Foreclosures
are on the rise as they soared 71 percent in the
third quarter, to an average of 8,500 homes a day.
More than 3 million foreclosed homes are expected to
be in foreclosure by year's end. Lenders are taking possession of
foreclosed homes quicker than before which means that by year's end
lenders will have more than million homes in their possession.
Rather that working with people to aid their help to
save the home, lenders are walking away from it. With distressed
prices as of now, this would push home process to even lower
levels.
Banks are overwhelmed with the sheer number of
troubled mortgages and it made it more difficult for them to work
out every loan modification by either reducing interest rate, or
changing loan terms.
Many of these homes also have second mortgages
attached to them which would involve another lender or another party
that needs to be present for negotiation. With over 3 million home
being foreclosed lenders do not have time to work out each of these
homes.
Main problem is that mortgages are grouped together
and sold off to investors. These mortgage-backed securities carry
terms that are sometimes hard to renegotiate, so the banks typically
service the mortgage by collection payments and passing it to
investor.
Those servicing the loan often make more money in
foreclosure than renegotiating the loan.
Government is trying to step in and help homeowners.
GOP presidential candidate John McCain told CNBC that the
government's top priority should be to buy up these troubled
mortgages and allow people to stay in their homes.
"The administration is not doing what I think they
should do, and that's go in and buy out these bad mortgages, give
people mortgages they can afford, stabilize home values and start
them back up again," McCain said in a live interview.
"Our position is that is more advantageous to modify
the loans and keep the families in their homes," says David Barr, a
spokesman for the Federal Depository Insurance Corporation.
"Foreclosures are not good for values of home in the community and
if you are an investor, a modified loan provides a continued income
stream."
Banks have stepped up a voluntary efforts to help
homeowners with mortgages as HOPE NOW program, claims to have helped
avoid 2.3 million foreclosures.
Even when any government program is unfolding to help
distressed borrowers to keep their homes, there is no guarantee if
homeowner would end up in default again in a few months period.
Foreclosures typically affect 20 homes in a single
neighborhood which promptly lowers homes values significantly. With
foreclosures on the rise, most homeowners will be or currently are
upside down on their mortgages.
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