In late 2006 the economy was showing indicators that pointed to a looming mortgage crisis that would ultimately disrupt the flow of business in the secondary market.?Investors, who are essential to the flow of money, basically ignored the warning signs but began trading more cautiously. What they ignored was the ?perfect storm? as it relates to our secondary mortgage market. The housing bubble burst, sub-prime loans began adjusting, investors stopped trading, and mortgage companies were left holding mortgages that were not worth what they paid for them.
A by-product of the housing boom was an addiction to credit largely funded by the rising equity in our homes.?A large portion of our economy was deeply invested in this boom. The chain of industries that profited from and helped propagate the boom is endless: builders, real estate brokers, investors, appraisers, surveyors, paint stores, home supply chains, lumber companies, marketing companies, architects and of course mortgage companies.?In a financial game of musical chairs it was the mortgage companies who were the ones left standing.
The mortgage companies, fueled by their own greed and an economy that demands the continuous flow of goods and services, invented new ways to ?move money? to a larger segment of the public. As competition between banks escalated, new lending products were invented to capture a larger share of this market until they were basically handing out loans to anyone that could fog a mirror. Banks, who had an endless supply of money via their investors on Wall Street, sold the loans for a profit only to reload to do it again. The problem was that these loans were ticking time-bombs with short fuses, each dependant on rising house values.
As we all know that ship has sailed, leaving our economy in shambles in its wake.?The problem that we are faced with is not ?who's to blame?, but rather, who can fix it. The most obvious answer is our legislative group and the banking industry. Unfortunately, those who would be involved with the recovery have either a political agenda or are just trying to stay afloat but it is the public that's suffering. The writers at Lendfast.com, a nationwide home loan services company, have come up with what they feel are the three main reasons we can't solve the current mortgage crisis:
1) Politics ? In an election year, neither side is willing concede a point of view that could possibly allow the other side to claim victory in solving the crisis.?The ?haggling? approach to passing legislation allows each side to claim victory on the local news; however the ?local news? in an election year is now the national news. If a bill is passed, it is likely to be an ineffective and will have to be revisited in the future by the judicial branch.
2) Lobbyists ? Legislators are supposed to be representing their constituents, meanwhile the lobbyists are representing the banking industry. Throw millions of dollars into the equation and a hand-full of representatives that spell mortgage c-o-u-n-t-r-y-w-i-d-e'and the chances of getting real help for the ?average Joe? is either impossible or a long time away.
3) ?Baby with the Bath-water? ? It is almost certain that a bill will pass this year, and as mentioned earlier it will probably be ineffective or an over-regulated nightmare.?It is politically convenient to punish the ?unscrupulous? lenders by enforcing regulations that sound good on paper. However, like most people, the extent of most legislators? knowledge of the mortgage industry was learned at the closing table. It is pointless to pass regulations that restrict banks from lending money to the very community they're trying to help.
America must solve this crisis by holding our representatives in Washington accountable for their actions or lack of actions. There is one advantage to the election year, and that is we get to vote. We can throw the ?babies out with the bath-water? as well. If you want real change look past Democrats or Republicans and vote for the best candidate to help you.
What If You Owe More Than Your Home is Worth? A Common Situation Many homeowners are currently ?under water? or ?upside down? on their mortgages, actually owing more than their homes are worth. Right now, during this mortgage crisis, this is a common situation. If you are a homeowner behind on your payments and upside down, or under water, on your mortgage, you may feel there is no possible way you can remedy the situation and either salvage your home loan or get out from under it without foreclosure. You may, in fact, be considering walking away from your mortgage and letting the bank have your house. There are many other options to try to rescue the situation, and walking away is your absolute worst option. Workout Options There are a number of workout options banks will consider to rehabilitate mortgages for homeowners in trouble. By contacting your lender and attempting to work out a solution, you only help yourself. Lenders appreciate borrowers who try to work with them, and are less likely to foreclose if the borrower contacts them with a workout plan. While they don't accept all workout plans, most banks are willing to negotiate a solution to your situation if at all possible. One of the worst things you can do is refuse to communicate with your lender. As long as you're talking, you are in a very good position to salvage your home loan and save your home or at least your credit rating. If you refuse to communicate with your lender, the chance that they will foreclose is basically 100%. There are various workout options available, and one of them may be useful in your situation. You may be able to talk to your bank about a forbearance if your situation is temporary and you expect a lump sum of money to bring the debt current in the near future. In a forbearance, the lender agrees to suspend payments for a specified period of time, with the understanding that you will bring the loan current and continue your regular payment schedule at the end of that time period. The lump sum money could come from a number of sources, such as an employment bonus, insurance settlement, or tax refund. If you are expecting a payment, and know that you will be able to make your mortgage obligation in the future, you may qualify for a forbearance. Forbearances are usually used in conjunction with a reinstatement, which literally means reinstating your existing loan, which you continue to make payments on as before after curing the default and bringing the loan payments current. If your situation is temporary but you do not have a lump sum payment coming in to qualify for a forbearance and reinstatement, you may be able to qualify for a repayment plan. In this type of arrangement, you will make your regular monthly payment on schedule, along with an additional payment each month to pay off your overdue balance. If your financial situation is permanent, and you do not expect to be able to make your monthly mortgage payment in the future, you may still have options to either salvage your mortgage or get out of your loan through sale. One option available to borrowers is a mortgage modification. You may be able to negotiate, for instance, an extension of your mortgage. This extension would lower your payments while keeping the interest rate the same. In an extension, you would pay your mortgage off over a longer period of time, thus paying more interest in the end, but rehabilitating your mortgage now and saving your home. Another option for rehabilitating a loan when your financial situation is permanent is to ask the bank to lower your interest rate. While this does not sound like a promising solution, banks can and do modify mortgages in this way when the alternative is to foreclose on the home. Banks want to negotiate workouts for failing mortgages. They do not want the home; they want the borrower to pay their mortgage. Many lenders will go to great lengths to help mortgage borrowers who are in financial difficulty but are sincerely trying to save their home. If you contact your mortgage lender and talk with them honestly about your situation, presenting a plan for how you can save the mortgage and avoid foreclosure, most lenders will give you a fair hearing and try to work with you to resolve the situation. If you cannot resume payments on your loan, even at a reduced rate, your bank may be willing to consider a short sale, in which you sell the home for an amount less than you owe, and the bank accepts the sale amount as full payment of the mortgage. This is often more difficult to arrange than other workouts, but lenders will accept short sales in certain circumstances, and if the only other alternative is foreclosure, asking for a short sale cannot hurt your situation. Other Options Homeowners who are not able to pay their mortgage or sell the home in a short sale may consider renting the home. Ideally, you would be able to rent the home for an amount that covers your mortgage. However, even if the rent falls short of your monthly mortgage payment, if you can make the mortgage payment between rent and your regular income, while renting yourself, you may be able to sell or refinance the home at a later time, when the real estate market has recovered from the current crisis. Renting your home in order to save it may seem strange, but as long as you make the payments and remain in possession of the home, there is always a chance that your financial situation may turn around, and you do not have a foreclosure on your credit record. If you are unable to sell your home short or rent it, you may be able to find someone to assume the loan. Be very careful that you actually are executing an assumption, and that your bank is involved in this takeover of your loan. Some scammers will make you believe they are paying off your loan, leaving you with no home and a mortgage payment. A true assumption will sell your home to a new owner who assumes your current loan legally. You will no longer own the home or be responsible for the mortgage, and there will be no foreclosure on your credit record. If the bank must foreclose, and there is no way to avoid it, you may be able to do a little better, as far as your credit report is concerned, by giving the home back, using a deed-in-lieu-of-mortgage process, rather than forcing the bank to file a foreclosure lawsuit against you. This is a traumatic situation, and you will still experience a foreclosure, but it may be a less traumatic process than the alternative, and your credit report may read differently than if the bank is forced to foreclose through legal channels. Why Not Just Walk Away? Deed-in-lieu may sound a lot like simply walking away from the mortgage, but there is a big difference. During this current mortgage crisis, many people are, indeed, walking away, not paying their mortgages, and just letting the bank take over. The thinking seems to be that if you can't pay your mortgage, you should just save the money, or spend it, find a place to rent, and let the bank foreclose on the home. Walking away from a mortgage is the single most damaging thing you can do for your credit. In fact, if you walk away from a mortgage with the intention of renting an apartment, it would be best to line up the apartment while you're still paying the mortgage. Most complexes check credit references very carefully, and it will be difficult to find a rental if you've walked away from the most important financial obligation you've ever made. Your entire credit rating will suffer for many years as a result of walking away, and you may even find that employers who check credit ratings will not hire you or promote you if you've walked away from a mortgage. Abandoning this obligation could seriously impair your ability to live your life as you choose for years to come. The Most Important Thing Homeowners Can Do Most homeowners, when they start receiving overdue notices from their lender, stop opening their mail. This is a serious mistake. Most lenders understand that people have financial problems from time to time. They are usually willing to work with homeowners who are sincere about repairing their mortgage and resolving their situation. The best thing you can do is contact your mortgage lender about a loan workout. There is probably something the lender can do to help you either save your home or get out of your loan without foreclosure, and they are willing and usually able to help with this process. By talking with your lender and working out a solution acceptable to both of you, you may be able to save your home. You can usually at least avoid foreclosure, and that is one of the best moves you can make for your future.
Both Aubrey Clark & Jason Brooks are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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