Dealing with the Third Wave of Foreclosures

First, there were the residential real estate investors that became over extended because of low interest rates and ridiculously easy credit standards. They bid up the price of houses to levels that were unrealistic. They took on more debt than was prudent. There were many more homes on the market than the “real” demand could use for occupancy. As a result, when the inevitable correction came, they were caught at the top. Many just walked away from their properties because they didn’t really have much in them and there was no immediate recovery in the forecast.

The so-called second wave came from the sub-prime lending practices that put unqualified borrowers into homes that they could not afford. Many of these loans were offered at very low initial interest rates. Later, when the rates reverted to more realistic levels, the borrowers were caught with a payment they could not afford. At the same time, credit standards were tightened and these borrowers could not find another lender that would provide a refinancing package for them. The second wave began in about 2007, and will be a major problem through at least 2011.

Now, are we looking at yet another wave, the so-called third wave? Many experts in the field say yes. The third wave will be possibly the most devastating. This will affect people that have been in their homes longer than the first and second wave, perhaps ten or fifteen years or more and, for the moment at least, have significant equity in their homes.

It will be caused by the appalling rise in the level of unemployment. These are people that paid the appropriate price for their homes and offered an adequate down payment. They had good credit scores and were solidly employed.

Now, either they have lost their job or have seen a reduction in their hours to the point that they can no longer make their mortgage payments in a timely manner. Assuming there is sufficient equity in their homes they are likely to qualify for loan modification programs, and many have done so. However, without an income stream, they will eventually be looking at foreclosure. This is where we are today. There is a large pool of homeowners that are gradually loosing their ability to hold on to their homes.

How long will this last? Will employment figures improve soon enough to save these homeowners? Experts more-or-less agree that the unemployment rate is either at or near its peak. However, few think that there will be significant improvement anytime soon.

Perhaps you are in this third wave. What can you do? Start with a look at a few good points. You have been making payments for a longer time than have the first and second wave borrowers so you are likely to have more credibility with your bank. In addition, you may still have some equity left with which you can leverage into a solution.

If you have not already done so, contact your lender to discuss a loan modification program. Your lender does not want to foreclose and, with the aforementioned credibility, you may be offered a different mortgage plan that will work for you. This is especially true if you believe that you will likely be employed again soon.

You see a lot of advertising about the benefits of bankruptcy. If you are thinking that this process will allow you to get rid of your other creditors while keeping your home, you may need to think again. Laws vary by state and you need to be sure before you consider this serious step. Your credit rating will be ruined for many years.

There are credit counselors and loan modification attorneys that can offer good advice. You need to be very careful since there are many scams out there. Be sure that any outside help you engage has good and verifiable references.

Original: Dealing with the Third Wave of Foreclosures