What is the current Crisis
Over the last 10 years our country went through a real estate boom. There were three categories of loans being provided. The first was Prime, the second was Alt a, and the third was Sub-Prime loans. Typically any loan less than Prime had higher rates because of the risk of the borrower. The Sub prime loan was a creative loan that was provided and is currently the reason for around 46% of foreclosures in the U.S. This is astonishing if you think about it, and is the cause for a downturn in our economy. When you have this type of debt being wrote off, someone is affected. That is why our banking industry has had a liquidity problem. There were more loans being bought back than there was cash in the bank.
Insight on reason for foreclosures
Most of the mortgages given during this real estate boom that were Sub-Prime were adjustable rate mortgages (ARM). This type of loan looked very attractive with its initial “low teaser rates”, which typically expired after 2 years. Most of these loans were set to reset between 2 to 5 years which would cause the payment to increase dramatically. The selling point on these loans over the years was, if you keep your credit rating good you can refinance your ARM loan into a 30yr fixed mortgage once the ARM reset. Unfortunately with the declining property values and the tightening up on underwriting guideline it has made it impossible to refinance these types of loans. The result is the mortgage payment will increase dramatically and a foreclosure to follow afterward s. Since all of this has taken place we are seeing global implications on foreign investors that might have put there stock in Mortgage backed securities. IN other words investors global wide are pulling there interest out of these types of loans. Since the book is still being written on this crisis we anticipate the overall economy to feel the strain of this unfortunate crisis and for ARM loans to be less common in the future.
What can I do about my current ARM loan?
Here are the steps in regards to determining whether you can refinance your current loan.
* Determine if you have the current credit to refinance into a FHA loan.
* Determine if you have the equity to refinance your current mortgage
* Call your loan officer to determine if they can help you
If you feel you are not going to be able to afford your mortgage payment, call your lender before you are late on payments. Make arrangements with them rather than not notify them at all. If you find that your lender will not work with you there are counselors that you can talk to.
Here is a list:
An alliance between counselors (HUD approved), servicers and investors that strives to keep homeowners in their homes by helping them renegotiate their loans.http://www.hopenow.com/
A nonprofit that creates partnerships with local governments, nonprofit organizations, borrowers and lenders to help families overcome obstacles that could result in the loss of their homes.http://www.995hope.org/
The U.S. Department of Housing and Urban Development (HUD) sponsors housing counseling agencies throughout the country that can provide advice on buying a home, renting, defaults, foreclosures, credit issues, and reverse mortgages.http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm
Works to preserve homeownership in the face of rising foreclosure rates.http://www.nw.org/
My Money Management
A collaborative effort by the financial services industry to provide consumers with access to financial education to help inform their personal finance decision process.http://www.mymoneymanagement.net/
A refinancing option that gives credit-worthy homeowners, who were making timely mortgage payments before their loans reset but are now in default, a second chance with a FHA insured loan product.http://portal.hud.gov/
Here are some helpful tips for avoiding foreclosure from U.S. Housing and Urban Development.