Stop Bank Foreclosures Tips

On July 26th 2008 Congress signed a bill to help homeowners facing foreclosure to save their homes. The 300 billion dollar foreclosure rescue bill is aimed at helping homeowners to avoid foreclosure and rescuing the mortgage giants Fannie Mae and Freddie Mac. The criterion for qualifying is listed below.

The homeowners must currently live in the homes. The mortgage was issued between June 2005 and January 2007. The homeowner must be spending at least 31% of their gross monthly income on mortgage payments. The homeowners facing foreclosure can even be current on their mortgage payments, but show they cannot continue making payments. This is a departure from current practice of waiting till you start getting behind on your mortgage p[payments and begging for some relief to save your home from foreclosing.

The homeowner must retire any other debt they have on the home such as home equity loan. The homeowner cannot take out another home equity loan for another 5 years on the property. As simple as this sounds, the original lender has to agree to taking a loss on the current mortgage. With all the banks in trouble on the mortgages they handed out with little to no oversight, the mortgage companies might gladly give up these subprime loans to clear up the mortgage companies negative credits. Mortgage companies on average lose $50,000 per foreclosed home, so they might be willing to take a smaller dent on their loan then to risk foreclosure.

The new loan will be secured by the government backed FHA (which offer the homeowner more protections then the conventional mortgage)Of course there are strings attached to the new FHA backed loan. Homeowners will need approval of FHA and the total debt cannot exceed 95% of the homes appraised value. I assuming what they mean by appraised value is for current market conditions and not what the homeowner bought the house for.

The FHA requires an annual insurance premium of 1.5% of the mortgage for the FHA to guarantee the loan. For a $200,000 home that would amount to $250 a month insurance premium. That is a pretty hefty insurance premium to pay each month. The FHA is requiring a 3% “Exit Fee” on sale of the property (on our $200,000 home that would be $6000) plus a share of the profits on the sale of the house. If the property is sold in the first year, the FHA keeps 100% of the profit. So if our $200,000 dollar home sold for $220,000 FHA would keep the $20,000. This profit sharing drops 10% a year till year five then after that the FHA keeps 50% of the profits.

So if we look at the numbers and look at owning a home for ten years. The market value increases 5 % in your area the value of your $200,000 home would be $325.775. Your profit in those ten years would be $125.779. The FHA would keep 50% $62,887.50 plus the 3% exit fee of 9773.25 if they take the value from when you sold the house. This means the FHA will take $72,660.25 leaving you with $53114.75. Let’s not forget those FHA insurance premiums you paid for ten years. That was 1.5% a year times ten years on our $200,000 home equals $3000.00 a year times ten for a total of $30,000.00. WOW, that drops our profit to 23,114.75 for the home. So to the home owner makes about 1% a year and the FHA takes the rest of the equity. If you need to move into a larger home that is valued at a higher price you’re not going to have much money to put down on the new home and there is no incentive to pay down the FHA mortgage loan.

Is it worth it? If you’re a homeowner facing a foreclosure with no other options, YES. This could be a life saver. For most homeowners who figure their homes are part of their financial worth, try to find other ways to save your home first, with other options to save your home. The Homeowner Rescue bill doesn’t even start till October 1st 2008 and many homeowners need help now to save their homes.

Here is a great resource to help A Foreclosure Survival Guide
www.stopbankforeclosurestips.com/website/sales.html
Just copy and paste in your browser.

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.

Here is a great resource to help A Foreclosure Survival Guide
www.stopbankforeclosurestips.com/website/sales.html
Just copy and paste in your browser.