Seven more banks failed last week, in Florida, Georgia, Illinois, Minnesota and Wisconsin, bringing the total for the year to 106, the most since the anemic post-recession recovery of 1992. The FDIC seizures are expected to cost $350 million.
Good News for Borrowers
With many banks in difficulty themselves, in key markets the pace of foreclosures has slowed. The number of California homes taken back by lenders dropped by 37% in the third quarter compared to the year before. Although default notices increased during this time frame, foreclosures did not keep pace. Lenders are more willing than ever to accommodate borrowers on reducing their mortgage payments. This helpfulness is not altruism. It’s so lenders don’t get stuck with an inventory of unsold repossessed homes that would continue to depress the housing market, further lowering the values of all homes carried on the books. Although there were improvements in some markets like San Francisco, between August and September the median sales price for an existing home drifted downward nationwide, from $177,300 to $174,999. The cause is generally thought to be growing unemployment.
Some indices, like the Case Schiller Home Price Index, have shown improvement and stabilization, but home values remain soft. According to Zillow, com, nearly one out four single family homes across the country are underwater with mortgages, where the loans are worth more than the homes that back them.
After their near collapse in 2007-2008 banks across the country were bailed out by the government’s Troubled Asset Relief Program, TARP. Ever since, the feds have been pushing lenders to be more lenient with their home loans. Many borrowers qualify for the federal Home Affordable Mortgage Program, but other mortgage mods have to be handled by mortgage servicers themselves.
Lenders are being more flexible because of a major arrow still in the government’s quiver; the possibility of enacting legislation that will allow bankruptcy judges to do mortgage cramdowns. These would lower a home loan’s principal to its market value through judicial fiat.
Throughout this site, we have presented your options when you are facing problems paying your mortgage. We’ve offered a guide to the federal programs you could use from the Obama Affordability Plan to other choices. Weekly, we are expanding our look at assistance from the statesincluding changes in foreclosure laws. We are also adding to our coverage of lenders’ plans. These resources are free to use. All are offered with an unbiased perspective.
In a recent survey, it has come to light that 4 in 10 borrowers would not call their lenders for help if they missed a mortgage payment. One in seven would simply try to get back on track alone. We all prefer to be self reliant, but this not a time for hubris.
This point bears repeating: If you are a distressed borrower, take a deep breath, pick up the phone and call the toll free number on your mortgage bill. Ask for the loss mitigation department. Request assistance and follow these guidelines.
With so many banks in trouble themselves, there is no better time to get help with your mortgage.