Real Estate Blog - With Foreclosures on the Rise, Is Your Home Really Safe?

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With Foreclosures on the Rise, Is Your Home Really Safe?

Well, if you are paying your monthly mortgage payments, your home is safe, for now. Unfortunately, many home buyers have the misconception that paying down their mortgage quickly is the best method of reducing risk of foreclosure on their homes. That's right, even the Money Merge Accounts (MMAs) and other Mortgage Acceleration programs fall into this category.

You see, many people who scrape up every bit of extra money they can to apply against principal often find themselves with no liquidity. Having an ALOC, HELOC or other mortgage product can help, but they can also be expensive.

When tough times come, and they usually do, these folks find themselves scrambling to make mortgage payments and may be facing foreclosure due to their lack of liquidity. Remember that you are very unlikely to obtain a new mortgage if you are facing layoffs, medical issues, or other financial crisis. You need to have stable income to obtain that new loan.

So, let's look at the reality for these families that have met with unforeseen circumstances that they had not prepared for...

Assume you are a mortgage banker looking at your portfolio. You have 100 loans that are delinquent. All of the loans are for homes valued at $300,000. Some of these loans have balances paid down to $150,000 and the others have balances of $250,000.

Now, the real estate market is flooded with excess supply. Sound familiar? The value of these homes plummet due to the glut in the market and are now only valued at $200,000.

Which homes do you, as the banker, foreclose on FIRST?

Still think this is the best way to pay off your home? What about other options utilizing your mortgage as a financial tool to maintain increased liquidity, safety and even greater rates of return on your money?

Posted by Florida's #1 Mortgage Planner on 05/15/2007 10:20 AM

Comments (11)

money merge accounts, mortgage acceleration, mortgage payoff, equity management, florida mortgage planner, certified mortgage planner

11 Comments on With Foreclosures on the Rise, Is Your Home Really Safe?

MAY

2007

Very true. Thanks for posting.

Carolin Benjamin
Bob and Carolin Benjamin
The Benjamin Team
Keller Williams Integrity First Realty
Gold Canyon Arizona

That sounds really scary. Are you trying to scar people into working with you?

Robert,

Not sure how I would answer this..I have a HELOC and a first..I have a fantastic rate for a HELOC and have used it in emergencies or operating expenses or just as a safety net.....currently I owe nothing on it..just my first.

My sellers who are going to have to bring money to closing are stuck where they paid more than the home is worth now and are financially in trouble..even with me trying to sell the home they owe more than it is worth..their only chance to get out of it is to either refinance or rent the home until things change.

Bob...Thanks for commenting.

Alice...Absolutely not. Foreclosures can be a scary thing. I am just trying to alert people to the facts that they may be going about paying off their mortgage the wrong way.

Neal...Sorry I missed you in my reply above, but you must have posted as I was writing. Either way, if you have a HELOC, it adjusts with the Fed Funds Rate, so if the Fed changes rates, yours changes also. Most HELOCS are running about 4% above the Fed Funds Rate. The simple equation to remmebr about where your rate is going is this...

Fed Funds Rate + 3% = Prime Rate. Prime Rate + 1% = Typical HELOC rate. If you have excellent credit, your HELOC is lower than 80% Total LTV, and you took out a large enough amount, you may end up below Prime, but the average HELOC is 1% above.

As for the sellers, can they work out a short sale? It usually will be a blemish on their credit, but not as bad as it could be. Also, they would only be out the taxes on the amount the IRS deems as income.

Robert,

my HELOC is prime -50 basis points but I qualified for -65 basis points and yes credit is very high.

I do not worry too much about it as long as I keep it monitored.

I've warned them on short sales ..yes they get out of the house but they have a tarnished their credit and taxes for a while to come.

Neal...Sometimes short sales are better than not. It depends on their situation, but if they have the cash to cover the difference, they may be better off paying at close. I am glad to see you are one of those below Prime, but that is still 7.75% rate.

I'd first foreclose on the property with the highest value. But in reality there is no prioritizing based on LTV, this is hogwash. The reality is -- people with equity in their homes don't walk away from them and allow lenders to foreclose. They might sell at below value, obtain a home equity loan to help with cashflow. It is the people that are upside down in LTV that walk away.

New York Mortgages,

Obviously you didn't get it. You are the banker, not the homeowner for starters, so your comments are off.

All of the properties are the same value, the only difference is the size of the mortgage on the property. The reality is you foreclose on those that you know you will get your money back on first. So, those paying off their mortgage faster could find themselves being foreclosed on first if it comes down to them not being able to pay their monthly payments. They are also more likely to end up in a foreclosure situation when facing a crisis due to their main focus of using available monies to pay off the mortgage the quickest.

JUN

2007

The easiest way NOT to be forclosed on is to simply..

PAY YOUR DARN MORTGAGE!!!

Kris,

Actually, all that is required to avoid foreclosure is to make your monthly mortgage payment. Most Americans, however, are focused on paying off their mortgage entirely and go about doing it all the wrong ways. They instead leave them at risk of foreclosure if a financial crisis hits due to lack of liquidity.

Ultimately, many Americans use all their savings and discretionary income through various programs with the intent of paying off their mortgage as fast as possible, yet they are actually put them home at increased risk of foreclosure when a financial crisis occurs (and is not a matter of if, but when) and many lose a large sum of money at the foreclosure table, which could have been avoided using different strategies.

Check this post out for a better idea...You Want to Own Your Own Home, But Do You Own it the Right Way? (Part 1)

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