It was just last summer that Charlotte Perkins made the hardest decision of her life as she and her husband Jim were caught in the vise of the housing bust.

Wanting to downsize their lives as they headed toward retirement, they bought a new house in Mesa, Arizona, before they sold the old one, also in Mesa. Their previous home had been appraised at nearly $400,000 at the height of the market, but as the housing crisis ravaged Arizona, they were told they'd be lucky to get $200,000 for it.

They were carrying a loan of $260,000 on their original home alone, meaning they were well 'underwater,' owing much more than it was worth. Combined with the mortgage on the new house, their housing payments had become an "anchor around our necks," she says, threatening to gobble up all their retirement savings and leave them with nothing.

The couple made a difficult call: They would do a 'strategic default,' and simply stop paying the old mortgage. "We really had to wrestle with it," said Perkins, 60. "We had worked all of our lives to build good strong credit, and we're proud people. But it came down to, 'Can we keep doing this?' We had to say 'No.'"

As the housing bust drags on, many homeowners are thinking like Perkins. Almost 11 million homes are now underwater, says financial information provider CoreLogic. Around 3.5 million homeowners are behind in their payments and another 1.5 million homes are already in the foreclosure process, according to online marketplace RealtyTrac.

As banks start to work through their backlog of distressed properties, the New York Federal Reserve estimates that 3.6 million foreclosures will take place during the next couple of years.

So, the question is: Does it make sense to keep paying a massive mortgage, knowing that it might be decades before a home regains its prior value? Or is that akin to - as columnist James Surowiecki recently wrote in the New Yorker - "setting a pile of money on fire every month"?

"I constantly get the saddest e-mails from people saying, 'I've exhausted all my life savings, my retirement is gone, and now I have to default,'" said Jon Maddux, CEO of YouWalkAway.com,

a foreclosure agency that helps clients with strategic default (and charges a fee for it). "But if they had seen the writing on the wall a couple of years earlier, stopped paying the mortgage and stayed in the home throughout the whole process, they would be in a much better financial position."

Moral Quandary

There's a moral component to that decision, of course. People naturally feel embarrassed about breaking a contract and not paying their bills; no one wants to be branded a deadbeat. But remember that companies default on their obligations when it makes financial sense for them to do so, via the bankruptcy process. Even the Mortgage Bankers Association itself, in a flourish of irony, arranged for a short sale of its Washington headquarters.

It's not personal; it's business. So think of strategic default as a business decision, and do a cold-eyed cost-benefit analysis of whether it makes sense for you, advises Carl Archer, an attorney with Maselli Warren in Princeton, New Jersey.

[Also see: Small Money Missteps That Can Cost You Big]

"People think it reflects on their integrity, and say 'I wasn't raised this way,'" said Archer. "But the more businesslike attitude is to say that there's a contract, there are penalties for violating that contract, and sometimes it just makes financial sense to break it."

The penalties largely revolve around your credit record, which admittedly gets blown up in the near-term. For a few years you can likely forget about qualifying for a mortgage or a car loan. When lenders are ready to take a chance on you again, you'll have to pay for the privilege, with stiff interest rates due to your default history.

What Happens to Scores

Charlotte Perkins watched her credit score go from a pristine 800 to 685, dropping every time she missed a payment. Credit-scoring firm FICO estimates that someone with a 680 score would see that number sink between 85-100 points after a strategic default, and someone with 780 could crater 140-160 points.

Not desirable, of course, but not the end of the world either. For Perkins, for instance, she already had a loan on her Ford Escape, and the mortgage on her new house, before she even started the default process. She hasn't seen any changes on her credit cards since, in terms of limits or interest rates.

Now that the previous home was auctioned off in December, she can start slowly rebuilding her credit, a process that should take about seven years.

Strategic default isn't a decision to be taken lightly, of course. If everyone did it, the housing market -- and the banks -- would be in much worse shape than they already are.

