Archive for February, 2010
Although there are many steps a homeowner can take to avoid losing their home and qualify for a loan modification, loan refinance or other financial rescue procedure, the sad reality is that many homeowners will lose their home. If you are struggling with your payments and trying to get a loan modification you need to accept the possibility that you may lose your home.
The question is what will you do?
Would you declare bankruptcy or simply foreclose on your mortgage?
This is a very complex question. This chapter will try to provide practical information to help you make an educated decision but the best advice is to contact a bankruptcy attorney that can guide you through the minefields of bankruptcy law and help you make a good decision based on your specific circumstances. Now we have that disclaimer behind us, let us have a closer look at our options.
When trying to work out which is the lesser of two evils, foreclosure or bankruptcy, it is worth comparing the pros and cons of each choice.
1) A foreclosure will remain on your credit report for 7 years while a bankruptcy will stick to your report for 10 years.
2) Lenders will view more seriously someone that forecloses on their home than a borrower that declares bankruptcy that doesn’t include a home. Generally a foreclosure leaves a bigger and longer lasting stain on your credit report.
Bankruptcy is an ugly book with many chapters.
Declaring bankruptcy is not easy, there are different ways to file for bankruptcy and you don’t even have to include all your debts. For instance, if you are still paying for your car you will probably want to continue paying for it so you are not without transport.
Bankruptcy in the United States is controlled by federal laws and handled by federal courts, although local state laws also come into play. The two mast common types of personal bankruptcy are Chapter 7 and 13. If you file under Chapter 7, you are allowed to keep some of your assets. Which assets you are allowed to keep will depend on your State’s specific laws. The rest of your assets are turned over to a court appointed trustee that liquidizes them to pay your lenders. This is one of the many reasons it is a good idea to hire a good bankruptcy lawyer, you need to understand your local laws on bankruptcy in order to make a good decision. Unfortunately, as with physical death, dying financially actually costs you money; you need to pay to be broke.
If you file under Chapter 13 you pay all your debts under a plan designed by the court. A court appointed trustee will collect your payments, satisfy lenders and make sure you stick to the plan.
If you are a business owner there is another option you want to consider carefully, and that is filing bankruptcy under Chapter 11. One of the advantages is that you can get to keep your business as long as the court and your lenders agree to a plan to payback your debts. However, if the court decides you need a trustee to check on you; you will effectively lose control of your business and its assets.
As you can see choosing what to do when you are losing your home is like deciding which limb you would like to lose –very difficult.
Other Options to Consider
As well as foreclosure and bankruptcy there are other options worth considering that might be softer on your credit score and overall stress. These require you talking with your lender and negotiating a faster and cheaper way out for both of you.
You can try a “deed in lieu of foreclosure” this arrangement involves handing over your home to the lender and walk away without owing, or owning, anything.
If your home is underwater, or worth less than the value of the mortgage, you can always try to negotiate a short sale with your lender. This means selling the house at a loss. Depending on your lender and the State you live in you might still owe your lender the difference. Even if you don’t owe your lender anything after a short sale you might still owe the Government in taxes, as unpaid loans are often considered by the IRS as declarable income.
A final option is to ask your lender to hold off from a foreclosure while you try to sell your home. This is a great option if your house is not underwater and you can at least pay for your mortgage from the proceedings of the sale.
Related posts:
- Bankruptcy, Foreclosures, Loan Modifications and Ethics
- Deed In Lieu of Foreclosure, The Last Resort Loan Modification
- New Century execs won’t be allowed to handle bankruptcy
Related posts:
- Bankruptcy, Foreclosures, Loan Modifications and Ethics
- Deed In Lieu of Foreclosure, The Last Resort Loan Modification
- New Century execs won’t be allowed to handle bankruptcy
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Filed under: Home Depot (HD), Sirius Satellite Radio (SIRI), Revlon (REV), Target Corp. (TGT), Campbell Soup (CPB), Safeway Inc (SWY), Lowe’s Cos (LOW), Nordstrom, Inc (JWN), Blackstone Group L.P (BX), Garmin Ltd (GRMN), DreamWorks Animation (DWA)
Here are some highlights from this past week’s earnings coverage on BloggingStocks:
- American Public Education Inc. (APEI) received an analyst upgrade following the Q4 report and guidance.
