the Financial Crimes Enforcement Network (FinCEN). The rise in the number of reports is partly due to “increased attention to older loans spurred by repurchase demands.”

“SARs are one of the most important sources of lead information for mortgage fraud investigations available to law enforcement,” FinCEN Director James H. Freis, Jr. said in a statement. “As a member of the President’s Financial Fraud Enforcement Task Force, FinCEN remains active with law enforcement and other partner agencies in the task force to provide lead information and to identify potential abuses in order to combat mortgage loan fraud.”

Spotting a home loan scam

Mortgage fraud is perpetrated through a variety of schemes. Among the types of fraud that could occur are:

• Flopping, which is a flipping scheme that occurs when a foreclosed property is sold at an artificially low price to a straw buyer, who turns around and sells it at a higher price and keeps the difference.
• Submitting fraudulent home loan documents to mortgage lenders. In some cases dishonest mortgage professionals may submit phony documents that inflate the salaries and assets of borrowers.
• Inflating home appraisals to qualify for mortgage loans
• Foreclosure rescue scams that target homeowners who are having trouble making mortgage payments

What should you do?

Mortgage fraud can steal your money and your sense of security. That’s why it’s important to take steps to guard against becoming a victim. Among the things you can do to protect yourself are:

• Get referrals for real estate and mortgage professionals from trustworthy friends and family members
• Never sign documents that you have not read and do not understand
• Use a reputable attorney to review all the documents and terms of your transaction
• Check to make sure that all documents have information that is correct
• Make sure that a comprehensive title search has been done on the property
• Be skeptical of real estate professionals who require you to use specific mortgage lenders or home appraisers

Senior citizens are often vulnerable to scams. If you have an elderly relative who seems to be caught up in a troublesome financial transaction, try to find out as much information as you can to determine if they are being scammed.

Mortgage rates have risen over the past few weeks, contributing to a decline in mortgage applications. The average rate on a 30-year fixed mortgage was 4.83 percent this week, compared with 4.61 percent last week, according to Freddie Mac. This rate was 4.17 percent in November, the lowest point recorded by Freddie Mac since it began tracking rates in 1970.

Historical mortgage rates

Have you been dragging your fee about applying for a mortgage refinance or a loan to purchase a home? If so, don’t panic. While mortgage rates have risen during the past few weeks they are still near historic lows. For instance, if you had applied for a mortgage in October 1981, 30-year fixed-rate mortgages were averaging 18.45 percent, according to HSH Associates. Even as recently as 2008, mortgage rates rose above 6 percent.

Improve your profile as a borrower

Mortgage rates can change at any time, but that’s no reason not to shop around to find a good deal. Take steps now to make yourself a more attractive candidate for refinancing or a new home loan. Use the following tips to improve the chance of getting a mortgage:

• Clean up your credit. Read your credit reports to find inaccurate or outdated information. Contact the credit reporting agency and creditors to clear up any mistakes. Do not wait until you are about to apply for a mortgage loan to do this.
• Pay off as much debt as possible. Not only do credit cards have high interest, but having too much debt from them can keep you from getting approved for mortgage refinancing or a loan to purchase a property. The less high-interest debt you have, the more income you can put toward monthly mortgage payments.
• Save as much as possible. Whether you are trying to refinance or buy a home, your ability to bring more cash to the closing can improve your chances of getting a loan. When buying a property, the larger the down payment, the less your monthly payments on a mortgage. If you are refinancing, bringing cash to closing–a cash-in refinance–can boost your home equity, making you a more attractive loan candidate to mortgage lenders.

Shop for mortgage deals

Mortgage rates may continue to climb, or they may fall again. You can’t time the market, so it’s not really worth it to try. If you really want to get a home loan to purchase a property or refinance, go ahead and do what you need to do to qualify for the best loan.

Cases of wrongful foreclosure are on the increase, according to a USA Today article. Reports are pouring in of homeowners who are battling foreclosure proceedings even though they are current on mortgage payments. The mess is being related to stories about banks robo-signing foreclosure documents without reviewing them. Although most of the robo-signing involved people who had stopped paying on mortgage loans, it appears that some homeowners are being targeted for foreclosure proceedings.