The following are some of the issues to keep in mind:

1. Look to it as a last resort, not a first option. Your financial troubles could be alleviated with a simple refinancing, especially since 30-year mortgage rates are near record lows of below 4 percent. If the banks are hesitant to rework your loan, look into the number of government programs designed to keep you in your home, which can be researched at MakingHomeAffordable.gov.

2. Location, location, location. Each state has its own rules and regulations regarding foreclosures, which affect both the length of the process and what you could be liable for in the end. In so-called 'non-recourse' states like Arizona, California and Texas, a lender cannot come after you for any deficiency (for instance, if your mortgage was $300,000 and they're only able to sell the property for $200,000). In other states they can pursue the difference, in theory - which is why some homeowners opt to file for bankruptcy, to free themselves from those potential obligations as well.

3. Use the interim to save like a demon. If you're in a state like New York or Florida, which require a judicial review of every foreclosure, it might be a couple of years before you actually have to pack up. In the meantime, be extremely disciplined about stockpiling cash. That will help you with a down payment for a rental, to pay for a car in cash if you need to, or to clear up other debts you might have. "Save money as if you were still paying the mortgage," says Archer. "If you don't, then you'll run out of both time and money, and then you'll be in a real tough spot."

4. Know the tax implications. Historically, if you have a debt that's forgiven, the canceled amount is considered taxable by the IRS. In the wake of the housing bust, though, the Mortgage Forgiveness Debt Relief Act was drafted to spare you those taxes. That legislation expires at the end of 2012, though - so if it's not extended, you could potentially face a tax bill for the difference.

5. Talk to a professional. A bankruptcy or real-estate attorney can help you through a very tricky process. The National Association of Consumer Bankruptcy Attorneys, for instance, has a searchable database of lawyers at www.nacba.org.

"Strategic default is not an easy decision, and there's a cost either way," said Gerri Detweiler, director of consumer education for Credit.com. "Would you rather be $200,000 underwater, or would you rather have seven years of damage to your credit report? It depends whether you're finally at the point where enough is enough."

Builder confidence in the market for newly built, single-family homes edged up two points from a downwardly revised number to 21 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for December. This marks a third consecutive month in which builder confidence has improved, and brings the index to its highest point since May of 2010.

“While builder confidence remains low, the consistent gains registered over the past several months are an indication that pockets of recovery are slowly starting to emerge in scattered housing markets,” said Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a home builder from Reno, Nev. “However, the difficulties that both builders and buyers continue to experience in accessing credit for new homes are holding back potential sales even in areas where economic conditions are improving.”

“This is the first time that builder confidence has improved for three consecutive months since mid-2009, which signifies a legitimate though slowly emerging upward trend,” said NAHB Chief Economist David Crowe. “While large inventories of foreclosed properties continue to plague the most distressed markets and consumer worries about job security and the challenges of selling an existing home remain significant factors, builders are reporting more inquiries and more interest among potential buyers than they have seen in previous months.”

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

Each of the HMI’s three component indexes registered a third consecutive month of improvement in December. The component gauging current sales conditions rose two points in the latest month to 22, while the component gauging sales expectations in the next six months edged up one point to 26. The component gauging traffic of prospective buyers gained three points to 18, which is its highest level since May of 2008.

Builder confidence primarily gained strength in the South in December, where a four-point gain to 25 brought that region’s HMI score to its highest level since March of 2008. A one-point gain to 16 was registered in the West, while the Midwest held unchanged at 24 and the Northeast slipped one point to 15.

For more information, visit www.nahb.org

If your home will be for sale this winter, it is important to master certain seasonal issues that are less significant or even non-existent at other times of the year. Here are 10 bits of sage advice that can help put a “Sold” sticker on that yard sign.

Let Those Lights Shine: The best way to combat winter’s short and frequently cloudy days is to turn on your house lights. For a showing, every single light in the house must be on, even in the closets and utility/mechanical rooms.

