Monday, August 24, 2009

The Changing Face Of Distressed Homeowners

With the majority of distressed homeowners shifting from subprime borrowers to prime borrowers, Blown Mortgage asks whether the Loan Modification Program is focusing on the wrong group. With as many as 13.2% of mortgages near foreclosure, do these troubled homeowners have the help that they need?

Loan Modification figures right now are scary. According to one survey one in eight U.S households that have a mortgage are in foreclosure or will be soon. This puts great pressure on Government Institutions that are trying to help ailing home owners while the numbers just add up. It is like trying to build a dam while the river is still flowing.

As it often happens the problems Loan Modification Programs face are changing. While the focus of Loan Modification programs is on subprime loans (high interest loans generally purchased by people with low credit rating) a new demographic of struggling home owners is appearing.

Foreclosures of Sub prime borrowers that by some accounts ignited the banking crisis are actually slowing down while borrowers with good credit records are deteriorating faster due to falling home prices and job losses.

The MBA (Mortgage Bankers Association reported last week that 13.2% of mortgages on homes with one to four units were at least a month overdue or actually undergoing foreclosure. This a rather steep rise from 12.1% in the first quarter.

These figures are disappointing as many expected foreclosures to drop as home sales have picked up in the last months. However some analysts have commented that we shouldn’t expect significant improvement until 2010 when the economy really starts to improve.

This shift from the decline of sub prime borrowers to prime borrowers is illustrated by the percentage of prime and subprime foreclosures in the last year. Last year 44% of foreclosures were from prime mortgages, now the figure is around 58%. Last year 49% of foreclosures were from sub prime mortgages, now it is 33%. While sub prime mortgages are recovering, prime mortgages are suffering even more.

What can we learn from this?

It could be good news for the measures the administration. We could read this shift as proof that the demographic the administration has chosen to focus their energies on is benefiting from that help and digging itself out of the whole while the demographic that is not highlighted in the programs measures continues to fall.

It is interesting that more than 235,000 borrowers have started a three month loan modification trial under the current administration under the effort of the administration to reduce monthly mortgage payments. But do these loan modifications target the real problems.

Most of these loan modifications target loans that reset to higher interest rates or to home owners with high debt to income ratios. In other words these loan modifications seek to help people who fell for high interest mortgages when the housing industry looked like it was going to soar forever. The idea behind the loan modification programs is to allow borrowers to benefit from the current low interest rates.

However prime borrowers that have gone through dire straits struggle to receive the benefits of this program.

This post has been republished from Blown Mortgage.

1 comment:

Steven Lutman said...

Doesn't it seem strange that THE ONLY ADVICE government officials give homeowners having mortgage payment difficulties is to tell them to go back to their lender, or through a HUD/FHA Counselor (and then back to the lender) to obtain Home Loan Modification help?

Let’s investigate this for just a moment.

During the home sales boom cycle the lenders became VERY GREEDY. As the opportunity for profits went up, the ethics/legality/morality of the loans they made went down. Later in this process loans were even being made to persons with no jobs and little, or no income at all!

Oh, and where was the government during the loan feeding frenzy? They turned their heads and DID NOTHING!

The reports from borrowers who have completed Home Loan Modifications using these government recommended processes have been streaming in lately. VIRTUALLY ALL OF THESE REPORTS CONCLUDE THAT THE LENDER HAS GIVEN THE BORROWER VERY LITTLE, OR NO HELP AT ALL!!!

But, the government continues to tell borrowers that its assistance and the help of the lender is the best help available! WONDER WHY? IT’S THE MONEY!

Using this same logic, the best way to prepare your income tax and maximize your deductions is to go to the IRS for help!! Why do so many people (even the government officials we are speaking about) hire help to prepare their taxes? SINCE WHEN HAS FREE HELP EVER BEEN THE BEST HELP AVAILABLE?

So, what does the AVERAGE OUTCOME of a Home Loan Modification THAT YOU ACTUALLY PAY FOR really look like?

The firm I work for has averaged monthly mortgage payments reductions from between 20 - 50% for up to 5 years and the conversion of their existing loan to fixed interest rates in the 4 - 5% range for the full balance of the term of the mortgage! These averages come from over 200 completed resolutions!

Our firm is NOT ATTORNEY-BASED, but does have substantial knowledge about specific legal issues. Our firm has reasonable performance guarantees, a 100% Money Back Guarantee and reasonable program fees (well under $2,500).

So, let’s do the math. Say you are a homeowner who has an existing 6.75% fixed rate 30 year mortgage of $200k, that has a payment with interest of $1,298. Using the average results shown above, your new payment at only a 30% modification is $909 for up to 5 years and you will save well over $80,000 in interest over the life of the note!! NOW THAT’S A MORTGAGE MODIFICATION WORTH THE FEES, DON’T YOU THINK??

Ok, so you don’t plan on staying in the house much over 3 years - using these same numbers you will save over $14,000 in monthly payments alone in that time!! IS THAT A MODIFICATION WORTH THE FEES?