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A Question posed "is there a simple solution to foreclosures ??"

I was reading a mortgage blog this morning and a simple solution was posed by a women who works for an attorney in Florida. Her job used to be putting together the documents for real estate closings, but now the lion share of her work is helping families to avoid foreclosures. Here is the question, which of course would require a federal mandate or government regulation to make a reality:

"Has anyone ever suggested that we Cap the Interest rate on all those ARMs, Regardless of the credit or income of the borrowers?"

You may be saying why hasn't the government implemented that plan? Others may be thinking the banks would never go for it. Here's what I think: the cost of foreclosures and loss of capital and promised payment schedules are a far worse scenario for the banks in the long run than servicing a loan that locked at a low rate (that the bank may be paid back at) rather than escalating to a rate that wouldn't be paid back. Too simple, well some of the best ideas are just that easy. If you think this is an intriguing idea, let me know if you think I'm nuts you are also welcome to respond? If you think this will save many families from the awful effects of being put out of their home (at least until the market improves enough for a traditional real estate sale) then maybe simple is the answer. Crazy or creative it's worth talking about don't you think?

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Your-White Mountain New Hampshire real Estate Expert

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Posted by Steve Loynd/ 800-926-5653, White Mountains NH on 05/28/2008 08:46 AM

Comments (10)

arms, foreclosures, bank repayment schedules, veteran broker

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10 Comments on A Question posed "is there a simple solution to foreclosures ??"

MAY

2008

There is no simple answer to the foreclousure problem in America. I think the Feds are a large part of the problem.

Greg, There is no doubt that those that are suposed to be looking for the solutions end up being part of the problem. And if it's been done this way for so long it's hard to change the mind set of the policy makers (especially if the ones they police are the ones that got them their job). Steve

The interest rate cap is an intriguing idea for sure. The only problem I see would be the government stance on "not bailing out speculators" which I do agree with, basically all investment properties and second homes. As far as single families residences I am all for it and it does make a great deal of sense.

Bryan, I wrote a blog titled "Humpty- Dumpty didn't have a net" a few months ago and took the same position that adults that took out mortgages of any kind need to be responsible for their own actions. My position has softened a bit..yes the principal amount of the loan should be repaid, but if a rate lock keeps you from default isn't that good for the whole country. So what if some big boys get the benefit.. haven't Big oil and government subsidies been rewarding the well to do for a long time ? Plus the ones on the other end of the scale out weigh some speculators who may benefit (that have to have an existing loan not currently in default, to be included in such a program?) Steve

I totally agree with you Steve.

Thanks Bryan, now if our opinions could effect a change in status-quo that would be something.

Steve

Steve...some of the banks are working with the owners, just not to the full degree they could. They seam to want to help those not yet in trouble, where as the quickiest potential for loss is the ones in trouble already. No Easy answer, and the loan preditors are still out there. I just had a client that was being pushed to do an ARM. My clients aae a bit naive, and were going to go through with it until i totally explained it to them. They said that the loan Broker said they woundn't have to worry about the interest going up ever, because of the economy as it is, that could never happen.

His name has been turned in to the State Regulatory Agency. I have had run ins with they person before!

You know William we get lumped in with guys like that, the average buyers takes advice from who ever dispenses it and that got a lot of people in trouble, others knew they were going in cheap but expected to be out by now (flipper's) so that is my point rather than having this whole sector bale, let them all lock..who knows it just may help enough to stem the tide. Steve

Steve.. I realize that today, people are loosing their jobs, going through divorces, etc, which can cause themto have their homes go into foreclosure However there are others that are just too proud to admit they are in trouble and need help, and unfortunately wait until the last minute, which usually is too late. But I've help out a few clients to have their home in a "short sale" senerio before their home goes into foreclosure.

Valerie , I think short sales fill a void for some, but it still takes a buyer looking to buy, The dialog I was hoping to start regarding the ARM,s being locked at a low fixed rate is two fold. Maybe owners can keep their home, or at least afford to hold till a market value sale can be completed (or a short sale that is less short). Maybe this is too simple of an idea, and one size doesn't fit all, but I get the feeling banks have given up on solutions and move straight to writing off the loss. I find that unfortunate in our disposable society..toss it rather than fix it you know what I mean?

Steve

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