Loan Modification

Home Loan Refinancing Anti-Foreclosure Effort Results Disclosed

By Andrew

Home Loan Refinancing Anti-Foreclosure Effort Results Disclosed

 
A lot has been said of the efforts of the Obama administration to curve the drop in the credit and real estate sector. You can love it or hate it but you can?t argue that an effort is being made. Our previous blogs discussed the changes in the eligibility requirements to include more borrowers but have they been enough?

 What are the results of this broad effort to alleviate those hit the hardest by the crises and that are in risk of losing their homes?
The quick answer is that we don?t really know. The White House guesstimates that  ?over 50,000? at risk loans have been refinanced so that homeowners can keep their homes. The exact number is not available because a tracking system for refinanced mortgages is still to be set up.

This has not stopped the Treasury from ?predicting? that 20,000 bad loans will be ?saved? ever y week by September. That sounds great and will be a great help for many families. However if analysts? predictions are correct seven million homes will foreclose this year and next year. Of these foreclosures 4.5 million are expected to be distress sales. If this were to really happen it would further drag the Real Estate sector, dropping prices and increasing inflation. When you are talking about 7 million foreclosures a year, 20,000 ?rescues? a week (c. million a year) does not sound that great, especially when a lot of the worst cases will not be covered by the current plan.

The demand for mortgage refinancing relief has been so great that banks claim to struggle to meet demand. However there is no real incentive for Banks to go out of their way to speed up things. Current incentives measures provide up to $75 billion to banks to refinance mortgages without any penalty if loans are not modified. The mortgage modifications have focused on monthly payments reduction decreasing the monthly cost of a mortgage but making it a much more expensive product. Banks are lapping it up as these loans are also backed by Fannie and Freddie making it a win-win market for them.

These monthly payment reduction schemes sound great in principal but do not tackle the issue of home equity. As monthly payments drop the mortgage principal (amount borrowed) increases reducing further the equity (difference between the value of the home and the money owed on it). This reduces incentives to keep up to date with payments as the chance of being able to sell at a profit drop.

A potentially more useful measure would be to help reduce the principal of mortgages for borrowers in trouble to encourage monthly payments and avoiding foreclosure. If the current rise in foreclosures is not stopped it will create it?s own domino effect dragging prices down and further increasing inflation.

The effort to stop the crisis and impending doom some analysts predict this have been huge, the big question is have they or will they be enough to actually stop it from happening.

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Related posts:

1. Mortgage Refinancing For Underwater Borrowers Now Available
2. $75 Billion Making Home Affordable Loan Modification Program Gets To Work
3. Foreclosure moratorium means more time for loan modifications

1. Mortgage Refinancing For Underwater Borrowers Now Available
2. $75 Billion Making Home Affordable Loan Modification Program Gets To Work
3. Foreclosure moratorium means more time for loan modifications

Full post as published by Blown Mortgage on July 07, 2009 (boomark / email).