Staying Home

Expanding on yesterday's topic, pre-foreclosures relieve some of the growing problems in the United States. Since a third party investor takes over financial responsibility of a foreclosed property, the primary mortgage is paid. However, homeowners may have secondary loans. If those loans are not paid, it is written-off and the government pays the bill. Therefore, taxpayers pay the secondary loan.

Pre-foreclosures function by selling a home before it is foreclosed. An agent goes to primary lenders and negotiates to pay off the remainder of the mortgage. If the remainder is much lower than market value, they accept responsibility for the loan and then the agent tries to sell the property before it forecloses. Wealthy investors prefer this method, because they subvert open auctions when securing a property. Primary lenders often sell the house for what is owed to them, so this is a satisfactory offer and the bank saves time. Even if the home is not sold the agent bought a rental property for a lower market value and may sell it at a later time.

An ideal situation for the agent, the former homeowner might have a second, third or fourth mortgage. Those debts remain a part of the former homeowner's credit history. Equity loans are used to pay property taxes, because not paying property taxes results in an immediate loss of property. Banks want to collect interest on their loan, not sell homes.

Equity loans charge higher interest rates and are associated to people struggling with finances. Some people take out loans for home improvements or vacations; however, if they could afford it they would not need the loan. Home equity loans should be outlawed. Then banks will no longer offer them to people. If illegal the government is no longer obligated to pay off the loan. However, what happens to the second, third and fourth mortgages?

If the primary lender could renegotiate, without creating a new loan, the conditions of the original loan still apply. Down payments can be waived, unless the new loan amount exceeds the original mortgage. The FHIC insures a percentage of all mortgages. Different from refinancing or consolidation, all secondary loans are absorbed into one loan.

Consumers would be able to negotiate the length and rate of the mortgage. Then when an honest person experiences hardship, they may easily switch to a thirty years mortgage or establish a fixed interest rate. Banks allow for grace periods and give secondary loans to pay off property taxes; therefore, banks would be willing to allow a customer to stay in their home even after they declared bankruptcy for seven years. Hopefully, the homeowner is able to find work and begin making payments again.

The renegotiation method assists people who have developed equity in their homes and rights to land are protected. Renegotiation extends contracts, so primary lenders also benefit when collecting more interest off of extended loans. The pre-foreclosure market may suffer. Over time equity will diminish if the situation worsens; however, the homeowners have time to sell the home, or find a new occupancy with friends and families.

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