- Autodesk Inc. (ADSK) traded higher after it reported swinging to a profit in Q4, but revenue declined year over year.
- Blackstone Group (BX) reported adjusted Q4 earnings, compared to a year-ago loss, and postive renvenue too.
- Campbell Soup Co. (CPB) higher Q2 earnings beat estimates, but shares fell on so-so revenue results.
- DreamWorks Animation SKG Inc. (DWA) lower Q4 earnings beat expectations but net income for the full year rose.
- Garmin Ltd. (GRMN) topped analysts’ Q4 earnings expectations but shares fell after it warned of lower margins.
Continue reading Earnings Highlights: Campbell, Dreamworks, Home Depot, Safeway, Target …
Earnings Highlights: Campbell, Dreamworks, Home Depot, Safeway, Target … originally appeared on BloggingStocks on Sat, 27 Feb 2010 14:10:00 EST. Please see our terms for use of feeds.
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Filed under: Consumer Experience, Competitive Strategy, Marketing and Advertising, Intuit Inc (INTU), Small Business
 Not long ago, marketing was fairly simple for local businesses. You would place an ad in the Yellow Pages. There may even be an occasional mailer and sponsorship.
But of course, things have gotten more complicated lately as customers increasingly use the Internet. Unless you are a marketing expert, you’ll probably have trouble handling things like dealing with the hundreds of local search engines and directories, the need to write strong copy, bidding effectively on key search terms and even putting together compelling videos.
Continue reading Entrepreneur’s Journal: Get Customers Clicking and Calling with Online Local Ads
Entrepreneur’s Journal: Get Customers Clicking and Calling with Online Local Ads originally appeared on BloggingStocks on Sun, 28 Feb 2010 17:40:00 EST. Please see our terms for use of feeds.
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Filed under: Earnings Reports, Safeway Inc (SWY)
 It had a strong performance within a downward trend. That seems to be the characterization of Safeway Inc. (SWY), as revealed in the company’s recent 2009 Q4 report. Thursday, the company reported a net loss of nearly $1.61 billion, which was in keeping with its own expectations. Through it all, Safeway Chairman, President and CEO, Steve Burd is taking what appears to be a prideful stance on the company’s record 2009 free cash flow of $1.5 billion.
What I am seeing here is a company which has taken a firm and responsible hold of its interior financial workings as its field operations remain subject to economic whims and conditions which are largely out of company control. An active share buy back program, which looks to be perfectly timed, has apparently helped to place a respectable floor beneath the company’s share price.
Continue reading Safeway Earnings Indications
Safeway Earnings Indications originally appeared on BloggingStocks on Fri, 26 Feb 2010 17:00:00 EST. Please see our terms for use of feeds.
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In the midst of all the bailouts you might have missed that last month, in perma-bubble Southern California the median price of the entire regional market fell by $17,500. This was the first regional price drop since April of 2009. Now one month doesn’t make a trend of course but if you only listen to […]
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In the midst of all the bailouts you might have missed that last month, in perma-bubble Southern California the median price of the entire regional market fell by $17,500. This was the first regional price drop since April of 2009. Now one month doesn’t make a trend of course but if you only listen to the real estate industry and banking cabal you would think that all of a sudden we are circa 2003 real estate. There is this pervasive speculative attitude once again in the air even in the face of a 12.4 percent unemployment rate. The unemployment situation was revised last month nationwide and the BLS upped the number of jobs lost in this recession from the “low” 7 million to 8.4 million. So basically we were underestimating how “good” things were for an entire year (the BLS has suspect numbers because of their methodology). Yet this is part of the new economic psychology where real data is ignored in exchange for bread and circus statistics and political theatre. The reality is we are not going to see any sort of housing boom for the next decade. In fact, housing will be weak for the next ten years (at least) regardless of what the government and Wall Street attempts to do.
