Where can individuals sign up for BAILOUT?
By relundad
@relundad (2310)
United States
September 18, 2008 10:44pm CST
I own a mortgage company and in the last 2 years I have seen my share of people losing their homes due to foreclosure.
One of the common practices in the mortgage lending industry is if you home is about to go to foreclosure and you have it listed for sale, the lender will often consider what is called a SHORT SALE. In this transaction the lender will consider allowing you to sell your home for less than you owe or what it appraises for, or if the value has decreased in your area at market prices.
Let's say that you owe 200k on your home, you are about to go to foreclosure and a buyer comes along and offers 100k, its very possible that your lender will accept this offer. You loose everything still, but the new buyer gets a new home with possibly 100k equity.
The lender would never consider dropping your principle balance to 100k or re-casting your payment based on current market.
Where is the line for bailouts for individuals?
1 person likes this
2 responses
@dragon54u (31634)
• United States
19 Sep 08
I feel sorry for people losing their houses but if they signed up for one of those freaky ARMs, I don't have much sympathy. I've heard of short sales but I thought that got the "owner" out of the obligation. Guess I have some to learn about mortgages.
@relundad (2310)
• United States
19 Sep 08
Well there's a couple of things to keep in mind. First off ARM's are not necessarily a bad product. It depends on how and why the product was sold and the type of ARM it is. Also keep in mind that there were a lot of uneducatated consumers that followed the lead of some so called professional, in terms of directing them to the best option for them.
And you are right the short sale does relieve the owner of the obligation. But by the time they take a short sale offer, basically the owners credit is shot and chances are they wont be able to rent or buy for some time.
My point is that if the lender is willing to do some type of negotiations why wouldn't they do it for the person that owns the property?
@drannhh (15219)
• United States
27 Sep 08
Your point here is quite valid. I am thinking of a scenario such as I have seen in my own community wherein a home that sold for $200K new about 20 years ago dropped in value to less than $100K where it remained for years and then in the real estate boom we had a while back shot up and sold for $300K. The current appraisal is $185. Say that the new buyers have a mortgage of $285.
It does seem to me that if the owners have made every reasonable effort to comply, that instead of taking a salvage price from a stranger, the mortgage company could rewrite the loan so that the payments come down for say 3 or 5 years and the $100K difference remains owing but with a temporary respite from the overall interest. The value of this property will eventually go back up to $285, barring a total collapse of the economy, in which case all bets are off anyway.
I think the line could vary depending on each person's situation, but you raise a highly valid point here and I am certain that with a little creativity a solution could be found that benefits both sides.
If I were in the business of mortgage lending I would use a different formula for determining eligibility for a loan, taking into consideration not only a home's appraised value at the time of sale, but a projected "thick and thin" value based on historical data. Buyers making a purchase when home prices are at or near the top of the market should have to have a higher income ratio than the smart buyers who got in at or near the bottom of the market. That would protect the buyers and the mortgage company by forcing the buyers to avoid undo risk. But that would, unfortunately, keep the mortgage company's quarterly earnings. So in that one sense it is to the mortgage company's advantage to sell borrowers mortgages they really cannot afford. I think both the lender and the borrower have to work at making a choice that is both a) moral and b) viable. Truly, the short sale would not seem to fit either "a" or "b."
