Economic Crisis Archives – Refinance – Mortgage Refinancing Rates And Information

The Good Side of Loan Modification’s Failure, A Buoyant Foreclosure Market

March 9th, 2010 No comments

Despite the Government’s best efforts and greatest intentions the wave of foreclosures continues to increase. The borrowers that are now defaulting on their mortgages and not qualifying for loan modifications are no longer people with subprime loans and bad credit rating. The fastest growing demographic in foreclosures are prime borrowers with prime loans that have lost their jobs and cannot afford any kind of deal on their mortgage.

This is a tragedy for the millions of families that face losing their homes. However there is a flip side to the crisis in the housing market. The flip side is that the foreclosure market is doing great. More and more buyers with cash in their pockets are looking for bargains among the millions of homes that are going through a foreclosure.

Many have the idea that the only homes that are on the foreclosure market are located in crime-ridden areas and are run down shacks. This is simply not true, during economic crisis like the one we are now going through all kinds of homes can be found, from beachfront luxury homes to shacks in the ghetto.

There is another myth a serious buyer must forget about as soon as possible. You are not going to find a great property selling at pennies on the dollar. Sometimes you can find amazing deals but this is probably because there are other circumstances that reduce the value of the home besides being on the foreclosure market.

However, you can get some great deals and discounts. A typical discount is probably around 5% less than the market value, although you can sometimes pay up to 30% or 40% less.

If you are savvy enough, this could only be the beginning of your savings. If you buy the property from the lender you could ask/demand for some of the buying costs to be waivered. If you ask nicely you might even get a discount on the interest rate or a break on the down payment.

Buying a home, whether on the foreclosure market or not, is a huge investment for most of us. It is therefore worth us spending some time doing our research and due diligence before we spend tens or even hundreds of thousands of dollars.

The foreclosure ball begins to roll when a borrowers falls behind on mortgage payments. A homeowner that loves his home will try his best to keep his home, making some payments, looking for a loan modification, or any other measure he can. However, if the home still forecloses the chances are that maintenance has not been carried out for some time on the home. Include the costs of bring maintenance up-to-date in your investment research.

What this might include will depend on the property. Some just need some gentle manicuring, while others have underlying structural damage that is prohibitively expensive to fix. It is true that homes in need of some tender lover and care will come at a discount, but it is important to make sure you can afford the cost of providing it.

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Loan Modifications, Hope, Lies and Misinformation

September 17th, 2009 No comments

Many believe that the only way to get out of an economic crisis is to buy yourself out of it. To spend enough to jumpstart the economy again. Loan Modifications are one of the tools the Government are using to get homeowners out of the whole they dug for themselves before they bury the whole economy with them.
Such is the determination and commitment the government has to this project they have earmarked 75 billion dollars to stimulate loan modifications on qualifying mortgages. That is the Hope anyway. The Hope is that changing the mortgages, reducing monthly payments, extending tenures, providing bonuses to borrowers as well as lenders and dropping interest rates will buy America’s homeowners out of the credit crisis.
Sadly it could seem that Hope, empty hope is all there is to this program. One of the foundations of the program is the assumption that banks will make an effort to create loan modifications for homeowners that are at risk of losing their homes. This is done by providing incentives to banks and homeowners to agree to sustainable loan modification. However the problem is that banks only have to “put forth an effort” and provide basic statistics in order to receive the stimulus. They are obliged to provide statistics on how many homeowners they’ve contacted but in no way forced to approve any loan modifications or even stop foreclosures while a loan modification is arranged.
Even if a loan modification is approved there is no assurance that it will be beneficial or even worthwhile for the homeowners. The cost of getting the loan modification can be so expensive and the monthly payment reduction so low it is not worthwhile to go through. One borrower is reported to have spent nearly $10,000 for a loan modification that only reduced the monthly payment by $25. To add insult to injury this outrageous waste of money will probably end up being a statistic that is used to show how generous and helpful banks are being.
After all is said and done the loan modification program is progressing very slowly. The number of loan modifications is around 200,000 while 9 million home loans are at risk to foreclose by next year.
Because there is no requirement for banks to make a real effort on loan modifications that are not profitable for them, the question remains if it is reasonable for us to expect banks to invest in providing loan modifications that are going to cost them money, money they are not likely to see turn any profit.
A more creative approach is needed to find a real solution to the credit crisis. Loan modifications on their own do not seem to the answer. The Hope Mortgage Program is actually only geared for homeowners that can still deal with a mortgage at a reduced rate. Those worst off cannot expect any help from the government.

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