Have Mortgage Delinquencies Hit Rock Bottom?

It is baffling just how many homeowners are going belly-up in their loans, especially considering that there are copious mechanisms in place to save those who are facing foreclosure or even see themselves nearing the road to foreclosure. The foregoing not withstanding, there is a school of thought that suggest that mortgage delinquencies have not yet hit rock bottom. Economists state that seven out of 100 homeowners are currently delinquent on their mortgage loans.

What makes matters is the number of those who are barely hanging on to their homes and who are being laid off, overtaken by consumer debt, and also fell victim to the lure of easy equity when they could ill afford to take out any money from their homes. Now upside down in their loans, there is no chance of refinancing and rescue is available only by qualifying for one of the government programs. Perhaps it is the notion that homeowners are finally seeking help that makes the Mortgage Banker’s Association comment on a decline in new foreclosure filings.

Unfortunately, investors are not buying the good news, especially since the drop in foreclosures could be the loans currently on hold while awaiting a decision to see if homeowners are eligible to participate in any one of the governmental programs. Thus, there is a good chance that the actual number of halted foreclosures may be unduly watering down the foreclosure rates, seeing that not all halted foreclosures will actually result in saved loans. In these cases, the halted foreclosures may buy some time, but eventually become foreclosures nonetheless.

With the upset in the housing market, the upset in the employment numbers does not bring any good news. As a matter of fact, states that are considered ground zero for the mortgage meltdown – Nevada, Florida, Michigan, and California – also report skyrocketing unemployment as well as projected job losses that are yet to hit the ailing economies of these states. Speculations are rampant that further economic downturns are likely to happen. When this occurs, the next wave of foreclosures is going to continue dragging down the markets locally but also nationally.

As such, it is a safe bet that mortgage delinquencies have not yet hit rock bottom, and may actually still be in the mid stages of their freefalls. This is especially true considering that other forms of mortgages are now beginning to also join the subprime mortgages in their foreclosures. With so many consumers living from paycheck to paycheck, even the loss of only one or two such paychecks can hail fiscal disaster for the consumer, and by extension for the lender who holds the mortgage papers.

Although not saying so loudly, investors are leery to once again jump headfirst into the mortgage market and not even the government incentives are sufficient to have them change their minds. This of course begs the question what it will take to once again make them comfortable to invest in the housing market. Some speculate that only governmental coercion could accomplish this feat, while other hope that a slowdown in foreclosures will be enough for the more daring ones to once again infuse cash into the housing market.

More fixed-rate mortgages go up

More big lenders have increased the cost of their fixed-rate mortgages for new borrowers.

The Abbey, the UK's second biggest mortgage lender, has put up the cost of its fixed-rate deals by between 0.25% and 0.5%.

Lloyds banking group has also made some of its fixed-rate deals more expensive.

The trend started last week when the Nationwide building society raised the cost of all its fixed-rate home loans by up to 0.86%.

The main factor behind the changes has been the increasing cost of swap rates.

These are the fixed rates at which banks and building societies borrow money from each other, for specified periods of time, to fund these particular mortgage deals.

"Swap rates have increased substantially in May and June and in particular last week," said Nici Audhlam-Gardiner, director of mortgages for the Abbey and the Alliance & Leicester, both run by the Spanish bank Santander.

"Following competitor moves and further swap rate increases, it has become necessary to increase the rates on some of the deals we offer," she added.

Going up

Other lenders which have taken similar steps recently are the Woolwich (part of Barclays), Northern Rock, Cheltenham & Gloucester (part of Lloyds) and the Halifax (also now part of Lloyds).

Fixed-rate deals have become very popular again in the past few months.

During April 69% of all new home loans were at fixed-rates, according to the Council of Mortgage Lenders (CML).

With the Bank of England's Bank rate still at a record low of just 0.5%, the expectation is that the official cost of borrowing can only go up when it is next changed. Some suggest therefore it may now be a good time to fix the cost of a home loan.

"People thinking of taking out a fixed-rate should not delay, but should move as quickly as possible," said Melanie Bien, of mortgage brokers Savills Private Finance.

"I think rates will go higher still."

According to the financial information service Moneyfacts, the average cost of a two-year fixed-rate loan, for someone with a 25% deposit, is currently 4.28%.

For borrowers who can only put down a 10% deposit the average rate is higher at 6.06%.

A Mortgage Modification While Unemployed Is Not Impossible

Some homeowners think that getting mortgage modification while unemployed is impossible. This couldn’t be further from the case. While it is true that you will have a more difficult time being approved for a mortgage modification while unemployed, many lenders do accept homeowners who currently do not have a job.

Unemployment is no rarity in today’s economic climate, and lenders are coming to cope with that.

Even someone who used to have a very stable position in their company is at risk at layoffs these days. Homeowners from all walks of life with homes that range in value from $60,000 dollars to $700,000 dollars are having problems sending in that monthly check to their mortgage lenders. Families who were having trouble before are facing impending foreclosure while those who were secure are now having trouble making ends meet.

If you are currently unemployed, it’s important to highlight your possible financial possibilities in the near future and how you are planning to handle your mortgage after the modification.

If you receive unemployment checks, your chances are higher to be approved that someone who is not. In some cases you get the same chances as someone with a job, depending on your debt to income ratio. If you bring in enough through unemployment and do not have many expenses, your chances for approval are significantly higher than otherwise.

Your best chance for getting mortgage modification while unemployed is for you to state your case in your hardship letter. The hardship letter tells the lender what is going on with you right now and why you can’t pay your mortgage at the current interest rate. And on top of that, you let the lender know your plans for getting out of your financial troubles and how you’re going to handle the payments once the modification is approved.

Lenders are looking for homeowners who are going to be able to pay the new mortgage rate after loan modification. Even if you’re unemployed, the lender will still consider you if you show that you have a real intent to get back on your feet and work with them.

Some lenders, like Citibank, are even reaching out to homeowners who have lost their jobs and attempting to work with them towards lower interest rates to keep them in their homes. Foreclosure doesn’t help anybody, and lenders know that more than anyone else.

Do you want to know how to get a mortgage modification while unemployed? Show you’re confident you’ll be on your own two feet again and tell your lender that you will do anything to stay in your home. It may just work.


By: Lindsy Emery