Factor #1– Negative Equity
The first thing to grasp is the biggest line item for Americans on their net worth chart is housing. Or more importantly, home equity:
Even with the massive stock market rally, home prices are still lingering near their trough. Employment hasn’t picked up as well so unless you depend on seeing your banking stocks going up for your livelihood this rally is simply a reflection of how disconnected Wall Street is from the actual real economy. The above chart should tell you where things are in terms of housing. With most conservative estimates, 25 percent of current mortgage holders are underwater. That is, they owe more on their home than it is worth. As we know, housing is the number one line item for homeowners so with this kind of figure most Americans are still viewing a gaping hole in their balance sheet. In states like California with Alt-A and option ARM issues, the underwater level is closer to 35 percent. Much of this has kept the foreclosure rate elevated.
Negative equity is the number one reason in predicting foreclosures. Now this is a rather obvious statement because if you did have equity and had problems on your balance sheet all you would do is sell your home. Without this option, you can let your home go into foreclosure or try to have your lender to agree to a short sale. And you have to think about what would fix this problem. The only solution is hyper-inflating home prices to bubble levels. That doesn’t seem likely so negative equity is going to be with us for years to come because home prices reached absurd levels in this bubble. Even with a big run up in prices, it is highly unlikely we will reach peak levels.
Factor #2– Income to Housing Price Ratios
Home prices are still in bubbles in many California counties like Los Angeles and Orange County. Prices are completely disconnected from local area incomes. I remember early in the bubble that the argument revolved around the monthly payment and completely ignored actual household fundamentals. The mortgage industry thrived on this because it removed impediments from making mortgages with high kickbacks to anyone with a pulse. Most of the mortgage brokers who say they were doing a good job “helping people” are only justifying their cause in this bubble and trying to assuage their conscience. Show us a mortgage broker that did well during this bubble pushing low rate 30 year fixed rate mortgages with solid documentation. The high income broker crowd relied on crap mortgages like option ARMs and other junk to get their nice little commission checks.
Yet now with the government being the lender of first and only resort, people have to actually look at incomes even at a cursory level. And as you can see from the chart above, prices are still very high in bubble places like California in relation to income. Plus, the chart data I gathered only goes back to 1980. The bubble in California started back in the 1970s:
Even if we apply a ratio between California home prices and nationwide prices current levels are still too high even after this correction. In other words, the bubble is still here.
Factor #3– Shadow Inventory
Source: Wall Street Journal
“The John Burns study estimates that five million houses and condominiums on which mortgages are now delinquent will go through foreclosure or related procedures that put them on the market over the next few years. That would represent the bulk of the estimated 7.7 million households behind on their mortgage payments.
This “shadow inventory” of homes expected to hit the market is enough to last about 10 months, based on the average sales rate over the past decade, the Irvine, Calif., firm says.
The problem is largely concentrated in Arizona, California, Florida and Nevada. The shadow inventory is equivalent to 27 months of sales in Orlando, 24 months in Miami and 18 months in Las Vegas, the study estimates.”
It would appear that the shadow inventory that we’ve been reporting on for over a year has now gone mainstream. I’m not surprised that it took this long to go into the mainstream media just like I’m not surprised the BLS had to revise their unemployment figures by 1.2 million. Yet the reality is there is a tremendous amount of shadow inventory throughout the United States. California is plagued with shadow inventory. This is not a sign of a healthy housing market. This is more “pretending things are okay” type of thinking. The real estate industry thinks that this is some kind of panacea and we all need to start using The Secret to will our way to higher home prices. Yet all this will do is create an environment similar to Japan where the banking industry is going to suck the life blood out of the real economy for decades to come. Is this really what we want?
What if this inventory was released? Prices would drop and come in line with more historical measures but more importantly, will finally flush out this giant financial sector that has grown too big. Will many banks fail? Absolutely as they should. Yet the media is reflecting their bias to Wall Street because as we know, millions of Americans are still without work. Shadow inventory is basically banks inability to move properties in a timely fashion. They are now speculating that prices will go higher on the taxpayer’s bill. Wall Street has failed the American public. We are back stopping the system with $13 trillion in bailouts and back stops and this is the end result? The only big winner right now is the stock market and big banks. Everyone else is still battling the Great Recession out.
