Foreclosure Homes for Sale: Banks Prolonging the Crisis?
It seems that everyone is pointing fingers during this foreclosure crisis. There are more foreclosure homes for sale than at any time during our history. And, according to the Business Week article, How Banks Are Worsening the Foreclosure Crisis, some of the fingers are pointing directly at banks.
. . . with 1 million residences having fallen into foreclosure since 2006, and an additional 5.9 million expected over the next four years (emphasis added). . . the industry hasn’t shown that kind of foresight [the willingness to work with borrowers]. . . One reason foreclosures are so rampant is that banks and their advocates in Washington have delayed, diluted, and obstructed attempts to address the problem.
Foreclosure Homes for Sale: 3 Things Banks Can Do to Help Stem the Tide
Many get caught in the complicated speak of Wall Street when it comes to how to help the average homeowner keep their home. But, it really is not complicated. Following are three simple, straightforward ideas on how banks can get their heads out of the sand, help struggling homeowners keep their homes, which will help to stem the tide of foreclosure homes for sale flooding the market.
Banks No Help in Stemming the Tide of Foreclosures
1. Work with Borrowers: Even with many federal programs in place like Making Home Affordable incentivizing them to work with borrowers, many banks are not doing so. They need to go on a case-by-case basis and realize that the old lending standards, guidelines and rules that were in place before don’t apply now.
If a borrower’s ARM is about to kick in and they can prove that they can’t pay it, why not leave it at the old rate? Numbers don’t lie. If a borrower has been paying $1,100 on time, and his mortgage is about to take a $348 hike while his income has remained the same, why not just put him into a 30-year fixed rate that keeps his mortgage at $1,100?
Who wins by having this homeowner foreclosed on? Nobody. And, while those weren’t the original terms and it seems patently unfair to those who did the right thing and didn’t get in over their heads — is it going to fix it if this homeowner goes into foreclosure?
No. Nine times out of 10 it’s going to hurt him because when a neighbor goes into foreclosure it lowers the surrounding property values.
2. Give Fixed Rates: Speaking of fixed rates, banks should be more willing to give them out. Instead, they’re putting in place stop-gap measures, eg, a six-month modification, a year of interest-only payments that only prolong the situation in many cases. While this helps some in the short-term, it only forestalls the inevitable foreclosure in the long run.
In order for struggling homeowners to get on their feet, they need to know what their major monthly bills are going to look like one year, three years and five years from now. This helps them to move ahead with making solid plans to get their finances straight once and for all.
Rarely is six months or even a year enough to restructure and start making solid progress. For, just when it seems like you’re starting to get on your feet again, the higher rate kicks in and you’re struggling again. That’s why a lot of the temporary solutions that banks offer don’t work out and why so many homeowners choose to just walk away. They figure that it’s best to just get a fresh start without the burden of a mortgage they can’t afford and trying to deal with a bank that just won’t listen.
While this may seem unfair, unjust and even immoral to some — it doesn’t change the fact that it’s the truth. If you feel like you’re never going to “get ahead” and your lender is not willing to work with you, many think, why not just walk away?
And that’s why banks need to work with struggling homeonwers and start giving out 30 year, fixed-rate mortgages. Many banks are not even considering this because many struggling homeowners have less than perfect credit. But one of the things that’s caused them to have it is paying a mortgage they can’t afford and can’t restructure. And again, this doesn’t make it right. But — many homeowners get it now.
They get that they have to get a hold of their finances; they get that they need to have an emergency fund; they get that they can’t have a $600 car payment on a $40,000 year salary.
Banks made out like bandits on subprime mortgages. The fees they collected gave some of them record profits. Now, the chickens have come home to roost — and we all have to pay for our gluttonous overspending. It’s time for banks to pony up too.
3. Reset Rates to Reflect Current Market Conditions: The last things banks can do is set mortgage rates to reflect a home’s current market value. Speculators and investors ran up prices of homes in certain areas (eg, California, Nevada) to prices that we now know were severely overpriced.
It may be 7, 10 or 12 years before those homes ever reach what they were bought for four, five or six years ago. And, this puts many homeowners under water, which means they can’t refinance. These are some of the most extreme cases. Homeowners are stuck in homes they can’t afford — and can’t afford to leave.
And what are banks doing? Burying their heads.
Foreclosure Homes for Sale: Bankers, Get Your Heads Out of Your A**ses
Listen up bankers, if you want to start making money again from mortgages like Wells Fargo, it’s time to get real like most homeownes and consumers have.
Many homeowners are owning up to their parts in the mortgage crisis. They want to keep their homes and are willing to work with you. But you have to get your heads out of your a**ses and start dealing in reality like the rest of us. Otherwise, you might as well hang out your property preservation signs, because you’ll no longer be in the banking business, you’ll be in the property management business.
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