2. Right now a lot of people that took out adjustable rate mortgages from 2003-2005 are starting to see their interest rates finally adjust on them and are trying to deal with the increased payments. Many of these same people that took aout an adjustable rate mortgage also took a home equity line of credit when their property was increasing in value. They also took out their home equity loan right up to 100% of the value of the home more than likely to pay off credit card debt or other things they did not need. Now they have two loans combined and owe around 125% of what the home is worth.

3. Parts of the country like the mid-west, especially Detroit (1 in 66 homes in foreclosure) and parts of Ohio like Akron and Toledo are being severely hit with this foreclosure epidemic. The crazy thing is that they do not even lead the nation in this category. Stockton, CA leads it with 1 out of every 25 homes. Its probably due to the ridiculous home prices that were in that area during the refi boom because San Francisco is so expensive to live there. People thought they could make the drive from Stockton to San Francisco for their jobs but now with fuel prices around $4 a gallon its just too much to do.

4. The mid-west is suffering from major job losses in the automotive industry. It’s almost everyday that you hear one of the auto manufacturers like Ford, GM, and Chrysler laying off more workers. Its not that home prices were very high even during the refi boom because many auto workers made good money to afford the homes. Now its that just don’t have any money to pay their mortgage payment. In California and Nevada home prices were past what market levels should have been at and people are now stuck owing 25% more than what they owe on them. Inflation is pushing home owners out west to foreclose, not loss of jobs.

5. The National Realtors Association has been changing their estimates on how many homes they think are going to be sold. I don’t know why they make estimates in the first place. Why don’t they just say that “there are a ton of homes for sale and nobody wants or can afford to buy them.”

6. With all of the bad publicity about adjustable rate mortgages and sub-prime home loans you will see pretty much everybody start asking for 30 year fixed rate mortgages. I guess we all learned from out mistakes and know that gambling on what interest rates will be like in the future is not a calculated risk. Many mortgage companies told clients that rates go up and down every 3 years and that when their loan would adjust they would refinance them into a fixed loan.

7. Of course they would refinance them into a fixed loan because then that meant more fees and closing costs they could collect. Mortgage companies do not get paid on the interest rate they charge. They get paid when they originate your loan and sell it on the secondary market to a larger bank or hedge fund that collects the interest from your payment.

8. Right now this strategy from the mortgage companies is back firing on them because now you would think that there are a ton of people (there are) looking to refinance their home and get out of the adjustable rate. Problem is that they cannot refinance because the mortgage companies guidelines have changed dramatically in the past year and many home owners cannot get approved on a new home loan.

9. Many people are stuck in loans in which they owe more than what their house is worth. No mortgage lender will do loans over 100% of the value of the home and most will only do up to 95% at the maximum. The FHA loan is becoming popular again because of funding from the government (thanks but no thanks). This takes the burden off of the mortgage lenders because the FHA is insuring the loan in case of default. Interest rates on a FHA loan are usually .5% lower than a normal conventional loan but it does not matter. On a FHA loan the borrower has to pay a mortgage insurance either up front or monthly with the payment. This extra insurance should be considered an interest rate. Interest rates on a 30 year fixed as of July 25, 2008 are around 7.5% with no points on a 30 year conventional loan. A FHA loan is around 6.75% with no points. The reason the FHA does this is because they determine what they want to do (because they are the man they set prices on whatever they want) while major investment firms cannot do this. You can see why the FHA is becoming popular again.

10. We should expect foreclosures to continue well into 2010 at the same rate before things start leveling off. There is not going to be a real estate rebound or recovery. How will it? People are losing jobs left and right and there is no new technology or thing we can manufacture on the horizon. So many home owners are doing their best to avoid foreclosure but there is not that much they can do. If you are smart you will wait to buy a home until 2010 regardless of where you live. Foreclosures affect every home value for every property within a 1 mile radius.

Post from: The Top 10 Reasons

The Top 10 Reasons Foreclosures Will Keep Going Up Until 2010

2. The banks are the one’s that set the guidelines for anybody who does business with them. Since a mortgage broker does not lend you the money (the bank does that the mortgage broker works with) they were told that they would not be honoring anymore fixed second mortgages or HELOC’s. This lead to a mad dash from all of the smaller companies to close these loans so they could sell them to the bank before the deadline or they would not be able to close.

