According to Consumer Federation of America 2.2 million foreclosures are predicted as repayment terms on about $ 1.3 trillion of adjustable-rate loans will increase in 2006 and 2007. These increases will force some borrowers to pay up to 150% more per month resulting in an estimated 167,000 new families entering foreclosure every 3 months. The updated statistics were just released from Neighborhood Works Center of America, a nonprofit center for foreclosure solutions.
Let's take a closer look at the problem
CNN Money (June 2007) Fannie Mae and Freddie Mac found in their review of loans originated in 2005 that up to 50% of the subprime loans originated would have qualified for a prime rate mortgage. It should not be a surprise that homeowners are struggling financially and foreclosure rates are at startlingly high.
What does this mean?
It means that these borrowers should have received prime rate mortgages.
What this really means
It means that if these borrowers would have been placed in the appropriate mortgage program initially they wouldn't be worried about:
- Adjustable rates and increase in payments
- Prepayment Penalty Requirements
- Higher rates than when their mortgage was originated - (remember a 30 year fixed rate mortgage was at 5.75% - a rate no longer available in today)
- Closing costs associated with refinancing a new loan
The Million Dollar Question
How could this many borrowers be placed in mortgages that weren't in their best interest?
Food For Thought
- How many foreclosures could have been prevented by placing the borrower in the appropriate mortgage program?
- How much money would the average consumer save if they would have received the lower interest rate and appropriate terms?
- How many borrowers were subjected to unnecessary pre-payment penalties?
This is Scary Stuff
Foreclosures don't just hurt the borrower - everyone gets hurt. When people can take out mortgages they can't really afford, they bid up prices for everyone. When those prices go down, everyone gets hurt - entire communities suffer and there is a disruption in the real estate purchasing cycle. when the economy depends as heavily on mortgage debt as it does now, there are very serious risks involved.
Scarier than Scary
Mortgage lenders are not getting any more prudent: According to Frederick Cannon, bank analyst with New York's Keefe Bruyette & Woods Inc. Investment Bank instead of cutting back on the exotic mortgages that contributed to the foreclosure problems, many lenders are charging ahead on such high risk loans full tilt. Lenders should have dialed back the aggressive loans by now.
Cutthroat competition, says banks, leaves them no choice. Even after then Federal Reserve Chairman Alan Greenspan admonished lenders a year ago for enticing borrowers to take on more debt, many still require little or no documentation, ask for low minimum payments, offer loans that are high as a percentage of home valuations, and permit borrowers to carry more overall debt than in the past. Few lenders have passed much of the rise in rates on to borrowers either. "Both the banks and consumers are stretching," says Peter J. Winter, an analyst with Harris Nesbitt Corp., a unit of BMO Financial Group (BMO). They are continuing to push the envelope.
CNN Money on June 27, 2007 reports "Subprime Lending - Abuse As Usual" stating that the abuses persist industry wide, despite the recent subprime mortgage meltdown. The Center for Responsible Lending's senior policy counsel, Keith Ernst stated that " a lot of the terms that make these loans so dangerous are still being used even after we had been told that they were going away."
Who's Here To Help?
NeighborWorks of America - Center for Foreclosure Solutions - is a national nonprofit organization created to help preserve homeownership in the face of rising foreclosure rates. The center builds capable foreclosure counselors around the nation to help struggling homeowners. The national hotline is 888-995-HOPE and the website is www.nw.org.
U.S. Department of Housing and Urban Development - HUD's mission is to increase homeownership, support community development and increase access to affordable housing free from discrimination. To fulfill this mission, HUD will embrace high standards of ethics, management and accountability and forge new partnerships - particularly with faith-based and community organizations - that leverage resources and improve HUD's ability to be effective on the community level. Visit the website and find your local office at www.hud.gov
Center for Responsible Lending - The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions. www.responsiblelending.org
A Woman's Lifetime Lender and Financial Network - A Woman's Lifetime Lender and Financial Network was founded with one goal in mind to offer services that protect women and their families from becoming victims of predatory lending practices and high cost mortgages. The development of our educational programs is designed to help women identify the warning signs of unethical lending practices and ask the questions that will help them avoid the pitfalls that can result in financial hardship. We are a woman's resource to ethical lending. www.womanslifetimelender.com
Let's Summarize
We have an economy that's incredibly dependent on consumer's ability to acquire mortgage debt. We have consumers who are increasingly indebted. Moreover, their debts are much more likely than a few years ago to take this incredibly risky form: low payments for a few years, and then a huge increase in payments for the next few decades.
Lenders are still negligent in their due diligence to the borrowers - still pushing the envelope with dangerous loan programs that can result in financial hardship for families and communities. Even after the subprime lending nightmare they continued to push the envelope. This lending approach simply is not working - we need reasonable solutions and ones that will help protect the consumer.
There are a number of organizations on a local and federal level that are stepping out to help and offering foreclosure solutions. If you are having a hard time paying your mortgage, if your current mortgage is getting ready to adjust and you are uncertain about making the best financial decision for you and your family- it is worth the phone call to receive information that will help you not only obtain the American dream - but keep it.
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Posted by: John Beck | October 22, 2008 at 02:02 AM