OfflineThere are many issues that a lender has to deal with when making a decision to foreclose on a homeowner. One thing that becomes a big issue when making this decision for a lender is mortgage insurance. If the home owners are paying PMI (private mortgage insurance), the lender stands to lose much less with going through with the foreclosure. This insurance makes up a portion of the loss to the lender. Because of this insurance, the lender’s motivation to work out a deal with the homeowner via loan modification and keep them in their home is diminished by the mortgage insurance. Because working out a deal could mean less money in their pocket.
These lenders make the loans, and then are insured to help cover any loss. The great thing about it (for them) is that they don’t have to pay for the insurance, you the homeowner do. This insurance however is a necessary evil. If this insurance was not available, you would be required to have a 20% down payment. So with this insurance lenders were able to take additional risks. That has led us to the mess that we are currently in.
When homeowners began losing their homes by the thousands the insurance companies who insured these loans could not keep up. They were unable to pay out all of these claims. Companies like AIG insured lenders and were so big that allowing them to go bankrupt was not an option, that would have led to many bank closings as well. So they received a bailout from our tax dollars and were allowed to keep operating, with “help” from our government.
Our Federal Government is also an “insurer” of these “toxic” loans as well. They are also a big player in this game. They are probably the biggest recipient of these deals gone bad. They are trying to pull out all the stops as well in keeping people in their homes by subsidizing lenders to do loan modifications. They also will lose more money if homes are foreclosed on. This is not big brother doing this out of the kindness of their heart; they are looking out for number 1 - to avoid paying out on the insurance.
What should have happened looking back? What could we have done to avoid such a mess? The floor is yours -
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Fannie Mae, Freddie Mac & Ginnie Mae these entities should of step in earlier and limited the type of loans Lending Institutions were coming out with to finance people. Underwriting should of taken a closer look at the loans crossing their desk and determined if the people taking out these creative loans really could afford the loans in the first place when APR adjusted on the 3/1, 5/1 and such other interest only creative loans. We all wish shoulda, woulda, coulda but the focus now is how do we pull out of these mess nationally and globally and how should loans be regulated in the future? Should all potential owners be required to put a certain % down along with other determining material before a loan is approved? Who should be penalize heavily and who shouldn't when fraud involve and or if someone who has gone through foreclosure and/or bankruptcy and they try to purchase a home again sometime in the future? These are the questions we need to be focusing on as a capitalist nation and as capitalist driven world.
"I will NOT BE BROKE! ANYMORE!"
In the name of Allah, the Beneficent,
the Merciful.
22.He is Allah besides Whom there is no God: The Knower of the unseen and the seen; He is the Beneficent, the Merciful.
23. He is Allah besides Whom there is no God: the King, the Holy, the Author of Peace,the Granter of Security, Guardian over all, the Mighty, the Supreme, the Possessor of greatness. Glory be to Allah from that which they set up (with Him)!
24. He is Allah: the Creator, the Maker, the Fashioner: His are the most beautiful names. Whatever is in the heavens and the earth declares His glory: and He is the Mighty, the Wise.
The government really should not be involved in the lending process. Don't get me wrong there should be laws focused on keeping the consumer safe. There are some great laws out there to protect the public. But that is where it should end. With the government requiring lenders to lend money to people that can not afford it, just for the sake of home ownership was financially retarded.
Also, people borrowing money claiming they did not understand their payments would increase after a period of time (ARM)- I know these people. I was there when they closed on their loans. They were totally aware that the payments would go up after the first 2 years - they were informed. How can they claim they were taken advantage of?
This entire mess is unfortunate.
If you would like the chance to work with me or one of my fellow real estate investor coaches and our advanced training programs, give us a call anytime to see if Dean's Real Estate Success Academy and our customized curriculum is a fit for you. Call us at 1-877-219-1474 ext. 125