3. What lead to this rush was a realization that the housing bubble had finally burst. Home owners now owed more than what their house was worth and property values were dropping quickly. Most people that took out a second mortgage did so for home improvements, credit card bills, weddings, etc. The majority of people rolled in a bunch of debts so they could have one mortgage payment that they could write stuff off on their taxes instead of a bunch of smaller payments. This usually saved them payments on their overall monthly payments but all this did was increase people’s appetite to spend more and use their home as an ATM.

4. Now the mortgage companies see the dip in home prices and most could do second mortgages up to 100% of the value of their home. Appraisals were coming in much lower now than even just six months before so they could not give them another second mortgage or even be able to roll a first and second mortgage into one. Mortgage companies look at the loan to value (LTV) of the house and if both combined to over 100% there was nothing they could do.

5. When home owners started defaulting on their home loans and went into foreclosure what happens is if there is a first and second mortgage on the property the company that has the first mortgage would get paid back first in the event of a short sale or auction. The mortgage company that holds the second lien position on the house would get whatever proceeds that were left over…if any. Many received none because there was no way that the house was going to sell for what the home appraised for when they did the loan.

6. With no money coming in to cover the foreclosures the banks just said they are no longer going to do second mortgages up to 95% or above of the homes value. Many large banks like Chase, Bank Of America, and Wells Fargo might still do them because they would hold onto the mortgage note and service it themselves. What these large companies did was shut off the companies that sold the mortgage notes to them, ie the mortgage brokers. What happens is all of the mortgage notes the mortgage broker would have closed on get sold to the larger bank (that actually funded the loan) in a bundle. The banks would accept the notes in one packet and start servicing the loan and collect your interest. The banks left a lot of trust to the mortgage brokers to do the right thing (and most did) but it meant that some mortgages could squeeze through without going over thoroughly. The banks decided it would be in their best interest to get rid of all the small companies selling them the second mortgages and do it all in house.

7. The banks do not know how much farther the real estate market is going to go down. Of course the National Realtors Association says that home prices are leveling off but you should not believe that for a second. Remember that Realtors work on commission and they want to reassure you that you are getting a good deal. If you are not in a rush to buy a home right now, try and wait until about June of 2009 before you start looking to buy. You will probably save another 8%-15% on the purchase price of the home.

8. The banks have realized that home prices have not leveled off yet so they are not in a rush to do the second mortgages yet. What would happen if they did is let’s say that they start doing second mortgages back up to 95% or 100% of the value of the home. People default on the loans and the home goes into foreclosure. The banks should know that the real estate market is probably going to drop another 5%-15% across the country until June 2009 or when home prices get back to what they were before 9/11 happened. So now the bank would be holding onto the note for a second mortgage on a home that is worth 5%-10% less than what it could be sold for. This would leave them with a 5%-10% loss on the money that they lent. Banks are not in business to lose money and this is a losing scenario.

9. The banks are now trying to fight back to all of the mortgage brokers and correspondent lenders (Correspondent lender is a lender that is big enough to fund the home loans but typically borrows from a line of credit they have with a larger bank like Countrywide and sells that bank the mortgage note. A great example of a correspondent lender is Quicken Loans. They do not keep any of the loans and sell them after closing to the larger bank for a quick profit and releasing themselves of the note and the responsibility of the property in case of foreclosure) to take these second mortgages back. It’s becoming a game of hot potato because nobody wants these second mortgages and the finger is being pointed everywhere.

10. Instead of doing second mortgages for every body the banks have decided to only let certain borrowers take out a HELOC. The qualifications have gone up and many banks now will only let you take a second mortgage up to 80% LTV and you need to have over 700 credit scores with no mortgage lates in the last 12 months. Many also make you open up a checking account with them and you have to have to your payments automatically withdrawn. This is a safer bet for the banks because now they can handle the down turn in the market for a little longer and not have to worry about losing out in case of foreclosure or anymore short sales. If you are in the market for a second mortgage or HELOC good luck finding one. You should start out with your local bank and then call up a big bank like Chase or Bank Of America to see what they can offer.

Post from: The Top 10 Reasons

The Top 10 Reasons Mortgage Companies Stopped Doing Second Mortgages

2. During the real estate boom some lenders did second mortgages up to 125% of the value of the home because during that time the value of the home would probably go up during the next year by 25% to cover both the first and second mortgage in case of a sale or foreclosure. This would give the home owner plenty of money to do with it what they want to do.

