Housing News

Foreclosure Profits Mean Economy's Losses

When you lose your house, it doesn’t always become a burden to somebody in the foreclosure market.

True or false? Mortgage servicers cannot afford for you to lose your home by way of foreclosure.

Generally, it’s what lenders are supposed to react now that more than 8 million homeowners will have home loan balances greater than what they paid for the original value of their home. But one writer thinks of the opposite. According to Brian Grow of Businessweek, one preclusion to control the rise of foreclosures in the country is that, “servicers earn more, under most current contracts, when they foreclose, compared with when they modify a loan.” Like other analysts, Grow believes that loan modifications are needed to salve the failing industry.

It’s another less heard analysis in the foreclosure mayhem. We’ve certainly known about lenders selling foreclosed homes in order to recover their expenses but when lenders pocket a larger profit from foreclosures during a recessionary economy, it’s definitely up a blind alley. That’s enough to explain why the government is searching for more ways than one to forestall homeowners from surrendering their keys. Grow adds, “Adding staff and technology to manage modifications is costly. That’s one reason the Obama Administration says it plans to increase incentives for loan managers to modify mortgages in its new bailout programs, expected to be detailed in the next few weeks.”

There’s more to workforce setbacks that involve the ineffectiveness of loan modifications. A lot of homeowners fall in the hands of dubious mortgage lenders who demand up front fees during the consultation. That puts many borrowers underwater these days. Another is the incorrect modification term that is offered to the borrower. Most lenders can take advantage of the low credit scores that their clients possess and with the latter’s desperation to see someone acting on their predicament, it becomes a necessary option at the end of the day. In most cases though, people turn away easily when they hear loan modifications for fear of scams and expensive fees. Lenders who launched their loan modification programs will only end up having very few changed mortgages.

Some lenders believe now that by gaining possession of the house, they can easily recover the missed payments of the borrower. Lenders can make a profit from the eventual disposal by selling it at any amount that they deem sellable. Some take home even more during home auctions.

So operation- and result-wise, the costs of modification place sellers at a disadvantage, making foreclosures a lot cheaper in the end. This doesn’t do any good at all. As we all know, more foreclosures mean more downward pressures for the average home values in the country.

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