Busted: Bankers and The Global Economy

March 24, 2008

Mortgage Lenders Claim to Help Borrowers

Filed under: banking, government, investment, money — Tags: , , , , , , , , — digitaleconomy @ 12:00 am

mortgage-foreclosure-sketch.jpgLenders make the claim of wanting to help mortgage borrowers that are in trouble stay in their homes. In fact, it is in the best interest of all involved, especially in the current economy, that borrowers receive a reasonable amount of assistance. This is especially true since so many homes face imminent foreclosure, particularly in the United States. Foreclosure prevention counselors run into obstacles, most of which are built into the world of finance by securities profiteering. Because of the way that banks have handled home loans, repackaging them as securities and reselling them, working out loan resolutions is an excruciating time-consuming process. Since mortgages are typically packaged together and sold to investors as securities instruments, problems for the borrowers are many. These instruments are commonly sold and resold by investors to keep the money flowing or to protect investors from continuing or possible losses. Tracking ownership of these securities is a problem.

Once the owners of the securities are tracked down, negotiations are necessary to make adjustments to the loan. A home with multiple loans is even more complex, especially when attempts to refinance the loans into a single loan are made. Negotiation is tough. The owners of the securities don’t want to lose money on the bottom line of their investment. Lenders don’t always cooperate. Loan counselors have to work out the differences between lender and borrower. Lenders often balk at making any changes, especially for secondary no-down loans. The delinquency rate for secondary loans is growing faster than for standard mortgages. Multiple loans are difficult to restructure because loan holders have competing interests. Secondary lenders often lose out during foreclosures, so you would imagine that the desire to assist would be greater, but that simply isn’t so. Foreclosure costs often end up coming out of the real estate value. When a lender feels an investment is threatened, they will often resell the loan, making resolution even more difficult. Multiply this times 600,000 and you have a close approximate of the immediate situation in the U. S. housing market. Time is precious and plenty of “man hours” go into restructuring a single loan. Only new U.S. federal law protects from immediate foreclosure and the restructured debt negotiated is often a short-term fix that must be addressed after five years or so. Handling the cost of fees and penalties also presents a challenge as lenders must often bite the bullet as the value of their investment shrinks further. This is especially the case, since many borrowers are having financial problems that have created the need to refinance.

Washington. We have a problem. There is no time to lose. 1 million more homes are on the foreclosure block over the next four months. In order to qualify for help, homes payments must be current.

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