Mortgage foreclosure snafu

The USA Today story uses examples of people who were foreclosed upon by banks that they never had mortgage loans with, people who had never missed payments, and even a guy who paid for his house with cash. In some cases, people’s homes were ransacked and padlocked, and their belongings were taken away.

According to the article:

“This is the worst I’ve ever seen it,” said Ira Rheingold, an attorney and executive director of the National Association of Consumer Advocates. Diane Thompson, a lawyer with the National Consumer Law Center, has defended hundreds of foreclosure cases. “In virtually every case, I believe the homeowner was not in default when you looked at the surrounding facts. It is a widespread problem throughout the country.”

Lawsuits involving mortgage mess

Some homeowners in wrongful foreclosure cases are attempting to fight back by filing lawsuits against mortgage lenders. Class-action suits have been filed against mortgage lenders in Kentucky and California who foreclosed upon homeowners who claim they made mortgage payments after having home loans modified.

So just how widespread are instances of wrongful foreclosure and could you become a victim? There don’t appear to be any formal statistics for how many homeowners have been affected. But according to the USA Today article:

Tammie Lou Kapusta is a former paralegal with the law offices of David J. Stern, a Florida firm that works for all the major banks and handles up to 70,000 foreclosure cases a year. Kapusta testified in September that she received as many as 50 calls a day from homeowners who said they were the victims of mistakes. But she was told, she testified, to ignore the callers and push through the foreclosures anyway. The law firm is under investigation by the Florida attorney general.

The take away

A lesson to be learned from all this is to always pay attention to correspondence from your mortgage lender. Open all mail in a timely fashion and address any concerns immediately. Apparently having good credit and making mortgage payments on time is no guarantee that you won’t become the victim of a wrongful foreclosure.

Mortgage lenders usually require that you come to closing with a homeowners insurance policy that is paid up for the first year. The insurance policy protects you in case the property is damaged by fire, high wind or other natural disasters. Use the following guide when shopping for a homeowners insurance policy for your new home.

• Don’t confuse homeowners insurance with mortgage insurance (MI), often referred to as private mortgage insurance (PMI). Homeowners insurance is to cover damage to your home. MI is a fee that you pay to protect the mortgage lender in the event that you default on a home loan. Most mortgage loans require MI if the down payment is less than 20 percent.
• Homeowners insurance does not cover all disasters. For instance, floods generally are not covered by standard homeowners policies. You won’t need to purchase a flood policy unless you live in a designated flood zone. If you need a flood insurance, the first year’s premium must be paid at closing.
• Compare several homeowners policies to find the right coverage. Ask people you know for recommendations and whether or not they have ever filed a claim with their insurer.
• Find out about discounts that may be offered by insurers. Burglar alarms and smoke detectors are among the things that may qualify you for a discount on your policy.
• Insuring your home, car, boat, etc. with the same insurer may get you a lower premium. Even if you hadn’t planned to get a new auto policy, it may be a good idea to get quotes before choosing a homeowners plan. If you already have a homeowners policy your current insurance firm may reward you for being a long-time customer if you use it for the new policy.
• Your credit score matters. Many insurance companies pull credit reports as part of the underwriting process. Not only can poor credit keep you from qualifying for the best mortgage rates, but it also can force you to pay higher insurance premiums.
• Ask for replacement cost coverage instead of actual cash value coverage. If you have to file a claim, replacement cost coverage means you’ll be reimbursed the full amount that it costs to replace your home, subject to policy limits.

Get all the facts before signing up for any insurance policy. Ask for the highest deductible that you can afford to keep the premiums down.

The “shadow inventory” of U.S. real estate rose to 2.1 million homes in August 2010, according to data from CoreLogic, a mortgage research firm. These numbers represent an 8-month supply of homes, compared to a 5-month supply, or 1.9 million homes, a year earlier.

Troubled home loans

Shadow inventory includes homes that are in foreclosure, homes that have mortgage loans that are at least 90 days past due, and real estate owned (REO) properties owned by mortgage lenders but not yet listed for sale. Shadow inventory usually is not included in official statistics about unsold properties. The visible supply of unsold inventory was 4.2 million units, unchanged from a year earlier.

