The administration has taken up drastic measures to mend the housing industry’s great fall, foreclosure. Even the incoming Obama administration is strategizing against repossession. But these efforts may end up wasted if the main causes of foreclosure are not mended first.
We list down some major obstructions to lenders and borrowers that contribute to homes ending up in foreclosure:
Let us start with mortgage companies making their borrowers stretch to afford loans more than their actual means.
Mortgages are bundled in separate trusts then sold supported by the mortgage pool.
The monthly dues of payables compensate these bond holders. Wall Street minimized risks of bad loans by dividing one mortgage to different investors. But, in case the borrower asks for renegotiation, it would be difficult to have a settlement with all of your investors.
To make it easier, loan servicers collect from the borrowers and paid the amount to the bond-holding investors. But some investors have different guidelines in handling bad loans and modification.
Lenders used to accept second mortgage as down payment. But with the tough times, loan modification has become difficult. It is already hard to modify initial mortgages that investors of the second mortgage are left with no incentive.
So, who should shoulder the losses of the principal balance of a loan that was only affected by the declining home value? Well, all the investors must just agree to reduce the principal to minimize their loss.
The Congress has exerted much attention to the foreclosure crisis through housing relief. Foreclosure relief programs offered split up losses and just divide gains from the amount in which the house will be sold. But some think that it is unfair to relieve those homeowners who borrowed more than they can actually pay for.
But many homeowners still can not save their homes from repossession since their mortgages were built for an appreciating housing industry. And since housing took the opposite direction, homeowners were left deeper in debt, losing their homes to foreclosure.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.