Foreclosure Crisis Enters New Wave; Beware of Loan Modification Scams
The housing crisis has officially turned into a full-blow foreclosure crisis: “About 12.07 percent of mortgage loans were delinquent or in the foreclosure process during the quarter…That is the highest level ever recorded by the survey, which has been conducted since 1972.” According to experts, the foreclosure crisis has now entered a new phase. Initially, it was mainly speculators and those with adjustable-rate mortgages that experienced mortgage difficulties. The latest wave, in contrast, is affecting those with conventional mortgages.
Not only that, but the focus is shifting away from subprime borrowers; “Of the loans in foreclosure during the first quarter, 49.8 percent were prime loans and 43.2 percent were subprime.” In other words, while the first two waves of foreclosure were triggered by falling prices and rising interest rates, the most recent wave has been driven by the economic recession. Skyrocketing unemployment – which touched 9.4% last week – and faltering incomes are causing the most credit-worthy borrowers to fall behind on their payments, even to the point of default.
What then is the status of President Obama’s loan modification initiative? Less than two weeks after the Mortgage Calculator reported on the success of the program, it already appears that this praise was overblown. “Three months after the program was announced, a Treasury spokeswoman, Jenni Engebretsen, estimated the number of loans that have been modified at “more than 10,000 but fewer than 55,000.”
Worst of all, the loan modification program has been beset by scams and controversy. “The New York attorney general, Andrew M. Cuomo, plans to sue a loan modification company and has subpoenaed information from 14 similar companies as part of a nationwide investigation,” and called the entire industry a “scam.” Apparently, homebuyers don’t realize that the loan modification program is designed to be free of charge, made possible by $75 Billion in federal subsidies made available to participating banks which will be passed on to qualifying homeowners. Those that don’t qualify for the federal program are still advised to read the fine print in their mortgages, some of which contain gratis loan modification provisions.
This hasn’t stopped “predatory” lenders from charging up to $5,000 for loan modification, much of it in the form of upfront costs. Some of the most unscrupulous have taken to soliciting unsuspecting victims to purchase a mortgage audit, ostensibly to review their rights as homeowners. The problem is that this is a legal issue and hence the province of lawyers, not untrained telemarketers with little more than a generic computer program.
According to the government “Making Home Affordable” website (which I strongly encourage you to consult, as qualifying homebuyers could see their monthly payments fall by half), “There is never a fee to get assistance or information about Making Home Affordable from your lender or a HUD-approved housing counselor. Beware of any person or organization that asks you to pay a fee in exchange for housing counseling services or modification of a delinquent loan. Do not pay – walk away!” There you have it- straight from the horse’s mouth…