“Make sure all the bulbs are working, and stock up on all the right bulbs for lamps and fixtures so burned out bulbs can be replaced immediately.”  “Also, it’s a great idea to keep the lights on in the front of the house even if no showings are scheduled. People are always driving past the house, and keeping it lighted makes it look happy and welcoming.”

We also advise opening the drapes and blinds during the day to let in light and let visitors enjoy the view.

Provide Convenient Parking: It’s vital that buyers have a convenient place to park. They won’t want to walk very far in cold weather or be forced to climb over a snow bank to exit their vehicle. Because parking is often more restricted around condominiums, sellers should make sure their agent can pass along parking details to buyers.

Make It Easy to Enter: Winter showings can get off to an awkward start if prospective buyers arrive with snow or salt on their shoes.

Make it easy for buyers to deal with their shoes when they arrive.  “Put a festive area rug at the front door for a great first impression and so visitors can wipe their feet. Have slippers or disposable booties available, along with a bench or chair, if there is room for one, where a visitor can sit and easily remove or put on their boots.”

Keep Odors Under Control: Any home tends to be stuffy in winter when windows are opened rarely. That can allow odors to build up, which can be a turn-off to buyers.

“Pet odors can be especially worrisome in winter,” says many of our buyer clients. “Use a room fragrance if needed, but nothing too strong, and I recommend that in winter sellers clean more often.” For example, change the cat litter daily, rather than every third or fourth day, or even consider using an air purifier.

If pets are in the house, consider setting the thermostat control so that the furnace fan runs constantly during the day to keep air moving through the house and dissipate odors. Also try to avoid strong cooking odors, especially if a showing is scheduled that day.

Cultivate a Festive Look: Appropriate decorations for Christmas and even St. Valentine’s Day help give a home a cheerful look during the winter months.

“I really believe that holiday decorations can help homes sell, but don’t go to excess,” suggests Linda Head, staging coordinator for George's Team. “Keeping small, decorative white lights on trees and bushes pretty much through the winter season is fine, but other decorations should be taken down quickly once the holiday passes.”

Don’t Ignore the Outdoors: Make a good first impression on buyers with a neatly maintained yard. Walks and steps should be kept clear, especially of snow and ice.

Look after Condo Common Areas: If the home you are selling is a condominium, your job as a seller may be relatively easy in winter, with no snow to shovel or yard work to worry about. However, that is only the case if your condominium association does its job well.

If the association isn’t doing it, the homeowner may have to take responsibility for keeping the entrance area and hallways clean. If the association isn’t getting snow shoveled promptly, consider buying some de-icing salt and sprinkling it judiciously around the building entry.

Don’t Roast Buyers: We all tend to prefer a specific temperature for our homes during the winter, but don’t blast buyers with hot air. Keep the temperature at a comfortable 65 degrees for all showings. Remember, buyers are likely to be wearing their coats even as they walk through the house.

Keep Seasonal Clothing under Control: “One major challenge of selling a home during the winter months is the overabundance of cold weather gear that must be stored,” says George. “A buyer doesn’t want to find the mudroom filled with boots or the hall closet overflowing with heavy coats. Shift some winter coats to another closet and put anything not needed in the closet into storage.”

To keep gloves and scarves from piling up in the front hall or mudroom, put a special container for them, such as a decorative chest, where the family typically enters the home.

Encourage Day Time Showings: A home shows to its best advantage during daylight hours, which are relatively scarce in winter.

“Encourage your agent to show your home before 3 p.m. and have it ready to show by 9 a.m. if you want the best results,” George recommends.

Despite the special challenges of marketing a home during winter, there also are benefits, notes Brian Graves, President of Bentley Properties.

“Buyers out looking at homes in December or January are, as a group, quite serious about buying. Therefore, sellers tend to benefit because each showing is more productive, and fewer showings are needed to sell the property,” he says.

  The national delinquency rate for residential home loans fell to 7.99 percent in the third quarter—the lowest reading since the fourth quarter of 2008. This represents a decline of 45 basis points from the second quarter of this year, and a drop of 114 basis points from the third quarter of last year.