The total supply of unsold homes at the end of August was 23 months, compared with 17 months a year earlier. Usually a supply of 6 to 7 months is considered normal.

“The weak demand for housing is significantly increasing the risk of further price declines in the housing market,” Mark Fleming, chief economist for CoreLogic, said in a statement. “This is being exacerbated by a significant and growing shadow inventory that is likely to persist for some time due to the highly extended time-to-liquidation that servicers are currently experiencing.”

Problems with shadow inventory

Homes included in shadow inventory may be difficult to sell even if they eventually are put on the market. They may be located in areas that have many distressed homes. The properties may need a lot of repairs before they can even be marketed properly.

Delinquent mortgage loans

Meanwhile, the delinquency rate for mortgage loans fell to a seasonally adjusted rate of 9.13 percent of all loans outstanding at the end of the third quarter of 2010, according to the Mortgage Bankers Association.

Michael Fratantoni, MBA’s Vice President of Research and Economics, said in a statement:

“Most often, homeowners fall behind on their mortgages because their income has dropped due to unemployment or other causes. Although the employment report for October was relatively positive, the job market had improved only marginally through the third quarter, so while there was a small improvement in the delinquency rate, the level of that rate remains quite high. As we anticipate that the unemployment rate will be little changed over the next year, we also expect only modest improvements in the delinquency rate.”

The delinquency rate includes mortgage loans that behind at least one payment but not in the process of foreclosure. The quantity of home mortgages that were in foreclosure fell to 4.39 percent in the third quarter, down from the previous quarter and down from a year earlier.

A new Federal Trade Commission (FTC) rule is aimed at cracking down on mortgage relief companies that make use deceptive practices. Some homeowners who are struggling financially have become victims of various mortgage relief scams that have proliferated during the housing crisis.

No advance fees for mortgage relief

The FTC rule makes it illegal for firms offering help with mortgage loans to collect advance fees before any services have been provided. Some companies that offer foreclosure rescue or loan modifications services have required homeowners seeking assistance to pay large sums of money upfront without delivering on their promises. Some of the companies claim that they are affiliated with the government and government programs that offer housing assistance.

“At a time when many Americans are struggling to pay their mortgages, peddlers of so-called mortgage relief services have taken hundreds of millions of dollars from hundreds of thousands of homeowners without ever delivering results,” FTC Chairman Jon Leibowitz said in a statement. “By banning providers of these services from collecting fees until the customer is satisfied with the results, this rule will protect consumers from being victimized by these scams.”

Documentation before collecting money

Now mortgage relief companies must provide written proof that a mortgage lender or servicer has agreed to make changes to a mortgage loan before any fees can be collected. Companies that offer help with mortgages also must inform consumers that they have the right to turn down an offer without paying any fees.

Mortgage relief firms also must disclose to consumers that:

• They are not affiliated with or approved by the government
• They are not affiliated with or approved by mortgage lenders
• Mortgage lenders may not agree to modify home loans
• If they tell customers to stop making payments on a mortgage, that they could lose their home and damage their credit

False claims about help with home mortgages

Mortgage relief companies also must refrain from making false claims about their services. Among those false claims are those that about the likelihood that customers will get the results they want, refund and cancellation policies, whether the company provides legal representation for consumers, and the amount of money a homeowner will save using the company’s services. The FTC rule also prohibits mortgage relief firms from telling consumers to stop communicating with their mortgage lenders or loan servicers.

Millions of Americans take a tax deduction for their mortgage interest payments each year. For many people the tax deduction is considered as a perk of being a homeowner, and for many people getting the tax break is viewed as a right. So what’s up with the government’s deficit reduction commission entertaining a proposal to change the mortgage interest deduction?

Trying to reduce the deficit

First, it’s important to understand why changes are being proposed. President Obama established the National Commission on Fiscal Responsibility and Reform to propose recommendations to cut excess spending and balance the nation’s budget. “We must stabilize then reduce the national debt, or we could spend $1 trillion a year in interest alone by 2020,” states the Commission in their draft proposal of Nov. 10, 2010.