3. Now with all of the mortgage mess going on in the United States many mortgage companies have scaled back doing second mortgages to 90% of the value of the home or have removed them from their product lists all together. The banks and mortgage companies are now seeing these home owners that borrowed up to 100% of the value of their home over the past couple years can’t pay back the loans and are going into foreclosure, or they just cannot sell the home because they owe to much.

4. When the Federal Reserve lowered the prime rate down to 1% in 2003 cheap money was starting to flow everywhere. Second mortgages were starting to become very popular because now people could go out and buy whatever they wanted with a home equity line of credit (HELOC) with their effective interest rate around 3%. The banks borrow the money at 1% from the Federal Reserve and make their 2% profit and give you the interest rate at 3%. This was cheap because now everything you bought with the line of credit was also a tax write off because it was included with your loan. When you did your taxes it was like whatever you bought you almost bought with no interest because of the tax write offs. Most home equity lines of credit had payments that were spread out over 30 years so your monthly payments were extremely low.

5. The gravy train lasted for about 4 more years up until 2006. This is when the Federal Reserve decided that it was time to start raising the prime rate. The prime rate is the rate which the Federal Reserve lends money to banks. The Fed started raising rates .25% every month for 17 consecutive months before stopping at 5.25% in 2006. What thie means to the average home owner who took out a home equity line of credit is that their monthly payment on the HELOC has now gone up 4.25% over a 1.5 years. If you do the math lets say on a $50k home equity line of credit your payment went from $125 a month at 3% to $302 a month at 7.25%. Plus, the payments on a HELOC are interest only for the first ten years of the loan so all of the stuff you bought cheaply you are now paying $302 – $125 = $177 more in interest a month and the balance stays the same if you do not pay more.

6. In comes the fixed rate second mortgage. On a home equity line of credit the interest rate is adjustable (There are a few local banks that lock HELOC rates in, but they are very hard to find and usually have stipulations like you need to have a checking account with them). Now the average American home owner does not want to have to deal with rising interest rates because it looked like there was going to be no end as to how high the prime rate was going to go. Now, the mortgage companies saw a reason to start coming out with more fixed rate second mortgages and sold them to home owners and the selling point is now you know what your payment is going to be like without having to worry about interest rates. Some mortgage companies used this as a scare tactic and it worked because the home owners were already scared. Most people already had a really good first mortgage with a low interest rate so it did not make sense to refinance the first mortgage, so all they did was refinance the home equity line of credit into a fixed rate second mortgage.

7. Many people that took a fixed rate second mortgage liked the idea that their payment was not going to move anymore. It is very comforting to know what your mortgage payment is going to be like. Interest rates on fixed second mortgages would depend on how high the total loan to value of your loans equaled. If you still had a lot of equity in your home you would get a lower rate. If you locked in a rate and you owed what your house was worth your mortgage rates were probably about 2% higher. There is a risk factor involved in going up to 100% of the value of the home. There are a variety of fixed second rate mortgages available such as a 10 year, 15 year, 20 year, 25 year, and a 30/15 year. All of the above come with different interest rates and the 10 year would have the best with every one after that probably having .125% more than the one before it. Most homeowners took out a 15 year second mortgage because they knew that they were going to pay it down (HA!). The payments were not high on it but for most people that rolled in credit card debt it did save them money initially, but many just rolled the bills right back up after doing the second mortgage. What most people should have done is find a mortgage company that does the 30/15 loan. This loan was unique in that your payment was put on a 30 year amortization schedule with a 15 year baloon payment. What this means is that you will not have the whole balance of the second mortgage paid off in 15 years (probably half of it will be) but during that time if you wanted to pay more you can. The way to get around having to pay the baloon payment would be to refinance the loan before the 15 years. This gave you a lower monthly payment than the 15 year loan and gave you more flexibility with your monthly cash flow. As an example on $50k a 15 year fixed second mortgage at 7.5% is $463 a month and the 30/15 loan at 7.75% of $50k is $358 a month. This puts $463 – $358 = $105 back in your pocket to invest or even put on top of your mortgage payment.

