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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This Thursday the Obama Loan Modification Plan, HAMP, will be a year old. It was on the 4^th of March, 2009 that the Obama administration started the largest and most ambitious homeowner’s aid package since the 1930s. The goal was to stop the wave of foreclosures that was destroying the housing market. The Government’s reply was huge. The aim was to help four million homeowners avoid foreclosure and they were willing to spend $75 billion to do so. How are things looking as we approach HAMP’s first birthday. By December 2009 there were nearly 760,000 loans in the trial stage of the program. This three month trial stage is designed to test if the homeowner will pay his modified loan for three months before the modification is final. However, only 31,000 homeowners had actually received a permanent loan modification by the end of 2009. Of these many had seen only the slightest of changes to their monthly payments. The Obama administration realized they needed to do more, and quickly. This triggered a list of amendments and countermeasures designed to speed up the process and open the doors to more homeowners. Soon it became obvious that the issue was not the interest rates of bad loans that were hurting homeowners but the increasing rates of unemployment that was reducing the income of homeowners that could not afford to pay for their mortgage. In fact, the fastest growing demographic in the foreclosure market consisted of homeowners with prime loans that had lost their jobs. From the beginning of the program, the Treasury Department made it very clear that the program would not cater for families that no longer had an income because of losing their job. The aid was focused on families whose income had shrunk but could still afford the payments of a modified loan. Another issue was the complexity of the loan modification process. Homeowners complained that mortgage servicers were not consistent, lost important documents regularly and did not provide accurate information. Mortgage servicers on the other hand explained that homeowners often did not provide the right documentation and were less than honest when filling forms. Treasury reacted by simplifying the system and providing greater concessions to lenders and mortgage servicers. Industry leaders often made the valid point that the HAMP plan incentives did not cover the costs and it was better for them to continue charging fees from delinquent homeowners and foreclosure proceedings than approve loan modifications. The reaction was to increase the incentives and the arm twisting of lenders that would not comply with the program’s expectations. The incentives did become rather generous for both servicers and borrowers. Every loan a servicer modified came with a $1,000 upfront payment, with an extra thousand dollars every year the homeowners was current on payments. This means the Treasury will pay $1,000 every year the borrower is not delinquent, to reduce the loan balance. However the biggest subsidy was offered to reduce the actual monthly payments of mortgages. If the lender could reduce the monthly payments to 38% of the borrower’s income the government would pay for the cost of reducing the payments to 31% of the family’s income. The problem is that these measures have not been sufficient to stem the increase in foreclosures and new guidelines are being worked on to look for a solution. Unfortunately the prospects do not look good for the second year of the Obama Loan Modification Plan.

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