This is actually getting alot of attention from congress and throughout the military services. I hear alot about it here in Washington DC. We wiill see the outcome it produces. Maj Pain

The orders came while Navy Lt. Adam Diaz was winding down a one-year stint in Baghdad: Report to the Navy Annex in Arlington for a new assignment in April. — Given the military lifestyle, the prospect of a move came as no surprise to Diaz, 31, who has spent his adult life in the Navy.

The shock came when he spoke with his wife, Stephanie Diaz, about the value of the Jacksonville, Fla., home they bought in June 2006, near the height of the housing bubble. — "Hey, by the way," she recalls telling him. "The house has been valued for about 50 grand less than when we bought it."

The housing crisis is hitting military families particularly hard, according to real estate agents and service member advocacy groups. Many who bought during the boom and must now relocate because of fresh orders are faced with selling their homes at a big loss. They are finding few buyers, or even renters, particularly in the hardest-hit markets. That is leaving some families facing options including renting at a loss, separation from their loved ones or, in some cases, foreclosure.

The issue has caught the attention of Congress, which included language in the economic stimulus package to compensate service members who sell their home at a loss or have been foreclosed upon because they were forced to move after a base closure, reassignment or a combat wound required them to be relocated near a health facility. The program also covers surviving spouses of those killed in combat.

Under the new provision, the government will cover 95 percent of a loss if a service member is forced to sell. The government can also choose to acquire the title of a home by paying off the balance of a service member's mortgage or paying the owner up to 90 percent of the home's previous value. No dollar ceiling has been set.

The $555 million undertaking expands the Defense Department's Homeowners Assistance Program, which helps military and federal personnel whose homes have lost value because of a base closure. The new measure would likely help the Diazes, and would expand the homeowner assistance program to as many as 17,000 claims, according to the office of Sen. Tim Johnson (D-S.D.), who sponsored the measure.

The program does not cover all military members facing a loss because of a home sale.

In an attempt to limit the number of claims, the program applies only to a service member's primary residence, and only to homes purchased before July 1, 2006, roughly the time the market began its free-fall. The Army Corps of Engineers said it has not determined what proportion of families will be eligible.

The prospect of foreclosure is particularly daunting for career service members, as credit checks are required to gain security clearances. The increased financial stress comes at a time when many active service members have been deployed to Afghanistan and Iraq, military advocates said.

"We have an all-volunteer force, and we are asking them to deploy overseas to fight the global war on terror," said Michael Hayden, deputy director of government relations for the Military Officers Association of America, one of the largest military advocacy groups in the country. "And yet we are also in the midst of all this crisis, and the one thing we shouldn't have to burden our service members with is trying to manage their mortgages."

That argument resonated with legislators who sought to help people such as the Diazes, who thought that buying their four-bedroom, two-bathroom house in a new Jacksonville subdivision for $252,000 made sense. With the real estate market booming, Diaz figured they would at least be able to break even when they moved.

Today the home is worth about $50,000 less, according to information the couple found on home valuation Web site Zillow.com. A nearly identical house across the street sold for about $185,000, the couple said. They still owe about $217,000 on their mortgage, so selling now would mean taking a loss. Renting would probably leave them $400 to $500 short of covering their monthly mortgage payments.

During the years of easy credit, use of the Department of Veterans Affairs' guaranteed home loan program fell considerably. Mike Frueh, an assistant director of the program, said higher-risk products such as adjustable-rate mortgages and no-down-payment loans became popular with military members.

Thus the origination of government-backed mortgages for veterans and active-duty members plummeted 73 percent from fiscal year 2003 to 2007, before ticking up again in 2008. During those housing boom years, the VA program offered fixed rates for 30 years and did not change its underwriting practices, which required financial evaluations and credit checks, Frueh said.

Last fall, new legislation allowed service members who were struggling with subprime loans or other types of mortgages to refinance into a VA loan.

R. Joe Gladden, a retired Navy captain and Gainesville real estate agent who caters to military clients, said subprime or other high-risk loans were not necessarily the problem for military members. Gladden and Susan Wallace, a Chantilly mortgage broker who works with him, said generally military families make good clients because they maintain excellent credit and are decisive when it comes time to buy.

Wallace said that many of her military clients asked for adjustable-rate mortgages and no-down-payment loans because their investment was often intended to be temporary. "If you were a military person and moved to the D.C. area, but you are moving again in three to five years, it made sense," Wallace said.

Both now are inundated with calls and e-mails with tales of woe from families who are stuck in homes that have fallen in value. On his business Web site, Gladden has sponsored a forum for people to post such stories.

