Numbers, numbers everywhere but who to believe?

Just the other day, I heard that wise souls at USD devined there to be almost 7 million houses in default across the country in what has recently be termed 'shadow inventory'. This includes short sales, short sales pending, foreclosures, pre-foreclosures, foreclosures and short sales under contract, and 30-60-90 late payers on loans in addition to whatever the banks have been holding back from the marketplace. That number is 5.5 million more than is being bantered about by banking authorities.

Why such a large discreptancy? That is a tough question and although I don't have the answer I know that as I look around different mediums the reportage of numbers is astonding. Just like the deficit and all of the money being thrown hither and yon, it all just seems to flow with no meter on the open tap. Of course, banks are more than reluctant (see article below) to share numbers or be proactive out of shear fear or greed.

So, you might think that this newly redefined 'shadow inventory' of 7 million is ripe for the picking, and that good deals are 'just around the corner'. Yet, if the recent past is any indicator of the future it is my opinion that the banks will continue to be stingy in settling short sales, providing meaninful loan modifications, and miserly in doling out foreclosed properties to the marketplace because they can!

The following article gives a glimpse into the reason they can...



Creative Ways a Loan Modification Lowers Your Monthly Payments

Creative is probably not the first word that comes to mind when you think about loan modifications. There doesn’t seem to be many new ideas in the loan modification department.
The Government is definitely doing its best to reach the borrowers that need the help, especially those that reach those that can pay affordable mortgage payments. This helps “guarantee” the government is not throwing away good money after bad with borrowers that overstretched themselves and cannot afford any reasonably monthly payment.

However all signs show that these programs are not being as successful as they hoped. But how do loan modifications lower, or attempt to lower your monthly payments. The first and main way is by lowering your interest rate. Actually one of the main purposes of loan modifications is to allow homeowners whose homes have dropped drastically in price to still take advantage of the lower interest rates now available. The problems come when low interest rates are not enough. The government is currently trying to drop interest rates to around 2%. However if this level of interest rate is still too high to make your monthly payments affordable there are still some options open to you. You servicer or lender can still extend your payment term.

This means you will extend the amount of time you take to pay your loan. This idea is pretty intuitive if you owe $1,000 and you have to pay it in 10 months you have to pay around $100 plus interest. If you can pay it in twice the time your payments should be half as much plus interest. Servicers can extend the loan to up to 40 years which can have a drastic effect on your loan payments even though it keeps you in debt well into your eighties.

What if all this is not enough? What if you still can’t afford your monthly payments? Your lender or service provider can actually defer a portion of the principal (original) amount you owe until the maturity of the loan. We call this a principal forbearance. This does not mean the debt or part of it is forgiven just deferred or set aside until you sell your home or the rest of your mortgage has been paid. This option can be very effective in lowering your monthly payment but will create a balloon payment on your mortgage. This means that your payments will be lower monthly but you will have to make a very large payment at the end of the mortgage. This can be beneficial if you are planning to sell your home and cut short your mortgage anyway or if you want a break in your monthly payments now and expect your income to increase in the future.

Another option, not very popular with service providers is to simply forgive the principal owed. This is a long shot to say the least but still worth a try. Service providers are not required to do this so don’t keep your hopes too high.