Foreclosures Soar – Government Foreclosure Bailout Stumbles

Foreclosures Soar – Government Foreclosure Bailout Stumbles

Article by Trace Morgan

While government fine tunes complex plans to save mortgages, cash strapped consumers are unable to gain entrance to the programs. Few homeowners have been able to access the loan modification or refinance plan to date and many of those report no success until they hired a lawyer to handle the process. This is not how we were told the program was designed to work.

It has become a race to see whether the mortgage bailout program can be activated and applied effectively before the worsening economy forces hundreds of thousands of homeowners past the point of saving their homes. The rate of unemployment continues to rise and is expected to increase for many months to come. Every job lost – every job downsized – has the potential to put a home mortgage at risk of foreclosure.

The mortgage modification and refinance program was originally forecast to help 8-9 million homeowners. Though still in the implementation stage, that number is now being predicted as 3-4 million homeowners that will be helped. The chief economist at Moody’s estimates the Federal program will assist only 1.5-2 million homeowners “over the next few years”.

Most homeowners in crisis don’t have a few years to wait for help and many are losing their homes even as they wait for the help they were promised. To date, the government mortgage bailout has helped only 55,000 mortgage holders. It appears the implementation of refinance and loan modification by the government may be too little, too late.

Perhaps the great fallacy promoted about current foreclosures is that they are happening to those who bought more house than they could afford or who took risky loans they knew they couldn’t repay. Although sub prime loans, no down payment mortgages, and no verification loans began the current foreclosure avalanche, the problem now reaches far beyond risky loans.

Lenders are quick to foreclose on homes where the homeowner has paid his mortgage for years and built equity in his property. These are easy foreclosures for lenders to resell, after all. In a normal real estate market, cash strapped homeowners could price their home competitively because they had built equity. By under pricing the competition in their neighborhood they could most often sell the home quickly. That would pay off the mortgage and leave the equity for them to start over – and totally avoid foreclosure action.

The quick sale option is not a viable alternative now as homeowners compete with low priced foreclosures sold in their area. Another factor is the tight credit market which makes it difficult for any except those with extremely high credit rating to qualify for a new mortgage. Failure to curb the rate of foreclosures will further weaken the economy but for now, lenders are free to foreclose on distressed homeowners at will and free to set steep terms for bringing accounts up to date. There is no requirement in the government plan to force lenders to freeze foreclosure action while a homeowner pursues the modification bailout plan. It’s a strange picture to think of large lending institutions refusing to delay foreclosures or mitigate loans with one hand while accepting billions of taxpayer dollars for bailouts with the other.

About the Author

At, Trace Morgan keeps readers up to date on the ongoing economic crisis. Avoid rumors, half truths and spin and deal with real facts to solve your personal financial crisis

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