Factor #4– Weak Equity
Source: The Big Picture
Home equity used to be a source of pride for many Americans. In fact, many Americans enjoyed mortgage burning parties. Now, those parties have been replaced by home equity lines of credit and sucking every ounce of home equity out as a perpetual ATM for consumption spending and trips to Las Vegas. The chart above is a deeply troubling chart. The amount of equity has fallen to historical lows. The minor jump is a reflection of absurd amounts of government bailouts in the housing industry. Yet equity in housing is still pathetically low. At the same time, home prices are still in bubbles in many areas. So what gives? When you are required to have such a small down payment, you lose this built in equity component of the market. The above chart reflects years of 20 percent down payments and that has slowly faded away. Today, with FHA insured loans the only equity you are going to get is based on housing inflation or additional bubbles. Building equity takes time and many people are now in this ladder mentality buying world where your first home is always a “starter” as if you need a starter home.
The weak amount of equity is surpassed by the enormous amounts of mortgage debt outstanding. This debt spiral is getting bigger and bigger and we see our government leading the way. Does anyone really see us ever paying off our various kinds of debts? We’ll never pay it off! I remember on a peer to peer lending site Propser, where you became the lender to various sorts of borrowers including subprime borrowers and the initial rates seemed fantastic. The rates seemed too good to be true. 15 to 25 percent returns. I put a bit of money into play and things were looking fairly good initially like things did with subprime. A chicken in every pot! But when the defaults started rolling in, that 25 percent yield quickly became 20, 15, 10, and finally I was lucky to break even on the portfolio of loans. Welcome to the new debt world. Somewhere along the line the idea of paying a 30 year mortgage off became lost in this bubble. It was all about servicing the debt opposed to paying it off. Now we are entering a new world and many mortgages like Alt-A and option ARMs are highly toxic and will never be paid off. Even servicing the loan has collapsed.
Factor #5– Demographics
Source: Bio Spa
Baby boomers to a large extent drove this housing bubble. Many had purchased in the 1990s so were able to ride the mega bubble or trade up in housing. Many also sucked the equity out of their homes to fill every nook and cranny with new stainless steel fridges and flat screen televisions. As the housing bubble ramped up they saw their housing porn shows telling them to purchase granite countertops because no home is complete without putting shiny rocks in your kitchen. But as the bubble of a decade recedes, people are left with artifacts of consumption and no real wealth. It isn’t like a cow that you can live off but these items are sitting there reflecting years of consumption. Massive gas sucking SUVs sit parked in the driveway ready to suck your wallet dry at the next trip to the gas station. The above chart highlights many trends over the years with the big baby boom wave:
Source: Rich Price
But as more Americans wait to have families and more baby boomers start using up healthcare resources, the priorities will change. Many young couples are waiting longer to start families so the need for enormous McMansions is waning. Many suburbs relied on cheap fuel and it is hard to imagine oil going back down to $20 a barrel. So demographically things are changing. Plus, as many baby boomers downgrade, you will see a steady stream of housing hitting the market for new families. We have an excessive amount of housing inventory. This will keep pressure on housing prices for the foreseeable future.
There is this argument made about immigrants plugging the gap. This is not true. A large part of the immigrant contingent cannot afford the high priced housing. Show me data on immigrants buying up all this excess property. I’ve seen a few examples of rich immigrants buying prime property in a desirable location but show me a steady group of these people buying homes in more middle class areas. So the trend is clear. Baby boomers are also going to start pulling on Medicare and Social Security in the upcoming decade putting additional strains on the system. In other words, more money is going to go away from housing. There was an article I read recently about many college grads moving back home because they have no job. Forget about buying, these recent grads can’t even afford a rental. So the vacancy rate in rentals and housing units is at record levels. We have years of inventory to work through thanks to this historic bubble.
