Is The Mortgage Foreclosure Crisis Over?
The foreclosure crisis looked as though it maybe turning the corner after the initial crash, but are we out of the woods yet? While things have improved a little, the mortgage foreclosure crisis is far from
over. The initial round of foreclosures affected primarily subprime mortgage loans. Subprime loans are loans that were given to borrowers without enough cash upfront for a down payment or high-risk borrowers with less than perfect credit. While subprime foreclosures may have slowed down, prime loan foreclosures are now beginning to hit a new record. The main reason for the increase in prime loan foreclosures is property values that had inflated during the housing boom have now plummeted coupled with an increase in unemployment.
Obama’s Relief Program
While President Obama has attempted to offer some relief to homeowners facing foreclosure, the program is not without its downsides. Obama’s program called Making Home Affordable can be found at www.MakingHomeAffordable.gov. This program was created to help homeowners who have fallen behind on their mortgage payments or are struggling to make their mortgage payments. They offer loan refinancing or loan modification. The program aims to lower mortgage payments to 31% of the borrowers income.
The program suggests that the delinquent borrower first talk to the lender. If they feel that they are unable to do that, they may ask for a HUD or U.S. Department of Housing and Urban Development certified housing counselor. These counselors are free of charge. Making Home Affordable warns homeowners that if a counselor asks for money up front, they may be a scam.
The mortgage modification program gives delinquent homeowners a trial loan modification for 3 months. Once the homeowner has paid the reduced mortgage amount in full for three months, they should qualify for the permanent loan modification program. The delinquent borrower cannot be evicted from his home during the trial period.
The program has received a great deal of criticism. For starters, it does require a great deal of documentation for the trial loan modification with additional documentation required when applying for the permanent loan reduction program. Many potential borrowers have lost their chances for the loan reduction by not properly filling out the multitude of documents required or failing to return the documents requested in a timely manner. In addition, many lenders are not properly following the rules for loan modifications or properly aiding borrowers in trouble in reducing their mortgage loan rate. Finally, the Making Home Affordable programs, as well as most lenders face a backlog because so many mortgages are facing imminent foreclosure.
Hopefully the crisis will eventually slow down, but for now it looks as though this crisis has a long way to go before it is over.
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This is insane. People need to decide whether they want homes to be affordable or not. Instead, they want to have their cake and eat it too. A great example can be seen by asking any random person on the street if they support the government manipulation of interest rates to temporarily keep them low. They will assuredly nod yes. However, follow that question with one about cheap and affordable housing and they also will give a big nod yes. YOU CAN'T HAVE BOTH!
Either the government steps out of the way, lets interest rates rise and people default, thus making homes more affordable, or they intentionally keep interest rates low to prop up housing prices. But one thing will never happen: the government keeping interest rates low while simultaneously making homes more affordable. People forgot one fundamental rule–interest rates move inversely to housing prices.
The real solution is to get the government out of the real estate market and let things correct naturally. Let people default. It's not a bad thing. People look at the increased default rates and falling prices as some sort of bad disease; however, the bad disease was the insanity that led people to pay those prices in the first place! The defaults and foreclosures are the medication, not the problem.
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