…..is the sign of the times as 51 percent of all borrowers whose mortgage loans were modified in the first quarter of 2009 defaulted again by the end of the year, reported the Office of the Comptroller of the Currency. The issue is no longer why , but when. Banks have not forgotten these borrowers who currently face foreclosure or short sales and who walk away from their underwater properties by accepting a deed in lieu of foreclosure.
Here’s where the forgiveness starts. Under the new plan , a homeowner can have his current mortgage principal balance written down by at least ten percent. If he has a second lien, the government is going to offer an incentive to the second lien holder by paying 10-21 cents on the dollar for the amount they write down.
To encourage short sales, the homeowner will be offered up to $3,000 dollars as incentive to “move on”.
Now forget about banks holding the seller responsible for any losses. This is part of the new plan, protect borrowers from future lender lawsuits for the unpaid mortgage balance. Also, banks realize the tremendous upside when the market stabilizes and home prices rise. The same 4.5 million sellers that are no longer homeowners, will be solicited by the same banks to apply for mortgages again. If the seller has eliminated most of his debt and has a consistent payment history sans a previous mortgage, the lender will consider issuing another loan. The lender who has in place a program to absorb the new borrower will probably get a strong piece of the market.
It may take some time, but as we all know, what goes around , comes around.
However, knowledgeable observers of the situation say that while it may take some time, most people will get mortgage loans again. With 4.5 million foreclosure filings anticipated by the end of the year, banks will consider offer mortgages down the road once the market stabilizes and will be motivated to lend to people who previously had financial troubles if they look like they can pay the next time around.
