Rose and John Barry have been waiting for months. Earlier this
year, Rose mailed a certified letter to their lender asking for a
home loan modification, detailing their strained economic
picture.
Rose and John Barry have been waiting for months. Earlier this year, Rose mailed a certified letter to their lender asking for a home loan modification, detailing their strained economic picture.
In May, John, 62, was laid off from his job as a production manager at Signature Print Services, a printing company in San Jose. Rose, 59, works at St. Mary Church in Gilroy as the liturgical director and teaches swimming lessons in their backyard pool during the summer. Living on her salary and his small unemployment checks, they’re struggling to make their monthly mortgage payments.
“I am a little anxious that this is just the beginning,” Rose said. “We’re hanging on by our fingernails. We can get this far and just keep hoping. My husband’s first thought was ‘we’ll just have to sell the house.’ Even then, we’re probably really close to not covering the mortgage with the current value of the house.”
Rose estimates that the value of the Gilroy house where they have lived for the last 10 years – a two-story, five-bedroom home between Westwood and Laurel drives in north Gilroy – has dropped from $800,000 at its peak in 2007 to less than $500,000.
The Barrys are not alone. Home values have declined by more than 35 percent in Gilroy in the last 12 months that ended in July, according to Zillow.com, a Web site that provides estimates of property values. Gilroy, with its recent and rapid spate of new construction, is one of the cities in the county that has been hardest hit by the housing slump. Countywide, home values have dropped by 19 percent.
Loan modification is the first step many families take toward lowering their monthly payments and avoiding foreclosure. Most loan modifications are a temporary solution, lasting for three to five years, and once that time period is over, homeowners may be subject to higher interest rates.
Along with the letter, Barry had to provide pay stubs to demonstrate their monthly gross income, as well as proof that their property taxes and insurance are up to date.
“The Bank of America warned me that it’s a grindingly long process,” Rose said.
On average, one mortgage expert said banks are taking close to five months to process loan modification requests, because they’re inundated by calls and understaffed. “Banks are not being very cooperative,” said Thomas Kaiser, a mortgage planner for Cedar Mortgage. “The lenders have chosen to make it difficult for the borrower. There is no reason.”
Barry said the Bank of America has been helpful, but Kaiser advises people to be proactive if this is not the case.
“You have to fight,” he said. “You have to be nice. You have to be firm. You have to dictate to them, not let them dictate to you. You have to be prepared to demonstrate hardship. If you lost your job, the bank will not work with you, because they think you can’t make the mortgage in the long term. For people who have lost their jobs, it’s even harder. Some people may just have to walk away, unless they start renting out rooms.”
That’s just what the Barrys have decided to do. They could rent out half of their home and possibly make the mortgage. A couple months ago, Rose contacted Catholic Charities to be matched with a family in need of housing.
“I’m hoping Catholic Charities will get back to us soon,” Rose said. “I’ve told people I know to tell people that are looking for housing about us. I am going to put up a note at church.”
They still don’t have a tennant and, in the meantime, are making ends meet with the help of friends and family.
“I never thought we would have to do this but it’s nice to know they’re there,” Rose said.
The next avenue for people to prevent a foreclosure is to sell their home short. As with a loan modification, the bank will request a hardship letter and want information on their income and expenses before it can agree to a short sale.
A short sale is when a property is sold for the current market value, even though that’s less than the mortgage. The lender agrees to take the proceeds, and the family walks away from the home.
Although the bank forgives any remaining debt, families may face tax consequences, and their credit takes a hit. The blow to their credit score is not as severe as with a foreclosure, placing them more quickly back on the path to home ownership.
Realtor Sheila White, of Starritt Realtors in Gilroy, has been involved with eight short sales in the past few months. “In the majority of the ones I’ve worked with, one person no longer works,” she said, “or they have an adjustable loan and want to adjust the interest rate, but they can’t because the property value is not there.”
A recent search of homes in Gilroy turned up 127 active listings, 29 of which are short sales and 23 owned by the bank, according to current MLS listings. But of the 216 homes that have an offer pending, 130 are short sales and 56 are owned by the bank.
The short sale process can be complex and time-consuming. Lenders can sit on requests for months on whether to initiate the process. Potential buyers sometimes wait months to hear back from a lender on whether they’ll accept or counter their offer and have walked away from the deal because they wanted to buy a house quickly.
“What happens is someone puts in an offer on a short sale, but they withdraw their offer and put their bid on a property that someone will give them an answer on,” said Will Klopp, vice president and managing officer of Intero Real Estate Services in downtown San Jose. “I closed on one that was a short sale here in San Martin. It took us the better part of six months to close. We closed the deal. The client loved the property at the end of the day. It was an emotional roller coaster for six months. They were looking at other things in the meantime to hedge their bets.”
In an effort to make the process easier, the U.S. Department of Housing and Urban Development offers free housing counseling at 1-800-995-HOPE. Anyone charging for their services may be operating a scam and should be approached with caution.
As for when to expect an end to falling home prices, Klopp expects the housing market in Gilroy to find a bottom later this year. The average home price in Gilroy as of Aug. 7 was $349,300, according to Zillow.com.
“Until there’s employment, you’re not going to have people making what they were making,” Klopp said. “You’re going to have fewer people that can afford a house, so prices go down. There will be downward pressure until the end of this year and maybe into 2010. Once it hits bottom, it will stay relatively flat for two years. You won’t see these hockey stick curve values. What you will see will be more akin to the normal real estate years ago where you bought a property for the long-term appreciation, pride of ownership and tax benefits.”
Reporter Sara Suddes conributed to this story.
