Many think this new Foreclosure bill would help people stay out of foreclosure. Well lets take a look at the facts and lets use a real life example from someone locally whom I have discussed this with and I am familiar with as to what most likely will happen.
First we must have some numbers to work with. Lets assume you have a $200,000 mortgage on your interest only or ARM mortgage. You are behind on your normal monthly payment of $950.00 a month. You go to your friendly banker and say look, I can't afford that $950.00 what can you do to keep me out of foreclosure. Now keep in mind I'm just using numbers for purposes of illustration.
Here are the facts, facts, facts, got that, facts. No not what people think or say.
1- Understand this before we start, you will at the end of it all still owe, plus late charges, fee's etc. It will be capitalized into the new loan amount. That means if you had before all this a balance of $190.000 you now have one of $196,000 based on all the late charges, fee's, interest and processing. You lost all you paid. That was interest gleaned by the bank, poor souls. About $24,000 over two years.
2- Yet, what the bank does is lower that mortgage to a new fixed rate, which is better then the interest only or ARM, but they increase the payback to 40 years. Now that, outside to the forty years isn't so bad. In the case of the elderly, they will be paying even after they die and the bank makes more money. It is a win / win for them. They don't want your home, believe me they have tons of them. Think not, then where has your head been? They have so many in default it is scary and it is past scary. Yes and past the signs on the lawns are the empty homes, the empty rentals those homes being lived in but ready to fall. You don't see it but it is there all around you hidden in daily life.
3- Now your monthly payment will increase from the $950.00 to $1100.00 which will include Taxes and insurance. Ok, you had to pay your taxes anyway.
4- You borrowed the money, they lent it too you, so in effect you both are losers. You more then them but yet both got taken by the investors and speculators. Yes the same ones watching those ad's on TV as to how to make millions off of foreclosures. Rhetorically do you think the lenders and everyone involved had clean hands?
5- Now that home you owe that $196.000 now on has been identified as being worth $128,000. Good purchase, right? Well why did you borrow on that to live the good life? Ok, to the fool that thinks that way. Some people borrow because of sickness, accident, catastrophic illness, loss of job, helping family, etc. enough said MOO. They needed the cash, had equity and took the funds to help. They had no other sources available. Do some do it for pleasure, yes I'll agree, but not all were looking for or living LaDolce Vita.
So lets recap.
You borrowed $200,000. You had a payoff balance of $190,000 and your monthly payment was $950.00 a month and you paid no Escrow and your mortgage was for 30 years. Since this was an interest only loan the principal never went down unless you made extra monthly payments. That meant the principal at the end of 30 years would have never decreased if you just paid that $950.00 a month.
Now don't forget you still had to pay taxes and insurance on top of that $950.00. Those are mandated expenses by yes, our government, designed to protect them and the investor. Not so unfair it has been part of life for years. Yes just take the position. Oh and lest not forget this key point, your credit history was shot.
Verses what you now have-
You owe $196,000, your monthly payment is $1100.00 with Escrow and your taxes included and you now have a 40 year mortgage and the principal is reduced with each payment. Maybe in 30 years your kids can sell and get something back out of it?
Your credit history repaired. For now or until Social Security goes away.
Now here are some things to throw into the picture.
This man just got his tax estimate for the year 2008. His home worth $128,000 down from $248,000 two years ago when he took his mortgage and his a tax value assessment is $74,000. of which $1700.00 a year is owed.
If you elect to go through the banks collections process you have to "pre qualify" for their 3 month plan, which if you couldn't pay the mortgage before what makes you think you can now? You may not even qualify tells you all about hardship plans doesn't it. If you don't take it and pay you will never catch up, your in default and guess what, those reduced number of policemen will have to send someone to your hone to get you out. YOu do get your choice of one large cardboard box or two small boxes.
So if you go into foreclosure and try to sell short they won't take an offer from you unless it meats what they want to get. Thats not unfair but here is the questionable part in my mind. They will take less from someone credit worthy, an investor. Yes they will and they will write off the difference and the bloodsucker, oh sorry, the investor will get a home that is at true market value. Now tell me that isn't a kick in the teeth and yes it kind of sums it all up.
The person who is just hanging on, you know that non credit worthy type, maybe your neighbor, well guess what? That's right you don't get any help to reduce the mortgage amount owed. I'll say that again. They'll sell short and take the write off but not for you.Now first time buyers, please give us a break, many of them do not make in a year here in Florida and I venture elsewhere, what it is alleged that Hulk Hogans wife got for a divorce settlement, which is a monthly allotment of $40,000. Many of them looking to buy are just "not credit worthy" having credit card debts and other credit issues and insufficient income. Yes as someone wrote to me, "its called personal responsibility". Yes that comment speaks to that person and who they really are.
So for those of you who are praising this new mortgage bill go back and read the fine print. Do you have something better then what you had, yes. You had that bad investment no matter what plan and now you have a somewhat better plan [if you can meet the credit test] and the only option you had left was to walk away. There were no other options if you couldn't pay. Also, while many think why would they want to keep paying on something that isn't worth what I owe? Well morally you borrowed the money. The real sinners all those who were involved in this market boom and I do mean all from top down.
Now remember all of this refinance depends on your "credit worthy" ability to repay the loan. If you can't you have no other options left but foreclosure, period and that is where many are. So to say there is help that is a Paul Harvey and an incomplete "rest of the story". Where are you Mr.. Obama and Mr. McCain? Where are you Congress person? Where are you their supporters? How do you justify that?
So lets look at what this means for our economy, really means not just talk. You who see wonderful things happening, yes right before election. Yes you know with all these "saved" mortgages they will surely rave about. It means simple and pure those who do not have the means will go into foreclosure and that is the vast majority of those teetering on the brink. That will mean more empty homes and more families on the street. It means the average family and American no longer can afford the American dream, fact. It means many families saved will be in financial bondage for forty years or more. It is the cold hard truth and facts. Their own fault you say. Well in some cases yes but not all. Yet don't look now because someone has to pay and guess who? You see We the People own all those mortgages and when they default, are short sold to investors, guess who picks up the tab? Can the ones who can't pay pick it up? No, think hard and yes when thinking, pull out a mirror and look hard and tell yourself who you see. That is right, you that have.
Yes like the promised return of jobs, lower fuel prices, no Comprehensive Immigration, etc, etc, etc, etc, etc, more problems. Of course not until after the election. However, in reality, does that really matter? They have [yes to believe that these two running for president had no hand in it, well it is way beyond sound reason and logical thinking] already destroyed the golden goose and it isn't coming back for average Americans. Yes as the President says, he doesn't see any problems at all. Yes and there isn't for those who have and take.
That is something many miss and that is because this country has many that have and yes TAKE. They will wheel and deal all under the legal umbrella provided by our leaders. Usury will continue, bankruptcy and the destruction of people, low wage jobs, more layoffs and yes those sitting there now on the edge, when that layoff comes, they will have the same options as those there now, fact, take it or leave it, believe it or not.
That is why I will not vote for any of these leaders or anyone who is a Republican or Democrat by promise or words no matter how eloquent or what I want to hear. I will vote for those who's deeds demonstrate they care. No not for the bailouts of the wealthy, private investors but for Americans. Yes and to really think things are going to get better, well read the financial, read the small articles buried with the papers, the opinions, what investors are saying, yes it is all there for those who care, who understand and who are not blind to it all. As for the rest, they really don't give a damn or are, sorry, the Bovine, or a have type. It is as I say, that simple.
Maybe "As I watch and Listen" my prior article sums it all up?
Robert T. Melaccio Sr. 2008 Copyright ©2008 Robert Melaccio Sr.
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