The Mortgage Bankers Association reported recently that the 30-day delinquency rate reached its lowest level since the second quarter of 2007 at 3.19 percent.

Cumulative default rates among U.S. residential mortgage loans continued to level off in third-quarter 2011, furthering improvements that began at the start of the year. Loans that were originated during the height of the housing boom in 2006 and 2007 still have the highest default rates, but performance within these two vintages has improved in recent months.

“We believe moderating first default and redefault rates are propelling this reduction, and this reduction is likely the primary factor causing cumulative defaults to flatten. Performance among loans originated in 2007 has improved more than that of loans from 2006 recently, both in terms of cumulative and active defaults,” said Diane Westerback, managing director for structured finance at Standard & Poor’s. However, it’s still too soon to accurately assess whether these trends will continue, she said.

According to Michael Fratantoni, MBA’s VP of research and economics, though delinquencies are down, foreclosure starts are now rising quarter over quarter.

“While the delinquency picture changed for the better in the third quarter, the foreclosure data indicated that we are not out of the woods yet and that the issues continue to vary by geography. A closer look shows that there are different trends driving these results. The increase in the foreclosure starts rate this quarter was driven by large increases from just a few servicers, concentrated in certain ‘hardest hit’ states. For most servicers, the foreclosure starts rate was little changed over the quarter. In these ‘hardest hit’ states, the few large changes reflects the progression of delinquent loans through the foreclosure process. Outside of these states, improvement has continued, although at a slow pace due to the still-weak job market,” said Fratantoni.

The nation’s foreclosure inventory rate, which includes all loans in foreclosure, was 4.43 percent at the end of the third quarter.

That’s the same reading reported for the second quarter, and represents a 4 basis point increase from a year earlier.

“While the delinquency picture changed for the better in the third quarter, the foreclosure data indicated that we are not out of the woods yet,” said Fratantoni.

Existing-home sales were down in September on the heels of a strong gain in August, but remain well above a year ago, according to the National Association of REALTORS®.

Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 3.0 percent to a seasonally adjusted annual rate of 4.91 million in September from an upwardly revised 5.06 million in August, but are 11.3 percent above the 4.41 million unit pace in September 2010.

Lawrence Yun, NAR chief economist, says the market has been stable although at low levels, and there is plenty of room for improvement.

“Existing-home sales have bounced around this year, staying relatively close to the current level in most months,” he says. “The irony is affordability conditions have improved to historic highs and more creditworthy borrowers are trying to purchase homes, but the share of contract failures is double the level of September 2010. Even so, the volume of successful buyers is higher than a year ago and is remaining fairly stable—this speaks to an unfulfilled demand.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.11 percent in September, down from 4.27 percent in August; the rate was 4.35 percent in September 2010.

Contract failures were reported by 18 percent of NAR members in September, unchanged from August; they were 9 percent in September 2010. Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses.

NAR President Ron Phipps says access to credit is unbalanced. “All year we’ve been discussing the fact that many creditworthy home buyers are being denied mortgages,” he says. “On top of that, loan limits have been lowered, which means buyers of higher priced homes, including many in more expensive housing markets, now have to pay a higher interest rate for a jumbo mortgage than buyers who can qualify for a conventional loan. We need to remove the roadblocks to a housing recovery—not place more obstacles in the way of financially qualified buyers.”

All-cash sales accounted for 30 percent of purchase activity in September, up from 29 percent in August and 29 percent also in September 2010; investors make up the bulk of cash purchases.

Investors purchased 19 percent of homes in September, down from 22 percent in August; they were 18 percent in September 2010. First-time buyers accounted for 32 percent of transactions in September, unchanged from August; they were also 32 percent in September 2010.

