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(Online-Artikel.de) - Homeowners should get information on loan modification or affordable refinancing to avoid foreclosures
Federal Reserve Board this week released a working paper on the Home Affordable Loan Modification Program (HAMP). The study indicated that HAMP is not adequate in preventing many foreclosures. The report said that millions of foreclosures are likely to occur over the next couple of years. House price declines have led to a sharp deterioration in the financial situation of many homeowners, leaving them less willing or able to afford even reduced mortgage payments. HAMP modifications are not well-suited to address many cases where homeowners have suffered a large temporary decline in income, as might be the result of job loss. In particular, because the modification calls for a reduction in the ratio of payments to income based on the current level of income, a reduction that would not be reversed if income were to return to its previous level, the required modification in such cases will often be too costly to qualify the program.
In addition, the program may not be very effective when the value of the mortgage greatly exceeds the value of the home. Some borrowers who believe that there is little prospect for house prices to recover enough to put the mortgage "above water" within some reasonable period of time will not participate in the program and instead walk away from their mortgages. Worse yet, other borrowers may shift beliefs only after entering the program; these borrowers are likely to default after many of the costs associated with the modification have already been borne.
The study also discusses the cost of foreclosure, in which it said the costs of this rise in foreclosures are substantial. Historically, about half of foreclosure starts have resulted in borrowers losing their properties, and—given the current weak financial situations of U.S. households and the strains facing mortgage servicers—the proportion is likely to be higher in the current crisis. Families that are displaced are likely to have depleted their financial resources and impaired their credit and thus likely to have difficulty relocating. If they are forced to move significant distances, they may lose their jobs and suffer other disruptions to family life.
Neighbors and communities can also suffer when a property is foreclosed upon. Clusters of vacant properties are often associated with higher rates of vandalism and crime, and lower house prices throughout the neighborhood. Municipal governments may have to spend more to address these problems and may be strained by the lower tax revenue associated with lower house prices. More broadly, high rates of foreclosure are adding to the oversupply of housing, reinforcing the weakness in the housing sector, and, in turn, presenting a significant hindrance to economic recovery.
The completion of a foreclosure can also impose costs on financial institutions. In the current environment, many such properties are either sold at a considerable loss or remain on lenders' books, adding to the already considerable strains faced by these institutions. Estimates of loss severities, that is, the percent of a loan's balance that is lost in a foreclosure, have increased significantly in the past 18 months and now are close to 50 percent for prime, 60 percent for near prime, and more than 70 percent for subprime mortgages (these figures exclude certain costs, so the actual loss is even higher).
Ultimately, as a homeowner, you can improve your chance of getting a loan modification by doing your own research and be prepared when you approach your lender. Debt Zero Programs at d0p.org is the most up to date, comprehensive and FREE information source on the internet for government information on loan modification, mortgage refinance and other government help on debt reduction.
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