As if the recession hasn’t been hard enough on home sellers and their real estate agents, last month, Wall Street economists dealt another blow to the solar plexus, predicting an upsurge in default mortgages through 2011.
And based on the latest projections, it takes a rare combination of broker wizardry and Zen-like calm to guide home sellers through the residue left behind by a bursting housing bubble.
Just ask Katina Epke, a single mother with a good job and two daughters.
Epke bought a $151,000 home that closed on Dec. 5, 2005, with a first and second mortgage — both adjustable rate loans. Principal and interest for the loans in initially was $979 a month, without taxes and insurance, but interest payments soon began to escalate.
“(My mortgage broker) told me we’d work on refinancing to lower my payment at a 6 percent fixed interest rate and roll both loans into one. I’d have a house payment of around $900 which I could afford,” she said, adding that a little more than a year later, as her combined payment approached $1,600, no lender would refinance the loan at a lower fixed rate.
Eventually her broker found another lender and earned his commission, but the rate remaind high, Epke said.
“My payment dropped a little to $1,400 per month, but by that time I was already behind paying my bills,” she said. “I dropped cable and our home phone — and was trying to keep up with utilities so they wouldn’t cut me off. It was a case of not being able to buy groceries because there was no money. I applied for food stamps, but made $20 a month too much to qualify.”
When she was no longer able to make her mortgage payments, Epke said she thought she would lose her house to foreclosure.
“Fortunately (I) knew a neighbor with a house she said I could rent for $895 per month so we moved,” she said. “But with $1,300 in utility bills on two places, I was still in trouble. And by July, I stopped making house payments.”
Epke’s landlord was familiar with Realtor Tiffany Lachnidt’s work with distressed home sellers and recommended that Epke talk to her.
“I had no idea what a short sale was, but she came over and explained that if I filled out paperwork and wrote a hardship letter explaining my situation, she might be able to help me,” Epke said.
Her house was listed for sale during August of 2008 and sold during April 2009 for $105,000 — well under her combined mortgage balances.
Within six-and-a-half weeks — almost “the speed of light” by today’s short sales standards — Lachnidt was able to negotiate a deal with the first mortgage holder even after Epke’s home would have entered the foreclosure process.
“I was amazed they would work with us,” Lachnidt said, adding that the second mortgage company was not quite as cooperative, opting to reserve the right to recover some of its losses.
Most importantly, however, the family now had a chance to stabilize its finances without foreclosure hanging over its head. Within months Epke was able to work through Credit Solutions to negotiate write-offs on two credit cards and to pay off another.
“That’s what makes all the extra work worth it,” Lachnidt said. “I just wish more people knew they had options.”