The national median existing-home price for all housing types was $165,400 in September, down 3.5 percent from September 2010. Distressed homes—foreclosures and short sales typically sold at deep discounts—accounted for 30 percent of sales in September (18 percent were foreclosures and 12 percent were short sales), down from 31 percent in August and 35 percent in September 2010.

Total housing inventory at the end of September declined 2.0 percent to 3.48 million existing homes available for sale, which represents an 8.5-month supply at the current sales pace, compared with an 8.4-month supply in August.

Single-family home sales fell 3.6 percent to a seasonally adjusted annual rate of 4.33 million in September from 4.49 million in August, but are 12.2 percent above the 3.86 million-unit level in September 2010. The median existing single-family home price was $165,600 in September, down 3.9 percent from a year ago.

Existing condominium and co-op sales rose 1.8 percent a seasonally adjusted annual rate of 580,000 in September from 570,000 in August, and are 5.6 percent above the 549,000-unit pace one year ago. The median existing condo price was $163,800 in September, which is 1.0 percent below September 2010.

Regionally, existing-home sales in the Northeast rose 2.6 percent to an annual level of 790,000 in September and are 6.8 percent above a year ago.

The median price in the Northeast was $229,400, down 3.3 percent from September 2010.

Existing-home sales in the Midwest slipped 0.9 percent in September to a pace of 1.09 million but are 17.2 percent higher than September 2010. The median price in the Midwest was $137,400, which is 1.4 percent below a year ago.

In the South, existing-home sales declined 2.6 percent to an annual level of 1.89 million in September but are 10.5 percent above a year ago. The median price in the South was $144,400, down 3.0 percent from September 2010.

Existing-home sales in the West fell 8.8 percent to an annual pace of 1.14 million in September but are 10.7 percent higher than September 2010. The median price in the West was $207,400, which is 4.5 percent below a year ago.

“The falloff in Western sales from a surge in August was expected because many lenders had lowered mortgage loan limits over concerns that sales wouldn’t close before the higher loan limits expired at the end of the September,” Yun says. “Given the concentration of higher cost housing in the West, particularly in California, many buyers were motivated to close in the months leading up to the changeover while they could still get low interest rates on conventional mortgages. Unless Congress reinstates the higher limits, the overall housing market recovery will be slower than it otherwise could be, and will hold back the broader economic recovery.”

Information and comment by RISMedia

Fannie and Freddie to Increase Fees…
But What Does It Mean?
Starting in 2012, Fannie Mae and Freddie Mac are expected to increase their fees, which could impact homebuyers depending on the risk of their loan or the location of their home.
Here’s what you need to know – including what’s really happening and what it means to homebuyers.
What fee is being increased?
First, it’s important to remember that Fannie Mae and Freddie Mac do not actually make home loans. Instead, they provide financing to lenders by purchasing mortgages from those lenders. Then, Fannie and Freddie either keep those mortgages on their books or they package them (in the form of securities) for sale to investors.
That means, Fannie and Freddie don’t actually charge direct fees to homebuyers. But they do charge fees to lenders when they purchase home loans from those lenders. The lenders, in turn, build those fees into the home loans they offer. So the bottom line is that any increase in the fee that Fannie and Freddie charge lenders will essentially be passed on to consumers.
However, the fees likely won’t be increased the same amount across the board. For example, Fannie and Freddie may charge higher fees when purchasing riskier loans or they may vary the fees based on which part of the country the home is located in (taking into account things like the foreclosure rate of the location).
Why is this happening?
Fannie and Freddie were seized by the government three years ago to help protect them from failing. That’s important because Fannie and Freddie (along with other government agencies) actually guarantee about 9 out of every 10 new home loans—and with the challenges that the housing market has seen recently, those guarantees have been extremely important. However, Fannie and Freddie have also cost the taxpayers more than $140 Billion.
So Fannie and Freddie will gradually increase their guarantee fees next year and reduce the size of the home loans they purchase in an effort to:
1. Save taxpayers money and
2. Reduce the amount of government involvement (by attracting more private funding to the mortgage market)
What does this mean to homebuyers?
As stated above, the fees likely won’t be increased exactly the same across the board—so the impact will vary depending on the location of the home, risk of the loan, etc.
But we can look at one example to get an idea of the potential impact. For example, as the Wall Street Journal reported, if we calculate an increase of 0.1 percentage point (which is a number the White House proposed), we can see that a home loan for $220,000 would be increased by about $15 per month.
So the increase may not be very noticeable for many homebuyers. And, if people purchase a home while affordability is still high and home loan rates are still historically low, they’ll still benefit significantly compared to other times throughout history.
What should people do?
The fees are expected to begin increasing in 2012 and gradually rising thereafter. If someone you know is thinking about purchasing or refinancing, there’s still time to examine the options and make a move before the fee increase becomes much of an issue.

