“I have been receiving your newsletter via email for some time, and have received some really good information, very informative – Thank you. I was approved for a modification and they’re asking me to sign something agreeing that MERS has all rights to foreclose, etc. I want to ensure I am not signing my life away if I agree to this.”

Answer:

(MERS stands for “Mortgage Electronic Registration System” and is a company that operates an electronic registry to track servicing and ownership of U.S. mortgages.)

Thanks for your email. Yours is a legal question, so I suggest you consult with an attorney. Nevertheless, I’ll offer you my opinion.

MERS is most likely 100% legal, as I believe are foreclosures involving MERS. It is unlikely that the scores of highly-paid attorneys hired by banks and investors would create MERS without being sure it could legally do what they intended.

If somehow they did miss a technicality that invalidated the ability of MERS to collect mortgage payments or to foreclose, the government would surely enact a law to “fix” the technicality. To not do so would allow most homeowners to stop paying their mortgage without penalty. And that would be catastrophic to the financial system and likely cause our economy to collapse.

The bottom line is I believe that MERS foreclosures are or at least will be legal.

So if I were you I’d sign and take the loan modification ASAP.

“I could have sold my San Diego home in 2005 for $600,000, but now it’s only worth $475,000. I don’t want to take such a big loss.”

Answer:

(Question from reader who paid $290,000 for his home in 1998.)

You need to have a short memory.

What you could have gotten was an unrealized number that existed for a moment in time. You can’t let that “fantasy” figure drive your decision now.

You should do whatever is best for you given your goals, circumstances, and your current home value.

That may mean keeping your home. It may mean selling it.

By the way, you can’t say you lost money if you can sell your home for $185,000 more than you paid for it.

“We’re trying to buy our first home, but just can’t find anything we can afford in a safe area. Any ideas?”

Answer:

Here are a few ideas for you:

1. Buy a small, basic, inexpensive condo in an ugly complex.

2. Buy a duplex with friend or family, each living on one side.

3. Buy a duplex with friend or family who wouldn’t live there.

4. Buy a duplex on your own and rent out the other side.

5. Buy a mobile home.

6. Talk with a smart lender to see if it would help to restructure your finances, such as by selling a car with a high payment or consolidating other debt.

“I heard FHA loans have become more expensive. Is that true?”

Answer:

They’ve become both more expensive and cheaper.

How could that be?

Several months ago, HUD (Dept of Housing and Urban Development) changed how they charge the “MIP” or Mortgage Insurance Premium on FHA loans.

The upfront premium due at closing has been trimmed from 2.25% of the loan to just 1%. However the annual premium has gone up from 0.55% of the loan amount to 0.9%.

The net effect is that FHA loans have gotten cheaper if you pay them off (via a sale or refinance) within the first 3.5 years. But after 3.5 years, they become more expensive.

However, due to the low 3.5% down payment and easier qualifying, FHA loans will remain the best option for many borrowers.

“My wife and I found a Pacific Beach home we want to buy. The list price is $525,000. What do you think a good offer would be?”

Answer:

Probably $515,000.

Or $535,000.

Or perhaps $400,000.

Your question is impossible to answer until you tell me:

1. What is the home worth? (You should have a good idea if you’ve been looking at homes and have a skilled, trusted agent advising you.)
2. Are there any competing offers?
3. How much do you want the house?
4. How motivated is the seller? (if you know)

Unfortunately, there is no formula such as “you should offer 95% of list price.”