Foreclosures keep mounting, dimming hopes of an economic recovery. Banks can, but don't, prevent foreclosures by modifying loans. Yes, this will further hurt their bottom line, but record foreclosures - 360,149 in July - are only making things worse. Banks need to step up to the plate and find a way to help people save their homes.
July's foreclosure rate is the most since RealtyTrac began keeping records in 2005, and 32% higher than last year. Banks think it is more profitable to foreclose on a house than to make a loan modification, according to some industry analysts. Foreclosures continue rising as more adjustable-rate mortgages come due at higher rates.
Over half (57%) of the foreclosures are from just four states: Arizona, California, Florida, and Nevada. California banks have beefed up their foreclosure departments, expecting higher home losses.
The Obama administration is asking banks to voluntarily double loan modifications by November 1. The Making Home Affordable program generated more than 630,000 loan modifications so far. Some analysts say that banks are waiting for housing prices to improve before making loan modifications in the hopes they won't lose as much profit.
What It Means to You
Fannie Mae and Freddie Mac are working with the Treasury Department's MakingHomeAffordable. This grew out of the HOPE NOW program to offer a streamlined loan modification process. All 1,600 lenders and 29,000 mortgage brokers using Fannie Mae's Desktop Underwriter platform will quickly process any refinance applications for Fannie Mae loans.
Even borrowers who are "upside down" in their mortgage can apply, as Fannie Mae will refinance loans up to 105% of a home's value. Existing mortgages can also be modified by reducing interest rates or lengthening the payment time frame to bring monthly payments down to 31% of the borrower's income. To find out if you are eligible, go to Making Home Affordable.