With Fall comes short days, wet weather, and cooler temperatures, so when we are looking at homes please keep in mind how much daylight we will have so you can make the best  when previewing homes.

 Processing delays have taken their toll on first-time home buyer interest in short sales, which now account for more than one of every six house sales, according to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.

First-time home buyer purchases of short sales dropped to 39.7 percent of short sale transactions in August. That represented a three-month slide and was the lowest level for first-time home buyers ever recorded by the HousingPulse survey.

The first-time home buyer share of short sales hit a peak of 54.1 percent of all short sale transactions in November 2009, just before the originally-scheduled expiration of the federal homebuyer tax credit.

Short sale transactions have long been problematic for buyers and sellers alike, with typical approval times of several months after a homebuyer first submits an offer. Factors slowing down short sale approvals include lost paperwork, coordination with multiple investors, slow appraisals, and mortgage servicer understaffing.

Still, for many first-time home buyers, average short sale prices of 27 percent lower than non-distressed properties compensated for the wait time. But with average time-on-market for short sales stalled at 16.6 weeks—with the majority of that time spent waiting for short sale approval—short sale transactions are becoming less popular with first-time home buyers.

Short sales are just one type of distressed property, with damaged REO and move-in ready REO also being significant components of today’s housing market. In August 2011, short sales accounted for 17.1 percent of the home purchase market, with damaged REO and move-in ready REO accounting for 13.2 percent and 15.6 percent, respectively.

The total proportion of distressed property, as represented by the HousingPulse Distressed Property Index (DPI), fell to 45.9 percent in August from 46.2 percent in June.

Real estate agents responding to the August survey indicated that home buyers frustrated with short sale delays are resorting to placing offers on multiple properties, with the intention on closing on only one. This practice can bog down the short sale approval process at mortgage servicers.

RISMedia, June 16,2011— Fannie Mae (FNMA/OTC) announced the expansion of incentives to encourage sales of HomePath REO properties to owner occupants. Now through October 31, qualified buyers and selling agents can receive financial incentives on sales of HomePath properties, which can be found at www.homepath.com. The incentives are part of Fannie Mae’s commitment to neighborhood stabilization, and are available on sales to buyers who will reside in the home as their primary residence.

“Supporting homeownership and stabilizing neighborhoods are critical to helping the housing market recover,” saya Ed Neill, Senior Vice President for Credit Loss Management at Fannie Mae. “Our previous incentives have been effective in securing owner occupants for these properties. By encouraging homebuyers who will make these properties their long-term home, these expanded incentives will help to stabilize communities.”

The expanded incentives offer qualified homebuyers up to 3.5 percent of the final sales price to put towards closing costs. In addition, selling agents representing the owner occupant buyer can now receive a $1,200 bonus. The incentive must be requested in the initial offer. Eligible initial offers must be submitted after June 14, 2011 and must close by October 31, 2011. Investor sales are not eligible for the incentive.

HomePath properties offer buyers a wide selection of options, including single-family homes, condominiums, and town houses. HomePath properties may also be eligible for HomePath Mortgage and HomePath Renovation Mortgage financing, which offers homebuyers an opportunity to purchase with as little as 3 percent down.