According to The Washington Post ( July 1, 2008), Fairfax County approved a landmark housing program June 30, 2008 yesterday to buy foreclosed properties for middle-income families, becoming one of the first communities in the country to tackle the nation’s growing mortgage crisis while also addressing the region’s increasing demand for affordable housing.

County leaders said the program, through which Fairfax will purchase some properties outright and help families buy others through subsidized loans, takes advantage of a unique moment when thousands of homes are entering foreclosure and available for purchase at below-market prices. The program will expand the county’s stock of affordable housing and help stabilize areas where clusters of abandoned, unkempt properties in foreclosure threaten the value and vitality of surrounding neighborhoods, county officials said. 

Loudoun County is also considering a program that would allow county employees, including firefighters, teachers and deputies, to get a low-interest loan with which to purchase foreclosed homes in the easternmost portion of the county.

If you get a foreclosure notice on your home, be sure to explore all of your options to avoid the foreclosure. The very first thing you should do is consult with an attorney and also pursue these options:

Negotiate a new payment plan with more affordable loan payments.

Negotiate a smaller mortgage payoff (known as a "short sale") with your lender. With the surplus of foreclosures, many banks may be willing to "forgive" the borrower’s debt with a smaller loan payoff amount and the sale of the property. 

Have the bank show instruments proving that they actually own the loan. Because banks have so many loans, loan papers can become lost and the bank may be unable to show proof of actual ownership of the loan. Use this opportunity to negotiate a new loan with an affordable payment plan.

 RISMEDIA, June 17, 2008-In an effort to stabilize declining home values in certain neighborhoods, the Bush Administration announced a temporary policy that will extend government-backed mortgage insurance and allow for the immediate sale of vacant foreclosed properties.

 For one year, the Federal Housing Administration (FHA) will insure foreclosed properties marketed and sold by property disposition firms on behalf of lenders. The properties, which must purchased by owner-occupants, will no longer be subject to the customary 90-day waiting period.

For more information, visit fha.com.

The typical buyer’s offer to purchase a property requires an appraisal value equal or greater than the offering price. The appraisal is ordered by the buyer’s lender, who’s objective should be to protect the investors from buying a loan that is above its market value and the buyer from purchasing a home for more than what it is worth.

Instead of describing local property values in an appraisal as “declining.”, some lenders have pressured appraisers them to change indicate ’stable’ conditions when all the relevant data suggested otherwise. Contrary to the purpose of the appraisal,the seller and loan officer benefit from excesses in property values; the invester and the home buyer lose. Inflated property valuations have contributed to current mortgage-market losses and is a significant contributing factor in many mortgage fraud cases and foreclosures.

But a lower property appraisal can be detrimental to the seller. The deal may fall through, unless the seller is willing to lower the price to the appraised value or the buyer is willing to pay the difference between the property value and the purchase price. If the property valuation is in question, the seller should order its own appraisal and present the results to the buyer’s lender for reconsideration of the property value.

It is important, that for this very reason, the real estate appraiser be reputable, experienced and familiar with the local real estate market and can perform an appraisal which accurately reflects the market value the property.

The quality of homes built during the real estate market boom and the homes prior to the homes built during a more normal market can be completely different.  Some builders had been cutting corners to meet the demands of a “hot” market.

This is becoming more evident as home inspections are being done on these homes when they go on the resale market.   Lower quality homes decrease the value of a home and can push the homeowner into foreclosure because of their inability to sell their home for enough to payoff their mortgages.

 Losing one’s job, the death of a spouse or unexpected medical conditions could cause the homeowners to no longer be able to pay their mortgages. The new home could quite possibly have been put into larger and riskier mortgage than they needed or possibly could not afford..

Inspections for these homes in the resale reveal that they are not worth what they were a couple years ago, and they were never worth what they were sold for in the first place because of crummy construction and expectations created by a housing bubble.

Freddie Mac counts foreclosures as a major credit black mark for seven years and is now aggressively pursuing walk-away borrowers, where permitted by law. Sending the keys back to the lender comes with rigid consequences which should be fully understand before a foreclosure.

The borrower will be unable to get another mortgage through Fannie Mae for five years, unless there are “documented extenuating circumstances.” In that case, the prohibition is three years. Even after the prescribed time has elapsed, a borrower with a foreclosure in his/her file will have to make at least a 10% down payment and have a FICO credit score of at least 680 to qualify for a Fannie Mae loan.

The short sale is by far the better option to a foreclosure, provided there is evidence of hardship. A short sale occurs when home owners negotiate loan modifications with lenders and have portions of their principal debt forgiven. A Federal legislation was enacted last year to eliminate tax liability for the amount forgiven in a short sale. 

By contrast, the debt from a foreclosure is not forgiven, and according to the Internal Revenue Service, the borrower may have to pay taxes on the unpaid balance.

Some real estate agents in the Northern Virgina area are sponsoring bus tours of foreclosed homes for prospective buyers, as an attempt to reduce the inventory of foreclosed homes. The tour would typically include advice and information about finding and buying foreclosed properties

Loudoun County ranks second to Prince William County in the highest number of foreclosures in Northern Virginia. In the 20164 zip code area, approximately nine out of 10 homes on the market are either foreclosures or short sales. 

One out of every 69 households in the county was in foreclosure in the last three months of 2008, well above the national average of one filing for every 555 households, according to RealtyTrac

According to washingtonPost.com (Friday, March 28, 2008), "Gerald E. Connolly, chairman of the Fairfax County Board of Supervisors, today will propose using county funds to purchase foreclosed properties and sell them at below_market prices to working families. 

Doing so would both create affordable housing in one of the nation’s most expensive communities and help protect neighborhoods in danger of decline from the exploding number of homes going into foreclosure across Fairfax, Connolly will say in his annual State of the County speech tonight."

I must say this is a very innovative concept which could create more problems than it may be able to solve. The county should seek the advise of a real estate attorney before even considering this as an option.

"Help Now" has been proposal by the National Community Reinvestment Coalition (NCRC), a nonprofit community advocacy group, to combat foreclosures . The plan calls for the government to buy up at-risk loans, restructure the terms to make them affordable and sell the reworked loans back into the secondary market.

"Help Now" aims to improve upon the efforts of "Hope Now", the alliance of lenders, mortgage servicers, non-profit community advocacy groups and investors led by the Bush administration to help troubled borrowers stay in their homes. The Help Now approach will be to make it easier for lenders to rework the terms of troubled mortgages.

Under this proposal, the government would allocate funds to buy up mortgages from investors in a reverse-auction process, at prices below the face value of the loans.  But the Treasury Secretary has adamantly opposed spending government money on any "bail-out" plans, because the idea would involve at least some seed money, and the second liens may not get repaid for years - if ever. " Source: CNNMoney.com

As the result of interest rate cuts by the Federal Reserve, resetting of subprime loans have become less painful.   But this is proving not to be the main cause of foreclosure. 

According to the Economistt….

"An influential study from the Federal Reserve Bank of Boston points to falling house prices, and the resultant negative equity, as a far bigger trigger. Stemming foreclosures, points out Paul Willen, an author of the study, will depend on reducing the size of mortgages relative to the value of a house.

One approach under consideration in Congress is to adjust America’s personal_bankruptcy law so that judges can "cram down" a mortgage to the market value of a house. Under current law, judges cannot reduce the debt on someone’s main residence, though they can do so for holiday homes or investment properties. Proponents of the legislation reckon 600,000 people could avoid foreclosure if the rules were changed."