Delayiing The Inevitable -- Government Foreclosure Assistance

By Author: Nick Adama
Total Articles: 197
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The government was to have saved us all from the housing crisis. They were going to stabilize high prices, make housing affordable for low income borrowers, and help foreclosure victims stay in their homes. Nearly half a dozen plans were put into place to make sure that borrowers could not only avoid foreclosure but keep on borrowing money to purchase or refinance properties. What went wrong?

According to a new report by Fitch Ratings, between 65% and 75% of modified subprime mortgages may redefault within twelve months of the modification agreement. This is despite efforts by the government and the banks and the servicing companies to provide assistance (some of it by taxpayers). But what is the real problem with these modification plans -- why do homeowners fall behind again so soon?

One of the main reasons, of course, is that the properties whose loans are modified are still worth less than the total amount owed on the mortgage. Homeowners who get a reduced payment on a house that they still owe far more on than it is worth still have little incentive to reward the banks with so much money for homes they feel ...
... they were tricked by the mortgage and real estate professionals into purchasing in the first place.

Reductions of principal balances are exceedingly rare for lenders when working with homeowners. The lenders do not want to write down the value of a significant number of loans as well as reduce payments for the borrowers, because this will drastically reduce the value of the mortgage on the bank's balance sheets. But many homeowners seem to be choosing foreclosure over paying hundreds of thousands of dollars to the banks.

Another reason that loan modifications fail so often is that homeowners do not work out beneficial ones with their lenders. In fact, most are offered repayment plans instead of true modifications, which can actually increase the monthly payment while not reducing the interest rate or principal due on the loan at all. It is no wonder that borrowers facing financial hardships fall behind on more expensive mortgage payments.

In an economic climate defined by rising unemployment and underemployment, even families that originally qualify for a modification agreement may find that the mortgage is unaffordable after a layoff or cutback in hours. While one foreclosure may motivate borrowers to try to save their homes any way possible, a second one may convince them that renting is a better option after all.

The fact that the government has been appropriating so much money to propping up failed financial institutions and other corporations means that fewer resources can be used by successful companies to hire or expand business. And the $12 trillion in new money created by the Federal Reserve has ensured that prices for consumer goods are remaining stable or rising, not falling as they should during a depression.

What homeowners' goal should be when negotiating for a modification is a mutually beneficial plan that is both affordable and a reasonable price for the property. While this is often easier said than done, with the right amount of persistence and advice (although preferably not from a failed government plan's bureaucrats), it is possible to end up with a modification without a 75% chance of being defaulted on.
Nick publishes information on how homeowners can avoid foreclosure on their own. His site describes various methods to do this, including foreclosure loans, loan modification, short sales, and more. Visit the site to download several e-books examining various aspects of how to save a home: http://www.foreclosurefish.com/