Foreclosure Crisis Affecting Middle Class Homeowners
The current housing meltdown brought on by the foreclosure debacle has begun to spill over from poor and low-income areas to higher-priced middle class neighborhoods as well. Some neighborhoods which are suburbs of major US metropolitan areas have seen foreclosure rates soaring as high as 60-percent, with 45-percent areas becoming quite common.
Since middle-class families are now being affected, the Bush administration has a plan that will help people keep their homes with a five-year freeze of mortgage interest rates and refinancing for homeowners who meet certain criteria. They must reside in their homes, and have sub prime adjustable rate mortgages that were issued between January 1st, 2005 and July 31st, 2007 and that are scheduled for resets after January 1st of 2008. Out of the approximately 5-million sub prime mortgage holders, only about 1.2-million will qualify for help under the new plan and most of these are middle-class owners of more expensive homes who would also go down without it.
Workable solutions are not easy to find. Lenders and investors want to protect their profits. Homeowners who remain solvent, justifiably fear that nearby neighborhoods filled with boarded-up foreclosed homes offered at huge discounts will bring the value of their property down even more than it has and that so many empty homes are like flypaper to criminals, druggies and looters. The Bush administration certainly realizes that someone has to pay the piper for this sub prime mess, but it is loathe to have government money used to bail out greedy lenders and negligent borrowers.
There’s no question that this is a bitter pill for foreclosed homeowners to swallow and while the President’s plan isn’t perfect, it will provide relief for some and might defer plummeting home values for some period of time. It should also give lenders some much-needed extra incentive to help troubled homeowners facing foreclosure to convert their loans over to fixed-rate mortgages they can afford.
Lenders need to take a very-hard look at how their poor standards for lending money brought this debacle about in the first place and also realize that they must require more than a buyer’s signature on the dotted line. When lenders reduced down payments they saw it as an opportunity to convert renters into homeowners. However as it ended up, their credit is now terminally besmirched and eviction is on the horizon. There is a lesson to be learned for borrowers too: Not to rely upon fast-taking lenders and brokers and not to sign if the interest rate and terms offered are not affordable.
When the Bush plan was first discussed, buyers with less than 3% equity in their homes were not excluded and speculators who didn’t live in their homes weren’t either. But that’s not how it ended up.
What most folks agree that is needed for the long term is for lenders to return to the traditional lending guidelines that used to be in place before the housing boom took off. They should require a minimum down payment of 5% because buyers with little or no equity are considerably more likely to default. Some lenders used to require 15-20% as a down payment in 2003 and 2004 and they reported very few foreclosures under those terms.
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Yes, now that potential voters with small campaign contributions are being affected in larger and larger numbers, it’s time for the government to step in and save the day.
Even if their plan will only be applicable to a very small percentage of homeowners facing foreclosure, not to mention the fact that many of them will not even hear about this plan.
Also not to mention the fact that the plan does nothing to address the main causes of foreclosure: job loss, sudden medical expense, divorce, etc. that lead to a permanent negative effect on the family’s income.
Such a band-aid like measure will provide relief to some homeowners, but the vast majority will have to sit in their new apartments watching news reports of how brilliant the president’s plan is and interviews of homeowners who actually qualified.
[...] post by Foreclosure Blog - News and articles about foreclosures This entry was written by admin and posted on December 12, 2007 at 6:58 am and filed under Fixed [...]