There has been a lot of crying over the governments inability and refusal to force the banks to modify mortgages for buyers who are upside down. I wholeheartedly agree with congress not taking action. There are enough problems right now with out having lenders completely stop lending because the contract, their legally binding agreement will be changed against their will. Government intervention is not the right thing but the banks doing nothing right now is not an option either.
The banks need to take active steps to protect themselves. Every time a bank is forced to foreclose they lose money. Yes they are forced to foreclose they don't want to do it, but they are responsible and accountable to their investors. Foreclosing is time consuming and expensive and the reality of what they are going to get back in this market fire-sailing is going to leave their investors with big cash shortfalls. Not Good.
There is a solution and really it is a win-win. The bank will make more money, the buyer gets to stay in the house and the excess inventory will begin to be absorbed. What is this magic solution? Re-write the terms of the loans as 40 year fixed a point or two above the market.
Example: If there is a $200k balance at 6.92% (2% above todays Bankrate.com Average)fixed stretched over 40 years the payments are going to be about $1230/mo. Through the magic of compound interest lowering the payment and stretching it out over a longer period of time the bank actually will make more money!
Everyone will be happy in the end: the banks get their money, the homeowners keep the roof over their heads and home prices will stabilize and begin to recover with the excess inventory being worked out of the market.
This is a solution for the immediate problems facing many homeowners giving them an opportunity to keep the roof over their head and the banks from not eating hundreds of thousands of dollars in bad debt. So why are we not seeing banks proactively offering this kind of option to homeowners on the brink?
Bob Firestone
"Financial Freedom Is A Lifestyle Choice"
Financial Destination Inc.
Learn more about how you can become financially free at www.fdioverview.com/rbf and www.fdiamerica.com
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