Loan Modifications Need to Fit the Customer
There are many problems with existing home loans; some of them are adjustable rate mortgages which have had their payments jump as the low payment period expired, many people across the country are un- or under-employed so that they can’t pay their Mortgage, and some people who couldn’t afford to buy homes in the first place were given questionable loans. The drop in home values has also led many home owners to walk away from their homes or just stop paying their mortgage payments because they owe far more on their home than it’s worth. An underwater mortgage makes homeowners unenthusiastic about struggling to make payments when it’s likely that they’ll not have equity in their home for a long time.
The result of this combination of situations is that many people just can’t pay their mortgage payments, some people have mortgages in default, and others have walked away from their homes, while a growing number have homes in foreclosure.
The government’s current mortgage modification program Making Home Affordable renegotiates a homeowner’s mortgage, usually dropping the interest rate and giving a home owner longer to pay the mortgage back, lengthening the terms of the mortgage. However, the problem with this strategy is that home owners with underwater mortgages are still left with less equity in their home than they owe; there is little incentive to stay in that home and keep paying that mortgage.
In addition to this problem, when a home is foreclosed on the bank is stuck with yet another vacant property that loses value and drags down the home values for the neighbourhood. Experts say that the best option to proceed with is one that minimizes the chance that the homeowner will walk away from the home but this will depend on the individual’s circumstances. For some home owners, all that is needed is a modification of the mortgage so that the timeframe is drawn out and the interest rate is reduced. Many home owners require the change from an ARM to a fixed-rate mortgage for stability as well.
When lenders are looking for ways to help home owners stay in their homes and keep paying their mortgage payments, they need to look into ways that they can make home owners feel that it is truly in their best interest to stay in the home. Since it can cost lenders a lot more to have home owners walk away from their homes, it is within the lenders best interest to come to a compromise with home owners in regards to how loans can be reworked.
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