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Kimberly Amadeo

Banks Must Stop Record Foreclosures

By August 14, 2009

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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"

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(Credit: Justin Sullivan/Getty Images)

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Comments

August 15, 2009 at 2:07 am
(1) Bill OBrien says:

Banks are better off and so is the economy by foreclosing. The prices are just to unsustainable. By foreclosing the prices will drop to a level that new buyers can come in. If you check Most of the homes being sold are foreclosures under 250K without those sales the numbers would be much worse. You are a terrific writer and very forward thinking thank you

August 15, 2009 at 8:28 am
(2) elmo lincoln says:

Banks can only modify loans they own — many defaulting mortgages were repackaged and sold as securities to mutual funds, pension plans, endowments, etc. and are serviced by a mortgage company that has limited discretion in modifying the loan agreement.

The notion that this will all be better if only the “banks” would just modify loans is really uninformed. Bill Obrien is right — if people cant pay their loans, then the house should be foreclosed and let the market clear itself. The market has to correct. Let it work.

August 15, 2009 at 1:56 pm
(3) Kimberly Amadeo says:

A foreclosure is a time-consuming process that can lower the home’s value, thus lowering the neighborhood’s value. Loan modification retains at least some of that value. I hear from many of my readers who got laid off, and now stand to lose their home. Loan modification gives them a chance to get back on their feet while retaining home and neighborhood value.

The second point is true – many loans are no longer with the banks that created them. However, I still hear from readers who are having trouble with the banks, not mortgage owners. Banks still need to step up and face reality – home values are not coming back any time soon. They may as well bite the bullet and modify the loan.

Kimberly

September 2, 2009 at 12:38 am
(4) jwhenry says:

Mr. President why are the banking,and loan company not making loans as you promised they would do for the american people we are all hurting and not getting any help. Time for them to answer to you for not helping us the little people that keep them in business, maybe we should boycott their business. Check http://www.obamamortgagerelief.org/.

September 6, 2009 at 9:52 pm
(5) useconomy says:

I agree. See If You Must, Blame Big Banks.

Kimberly

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