Limiting mortgage interest

Proposed tax reform measures include limiting the mortgage interest deduction so that second homes and home equity loans would be excluded. Also, the mortgage deduction could have a cap of $500,000 instead of the current $1 million. Reaction to the proposed change in the deduction for mortgage interest has been met with concern and outrage.

Michael D. Berman, CMB, Chairman of the Mortgage Bankers Association, said in a statement:

Given the fragile state of the nation’s housing market, now is not the time to be scaling back incentives for homeownership. The mortgage interest deduction is one of the pillars of our national housing policy, and limiting its use will have negative repercussions for consumers and home values up and down the housing chain … We share the widespread concern over the growing national debt and want to help identify reasonable solutions, but we cannot support proposals that would chip away at the foundations of the real estate market.

A setback for the housing market?

Bob Jones, chairman of the National Association of Home Builders said in a statement:

Tampering with the deduction would be a major setback for today’s slowly emerging housing recovery. It would disrupt the plans of young households who are gathering their financial resources to purchase a home. And it would impose a substantial tax burden on existing home buyers, many of whom continue to stay current with their mortgage payments even as they struggle to make ends meet.

Arguing against the mortgage deduction

However, some tax experts say that the mortgage deduction should go. “What the subsidy is doing is driving up prices by encouraging well-off people to take out bigger loans, to buy bigger houses,” Roberton Williams, a fellow at the Tax Policy Center, told the New York Times. “So I think there’s a question about whether that is something the government should be doing with tax money.”

The deficit reduction commission is looking at many areas, not just mortgage interest deductions. If you feel strongly about any of the measures in the proposal, you can email comments and suggestions to the commission at commission@fc.eop.gov.

If you’ve received a notice of foreclosure, you may be confused about what the foreclosure process actually involves. Whether you are current on mortgage loan payments or have fallen behind, the following guide can help you understand how the foreclosure process works.

What is a foreclosure?

A foreclosure is an action by a lender to take ownership of property for which the loan is in default. It starts when a homeowner has fallen behind on home loan payments, thus defaulting on the mortgage loan. By definition the mortgage loan is secured by the value of the home, which means if the homeowner doesn’t pay the loan, the lender has the right to take the house.

Once a loan is in default, the mortgage lender will eventually attempt to recover the outstanding balance owed on the mortgage loan by taking the property and selling it to pay off as much of the loan as possible. The mortgage lender kicks off this process by filing a public Notice of Default.

What are your options after a Notice of Default has been filed?

There are several things that you can do after the foreclosure process has begun.

1. Pay off the default. If you can find a way to pay off the default amount during the pre-foreclosure period, doing so could allow the mortgage loan to be reinstated. Work with your lender to establish a payment schedule.
2. Sell the property. You could choose to sell the property during the pre-foreclosure period and put the proceeds toward the mortgage. Given the current economic conditions, it may be tough to sell your home at the market value.
3. Short sale. If you are underwater on a mortgage loan you won’t earn enough from the sale to pay the full amount owed. In that case you might have to consider a short sale.
4. Loan modification. Explore HAMP (Home Affordable Mortgage Program) and HARP (Home Affordable Refinance Program) loans to see if you qualify for a loan modification or a refinance with government assistance.

More about short sale

A short sale occurs when the mortgage lender agrees to accept less that what is owed on a home mortgage. Generally, you have to prove that you are experiencing extreme financial hardship to qualify for this type of deal. Be prepared to provide a lot of documentation for your financial woes. It’s also a good idea to line up a buyer before approaching the bank to request a short sale.

What if you do nothing?

If you do nothing after the foreclosure is started, the mortgage lender can take the property. The lender would then sell the house to recover as much as it can. The lender would be responsible for any repairs or maintenance needed to get the property in shape to sell. But mortgage lenders are not looking to manage properties, so most would rather find an alternative to having to take ownership. Armed with this information, being upfront with the lender about your situation and reaching agreement on a payment plan may make it possible for you to remain in your home.