More than 50,000 homeowners lined up in the rain last Friday outside of the Palm Beach County Convention Center in West Palm Beach with hopes of saving their homes from the growing foreclosure crisis. The headline Friday in the Palm Beach Post was “Desperate homeowners’ line up for mortgage modification marathon.”
This is a round-the-clock event where NACA counselors will counsel with homeowners to come up with an affordable mortgage payment that would be 31% of less than their gross salary. It was interesting that many of the NACA counselors were wearing yellow T-shirts displaying the slogan: “Loan Sharks Beware.”
This event was billed “Save the Dream Tour:” Will this modification marathon help these desperate homeowners? Only time will tell. What is important to point out is that nearly half of the 1.4 million homeowners who enrolled in the Obama administration’s flagship mortgage-relief program have dropped out. The administration’s program was set up to help those at risk of foreclosure by lowering their monthly mortgage payments.
HAMP is not working. The government program is petering out. It is taking in fewer homeowners and more are dropping out and fewer people are ending up making their mortgage payments in a permanent modification. Now why is this? How many of the 50,000 desperate homeowners will qualify for a loan modification and how many will stay with the program? Only time will tell.
One of every five US homeowners owed more on their mortgage than their home was worth in the fourth quarter of last year and this trend has accelerated the first quarter of this year. There are now over 11 million homeowners underwater on their mortgages. Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process. This is a growing trend that is posing a serious threat to the housing market recovery. As we have seen, homeowners with “underwater” mortgages are more prone to defaults and foreclosures. Why? Because they do not qualify for refinancing even with the record low rates and they are unable to sell their homes because they do not have the cash at closing time to pay off their mortgage.
Of all the loans backed by the FHA in 2007, 24% of them are now in default, and for those generated in 2008, 20% are in default. The FHA is out of money. The banks and lenders sitting on and servicing all of these real estate portfolios are in denial. People do not understand how grave this situation really is.
Loan modification is not the answer for many homeowners. Mortgage reduction is what is needed. The HAMP program has been considering principal writedowns. This would allow homeowners with loan-to-value rations greater than 115% to get a reduction in their mortgage principal, which would then lower the monthly payments. At this time there is no set date for the mortgage reduction program to begin.
More than 2.3 million homes were repossessed by lenders since the recession began in December 2007, and economists are expecting the number of foreclosures to continue to grow well into next year.
Foreclosures and distressed home short sales have pushed down the home values and have crippled the broader housing industry. This has made it difficult for homebuilders to compete with the depressed prices and has discouraged thousands of potential sellers from putting their homes on the market. So where does it all end? No one has the answer.
Each distressed homeowner must check all of their options and become educated as to what, when and where and then take action. Reading the Tower Report, Stop Foreclosure and Keep Your Home or Just Walk Away, would be a recommended place to start.