I came across this article tonight and thought it was worth sharing. You will most likely ask about this at some point.  

After foreclosure: How long until you can buy again?

By Les Christie, staff writer May 28, 2010: 7:58 AM ET

NEW YORK (CNNMoney.com) -- Walking away from a mortgage you can still afford to pay has consequences; everyone knows that. Your credit score is shot and it can be impossible to get credit.

Some homeowners, no doubt, believe that the credit score hit is worth getting out from a deeply underwater mortgage. They may owe, say, $500,000 when their house value is only valued at $350,000. And, they figure, there's no way it will ever be worth what they owe so it's better to get out from underneath the burden.

After default, they reason, they can raise their FICO scores by paying all their bills on time and eventually finance another home purchase.

Don't count on it.

While homeowners who default due to economic hardship, such as a job loss or divorce, normally must wait two to five years before buying a home again, walkaways may face double that time.

"It could be well over seven or eight years before [walkaways] are able to obtain a mortgage to buy a home again," said Jay Brinkmann, chief economist for the Mortgage Bankers Association.

How foreclosure impacts your credit score

"Credit scores are only one component of a complete credit decision," Brinkmann said. "[In these cases] credit scores are not a good indicator of their willingness to continue to pay their mortgage."

But future underwriters will scrutinize their records very closely, and if they find no precipitating factors leading to the defaults -- no job loss, no health issues --the repaired credit score won't overshadow the black mark of a walkaway.

"If you made a strategic decision to default on paying your mortgage, it will work against you," said Bill Merrell of the National Association of Review Appraisers and Mortgage Underwriters.

Merrell, who teaches underwriting, said banks are looking at several factors in determining whether to grant mortgages: the amount of money borrowers have in the bank; employment histories; payment history.  However, banks may be far more lenient if the default resulted from factors somewhat beyond the borrower's control, such as from local economic problems. "They'll give you more consideration if it's job related," he said. But, he added, banks look at strategic defaults "very negatively."

That said, it's not impossible to get a loan. Banks still want to make interest payments, so they might be willing to gamble with a walkaway.

"It might be a little more difficult for them to borrow, but [banks'] drive for market share -- to profit from making loans -- will trump that caution," said Keith Gumbinger, of the mortgage information publisher HSH Associates. "I don't think we'll see a full denial."

It's hard to foresee the state of mortgage lending six or seven months from now, let alone seven or eight years into the future. So lenders may look at applications from one-time strategic defaulters and say, "Yes, they walked away but it's a whole different market now," according to Gumbinger.

Even so, lenders may require more from borrowers who walked away than those who didn't.

"To the extent they could get a mortgage," said Brinkmann, "they can count on needing a heavy down payment."

The lenders may ask for 30% down or more. That would provide enough collateral cushion that the bank could get all or most of its money back in a foreclosure.

Strategic defaulters might also be charged higher interest rates, even above the levels other borrowers with similar credit scores would receive.

News Flash! This just in... the state of California has just signed into law a bill that exempts state tax on forgiven debt. Read about it below.

Distressed homeowners no longer have to pay California state income tax on debt forgiven in a short sale, foreclosure, or loan modification.  Enacted into law yesterday, Senate Bill 401 generally aligns California's tax treatment of mortgage debt relief income with federal law.  For debt forgiven on a loan secured by a "qualified principal residence," borrowers will now be exempt from both federal and state income tax consequences.  The existing federal exemption is for indebtedness up to $2 million, whereas the new California exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000.

"Qualified principal residence" indebtedness is defined as debt incurred in acquiring, constructing, or substantially improving a principal residence.  It includes both first and second trust deeds.  It also includes a refinance loan to the extent the funds were used to payoff a previous loan that would have qualified.

The tax breaks apply to debts discharged from 2009 through 2012.  Californians who have already filed their 2009 tax returns may claim the exemption by filing a Form 540X amendment.
 
Taxpayers who do not qualify for the above exemptions (e.g., second home or rental property) may nevertheless be exempt under other provisions.  Most notably, taxpayers who are bankrupt are exempt from debt relief income tax.  Also, taxpayers who are insolvent are exempt from debt relief income tax to the extent their current liabilities exceed current assets.

For more information about mortgage forgiveness tax consequences, go to California Franchise Tax Board's Mortgage Forgiveness Debt Relief Extended webpage and the Internal Revenue Service's Mortgage Forgiveness Debt Relief Act and Debt Cancellation webpage.  The full text of Senate Bill 401 is available at www.leginfo.ca.gov. 

30-Year Mortgage Rates Jump 5-09-2010

Freddie Mac reports a jump in 30-year fixed mortgage interest to 5.21 percent for the week of April 8 from 5.08 percent the prior week. Rates are climbing now that the Federal Reserve has ended its campaign to lower borrowing costs and the economy is starting to pick up.

Here’s how other rates fared:

• The 15-year fixed rate climbed to 4.52 percent from 4.39 percent.
• The five-year adjustable rate rose to 4.25 percent from 4.1 percent.
• The one-year ARM edged up to 4.14 percent from 4.05 percent.

