Obama Mortgage Modification

Why did the Government Start the Obama Mortgage Modification plan?

Since the disastrous housing market crash of 2007, millions of foreclosures have been filed as homeowners have felt the pinch and struggled to scrape enough together to cover mortgage payments. Nobody was prepared for the economic recession we find ourselves in and prior to 2007, many homeowners took out mortgages with rates they assumed they would be able to pay off. Of course that hasn’t proved to be the case. Since 2007, foreclosure rates have continued to rise, but what happened last year and how did it compare to previous years?

Going back, 2011 turned out to be a good year on the foreclosure front as rates actually dropped significantly. In total, approximately 2.7 million foreclosure filings were made which was a pretty significant decrease of 34% when compared to the total number of filings made the previous year.

This equated to around 1.5% of all US homes having a foreclosure filed on them which actually represented the lowest figures published since the start of it all in 2007. In fact December of 2011 saw the lowest monthly foreclosure rates since way back in November 2007.

What Impacted On 2011 Foreclosure Statistics?

It’s thought that the drop in foreclosure filings was actually the result of confusion over certain pieces of documentation that are required to make the process happen. There were also a number of legal issues that delayed a large number of foreclosures from being initiated.

States Worst Affected By Foreclosure In 2011

This is one chart you hope and pray you don’t find yourself top of. The top two have actually remained unchanged for the last three years.

Nevada has been the worst affected state for 5 straight years now and 2011 stats made pretty bleak reading too, with 1 out of every 16 homes having a foreclosure filed. There was some good news though as this actually represented a decrease of just over 30%, largely owing to a new law passed in the state, which requires all lenders to file an extra affidavit prior to the foreclosure process actually being initiated.

Arizona cemented second place, which it has held since 2009. Last year 1 out of every 24 homes had a foreclosure filed. California wasn’t too far behind, with 1 in 31 homes being put through a foreclosure.

Foreclosure Predictions for 2012

As stated earlier, 2011 rates were lower largely due to many foreclosures being delayed. Those foreclosures are expected to be pushed through this year, which will mean rates are likely to increase from last year, although experts predict that they won’t quite reach the peaks we saw back in 2010.

Foreclosure Rate Accelerates In First Quarter Of 2012

Many struggling homeowners took heart from the fact that foreclosure rates sunk to a four year low at the end of 2011, but unfortunately that trend has not continued in the first quarter of 2012. That’s right, the foreclosure express, which has been rampant over recent years has started to step up the pace again.

Statistics For The First Quarter In 2012

Properties that were bank owned or were being pushed along the foreclosure process accounted for 26% of the total house sales in the first quarter of 2012. Worryingly this was the biggest share foreclosure sales have contributed for around a year and a half. The total number of homes actually sold in this period came to 233,299, which represented 8% more when compared with the previous quarter’s figures. There are approximately another 1.35 million homes which are either owned by the bank or going through a foreclosure and will be sold in the near future.

What Has Caused This Increase?

It is thought that sale rates have been boosted by the number of lenders allowing the borrower to short sell their property. Many borrowers are willing to take this option to avoid the foreclosure process and the affect it has on your credit rating afterwards. Short sale rates are actually higher than they have been at any point during the last 3 years and have increased by a quarter since this time last year.

Why Are Lenders Allowing Borrowers To Short Sell?

Firstly, a short sale is where a borrower has an outstanding balance on their mortgage that equates to more than the market value of their home, but the lender allows them to sell the house and they agree to forgive the remaining debt. Foreclosure can be an extremely lengthy process that lenders aren’t too keen on going through either and so short sales are being utilized by lenders to avoid that.

It’s estimated that a lender will recoup a larger share of money owed via (up to 20% more) a short sale than they would if proceeding with a foreclosure. In recent months, confusion and paperwork problems have delayed foreclosures from being pushed through and this could have impacted on the lenders change in tactics to recoup their money.

Affect On The Housing Market

If the number of foreclosures increases, this tends to have an adverse affect on the state of the housing market. This is because sales from foreclosure auctions or short sales don’t tend to fetch nearly as much as a standard sale would. Consequently house prices drop in general.

Home Loan Modification and the Making Home Affordable Program

The following is a list of the current Home Loan Modification options offered under the MHA plan (taken from www.makinghomeaffordable.gov): Home Affordable Modification Program SM (HAMPSM), Principal Reduction Alternative SM (PRA), Second Lien Modification Program (2MP), FHA Home Affordable Modification Program (FHA-HAMP), USDA’s Special Loan Servicing, Veteran’s Affairs Home Affordable Modification (VA-HAMP), Home Affordable Foreclosure Alternatives Program (HAFA), Second Lien Modification Program for Federal Housing Administration Loans (FHA-2LP), Home Affordable Refinance Program (HARP), FHA Refinance for Borrowers with Negative Equity (FHA Short Refinance), Home Affordable Unemployment Program (UP), Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (HHF)