One who did was 30-year-old Christina Messer of Arlington. Her husband is stationed at Fort Myer as an honor guard. The couple bought a $438,000 condominium in a new low-rise complex in Arlington in the summer of 2007. They used a no-money-down loan, with interest-only payments for the first five years. They anticipated moving in a few years, and thus saw no point in paying down the balance, said Messer, who spoke on the condition that she be identified by her maiden name so as not to affect her husband's career.

The problem now is that they cannot sell the home for the value of the mortgage, nor can they find a renter. Messer's husband has orders to relocate to Texas in April. She fears they will face foreclosure or bankruptcy.

"We are talking to a few real estate agents about a possible short sale, but that is just like filing for a foreclosure," she said, referring to a sale when a property is sold for less than the balance on the mortgage. "It stays on your credit record for the same amount of time and affects your credit very harshly — he could lose his rank."

Because they bought their home in 2007, the couple would not be helped by the provisions in the stimulus measure.

The Diazes, meanwhile, watched the stimulus debate with deep interest and are hopeful the new program will help them. They spent Presidents' Day weekend in Northern Virginia, looking at homes in Lorton and Woodbridge, as well as some Alexandria apartments.

"We are going to be looking at everything, just about everything, just because we are not sure," Stephanie Diaz said. She said that once they are certain they are covered by the new plan, they will immediately put their house up for sale.

By Alejandro Lazo
Washington Post Staff Writer
Wednesday, February 25, 2009; D01

Comments

  1. Interest Only, No Money Down… Suckers bet every time!!! I’m sure there are some circumstances where a homeowner is truly affected!! But COME ON!!! Perhaps if some of these (and I’m making an assumption that these are officers or senior NCO’s) “leaders” would buy what they can afford they wouldn’t be hurting so bad!!! GEESH, get a real mortgage and put some equity in the home!! Otherwise RENT or LEASE!!

  2. My sister and another friend made out on the interest only, no money down when they bought in 2004 and then sold in 2006 – – right at the top of the market. My sister made 100k on her one bedroom condo in Alexandria. I bought in 2005, my real estate agent and mortgage broker, both Christians, flat out told me that would not be a wise way to go. They were good about focusing me on a house I could afford. I did a lot of crying because it wasn’t as much house as my peers bought 2 – 3 years earlier. But I can afford it. I bought because I really needed the tax deduction.
    I’m 90k under right now which makes me want to throw-up. I think we are all victims of greedy bankers, mortgage brokers and real estate agents who took advantage of the system that was in place. I think all those no money down, no interest loans helped inflate the prices. Had those vehicles not been available, housing inflation would have been normal and we may not be in this mess.
    I know several people whose husbands are doing the geo-bachelor gig for the next assignment.
    That Fort Myer couple. Someone really did them a dis-service.

  3. We did 20% down. We did a fixed rate loan. We bought a modest house we could afford. My husband is an officer (in response to Major Pain – not sure what difference that makes.) Even with 20% down, we are still $40K upside down. That means we’ve already put $50K down and we’d have to put out another $40K to sell. AND we bought in Sept 2007 so we are NOT HELPED by this HAP extension!

  4. This is all a familiar story! Where is the HAAP?? Spoke with them yesterday and they stated “ACT like we don’t exsist”! We are caught at ground zero. We own a home in Las VEGAS which has lost over 55% of it’s value. We have been declined for a short sale (which has been under review since March 19th)because the investor put PMI on our loan “Without our knowledge” and we do not meet the PMI companies guidelines which they will not tell. Those guidelines are protected in the TRADEMARK! We have offered a cash settlement and to sign a note only to be told “Being military you should have known better then to buy a houe”, “This needs to hurt you financially”, “Maybe the PMI representative is x military and has a grudge about what your are trying to do” Bank of America is strong arming it’s military because they know we have a so much at on the line. I guess that is what er get for loving our country and being upstanding citizens! I have contacted every congressmen, senator, lawyers anyone who will listen and they ALL just shrug their shoulders and turn away. Our men and women are good enough to defend this country but in the time of need our personal decisions our looked upon with Judgement by some paper pusher who’s “Guidelines” are very clear. So what are we to do? The PMI company wants $20K cash and for us to sign a note for 72K. Let me just say we put 55K down on this house to avoid the PMI and it is ironic that the investor put PMI on our loan without our knowledge and has admitted that this was a mistake yet that is what is causing our FORECLOSURE!

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