August 25, 2019

More home loans falling into foreclosure are actually conventional loans (not bad credit loans)

It is natural to think that bad credit loans are to blame for housing foreclosures, but according to the State Foreclosure Prevention Working Group, more home loans falling into foreclosure today are actually conventional loans.

The stereotypes of homeowners who are facing foreclosures suggest that they have bad credit histories, are struggling to pay their mortgage payments, and have a history of not paying their bills on time. However, the reality today is that prime loans are regularly the loans falling into foreclosure. Prime loans are loans given to consumers with strong credit and a history of paying their bills on time. In the current shaky economy, an increase of responsible borrowers are losing their jobs or facing pay cuts, leaving all types of borrowers facing foreclosure.

While mortgage loan modification programs have received substantial press, they have had little impact on the number of housing foreclosures in the country. Studies have shown that a reduction in principal balance over 10 percent often results in homeowners not falling into foreclosure. Unfortunately, only 9 percent of mortgage loan modifications in October of 2009 met this reduction.

Many homeowners argue that the lenders are the true source of the problem, as they relay horror stories of having no progress in the modification programs. At the same time there are homeowners, at a smaller number, who have success stories backed up by data on the Making Home Affordable Program that shows lenders are making progress.

This new face of foreclosures leaves me questioning how legislators and lenders will address the problem, as bad credit loans aren’t the chief cause anymore. Can mortgage lenders and the federal government work together to encourage more loan modifications? Foreclosures may continue to increase long after the recession is officially over, due to the impact of the economy on people’s personal financial situations. While there is no quick fix to the housing crisis, hopefully the number of foreclosures can be stemmed.

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