Thursday, June 17, 2010

Foreclosure Help

A New Kind of Foreclosure Help Appears.

A friend of mine, April Petty had a home that always seemed like a marvelous investment. She owed banks the staggering loan they gave her for it of course, but in the 20 years she had it and lived in it, she gratefully saw its value rise; at first, the escalation was glacial enough, but soon, property prices in the whole area began to really take off untilher house was worth $300,000.

The ride lasted until 2008 saw the housing market collapse the whole country over; suddenly, on a house that was once worth more than a quarter-million she actually owed a half-million. Right away, the bank that held her loan, had her over in court, for eviction purposes. But there was something rather remarkable going on here.

Here they were with nothing in hand and being sued; they should have had no cards to play. But still, upon foreclosure help began to arrive in the form of considerable power and leverage in negotiating how things went.

In the end, she got an all-new mortgage company that valued her house for what it should have been worth on the market; but her monthly payments were negotiated down to a third of what she used to have. What happened was, a not-for-profit lending concern cut the bank that originally had held her mortgage, out of the equation, by buying the debt from them outright; they then sold it back to April at a 25% margin, so that they could have some kind of a safety margin to help deal with any situation in the future where they might default again. If they had been left to their own devices dealing with the bank, they would just have been out on the street with nothing to show for their ownership.

Now, they have their dignity back. How does this kind of foreclosure help happen? Actually, according to reports in the New York Times, it all started with the ideas of a bunch of law professors at Harvard, an NGO called Vida Urbana and Boston Community Capital.

What started as an experiment there, apparently a very successful experiment, is now set to be copied everywhere - the idea being that the lender goes in to help the distressed family after the foreclosure sets in, and not before. If you think about it, the banks were the ones who really fueled all this distress. Even as the world around them was coming crashing down, the banks showed no willingness to go with the times. They always insisted that they didn't care what the house's value had fallen to. If you owed them three times what your house was suddenly worth, that's what you paid. The trick has been to put a good scare into them, by actually going along with the whole foreclosure business.

This actually throws a scare into them that they finally have nothing - they are owed a great deal, and they are holding a property that is worthless. That's when they come to their senses. That's why foreclosure help is best offered after foreclosure proceedings. It is a wonder the banks don't realize that if there are a lot of evictions because of loan delinquencies in a neighborhood they have been lending for homes in, the banks shoot themselves in the foot by plowing on with their eviction policies. The more they foreclose the homes in that area, the more they fall in value, and the more they'll find families defaulting. Ah, how the power of money leads everyone astray.

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