The foreclosure numbers don’t lie. According to ForeclosuresMass.com, a total of 478 new foreclosures were filed this week (ending January 29, 2010). Approximately 56 homes slipped into foreclosure every day for the last 60 days. The economy is far from a turn around.
HAMP is not really working – at least in not any meaningful way. Homeowners can expect a “delay and pray” modification or an “extend and pretend.” Taking arrears and putting on the tail end of the note, “delay” (which is a nice way of saying a “balloon” payment), means that for it to be paid off, the value of the property will have to increase (hence, the term “pray”). What seems more accurate is “extend and pretend.” You can extend the terms, such as turning a 30 year note into a 40 year note. Of course, the “pretend” comes into play when you want to “pretend” you want to live in the property, “pretend” that the economy and the housing market will turn around so that you still won’t have to come to the closing table with a checkbook in hand.
HAMP is not the only option available to homeowners trying to avoid foreclosure. There’s HARP, there are short sales and there is the possibility of keeping the home under bankruptcy court protection (either in chapter 13 or 11). While bankruptcy should be one of the last options, I am always surprised at people who quickly dismiss it altogether – especially when it’s the best option available.
Consider this scenario:
Bob is single owns a single family home worth about $290,000. He bought it for $500,000 in 2005 and the market in his area is taking a beating. He has an adjustable first mortgage with a principal balance of $350,000, along with a second mortgage of $100,000. He’s got $25,000 in credit card debt, $5,000 in dental bills. He earns about $75,000, and with a little belt tightening here and there, can make the monthly payments (with escrow) on the first mortgage which run about $2200 per month. What can a chapter 13 do for him?
That second mortgage would be stripped off and treated like a credit card in chapter 13. He could propose a plan that pays that, along with the credit card and medical debt at a percentage of what’s actually due. Meanwhile, he can pay his first mortgage and when the plan is done, the second mortgage will be discharged.
Could Bob get a refinance? Why would he want to? Why would he want to borrow $450,000 to refinance a loan on a house worth only $290,000? That makes little sense.
Could he get a modification? He might get his 30 year note extended for 40 years, but Bob is also 40 years old. Plus, the modification is only going to work if the bank offers him one and it is on terms that (a) he can afford and (b) he’s willing to accept.
In tomorrow’s post, we’re going to revisit Bob – I’ll add some different facts and we’ll talk about predatory lending.
Related posts:
- ‘Extend and Pretend’ Doth Not A Modification Make
- Walking Away from the Mortgage and the Home? Consider this…
- Thinking about Debt Settlement? Think about this…
- Still Thinking About Credit Counseling?
- When Should You Start Thinking About Doing a Short Sale?
Tags: HAMP, HARP, modification, Modifications and Workouts, Mortgages and Foreclosures, What About Bob?
