More News on Foreclosures

After blogging on the newly announced "Project Lifeline" and talking about "Hope Now", more data is being released. This data is very disturbing, but touches on the fears I mentioned in our earlier blog. This is that even though people are taking advantage of these programs and modifying their mortgages, they are still losing their homes. I am not going to bore you with stats, but it was reported that a very high % of homeowners that took advantage of these programs still cannot afford to stay in their homes. If they catch up now, it is a blown transmission away from falling behind again. This is because there are so many people "married" to their home. Selling isn't an option, what do they do? Foreclosure is the next option. Even though these lenders are participating in these programs, the options available are temporary fixes. Rolling you past due balance into the loan, freezing an interest rate, and giving you more time to catch up are options that are on the table. If this doesn't make sense, just look at the following examples.Conforming ExampleA family purchased a $400,000 home and took out a 100% mortgage. They took out an ARM at 4.5%. Their payment was $2026 (principal & interest). When their ARM is up their payment could jump to $2271. This still isn't too bad. Then next year it goes to $2528. Now it is getting out of hand. This is $500 more a month than the initial month! The reason so many are getting into trouble is because the initial payment was a bit tight for them. This new increase is too much to handle.Non Conforming ExampleThe same family buying a $400,000 home on the non-conforming side is way different. This is where the majority of the problems stem from. An ARM rate would look more like 6% for a good non conforming borrower. This payment would be $2398. Once the ARM is up this payment jumps to $3218! That is an $820 jump in the first adjustment year alone! From these 2 examples you can see the problem. In reality the only way to help people is to drastically drop rates, extend terms, or reduce balances. All of these are unlikely scenarios. In actuality it may not be a bad idea. They stand to lose alot of money on a foreclosure, not to mention the hassle of dealing with numerous homes. If they reduced balances and modified loans in this fashion, many people could benefit. While this sounds like an easy solution, it is much more complicated. There are investors involved and there is the likelihood they reduce the balance, cut the rate, and still run the risk of not being paid! Then they lose twice! Nevertheless some serious changes need to be made and made fast if they want to help fix this growing epidemic!Brought to you by:Professional Mortgage Group, Inc."Your Columbia, MO Mortgage Broker"