The decade ahead does not look good for housing. Beside the above factors, what if mortgage rates go up? It is only a matter of time given the policies of the U.S. Treasury and Federal Reserve. And are we going to see tax credits forever? Is the Fed going to buy more mortgage backed securities? We are reaching a tipping point of another crisis because so much focus has veered away from the real economy and has obsessed on housing and finance as a panacea for our economic ills. Welcome to your second lost decade and thanks to Japan, we have failed to learn what history has taught us only years ago.
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There is a proposal for new guidelines in the way lenders and servicers deal with borrowers throughout the foreclosure process. These new guidelines are designed to improve communication between lenders and borrowers to improve the rate of troubled borrowers receive a loan modification for their mortgage.
One of the issues that leave many homeowners without a home is time and awareness. Troubled homeowners that are behind on their mortgage often do not realize the details of what will happen to their home and when.
This proposal suggests that lender and loan servicers, which are the companies that actually manage mortgage payments, should be required to provide homeowners with at least 30 days to reply when their loan modification has been denied under the HAMP program. These 30 days would give the borrower time to appeal, time during which the lender would not be allowed to continue with the foreclosure procedure.
The new guidelines would also put the responsibility on lenders and servicers to contact borrowers that are 60 days or more behind on their mortgage payments and fill the basic requirements for a HAMP loan modification. The guidelines are very specific in the nature of the notifications lenders must make before a foreclosure can proceed. There must be at least 4 telephone calls, two notices in writing, one of them which must be by certified mail. If these guidelines are approved it will mean a drastic increase in the work required for lenders to carry out a foreclosure. Extra staff will have to be brought in to fulfill these requirements.
However, these guidelines would also provide lenders with the right of denying a loan modification application that was filed within 6 days of a foreclosure sale. Loan Modifications can be lengthy processes and include a large investment in time and resources for lenders and servicers. Nevertheless, lenders will have to inform borrowers of the foreclosure schedule, and the deadline they must meet so that their application can be considered.
These are part of a list of requirements and guidelines the US Treasury is considering in their efforts of improving the rate of loan modification trial conversion and the number of troubled homeowners that apply for a loan modification. The idea is to screen those that actually qualify for the HAMP program and would benefit from the aid it provides.
Unfortunately the HAMP program is only designed to help troubled homeowners that still have a regular income and whose home has not dropped in value too drastically. For instance, if your mortgage is worth over 150% of your current home value, you might struggle to pass the NPV test required for a loan modification.
These proposals are working in line with others that are also being prepared for California and four other states that have suffered from a severe drop in house prices. The Obama Administration announced last week that these states will receive 1.5 billion dollar to be used at the discretion of each state to provide flexibility when considering borrowers for aid and loan modifications.
Related posts:
- Loan Modification Low Numbers, Why?
- Loan Modifications Are Going To Be Simpler, What Do You Need Now?
- Rogue Loan Modification Servicers, What Are The Signs?
Related posts:
- Loan Modification Low Numbers, Why?
- Loan Modifications Are Going To Be Simpler, What Do You Need Now?
- Rogue Loan Modification Servicers, What Are The Signs?
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 As the court battle for control of a trio of Atlantic City casinos between Carl Icahn and Donald Trump heats up, one question is coming into focus: How much is Donald Trump’s name on the top of a casino worth?
Trump argues that giving him control of the company is the best move, in part because his name is such a big draw. Icahn counters that the main disadvantage to losing the Trump name would be the cost of changing the signs.
Burn!
Continue reading Is Donald Trump’s Brand Still Worth Anything?
Is Donald Trump’s Brand Still Worth Anything? originally appeared on BloggingStocks on Fri, 26 Feb 2010 17:30:00 EST. Please see our terms for use of feeds.
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The latest report from First American CoreLogic shows that 11.3 million properties with mortgages are now in a negative equity position. If we add in those “near” negative equity we find that roughly 30 percent of all homes with a mortgage balance are underwater. For California, that number is higher with 35 percent of homes […]
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The latest report from First American CoreLogic shows that 11.3 million properties with mortgages are now in a negative equity position. If we add in those “near” negative equity we find that roughly 30 percent of all homes with a mortgage balance are underwater. For California, that number is higher with 35 percent of homes with a mortgage being placed in the negative equity camp. If we ran the numbers for Alt-A and option ARM loans I wouldn’t be surprised to see that number above 70 percent. The market is clearly still in deep distress. As I have stated from the start, we will have no real recovery until job growth enters the picture. This is such an obvious statement but the banking and real estate industry seemed fixated on housing as the panacea to a full economic recovery. Housing and the banking industry led us into this mess to begin with.