8. Now, home owners feel great because they have no more worries about mortgage payments. Now you need to ask yourself, “why did you get the home equity line of credit in the first place?” The reason you got it could have been for a number of reasons. You wanted to roll in some credit card debt, buy a rental property, a boat, a car, tuition, home remodeling, wedding, etc. The main reason you opened it was to have money available in case of an emergency. With a fixed second rate mortgage, you cannot borrow anymore. Gone are the days where you can write a check from your HELOC or call the bank and have them forward you a check. You cannot borrow anymore. The only way to get more money out would be to refinance the second mortgage again.

9. Let’s say you are okay with the fact that you can’t borrow anymore money (good for you, going old school and saving). You don’t hear anything about the Federal Reserve raising the prime rate any more. This goes on from June 2006 to September 2007. The Fed did nothing. Then in October 2007 the Fed comes out and says we are lowering the prime rate .5%. Great news. That is for the people who kept their HELOC, not good for you because you locked in your interest rate. The people that kept their HELOC will see their payment go down by .5% the very next month and they still have the flexibility to borrow more money (only if you have not maxed it out) if they want. The Federal Reserve comes out the following 3 months and lowers rates by .25% each month. The real kicker comes in December 2007 when the Fed lowers the prime rate by .75%. This is huge. The pattern continues until march 2008 in which the Fed stops lowering the prime rate at 2%. From June 2007 to March 2008 the prime rate went from 5.25% to 2%. If you kept your HELOC opened your payment every month would have dropped and now would be saving 3.25%. using the $50k HELOC balance example at 7.25% (5.25% + the bank’s 2% profit) a monthly payment would be $302 interest only and $50k at 4% (2% + bank’s 2% profit) is $166 interest only, saving you now $302 – $166 = $136 a month in interest. Now the people who took out a fixed rate second mortgage want to get their HELOC back now to save on interest. Sorry, you can’t. With declining values on homes you probably owe more on your house than what its worth. Very few mortgage companies or banks will even lend up to 100% of the value of the home now and many will not go over 90%. Some have put a hold on doing second mortgages or HELOC’s all together until the real estate market bottom’s out. More than likely you are now stuck with what you got.

10. As you can see from the examples above you really need to weigh in all of the factors when getting a second mortgage. It does not matter if it is going to be a home equity line of credit or a fixed rate second mortgage. If you want the flexibility of having cash readily avaialble then keep the HELOC open. It really is not about the rate when you need cash now. If you just want to know that your second mortgage payment is not going anywhere then lock it in. Just do not complain when rates go lower than yours.

Post from: The Top 10 Reasons

The Top 10 Reasons You Need To Pick The Right Second Mortgage

2. It does not take that much to be a mortgage broker, loan officer, mortgage banker, etc.. You do not need any type of training or certifications. Some states make you take open books tests that you do online and its more like you pick an answer, it says your wrong, you keep guessing until you get the right one and then you move on. Not that hard. All it really takes to be a successful mortgage person is good salesmanship and a will to push. I’m not saying this is an easy job at all. The turnover at most mortgage companies is around 70% in the first 3 months. Be prepared to work long hours staring at a computer and being on the phone.

3. When mortgage rates were so low during the 2002-2006 time period everybody and their mother was either refinancing their mortgage, buying a second home or picking up multiple rental homes. All of this cheap money had never been heard of and you know what it…it made sense to do this. In a matter of time from the year 2000-2003 the 30 year fixed mortgage rate went from 8.5% to 5.25%. That is a huge drop. As an example lets say you have a 30 year loan of $150k at 8.5% your monthly payment would be $1153. The same $150k 30 year fixed loan at 5.25% monthly payment is $828 giving you a monthly difference of $1153 – $828 = $325. This a huge difference. That is a car payment. Over 1 year that is a saving of $325 x 12 = $3900.

4. With so many people looking to refinance their homes somebody had to be there to do the loans. Mortgage brokers were popping up every where. In most states all you had to do was contact a bank that would actually lend you the money and you had to get some license saying that you were an official business. It was so crazy that there are even stories of people writing mortgages from the back seats of their cars. With the influx of customers mortgage lenders were growing at a very rapid rate. They were hiring left and right and if you worked at a smart mortgage company, with just the right amount of advertising you could sit at your desk and the phone calls would roll in asking for somebody to redo their loan. So here is a new mortgage officer with little training saying “we have a rate at 5.5% and that is better than your 8% do you want it?” Of course they want it.

