Help For The Upside Down Mortgage

Aug 17th, 2008 @ 3:44 PM by Alden Smith

No one is sure what the exact number of people there are with upside down mortgages, but a study by First American Core Logic, a real estate data analysis firm, estimates that 11% of homes purchased between 2004 and 2006 are there.  There has been dropping valuation, mortgages resetting and people simply walking away because of this situation.  The downside for lenders is that they are stuck with a piece of property subject to vandalism and neighborhood blight, and they are faced with the prospect of having someone maintain and market them to potential buyers as well.  It is a no win situation for everyone involved.

Clearly, the best answer to this is for banks to deal with homeowners who are struggling.  I don’t know anyone that wants to own and pay for something that is worth less than it is worth, yet I think that people are overall responsible and honest in dealing with their mortgages woes.   The website Smart Money reports that lenders are now becoming more willing to help struggling homeowners.  The caveat here is that you must be behind on your mortgage payments, not just struggling to make the monthly mortgage payment.  Todd Mark, a vice president of education at Consumer Credit Counseling Service of Greater Dallas, a HUD-approved housing counseling organization, says that “You’ll see more and more lenders helping people stay in their homes over the long run”, and Brian Tracz, a New York-based real estate attorney who specializes in foreclosures adds “Lenders want to know the hardship is there.  They view this almost as a partnership in misery.”    This is a bit of a turnaround for lenders, who have typically dragged their feet in offering help.  It is obvious that there is too much money being lost because of this stance.  Clear indication of this is in the Moody’s report, which stated lenders modified less than 1% of the loans that reset during the months of January, April and July 2007.

There are parameters that will need to be followed.  You must be willing and able to continue to live in the home in question if you seek a lender’s help.  You will be asked for specific financial information and questioned on ability to pay.  Lenders may request a letter explaining your financial hardship.  They will want to see a budget, and your action plan to stay in the home that you can stick to.  To my way of thinking, it only makes good business sense to have done this in the first place, not after the fact.  It amazes me how quickly things turn around when business begins to feel the crunch.  I am not so sure that the government has a whole lot of influence over lenders and the banking industry in general.  Whatever the case, it is time to do something, and it appears lenders are now a bit more willing to take that plunge.