Foreclosure Bailout Loans Gone
Just when the United States is faced with foreclosure epidemic, the very products used in the past to help people in foreclosure have disappeared.
My company was heavily involved in the foreclosure niche. We used to be able to refinance certain borrowers who faced foreclosure. In essence giving them a second or third chance to right their situation.
Before the mortgage meltdown of the summer of 2007, we routinely provided foreclosure bailout loans with loan to values of up to seventy percent of the foreclosed home’s appraised value. With Wall Street’s refusal to buy subprime mortgage paper, these products no longer exist.
The only products that are available to bail people out of foreclosure are private money lenders. The vast majority of private money lenders never lend up to seventy percent of the appraised value. This leaves a tremendous market void for a huge and rapidly growing number of distressed home owners.
How big a void? Let’s take a look at some Connecticut housing statistics highlighted in a Newsday article.
California-based RealtyTrac said the number of foreclosures increased 547 percent in the New Haven-Milford area, 522 percent in the Bridgeport-Norwalk-Stamford region and 446 percent in the Hartford area in the first half of this year, compared with the same period in 2006.
The absence of institutional foreclosure bailout money leaves us only with private money lenders. Private money lenders rarely lend in excess of sixty five percent of the appraised value of a foreclosed home. In many instances, they prefer to stay at around sixty percent of appraised value.
Add to this a real estate market that is experiencing historic declines in value, and you have virtually no market for the foreclosure bailout loan. Even if a private lender were interested in bailing out a home owner, the likelihood of the loan closing is greatly diminished by these real estate price declines.
It’s a double whammy. The industry, for all intents and purposes, has eliminated the foreclosure bailout loan and the avenues left to fill that void are impacted by the precipitous real estate value declines.
It’s obvious that this scenario negatively impacts those currently in foreclosure. What isn’t so obvious is that the foreclosure environment directly and negatively impacts home owners who are paying their mortgages on time and who enjoy the highest of credit ratings.
Foreclosures impact all home owners. When a foreclosed property is re-sold at a depressed price, it affects the values of all properties. Consequently, high grade borrowers are experiencing first hand, major declines in their home’s value.
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