I took a look at data from the Employment Development Department (EDD) of California and last year was another record year for California in terms of unemployment claims paid out:
“(EDD) A record high 1.4 million Californians were certifying for UI benefits in November 2009, according to the most recent information available. In all of 2009, EDD paid $20.2 billion in UI benefits that not only helped sustain families during this difficult time, but also helped support local communities struggling to survive the economic pressures.
The prior record of UI benefits paid in a single year was set not too long ago in 2008, when the EDD paid out $8.1 billion in UI benefits to out of work Californians.
That’s a 149 percent increase in the total UI dollars pumped into the State’s economy in 2009 at a rate of about $80 million a day.
The $20.2 billion paid in benefits in 2009 translates into an economic impact of about $32 billion dollars when you look at how UI dollars spent on basic necessities leads to further spending in the general economy. The U.S. Department of Labor estimates the economic multiplier is $1.60 for every dollar paid out in UI benefits.”
Did you get that? In 2008, an already bad year $8.1 billion in UI benefits were paid out. Last year, that number went up to $20.2 billion and we are still near the peak unemployment rate of 12.4 percent:
Source: BLS
I’ve had this conversation with a few colleagues in the real estate industry. Whenever they mention that California real estate is at a bottom I always ask them what industry is going to make up for the million and more jobs lost. They don’t have an answer. Heck, in the 1990s it was all about the tech sector so that was supposedly going to give every Californian with basic HTML coding abilities and a Geocities account a $60,000 a year job with no college degree. When that bubble burst, it then was every Californian was going to work for the real estate industry making $100,000 simply by popping on a suit or a skirt and pushing mortgages or property in the mania of the century. That bubble burst. So what gig is next? Can we at least get some jobs going before we start jumping on another real estate price bandwagon?
One major flaw with the current thinking in the housing market is assuming mortgage rates are somehow going to stay low forever:
Examine the above chart very carefully and enjoy that sub-5 percent rate because that is not going to last. We are at the lower bound. Even if we revert to historical averages of 9 percent, that will absolutely tank the California housing market. Keep in mind that a large part of the above is because of the Federal Reserve buying up $1.25 billion in agency mortgage backed securities debt. That game is quickly ending and this in itself has probably shaved off 100 to 200 basis points. In other words, mortgages are going to get more expensive.
But let us show this massive disconnection with another on the ground example in Pasadena. We’ll even pick a prime zip code in the area. Today we salute you Pasadena with our Real Homes of Genius Award.
Pasadena Dislocation
I decided to pull data on 91105 zip code in Pasadena. A middle class two income area where the median home price is now $657,000 (down 25 percent from last year). So certainly this area has seen a correction but is the correcting over? A good way to measure market metrics is looking at lease rates and home prices for the immediate area. First, let us look at our home for sale:
The above home is listed as a short sale which now seems to be gaining further momentum thanks to programs like HAFA. The home is a 3 bedroom and 2 baths home and is listed at 1,978 square feet. It has been on the market for over 40 days. Let us look at previous sales history:
Last Sale Info:
Sold 08/17/2006: $1,000,000
Not too long ago this was a million dollar home and the current list price is $949,000. So I went ahead and tried to search for a rental in the immediate area. These are hard to find but are extremely illuminating in giving us a sense of whether current prices are too high or low. So I found this home on the next street over:
The rental is a 2 bedrooms and 2 baths home listed at 1,504 square feet. The current asking rent is $3,500. Now let us run some numbers. We’ll assume that you are putting 20 percent down for the home purchase:
20 percent down payment: $189,800
The latest tax data shows the home running $11,381 in taxes in 2009. So we’ll assume the monthly carrying costs:
$4,310 (PI) + $948 (T) + $395 (I) = $5,653 for each monthly payment
I’m assuming for the insurance that you are actually vigilant enough to get earthquake insurance in California (many homeowners don’t even have this). So this is a significant difference. But let us assume you buy this home. And rates increase modestly to 7.5 percent in five years and you plan to sell. What is the future buyer looking at?