5. So now the mortgage person is starting to get better at their trade and is learning the programs and their sales skills are going up to. They are finding an angle for every person they talk to to do a loan. What does this mean to the mortgage banker. One easy answer…money. Talk about huge commission checks. It was not uncommon for average mortgage brokers to be making over $25k a month. All that they would do is sit at a desk, pick up the phone, say this is what it is, send out some application documents, get you to sign them and as long as you W2′s, bank statements, pay-stubs, etc matched up and the appraisal came in (every appraisal was great from 2003-2006) then the loan would close.

6. Since there was no training involved in becoming a mortgage banker/loan officer anybody could do the job as long as they had the right attitude. There were people working at mortgage companies that had PhD’s and some that had not finished high school. Its hard to believe but knowing that you could possibly make $50k in two months, who would not want to do it even if you had to work a bunch of hours.

7. The mortgage broker is so happy and is on track to make $200k in their first year. This new found money is starting to get to their head and instead of saving the money they go out and buy a $400k home in some suburbia town which has a new housing development going on. They feel like the gravy train is going to keep on coming so its ok because next year they know that they are going to make $300k. Why wouldn’t they feel this way, the majority of the people they did loans for took out adjustable rate mortgages and are going to refinance them soon and hopefully they did such a great job that the referrals are rolling in.

8. Here you have a person making ridiculous amounts of money doing a job that anybody can do. Its kind of like one of things that “sounds to good to be true” and you find out it is years later the hard way. Some Doctors do not even make $200k a year and here is somebody selling mortgages making serious loot. The home has been bought and you know what, that Cadillac Escalde is looking pretty good too. Let’s not forget the boat. The money is still rolling in and interest rates are still low so you finance all of it anyways. You can make the payments so who cares.

9. The gravy train starts slowing down and you notice that some of your clients are calling you back to do another cash out refinance. You say no problem, and send the appraiser out to the home. The appraisal comes in at the same or just a little less than what it did 8 months ago when your clients took out money to buy some crap they didn’t need. This baffles you because every time you sent your appraiser out there the home went up 25% in value. You can’t do the mortgage for them. Another one of your past clients calls in to do the same cash out refinance. Appraisal comes in low again. This process repeats itself for two months straight and you commission check drops in half. Oh poop!!

10. The mortgage broker cannot close a loan because now all of his clients owe more than what their houses are worth. The bank you go through said none of the loans you send to them to process meet any of their guidelines anymore. This is even happening to some of the larger mortgage companies like Countrywide, Chade, Quicken Loans, etc. Nobody can do a loan for anybody anymore. Here sits the mortgage banker/mortgage broker at their desk waiting for the phone calls or new mortgage leads to come rolling in that day and they don’t. Well, they still come in, but a lot of these people you talk to are in desparation mode and you can’t help them. Guess what, the mortgge broker is next to where they can’t be helped. Most mortgage brokers get paid a small salary, but 80% of their income is commission. Good bye commsions. How are they going to be able to pay for the Escalade, the boat, and most importantly the $400k house that they did not put a $1 down on it themselves without being able to close any loans. The answer is that they can’t. Many. many people in the mortgage business over the past coupleof years made some very easy and quick money. Too much money for a job that requires little real talent or skill. This includes the owners of the companies too. Many thought the money train would roll on forever because real estate has always been such a safe investment. If any of them had ever of taken a Finance or Economics course they would have read about supply and demand for one and would have realized that there had to be a tipping point where the market was going to push back. Nobody thought it would come and it did quickly. So the mortgage broker who probably kept telling you to take more cash out of the equity on your home and who probably did three new mortgages for you over 2.5 years time has no money coming in and can’t pay his bills. You will probably see a for sale sign from the real estate company that is working for the actually lender that bought the loan he wrote for himself in the front yard saying “foreclosed home for sale” on it. Its really sad because they could have said this money and lived the same lifestyle they had been before the money and could have just lost their job but had $150k in the bank. Now they have nothing.

Post from: The Top 10 Reasons

The Top 10 Reasons Your Mortgage Broker Is In Foreclosure

2. Many people around the country are losing their jobs right now because the economy is heading or already is in a recession. When people don’t have the money coming in to pay their bills the bills do not get paid. The first things that usually get passed up on are the credit cards and car loans. The last one that you want to pass up on is your mortgage payment. You need a place to live so you keep paying it as long as you can without being late.

