Many people are wondering what the story is behind the
foreclosure crisis. They see that the foreclosures have
risen over 141% since 2005. They hear in a single year,
2007, over 1.3 million homes are in foreclosure and that
numbers is expected to rise even higher. That means over
83,000 families are facing foreclosure every month.
Why is the foreclosure crisis so out of hand? Is it
because so many people just don't want to pay their
mortgage? No. If you look on the Internet and read Blogs
on stopping foreclosure you'll notice a common theme among
homeowners facing foreclosure: Homeowners are actively
seeking to stop foreclosure and save their homes. In some
parts of the country 1 in 10 homeowners are facing
foreclosure. Even the famous actor, talk show host, and
Publishers Clearing House spokesperson Ed McMahon just had
his multi-million dollar mansion go into foreclosure.
So right now foreclosure is becoming a national tragedy,
because everybody always told you to build wealth you need
to own your own home and thousands of homeowners now facing
foreclosure from that bad advice. One of the major reasons
there is this foreclosure crisis right now is because of
Wall Street looking to make a buck and loose loan standards
practiced by mortgage companies to loan money to future
home buyers.
In 2003, Wall Street rushed to find the next big thing
since the dot.com collapse, they found the ripe market of
mortgage brokers, so all the fund managers of the pension
funds, mutual funds and other investment vehicles rush to
make money from mortgage backed securities which paid
higher than treasury bills. At the same time Wall Street
was enjoying unregulated, creative ways to increase
business the Federal Reserve Bank also dropped the
interest rate to the lowest in about four years. The tumble
down effect was the mortgage brokers took advantage of
this rush, advertising the interest rate to home buyers and
to refinance homes; and the advertising was effective
because of to the lowest interest rates ever. Buyers
believed they may never get the rate again in their life
time and felt urgency to cash in on what seemed too good to
be true. It was. The irresponsibility came when many
mortgage brokers did whatever it took to put people in
their homes.
Many mortgage brokers did not verify income, loaned to
subprime borrowers and ignored key indicators of likely
loan failure and this all set off the foreclosure crisis.
Mortgage companies put in place devices like: Interest-Only
Loans and 80/20 Loans. Interest Only Loans are loans where
borrowers only paid on the interest of the loan, lowering
their payment, but quite literally paying nothing toward
owning their home. The 80/20 Loan meant the borrower did
not have to put any money down, the entire mortgage was
financed.
These are just two of the so called creative home
mortgages. Now when a mortgage broker faces a foreclosure
on a homeowner's property the mortgage brokers call it a
write off, but a homeowner is facing a demoralizing,
emotionally harsh, socially stigmatizing problem called
foreclosure. What happen to the loan officer that sold the
mortgage to the homeowner? He or she still keeps his or her
commission from the sale and so does the mortgage broker
they worked for. Their credit and reputation is fine
despite their active role in making irresponsible loans.
There are major mortgage brokers having problem, some on
the verge of collapse, guess what they are doing right now?
Begging the United States Congress to bail them out of the
problem of their own creation. I find that ironic, like a
child playing with a toy, then intentionally breaking it
and then crying for their parents to buy a new toy after
being told they have to find a way to fix the original toy.
Funny thing is, many of these industry experts are trying
to blame the homeowners for not staying up on their debt
and paying their bills.
Right now tens of thousands of homeowners a month are
trying to sell their homes because of medical problems, job
loss or Adjustable Rate Mortgages coming due causing
payments to double. Problem is the market is in such
distress that values have hit the floor and the homeowners
are forced into foreclosure because they cannot even sell
their house for less than they owe due to the value
dropping in some cases 30%. The mortgage industry in the
rush to make money off the back of the homeowners have
inflated the cost of housing so badly that homeowners owe
more than the houses are worth in today's market. Everybody
was looking to make money and so, quite magically,
assessments, which mortgage companies paid for, pretty much
always came in at the asking price or the price on a sales
contract.
The assessments, the document that mortgage companies were
legally required to document a house's worth, had inflated
the worth of millions of homes, so the mortgage companies
could get the sale and their staffs could get their
commissions. Mortgage companies and their employees were
making a bundle and homeowners who would not quality under
traditional lending standards felt their dreams came true.
Well that gravy train ended with a huge bang. Just because
you're not facing foreclosure doesn't mean you're off the
hook, the fall out is home improvement, college, auto and
other consumer loans will be harder to obtain due to
tighter standards. Businesses will have a harder time
obtaining a credit, leading to more layoffs and fewer jobs.
This will lead to a vicious cycle of more foreclosure and
possibly a depression.
----------------------------------------------------
MJ Jensen has studied Real Estate from the Homeowners
perspective for over 20 years. Most recently due to the
nature of the Mortgage crisis, he has turned his focus to
techniques to keep homeowners out of Foreclosure. Go here
for more tips
http://www.stopbankforeclosurestips.com/free_report
You can visit his blog at
http://www.stopbankforeclosurestips.com/blog
No comments:
Post a Comment