$5,308 (PI) + $948 (T) + $395 (I) = $6,651 for each monthly payment
With a modest interest rate increase, the payment jumps up $1,000 to $6,651. This is why we have a lot of correcting to do. Rates are artificially low and many are assuming the current environment is going to stay this way for a long time. It will not. I’ve mapped out these properties just in case you think they are miles apart:
Are these homes exactly the same? Of course not. But this is as close as you are going to get to seeing the insanity in the mid-tier of the market. Now here is the reason ignoring jobs and subsequently income data will lead to additional corrections. Let us assume you gross $10,000 a month in Pasadena and want to buy this home. Can you?
Not even close. Your monthly payment is up to $5,653 and you are netting $6,731. Sure you can up your withholdings but that won’t change the numbers drastically. Your housing payment remains fixed.
When I see examples like this it tells me we still have another phase to this housing story. Today we salute you Pasadena with our Real Homes of Genius Award.
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It is hard to believe that three years have gone by since the housing market took a dive drowning with it millions of American homeowners. So what is the situation now? Have we hit rock bottom? Are the Administration’s measures starting to work?
Let us start with the good news. There are now over one million homeowners benefiting from temporary or final loan modifications. Admittedly, most of them are still in the trial period, but nevertheless, the Administration has made an effort to ‘encourage’ lenders and servicers to make an effort, sometimes by using a carrot and other times by brandishing a big stick. Another good newsbyte is that the rate of troubled homeowners, people behind on their payments, is dropping.
Also, new measures are being carried out as we speak. Just a few days ago Obama announced another program to avoid foreclosures. The program included offering $1.5 billion to housing agencies in California and four other states. These states have been especially hit by a fall in house prices making loan modifications harder to qualify for. This new program aims to provide these hard hit states with extra flexibility that will allow them to provide the help troubled homeowners need.
Unfortunately the good news is over. The bad news is that nearly 3 million homes are going through foreclosure and 4.5 million will do so this year according to conservative estimates. Another problem is that the figures we have may not even be telling the full story. Experts say that lenders have an estimate of 1.7 to 7 million homes in a shadow list of foreclosed home they are yet to put for sale. This fudges our foreclosure figures.
High foreclosure rates do not only affect the owners, it also lowers the price of homes in the neighborhood and cripples the economy as a whole. The question many are asking and we have discussed widely in this blog is how much should the government help. It is a fact that many borrowers overstretched their budgets to breaking point; these cannot and should not be bailed out. However, the fact remains that loan modification trial and completed number should be higher.
Another problem is the high re-default rates. These rates show some of the inadequacies of the current loan modification system. Studies show that re-defaulting rates are lower when the principal balance of the loan is trimmed or reduced. Unfortunately most loan modifications simply extend the term of the loan or reduce the interest rate.
What can the government do? Extra incentives for lenders and servicers might just make them weight for the next best deal, instead of focusing on providing fast loan modifications now. An idea that has been thrown around that seems promising is to give bankruptcy judges the power to write down mortgages like they can write down other kinds of debt. It is very likely that this would increase the interest rates of new loans to reflect the increased risk of loan balance reduction. However, it would provide a good incentive for lenders to negotiate reasonable loan modifications before a judge tells them to.
Related posts:
- Loan Modifications Latest Figures, Limbo, Trial Purgatory And Other Horror Stories
- Loan Modifications No Match For Rising US Foreclosures.
- Loan Modifications No Match For Rising US Foreclosures.
Related posts:
- Loan Modifications Latest Figures, Limbo, Trial Purgatory And Other Horror Stories
- Loan Modifications No Match For Rising US Foreclosures.
- Loan Modifications No Match For Rising US Foreclosures.
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