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Mortgage Foreclosure Crisis Continues

By Kurt O'Keefe, Detroit Consumer Attorney

2.8 million properties foreclosed in 2009.

And the trend?  Bound to get even worse.  Record high default rate now, as over 13% of homeowners are behind on their mortgage payments.

American homeowners now $745 billion underwater on their mortgages, according to First American CoreLogic.

Sounds low to me.

Why? Interest only mortgages, which are not sub-prime, which switch over to an amortized payment, $47 billion in the next year, $80 billion in the next two years.

Not to mention, more ARMs (Adjustable Rate Mortgages) resetting this year and next, with expiration of teaser rates, payments will go up, more mortgage defaults, more foreclosures.

Interest only mortgages, which are Alt-A or prime, not sub-prime, will switch over to an amortized payment, $47 billion in the next year, $80 billion in the next two years.

Amortized payment means a payment which will pay off the loan over a set time period, usually 30 years.

When you are paying interest only, of course, you are not paying down the principal, or total, balance that you owe on the loan.

Mortgage payments will go up 15% on interest only loans that convert, just to get a fixed payment that will pay off the mortgage. Payments will go up more if interest rates go higher.

There is virtually no room for them to go lower.

And 61% of the modifications actually agreed to by mortgage companies since October 1, 2008, are in default again already.

Government’s solution?  Hey, if we pay the banks some of their losses, maybe they will finally start to write down principal balances.

Gee, that sounds an awful lot like the banks’ solution.

Only 21,000 of the loans modified in the third quarter of 2009 included principal writedowns, or deferrals.

I bet, more deferrals than actual writedowns.

For one thing, investors, who actually own the mortgages somewhere down the securitization line, are suing when principal is written off.

What good does a deferral do for the homeowner?

My favorite quote Business Week story linked to above;  ”Mark Zandi, the chief economist for Moody?s Economy.com, who has testified before Congress on housing issues, proposes that banks receive a federal match of $1 for every $2 in principal reductions they offer to homeowners who were victims of predatory lending practices.”

So, let’s get this straight, mortgage company breaks the law, lends money it should not, probably cheating the homeowner, makes a profit.

Homeowner now stuck in home worth less then is owed, with unaffordable payments.

Remedy?

Another bailout for the crooked mortgage companies.

Well, they did spend enough of their ill gotten gains to buy both political parties, as each has supported TARP and further bailouts that have insulated the banking and mortgage companies from the consequences of their own actions, at the expense of you and me, the taxpayer.

Let them eat cake!

Or something, besides an open invitation from our crooked Congress to tap into the Treasury.

Mortgage Foreclosure Crisis Continues

Related posts:

1. Is your Option ARM about to recast?
2. Here Are 5 Types of Mortgages
3. Sub-Prime Crisis Solutions? Mortgage Companies Try Again

Full post as published by Mortgage Law Network on January 14, 2010 (boomark / email).