3. Let’s say that you are one of the people who have a job right now and are not affected by what’s going on in the economy around you. You have enough income coming in your household to continue living your current lifestyle. You keep paying your bills but are at the point where maybe you live to far from work right now and with gas prices going up its just eating away at your wallet. Maybe your kids are moving out and its time to downsize. Time to sell the home.

4. You walk out your front door and you look to the right then the left and you count 14 for sale signs just on your street. This is pretty common in the Detroit area right now so don’t feel like I am exaggerating. It’s reality. Eight of those homes are going into foreclosure so you know already that the price of those homes is going to be way below what you perceive the value of your home to be. You also owe on your house $40k more than what all of the foreclosed homes are selling for.

5. Your options are to put it up for sale and hope somebody just really loves your house more than the other 8 homes that look identical to yours, same sq footage, bedrooms, tiling, everything, and wants to pay top dollar for it walks into your house and slaps down cash. This is more than likely not going to happen. Another option is to sell the house for what the foreclosed homes are selling for and bring $40k to the closing table out of your pocket to cover the difference. You don’t have $40k and if you did you wanted to use that for your down payment. What to do now?

6. You game the system. That’s right, game the system so it comes out in your favor. Keep making the payments on your home while you are looking for the new house that is closer to work or a smaller one. You should be able to find exactly what you want nowadays with so many homes up for sale. Take your time. You still have money coming in to pay your bills and home prices (including yours) are dropping every month. Make a low ball offer on every home that you think is going to be the one that you want. Just remember that the real estate market around the country is going to be heading back to what home prices were in the 2001 era. Do your home work and see what it sold for then. The home is still probably over prices and offer them near to what it sold for. Maybe they take it.

7. You find the home you want. This is when things get into action. You call up your local bank, credit union, or national lender to get approved on a mortgage. You talk mortgage rates with them and tell them that you are trying to buy a new home. The new home is probably going to have a much smaller mortgage than the home your currently living in. You tell the lender that you are keeping your current home as a second home or that your going to let your kids or family live in it while you move. You ask them if you can be approved on the new mortgage with your current income.

8. If they say yes then the game is on. What the mortgage lender just told you is that you are approved for a new mortgage to buy a new home and that you make enough money (in their eyes, based off a credit report) to handle two home loans, car payments, etc. If they say no, then most mortgage companies will ask you if you plan on renting it out? Say yes. What the mortgage lender will do now is see how much comparable homes are renting for in the area, get a dollar number and put that number in their approval process as income. They shouldn’t do this because you have no way of showing them that you are going to rent it at all. Remember, the mortgage lender is there to make loans and as long as their guidelines permit it then they will do it.

9. Let’s say though that you are approved just based on your income and no additional rental income is needed. At this point you have to ask yourself a real personal question. How bad do I want this home and am I willing to live with what is going to happen to my credit if I let the home go into foreclosure? If you say yes then this is what you will have to do. If you plan on getting any new cars within the next 2-3 years go out and get them now if you plan on leasing or financing a new car purchase. If you do not have a credit card go out and apply for 2 or 3 of them. If you want to buy a time share in Cancun get it now. If there is anything that you think you are going to want to finance over the next 2-3 years get it before you let your home go into foreclosure. The reason is that when you let your home go into foreclosure your credit history is going to get jacked up. Its going to show that you have paid all of your bills on time, credit cards, car loans, time shares, etc. All that is besides a home foreclosure. Since you have taken the cars, credit cards, time shares out before the foreclosure those lending institutions are not going to know the difference. They don’t care and as long as you are paying them its all the same. You can still charge things to your credit cards and use them as normal, just pay them off in full every month. You are going to need those things opened to help rebuild your credit over the next two years. Most mortgage companies are not even going to look at you to but a new home or refinance one if it has been two years since a foreclosure. After that then you can do it. In those two years you have been paying every thing on time so your credit scores should be on their way down. Be prepared to see you credit score drop 150 points or more on your credit report. Who cares. As long as you pay all your bills and use cash for alll of your purchases then you do not need any more credit. All a credit report is is a piece of paper. Do not let it tell you how to live your life. It does not know what;s going on in the outside world. Look down at your desk, find a piece of paper, write credit report on it and rip it in two. This piece of paper will mean nothing.

