Foreclosure Mitigation Efforts Are Boomeranging

December 22nd, 2008 | Tags: Foreclosure

The irony is that foreclosure mitigation efforts are boomeranging as many borrowers are intentionally going into default so as to get a better mortgage modification. It is hard to believe but it is true that many are purposefully falling behind in payments so as to qualify for cheaper deals. This has made economists, housing pundits and lenders very much concerned. The schemes that have been launched seems to be an incentive for borrowers to miss their mortgage commitments so that they are qualify for a handful of easy loans.

Mark Zandi is a renowned economist of Moody’s Economy.com. He said, “It’s a problem. A lot of the programs require you to be at some stage of delinquency so homeowners say, ‘what about me” and they get delinquent in order to get help.”

Many of the mortgage mitigation programmes require the borrowers to be at least 60 to 90 days due in their mortgage payments so as to qualify for new workouts. There are however no details as to how many borrowers are resorting to this measure of deliberately putting off payments but a majority of experts feel that it is a risk inlaid in the very terms of the relief package.

Lenders have become wary and are carefully combing through the financial history of the applicants to find out if they really need refinancing in order to prevent foreclosure. Lenders are scrutinizing 401(K)s, asset statements, IRAs, pay slips, cheque amounts and W2 tax forms of the previous past two years. If it is found that the borrower can afford the mortgage then the modification plans are cancelled. For house owners in these troubled days it is like walking over thin ice.

Economist Brian Bethune of HIS Global Insight opines that the implications of a delinquency on their credit records can be devastating. Refinancing in the future will be impossible.It is not always true that those who fall behind in mortgage payments will qualify for the modification measure. Perhaps all that will be gained is foreclosure!

Jeremy Brandt, the CEO of 1-800-CashOffer said, “We speak with homeowners every day that have qualms about walking away from their mortgage or missing payments as a way to ‘get in’ loan modifications and low house prices.”

The mood of Wall Street of asking for governmental help has caught on with the borrowers and the public who are all finding out ways and means of getting somehow a slice of the pie.