In a recent article, Averett suggested it makes economic sense to foreclose in some cases. What happens to the homeowner who successfully had their loan modified with better terms and lower mortgage rates just ahead of that borrower getting laid off from his or her job?  Does the mortgage lender renegotiate the mortgage rate again to meet that person’s new income level?  Indeed, studies have shown that nearly one-third of borrowers who’ve had their mortgage loans modified are in trouble again after three months. 

And what about the borrower whose loan is now “under water,” the term used to describe a home loan that is now larger than the value of the property on which it was based?  The borrower’s home loan terms could be renegotiated, but they will still have to pay off an outstanding mortgage balance that far exceeds the value their home. If their neighbor throws in the towel to foreclosure, then the home will be resold at its current value and the first homeowner discussed now faces a neighbor whose home loan payments are significantly less than his or hers.  At some point, the first homeowner asks himself why he’s bothering, and he defaults as well.  “The homeowner says, ‘I’m paying a fortune for my mortgage. I’ve got to save for retirement. I’ve got to put my kids through college. I’m getting out too,” she said.  That person might be better off renting a home at half the amount he or she is paying for their mortgage — very plausible in some areas of the country.  The problem is that throwing in the towel leads to more foreclosures, which pushes down the value of homes even more, which leads to more foreclosures and so on…

Michael D. Calhoun, president of the Center for Responsible Lending, recently expressed skepticism that voluntary loan modifications could have a significant impact on the swelling number of foreclosures.  In testimony before Congress Wednesday, Calhoun strongly recommended allowing bankruptcy judges to oversee the modification process, saying it’s the “most efficient and cost effective” solution.  “Judicial loan modifications will provide a strong incentive for servicers and investors to make voluntary programs work, since they will have clear authority to avoid judicial modifications by offering their own workout solutions outside of bankruptcy,” said Calhoun.  “Bankruptcy courts already modify mortgage loans for all manner of other debts, including mortgage loans on vacation homes and investment properties. They should be permitted to do so for a homeowner’s primary residence, which is typically the asset most critical to a family’s financial and physical security,” Calhoun added.  Averett believes the only cure for the rapid rise in foreclosures will be the stabilization of housing market. But she was philosophical about loan modification agreements.  “They will help some people in some instances, but there are just too many forces against the homeowner. There’s a lot of people you simply can’t help,” she said.  Read complete article >

1 Comment »

1. 

   Great home financing website! We have noticed that many of our clients who come to us for 2nd mortgage loan, end up getting a forbearance or loan modification. It is amazing how the industry shifts. We will send you some of our clients who need to restructure their mortgage to retain their homeownership rights. Keep up the good work!
   - Andrew Christie, 2nd Mortgage Wholesale Mgr.

   Comment by second mortgage — December 5, 2008 @ 11:41 am

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