LEAST FINANCIAL IMPACT

All categories of foreclosure, (freshly instituted foreclosures, foreclosures in progress, and completed foreclosures) experienced solid gains of almost 20% from Q4 in 2009. Clearly the legal system is being tested to the very boundaries of its capacity.

With fundamental assistance from the Home Affordable Modification Program (HAMP) loan modifications have increased slightly by approximately 5%. The majority of these modifications of course reduce repayments of mortgagors, but sadly, this implementation has failed to provide a resolution for most mortgagors engaged in such schemes. Over 50% of modified mortgages revert to delinquency after 12 months.

Not only are the majority of loan modifications found in default 12 months after institution, but foreclosures require considerable capital to be dedicated by the mortgagee in pursuit of a legal remedy. The procedural matrix that legal representatives will navigate will also take months to endure. The legal cost incurred will be recoverable from a delinquent mortgagor, but rarely enforceable against an insolvent homeowner. The law of bankruptcy will also prove to be foe rather than friend when a mortgagee attempts to seek recompense through the legal system for legal fees incurred during foreclosure proceedings.

Short sales however, have increased 120% in the past year and almost 10% since Q4 2009. The short sales in significant portion of the transactions offer full release of the debt obligation of the seller and have significantly lower impact on their credit. From the lender’s the obvious benefit to the mortgagee arising from a lump sum being paid in satisfaction of the mortgage, albeit it less than the total amount owed. While the outstanding portion of the debt is written off as a bad debt, the funds paid are able to be reinvested in the lenders business of extending finance and so, generate income rather than the alternative that would see it ineffective in the hands of a struggling mortgagor of dubious property. The scenario just described is far more inviting than the alternative. A foreclosure or loan modification is more likely to cause further detriment to both parties to the mortgage.

Posted by Eureka Expert on Aug 9 2010. Filed under Headlines. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry