October 20, 2010

The Latest Mortgage Mess. ~ Liz Benson

The latest news that mortgage companies were improperly processing paperwork in the 23 states that require judicial foreclosure has brought a new round of foreclosure moratoriums—causing more headaches for an already struggling housing market.

Photo courtesy woodley wonderworks

Basically, foreclosure processors were pushing through the documents without getting signatures from the required representatives of their own companies, and sometimes without notarized signatures in some states where that is required. There is no evidence so far that any homeowner who was current on their mortgage was wrongfully foreclosed on, but that hasn’t stopped politicians from expressing outrage and suggesting that there be a moratorium on foreclosures nationally.

Though these technical paperwork issues do need to be corrected, a government mandated national moratorium on foreclosures is likely to weaken the housing market further and in turn the economy as a whole. Tim Ryan, chief executive of the Securities Industry and Financial Markets Association, reported in the Dow Jones Newswire:

“It must be recognized that the mortgage market, investors and the health of the economy are all interrelated. Investors in the housing market—including American workers with pension funds, 401(k) plans, and mutual funds—would unjustly suffer losses in their savings from these actions. Increased uncertainty in the securitization market would further constrain consumer credit and spending, dampening our already unhealthy economic situation.”

So what does this all mean to you and me? Because of the housing downturn and the high rate of unemployment, there are millions of foreclosures pending and if they are stalled, that only slows down the eventual housing recovery. The thinking is that we need to get all of the homes sold in order for the market to find the bottom and begin to rebound.

On the other hand, if mortgage companies find it more difficult to foreclose on properties, the hope is that they will be more receptive to working with delinquent home owners on modifying their mortgages enabling them to keep their homes. This can be done by increasing the payment period, say from a 30 year mortgage to a 40 year or by reducing their interest rate which in turn lowers their monthly payment. The federal government has been trying to encourage this but so far many large mortgage companies have been resistant. They would often prefer to get these bad loans off their books by foreclosing and selling them.

Homeowners who owe more on their home than it is worth in today’s market want to be able to sell their home and have the bank forgive the difference in value. This is called a short sale. Banks have been reluctant to streamline this process as well, so these new foreclosure hurdles may help that process move more smoothly too.

Even if banks do modify more loans and approve more short sales, there are still likely millions of homeowners who, due to unemployment or under employment, simply cannot afford their homes and their foreclosure is inevitable. Those homes will still have to come on the market in the coming months, maybe years, and will continue to keep housing prices down. It looks like a nationwide housing recovery is still far off.

For homeowners in default on their mortgages, more info on modification or short sale options is available at http://makinghomeaffordable.gov/.

Liz Benson is a certified ECOBroker in Boulder County and surrounding areas. Originally from Indianapolis, Liz moved to Boulder to attend the University of Colorado in 1983 and has (except for a few travels) been there ever since. She is married to her college sweetheart (20 years), has a 13 year old daughter and a 5 year old bordie collie. She is passionate about volunteering and is involved with the Humane Society of Boulder Valley, Past Parent Council, Colorado Haiti Project and is Open Enrollment Visitation Coordinator for Platt CHOICE Middle School.

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