How to Solve the Foreclosure Crisis
An important step in solving the foreclosure crisis is to provide assistance to mortgagees in making the monthly loan payments; this assistance should be in place before the first loan payment is due.
One solution in providing assistance, which would not require any additional governmental funds to be spent, would be a mandatory mortgage equity accelerator program for every new loan written. A mortgage equity enhancement program allows a thirty year mortgage loan to be repaid in approximately twenty-five years. The total monthly payment is not decreased, but mortgagees have two equal automatic withdrawals made from their bank accounts on established dates. These two withdrawals are combined to make the monthly loan payment.
Normal vs Biweekly Payments with Equity Accelerator
Here's an example of how it works on house that lists for $1 million courtesy of PayMap.
The house lists for:
List Price $1,000,000
30 year fix rate loan of 6%
10% or $100,000 down payment
1. Normal Monthly Payment = $5,688.61 vs. two automatic payments of $2,844.31 each month. Simplified Budgeting and total payment has not changed.
2. Normally payoff loan in 30 years, but do it in 24 years, 4 months instead.
3. Your equity in 10 years normally is $137,014, but with an equity accelerator program it's $212,519.
4. Total Interest Savings with equity accelerator is $255,523.
Some lenders are willing to divide the monthly loan payment into four withdrawals, essentially making weekly banking account withdrawals. Here is my personal story of how an equity enhancement program works for a thirty-year fixed mortgage. The FHA loan for my home is $184,900.00, thirty year fixed rate of 5.25%. The monthly p...
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... Avg. Lowest Est. Month Payment for a $300,000 loan**principal & interest only
Source: Informa Research Services, Inc.
30-yr Fixed 4.76% 4.13% $1,454.82 / month
15-yr Fixed 4.26% 3.75% $2,181.67 / month
30-yr Fixed Jumbo 5.64% 4.50% $1,520.06 / month
15-yr Fixed Jumbo 5.16% 3.88% $2,201.07 / month
1 yr. ARM 4.02% 2.55% $1,193.18 / month
3/1 ARM 4.07% 2.88% $1,245.48 / month
5/1 ARM 3.75% 3.00% $1,264.81 / month
Solutions to the foreclosure crisis need to be found and implemented through the institutions and providers responsible for finalizing mortgage loans. Continuing to cast the blame solely on the banking institutions for the industry’s role of providing funds on now defunct mortgage loans has not lead to constructive resolution of the crisis. We cannot allow the American dream of home ownership to become another piece of national nostalgia.
To solve the foreclosure crisis we must take a multi-pronged approach that tackles the issues making the situation worse and that caused the problems in the first place. Our goal is to do this in an efficient and time conscious manner. Any solution is going to have its positive and negative aspects but we must try to maximize the former and minimize the latter.
The frequency of foreclosure in our nation today is dangerously high. The strain from the recent economic downturn has put many families and individuals in a financial chokehold preventing them from being able to make their monthly mortgage payments. Consequently, many of these people feel they’ve punched a one-way ticket to foreclosure. With all these homes being foreclosed on, we face a very real crisis.
The foreclosure crisis has been devastating. Families no longer able to afford mortgage payments are forced into bankruptcy, while banks find themselves with properties valued at less than the loan principal. Solutions proposed thus far have primarily focused on loan re-modification measures that only slightly relieve the financial burden for homeowners and frustrate lenders who are forced into less attractive loan terms. However, one solution not being discussed in congress may resolve the housing market slump while benefiting families and investors alike.
Foreclosure in America has been a rising and prominent problem recently, and has destroyed many Americans hopes and dreams. Over 2.3 million homes were foreclosed in 2008, and an estimated four million homes will be foreclosed by the end of this year. Despite the efforts of many banks and lending companies, over half of homes will foreclose that have received their help. I believe that we have only started in the right direction in solving the foreclosure crisis. Giving money and lowering mortgage rates will help, but I believe we should find out why Americans are in this situation in the first place. We are being too stereotypical when we think the only reason someone is foreclosing is because of irresponsible payments or buying a home out of a person’s capabilities to pay for it. If we understand their situation, we will be better enabled to help and solve their crisis.
Then, besides the mandatory modification the homeowners with a loan problem should also be given government tax incentives, credits and other incentives to stay in the home for an extended length of time. There is no short term fix for all of this of course, but I have made the proper suggestions to do away with all the brown front lawns void of