Mortgage Rate News

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There seems to be a bit of confusion with regard to what is happening with foreclosures. Indeed, it is commonplace to read about how foreclosures are both increasing and decreasing. Mainly because “foreclosure” is being used to report homes in various stages of foreclosure. Real Estate Pro Articles points this out about foreclosure coverage:

However, it is also the case that the number of foreclosure filings fell in both August and September of this year even though REOs actually rose in September by over ten thousand properties.

The numbers are fairly straight forward in this issue and the fact remains that there are a great many families who’ve tragically lost their homes. It is unfortunate that it is so hard to get a clear idea of what trends we’re actually seeing at this point because there are so many numbers and trends being reported all under the umbrella term of “foreclosure” without any real explanation of what aspect of the foreclosure procedure is being reported on.

In the end, it is important to look at foreclosure filings, which represent the very first stage of foreclosure, and the number of foreclosures that actually go through to completion. These are two different things, since the foreclosure can be stopped after the filing takes place, with the help of loan modification and through other means.

Another trend to look at is the fact that foreclosures are moving up the “food chain” in the housing market. With unemployment on the rise, many prime borrowers are suddenly finding themselves in the unexpected position of no longer being able to make mortgage payments. This is also causing problems, since for loan modification or refinancing to work in order to stave off foreclosure, some sort of income is needed to ensure that payments will be made.

It’s a tricky situation right now, and many are anxious to get a clear picture of what’s going on. However, in this particular situation, it is difficult to find a great deal of consistency and clarity.

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Sometimes we forget that some of the things that affect big banks will come back to haunt the whole financial system as a whole. That might be the case with the looming CIT bankruptcy. The bank CIT has been having trouble with debt swaps and is verging on bankruptcy. The CEO of CIT, Jeffrey Peek, is resigning at the end of the year.

CIT and small business financing

Small businesses have been having trouble getting financing in the current climate. This is making things difficult for the millions of small businesses that provide a substantial portion of our economic activity.  CIT provides the financing for about one million small businesses. A bankruptcy for CIT is likely to upset the workings of many small businesses, and have a profound effect on the economy — especially since few other banks are willing to provide small business financing right now.

The current credit situation is likely to get tighter

Right now, the credit situation is already tighter than it was not too long ago. A CIT bankruptcy is likely to cause problems with credit across the board — not just for small businesses. Indeed, if the credit situation tightens for small businesses, it means that the climate in general is poor for credit. And that means that consumers, including those looking for mortgage loans, could see problems when it comes to getting loans and finding financing.

It will be interesting to see what happens going forward, and how things go with CIT, and whether the company can find what it needs. However, the loss of CIT would be a big blow to our economy, and to the credit situation as small businesses do their best to find the financing they need. And it could spill over, creating a continuing situation in the broader economy and slowing recovery from the recession.

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Even though there are signs that the housing market is stabilizing, there are still a great many people in danger of foreclosure. If you are trying to figure out how you can stave off foreclosure, you might consider loan modification. Under the Making Home Affordable plan, there are provisions for those who are interested in saving their homes through loan modification so that they can afford their mortgage payments. Here are some of the requirements to qualify for a loan modification under making home affordable:

1. Housing costs must exceed 31% of your income. This is your income before payroll deductions. Housing costs include mortgage payment, homeowners insurance, property taxes, condo fees and other similar costs.
2. 3 month trial period. The new payment, which is adjusted — using interest rate deductions or loan term extension — so that it is 31% of your income or less, gets a trial run. If you make the new payment on time, then the payment is locked in for five years. Mortgage lenders can’t raise the rate any more than 1% per year. The rate caps out at the prevailing market rate at the time of the loan modification.
3. Unpaid principal less than $729,750.

Loan modification can be a great tool for those who are experiencing temporary difficulties, but are trying to get things back in train. It is important to realize, though, that loan modification will do little for those who couldn’t really afford their homes in the first place. Once the five years is over, home owners may find themselves in the same place. Loan modification works best for those who could afford their homes originally, but fell into difficulty due to the economic climate.

In the end, you will have to prove that you can make the new modified payments. In some cases it just won’t work. But for those who can use a loan modification to ride out the economic troubles and get back on their feet, this may be just what is needed.