The Mortgage Crisis and Increasing Foreclosures -- Is there Hope on the Horizon? Part I
With 1 in 10 homeowners presently behind in their mortgages, it's no wonder that foreclosure rates are expected to double in the new year. But wait....haven't we been reading about the government programs implemented to help homeowners? Sure, Fannie Mae has rolled out some programs, but are they helping? It's safe to say "absolutely not".
One of the most recent programs rolled out in October, Hope for Homeowners, is failing so miserably that HUD is already considering modifying the program. The program was supposed to help 400,000 borrowers get new loans -- as of November 13th, it had helped 42 (yes, JUST 42!!!!) homeowners. Now HUD is saying they only expect 20,000 applications during 2009.
Why? Because lenders are balking at a requirement to lower the principle balance owed on loans so that they qualify for refinancing under the Hope for Homeowners program. There comes a time for someone to point out to the Investors behind these loans, and to the lenders servicing these loans, that they can't have their cake and eat it, too. NOW is that time.
Investors still hope the market will turn around and they'll be able to sell foreclosed properties and still get a return on their investment. That is NOT going to happen. With most properties being upside down right now, and a stigma attached to REO properties, Investors are going to be lucky to resell a home at 80% fair market value. Investors will realize a greater return by lowering the principle balance on an already funded loan, thus allowing the homeowner to qualify for the Hope for Homeowners program and allowing the Investor to keep earning future interest income.
The question becomes "how do we get the investors to realize this?" I'm afraid the phrase "money talks" is absolutely applicable in this scenario, albeit not in the traditional sense. This time it will be the deafening silence from the money which will make the people holding the key to helping homeowners (investors and lenders) realize that they have to give some to get some. Unfortunately, I expect this will take SEVERAL quarters with drastic losses and by that time I'm scared to think how many homes will have been lost.
