Those with adjustable rate mortgages (“ARMs”) who made it through what seems to have been the worst part of the recent Recession are taking a deep breath in thanks of maintaining their homes from foreclosure either within or without Bankruptcy. It is good news, to be sure. But before uncorking that champaign, bear this in mind. Many economic experts who study these things forecast that a second wave of foreclosures and bankruptcies on the near horizon.
The reason for this pessimistic prediction has to do with the structure of many housing loans. Many of the ARMS still out there are about to hit a second “adjustment” phase, in which, like the first one, the rates will shoot for the sky. This could raise some ARMs from 6% to perhaps more than 10%, meaning hundreds of dollars more in monthly mortgage payments for the average household and further financial peril. This wave is predicted to begin washing up on our shores later in 2010 and into 2011 and 2012. And no, this has nothing to do with the Mayan calendar!
As before, the important thing to do is avoid panic. Just as the federal programs for home retention, for example President Obama’s Home Affordable Program, helped so many through the first wave, many who know this stuff say a second mortgage assistance program is on its way. Also, mortgage brokers are now accustomed to dealing with attorneys representing economically challenged and desperate clients. My mantra is this: “As wonderful as your house is, in this market the bank does not want it! It is in their best interest to keep you as a paying customer as long as they can”. In other words, they are on your side – well as much as a monolithic, cold, heartless creditor can be.
And on the subject of mortgage broker empathy, more often now I see more clients in my offices concerned about the pace of their loan modification under federal or state home retention programs. They also complain about the mortgage brokers repeatedly losing paperwork and nagging them for “updated financials” to process their modification applications. Although I join many others in assuming an insidious and nasty motive from mortgage brokers, some of this just makes sense. As I advise my clients, mortgage creditors are so overwhelmed with modification applications that it can literally take four months or more for them to review a client file and render an offer on modification. The lost paperwork and need for them to update that client’s financial information is more an artifact of the backlog than anything insidious. Alternatively, if a client has evidence of nasty motives, I am more than happy to take their civil case against that mortgage broker.
