The vicious circle of declining home values and rising foreclosures.

By Sheryl Landrum
Home Worth Columnist

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A combination of fraud, overheated real estate markets, greed, speculation, uninformed investors, and bad luck initiated the slide in home values. As prices dropped, those who needed to sell and move or refinance became trapped in homes they couldn't stay in or afford. The resulting foreclosures accelerated the decline of neighboring home values. Lenders responded by flagging areas with softening markets as undesirable for lending, making it still harder to sell or refinance. Is there an end to this in sight?

Government Help is Hit or Miss for Troubled Homeowners
Sometimes, it really does take government intervention to resolve an economic disaster. Legislators raised conforming loan limits in an attempt to make it easier for troubled homeowners to refinance into safer home loans. When the conforming loan limit went up from $417,000 up to $729,500 in some areas, many felt they would witness a refinancing boom. However, while the government raised the loan limits, investors who buy jumbo loans insisted on being paid for assuming the risk of taking on higher loan amounts, regardless of whether they were called "conforming" loans or not. Wary lenders did not ease up on underwriting guidelines to facilitate refinancing. However, there are a few things you can check out if you need to refinance a troubled home loan.

• FHA and VA home loans are two programs that fell out of favor a few years ago when lenders began offering products that required no down payments; however, they are experiencing a surge in popularity once again. FHA and VA loans offer 97-100% financing and easier credit qualifying, allow higher debt-to-income (DTI) ratios and larger loan limits at more affordable costs than many other mortgage options today. Mortgage insurance is required (in the case of a VA loan it is called a funding fee) but you don't have to pay it in cash--it can be financed.
• Homeowners' Advocacy Groups such as the Neighborhood Assistance Corporation of America assists homeowners in securing loan modifications to try and prevent foreclosures.
• Debt counseling organizations such as the Homeownership Preservation Foundation work with troubled homeowners to renegotiate loan terms to avoid a home foreclosure.

If you are struggling with your mortgage, take action now before it is too late. Talk to your lender about renegotiating your home loan; if you don't find a solution, go to one of the many government or local agencies who are there to help you. If you are not a struggling homeowner but are at thinking of buying a home, some quality time with a trusted loan professional and real estate agent is in order.

Agencies are available to provide assistance and grants for qualified home buyers and interest rates are still very low. Talk to a trusted real estate professional or lender before you begin.  

Source: What Your Home is Worth by Earl Swift, Parade, The San Diego Union Tribune, Sunday, June 1, 2008.

About the Author
Sheryl Landrum is a Senior Loan Officer with First Capital Mortgage of San Diego at the Prudential Realty Office in Bonsall, California.