Do you as a struggling home owner understand why it’s so hard to get ahead? There is a mortgage crisis and it is being perpetuated by banks; possibly you own bank.
In the recent (July 30, 2009) New York Times story called Lucrative fees may deter efforts to alter loans the banks are making money off your delinquency. It say:
From June 2008 to June 2009, the number of American mortgages that were 90 days or more delinquent soared from 1.8 million to nearly 3 million, according to the realty research company First American Core Logic. During that period, the number of loans that resulted in the bank taking ownership of the home declined to 245,000, from 333,000.
A person who sees these statistic may wonder why and may even think it’s evidence that the banks are helping their constituency by keeping them from foreclosing. But further evidence indicates the banks are the ones who benefit from the perpetuation of delinquent loans.
They gain more fees, extend the foreclosure process, and eventually gain the fees of a new transfer when the house does finally foreclose. Take into account the following which is also from New York Times,
nearly 12 percent of its income in 2007 came from fees to borrowers.
Someone is paying the bank this difference. If you are in a delinquent loan, your frustration is likely translating into more money for the banks.
I’ve been angry about people walking away from upside-down loans. I felt betrayed by neighbors who’ve let their house foreclose, because it causes my own house loose value.
What to do
Upon reading some of this insightful information, I realize it may very difficult to escape the strangle hold of a fee laden process the bank intentionally puts on struggling homeowners, so they can get more money.
I imagine most home owners who foreclose do not know all the reasons why they’ve felt motivated to bite the foreclosure bullet, but they feel it’s the best things for them to do.
It actually does become the best financial decision for many people to make because the banks have created a trap that will swallow them financially and have strung the homeowner along to keep them in the trap.
Now I probably sound like I think the bank and its managers are tyrannical oppressors. And they may be. But on the other hand these are difficult times for everyone. Banks are in the middle of any economic struggle and we know from the news of several financial institutions that have crumbled under eh weight of it. So, how could we fault the banks for using the unaccountable structure that governs them to help their own profitability? Most of us would have done the same thing. In fact it falls under the same category of thought as those who’ve chosen foreclosure at the expense of their own neighbors. Everyone is out for their own survival. Banks are not an exception.
Behind all of this the government is adjusting legal ramification and financing bank to provide incentives so that the homeowners do not have to flail in the midst of the economic downturn. Banks are suppose to give a refinance to people who are in difficult loans even to provide a 110% refinance of the loan to help people’s whose loans are upside-down. It all seems helpful at face value. But ask anyone who has tried to take advantage of this option and it hardly ever happens. For one, I know houses are not even worth half what they were in 2004. 110% refinancing only helps people who have paid half their house off already. That excludes most struggling homeowners. For another the banks have created other clauses and loopholes to exclude or to out price anyone who is really financially strapped.
It’s a time when the old adage is true, you can only get a loan when you don’t need one. Well people who don’t need a refinance are the only one’s who could get one and even many of them can not.
The New York Times stated that,
Data on delinquencies reinforces the notion that servicers are inclined to let problem loans float in purgatory neither taking control of houses and selling them, nor modifying loans to give homeowners a break.
Understanding the desperation banks are in, I find it hard to fault them. But there is now form of accountability in the system right now to assure they do not take unfair advantage of those who need whatever help they can get. The incentives the government offer is only a trifle compared to what the banks are making when they prolong a fee intensive loan default.
Understand the Problem
So this is information. It may not help a struggling homeowner know what to do. But I hope it provides an understanding of the problem.
I don’t suggest foreclosure. You will be strung along and pay fees in that process as well. It is also not really fair to people who live near you, in that it ruins their home value.
Investigate your options
The best option I can think of is to look around. You bank may not want to help you because they gain more in letting your struggle, but you may be able to find other means for the financing of your home.
Look for other banks who will carry your loan and buy it out. It may cost you upfront to pay out the difference. It may require taking a second, higher interest loan to get the top side of the old house low enough for a mortgage. You may even have to pay for two mortgages for awhile, either combined or separate, but it will possibly save you in the long run. Consider the cost of current fees and interest increment that’s the amount you are loosing and it gets worse and worse the longer you doing nothing.
Finally, there is a new trend that I’ve been real interested in. It is what has been called private mini-loans. Its for people with business plans that are likely to provide the pay back of the loan. It requires little or no collateral only evidence of a person’s ability to repay. That evidence can be in the cosigning of friends and family and the showing of job security or employability.
I do not know a lot about these loans yet but they have grown out of needs form both sides and opportunity being seized by both private investors and those who need to borrow. Investors are finding it hard to put their money to work. Even the best and safest investing options are earning small dividends and little security. For the borrower, they have found getting a traditional loan difficult or a refinance impossible. Put the two together and you have symbiosis.
A private investor can offer a loan with a competitive rate, insure it, and still make much more form the interest then they would have with their money in the markets. In fact some investors have put their money in a standard savings account because they have gotten tired of watching the money disappear.
How to find the investors is not easy. Start with people you know. Your friends may not be able or willing to finance an entire house but they may be able to lighten the load for a homeowner.
Or if you are an investor, look around to the people you know. If you have a friend who is in a house they can’t keep up with, offer a loan option to them that will benefit both of you.
Don’t foolishly ruin a relationship over these options. To avoid problems have an attorney review your contract and tell you what they think.
Banks who have knowingly taken advantage of the struggling homeowner, shame on you. Homeowner who’s struggling I encourage you to review all your options. It may even be time to ask dad to give you a loan.
Until the law brings more accountability on banks for things that have prolonged this recession, they will default using your pocketbooks for their own survival.