Source: Buffalo News, Alan Zibel (04/09/10)

• Northeast: the index rose 9.0 percent to 77.7 in February and is 18.9 percent higher than February 2009.

• Midwest: jumped 21.8 percent to 97.9 and is 18.7 percent above a year ago.

• South: increased 9.2 percent to an index of 107.0, and the index is 17.5 percent higher than February 2009.

• West: the index fell 4.8 percent to 98.0 but is 14.6 percent above a year ago.

Source: NAR

I found these articles and thought people looking at real estate could make use of the information.

Wall Street Journal

To read the full story, please click here:   

Take a look at this article from the Record Searchlight. It confirms what I have been telling my clients for the last 6 months. The market has declined about as far as I think it will. We will be bouncing up and down for a while but I believe the trend will eventually turn upward. With interest rates at historic lows (around 5%) the prices are even better. A 1% increase in the interest rate is equivalent to about a $20,000 price increase. Now is the time to be buying in my opinion.

"Shasta County home values have hit the bottom, economist David Gallo told a gathering of community leaders Wednesday in Redding - an opinion borne out by median sales prices, which were up for the third straight month.

"Don't you already see some signs of that in Redding?" Gallo said of a housing recovery during a two-hour presentation at the McConnell Foundation. "I think if mortgage rates and points remain at current levels, we can expect to see rising home values within a year."

Gallo's forecast is based in part on the trend line of inflation-adjusted home values in Shasta County that he's tracked since 1999. The actual median value of homes in Shasta County has never dipped below the trend line - until recently.

"I've concluded housing prices have bottomed out," Gallo said.

Gallo's prediction came as statistics released this week by DataQuick Information Systems show the median sales price of a home in Shasta County in August rose for the third month in a row. The median is the price where half the homes sold for more and the other half for less.

DataQuick reported that the median sales price in August was $201,250, up from $190,000 in July. The median sales price in August 2008 was $225,000.

Home values in Shasta County bottomed out for the year in March when the median sales price plunged to $177,000.

The median sales price in Shasta County peaked in March 2006, when it reached $300,000.

But while values are up, home sales in Shasta County in August dipped to 148, down from 180 in July, and were at their lowest level since April, when there were 131 closed escrows.

It's a sign that the area's housing market is still somewhat volatile.

Told of Gallo's forecast, two north state real estate agents said values have stabilized in some price ranges, namely for homes priced below $250,000, where multiple offers aren't uncommon."

The Obama administration yesterday released its long-awaited plan to stem foreclosures. It's organized into three categories:

1.) Help for home owners making their payments but at risk of default and foreclosure.

Home owners with a Fannie Mae or Freddie Mac loan would be eligible to refinance as long as their mortgage doesn't exceed 105 percent of the home's current market value. Currently owners need to have at least 20 percent equity. Potential impact: 4-5 million households.

2.) Help for home owners already in default and in need of loan modification.

For lenders that voluntarily agree to lower a borrower's payment so that it makes up no more than 38 percent of the borrower's income, the government would share the cost of lowering the mortgage burden to 31 percent of income. Incentives to lenders to participate include a $1,000 payment.

Borrowers can receive up to $1,000 as an incentive to stay current on their new mortgage. Still in the works is a proposed provision that would allow bankruptcy judges to require loan modification (known as a cramdown) as part of a household's restructuring. That provision requires legislation by Congress. Estimated potential impact: 3-4 million households.

3.) Doubled resources to Fannie Mae and Freddie Mac.

To encourage investors to buy the secondary market companies' mortgage-backed securities, the government explicitly backstops them to up to $400 billion, twice the current amount.

The plan does not provide help to investors or to home owners who are in trouble with a second home, nor does it apply to homeowners whose mortgage is part of a private-label mortgage security that is not backed by Fannie Mae or Freddie Mac.

"The administration's proposed plan, combined with provisions like the $8,000 first-time home buyer tax credit in the just-enacted American Recovery and Reinvestment Act, will help minimize foreclosures, shrink housing inventory, stabilize home values, and move the country closer to an economic recovery," says NAR President Charles McMillan.

Source: REALTOR® Magazine Online

Mortgage rates across the board fell this week, a welcoming sign to potential buyers and home owners looking to refinance.

The 30-year fixed-rate mortgage averaged 5.04 percent this week, a drop from last week's 5.16 percent. Last year at this time, the 30-year rate averaged 6.04 percent, Freddie Mac reports.

Freddie Mac reported the following for other rates for the week:

• 15-year mortgage rates: averaged 4.68 percent, down from last week's 4.81 percent. Last year at this time: 5.64 percent.
• 5-year hybrid adjustable-rate mortgages: averaged 5.04 percent this week, a drop from last week's 5.23 percent. Last year at this time: 5.37 percent
• 1-year ARMs: averaged 4.8 percent, down from last week's 4.94 percent. Last year at this time: 4.98 percent

"Mortgage rates followed bond yields lower this week as recent economic reports suggest the economy is still slowing, which reduces the future threat of inflation," says Frank Nothaft, Freddie Mac's chief economist.

Source: Freddie Mac(02/19/09)