©Stuart Miles - freedigitalsphoto

©Stuart Miles – freedigitalsphoto

Typically it takes about 3 missed payments for a lender or bank to consider a loan delinquent. If the loan balance is not brought current within a specfied amount of time the loan will be in a pre-foreclosure status, whereby borrower is required to pay existing past due amounts or structure loan modification. These days few loans are owned by the banks that originated them – most lenders will provide some written notice to delinquent borrower informing them of the situation. Depending on the bank there is usually a set amount of time designated for the borrower to bring the loan balance up to current. If borrower fails to do so the loan can be sent to a loss-mitigation department or foreclosure department.

Banks do not like to own real estate, and instead would much rather collect interest on loans generated. In today’s market banks are owning a lot of real estate that they cannot value properly, and have been more accommodating when it comes to workout programs and loan modification. This was just strengthened by Obama stimulus plan. Although it is currently difficult to refinance the loan, it is becoming more likely that the bank will work out a longer term plan to help restructure it. It could also be the case that the borrower is simply better off cutting his or her losses at this point. Many borrowers were frankly not qualified to take out loans in the past 10 years. Easy lending to credit-“un”worthy borrowers is a main reason for the current economic condition.

Our nation is facing an unprecedented volume of foreclosures.  During the real estate boom banks were commonly lending to sub-prime borrowers, or borrowers without adequate credit or documented income.  Exotic instruments became the norm, option ARM’s and zero percent down financing are examples of these.  Because these loose lending practices became so prevalent, many banks are struggling to stay open or have already closed their doors as those same borrowers have defaulted.  Mortgage-backed securities were packaged to investors worldwide so this is not just an American problem anymore, although in many ways the United States is a primary factor in the financial turmoil that would be soon to follow.  Some say credit was kept too loose for too long, and that over inflation was just a matter of time.  Whatever the theory many Americans are now stuck with properties they cannot pay for, due to job loss, divorce and a number of other reasons.  Banks are also stuck with loans that they can no longer sell to investors, and many banks and lenders have had to suffer those real losses.

While the encouragement for home ownership is one of the biggest benefits of living in the United States, it is a big responsibility for both lender and homeowner.  Currently refinancing is very difficult in many ways the credit markets are broken.  The U.S. government is doing what it can to mend the problems at hand, but only time can repair the confidence of homebuyers and more importantly banks, who will continue to pursue business in the form of home loans.  Interest rates are at historic lows so it is a time of opportunity to those borrowers who are qualified, with stable income and credit.  Many however have lost their jobs due to failing economic conditions, and the American dream of homeownership is becoming more distant and less possible.

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