Sup-prime meltdown has revealed darker truths and the buildings of trust have tumbled down one after another. How can a system live so long on an oversubscribed economy and boast of resources it did not have. How could it sign erratic loan decrees without finding out if a person was ever eligible to receive that loan? Well! Truth is that such things have been done and this is why sub-prime crisis is there in the first place.
Private lenders, financial institutions and banks, sure of the paying power of borrowers gave home loans at reduced rates, reasonable mortgage structure and lesser down payment. Today, they find themselves at the receiving end of these home loans and unfortunately, in the absence of collaterals, and most of the time, not being backed by FHA or other such organizations, they find that the defaulter’s line is a hell-hole out there.
The only possible option with the banks to compensate for lost funds is Foreclosure or Short Sale but because the Obama administration promised moratorium, stop foreclosure, loan rewrites and loan modifications, the banks cannot even come up with these plans.
But, the home owners deserve it just as well. Think about them, they are short of disposable income. Global recession has taken the wind from beneath their sails and they are suffering great budgetary constraints. In such a time, they can hardly afford the mortgage structure. This is where loan modification actually helps.
In the event when a homeowner cannot keep up with the monthly mortgage, Foreclosure begins to loom large. Short Sale is another painful process. (Short Sale is more favorable than foreclosure as it ends the obligation of the borrower and gives the proceeds of the discounted sale to the mortgagee). In all such cases, the Stop Foreclosure team comes to the fore and looks into the situation.
If it’s extremely distressful then the team can do no wonders but if in case, the situation is redeemable then the Stop Foreclosure unit suggests the unique Loan Modification plan. Such plan is useful in altering the mortgage structure and also reduces interest rates. Sometimes, if the bank or the private lender is lenient, the borrower or homeowner also gets payment deferring facility or Moratorium.
Such modification saves the home for the borrowers and also gives the lender some kind of a breathing space in terms of compensating finances. The lender always looks for the FHA or some such organization to secure the loans. It acts as semi-collateral mentally as the organizations take part of the pressure when the borrower defaults. This is why, the lenders are ready to provide the FHA approved loan at lesser interest rate and more lenient down payment structure.
Another superb idea that’s doing the round today is Reverse Mortgage. Reverse Mortgage is fundamentally the exact reverse of a normal loan. In a normal loan, you take a lump sum from a bank and keep paying it as equated monthly installments. While in a Reverse Mortgage, you pledge a property that you own and ask the bank to keep paying you series of monthly revenue for a particular period of time. Senior citizens can avail the loans and they are eligible to get the annuity for 15 years (in most of the cases) after which there is no further cash flow but they can choose to be in the house. Another relief option is the VA loan clause. VA loans for veterans and service personnel have also been given a fillip by the government and its limit is being raised to $ 7, 29,000.
Yes, there is a global liquidity crunch but then there are initiatives just as well. These are not dark times, come to think of it.