10.  So you buy the new house and get moved in. As an example let’s say your old house had a mortgage on it for $150k and the exact same homes that foreclosed sold for $110k. Instead of paying the bank $40k, you keep it in your pocket and put it into a savings account or mutual fund earning you interest. You buy your smaller home for $100k and you probably got a home that is not a fixer upper. You are in the new home, your loan is closed and the new mortgage shows up on your credit report the next month along with your old one and the other cars you just leased or purchased. You lock up your old house because you still technically own, collect the mail and wait for a notice of foreclosure. The notice comes, you call the bank and drive up there and drop off the keys. They of course will not be happy. Now look how much grief you saved yourself. You have $40k still in the bank (if you even had it). You are now in the house you need.  Your mortgage payment probably dropped by $100 month. For fun lets calculate it. $150k at 7% on a 30 year fixed rate mortgage is $998 a month. $100k at 7% for 30 years is $665 which is $998 – $665 = $333 in savings a month. I was way off in my guess. That’s the car payment on the car you just leased before foreclosing. Most importantly, you are no longer stuck with a house you are never going to be able to sell without having to bring money to closing. The reality of the real estate market is that home prices are never going to be as high as they were from 2002-2007. Just like I stated when I started writing, I don’t promote you foreclosing on your home. I’m just saying that if you have everything else in order and it makes sense don’t feel bad about doing it. All that is going to get messed up in your name is your credit report. Since you have everything you were going to finance for the next couple of years and you still make good money then your all set. If you like the area you live in then you might be biting the bullet now but that’s the price you pay if you have to stay.

Post from: The Top 10 Reasons

The Top 10 Reasons Why Foreclosure Is Not A Bad Idea

2. If a borrower misses 4 payments in a row the lender has the option to start foreclosure proceedings on the home. It is in the contract you signed with them and they are only doing what the contract says.

3. After you have missed 4 payments the bank holding the mortgage note has not received 4 months of interest on the principle balance they lent you. As an example a loan at $200k at 6% interest would have a principle and interest payment of $!200 a month in which $1000 of that is strictly interest. It sucks seeing that number. So in the 4 months you have missed these payments that’s $4800 that the bank could not relend or use to pay their own bills like salaries to their employees.

4. As soon as the foreclosure starts the bank has to hire people to go out to the property to see what condition it is in and if it needs to brought back up to code. The local county government will have to be contacted to get the previous owners name off of the deed. Then a realtor has to list the property. All of these people do not work for free and now the bank has to dip into their savings to pay these people to hopefully get it sold.

5. Since the bank owns the house out right now they have to do things like cut the grass and pay property taxes on it now too. So really that $1200 payment is lower its probably more like $1500 now with taxes and home owners insurance.

6. So the bank is spending money to just keep the house in working order while they try to sell it. Even if they are to sell it the banks usually undercut all the homes in the area so they can get it off their books. Most banks take a big loss with foreclosures. There is usually a loan that is still over 80% of the value of the home so even if they sell it and make 10% in equity all of the money they missed in monthly payments, taxes, upkeep, realtor fees, paying the next door neighbor kid $15 a week to cut the grass really adds up.

7. The mortage company is also not doing what they intend to do which is do loans and create new business. They are having to spend a lot of time going out and basically clean up the financial disaster that a foreclosure is so they can move on.

8. Put yourself in the banks shoes for a second. A borrower that takes out a $200k loan at 6% will pay $231,676.38 JUST IN INTEREST over the span of 30 years. So this means that you will pay $431,676.38 total over 30 years to pay off your house if you just make your minimum monthly payments. Kind of makes you want to be a bank now huh. Just sit back and watch the checks come rolling in every month for basically working one time.

9. The mortgage company is always going to be the one that is going to get the bad rap in this one. Its so easy to blame the bank but nobody ever said that I should have never taken that loan because I could not afford it.

10. The trickle down starts happening where banks have to start laying people off because you could just not make your payment. This causes jobs to be lost and companies to fold. This also affects your neighbors because now the mortgage company is going to want to sell this property below everybody else’s lowering property values in the neighborhood. The stock market starts tanking and property values drop quickly. Luckily this will never happen because real estate is the safest investment of all time…um…poop.

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The Top 10 Reasons Mortgage Companies Do Not Want You To Foreclose