Can Jumbo mortgage loan workouts reduce the sting of the next looming foreclosure wave?

Foreclosures increased in most large metropolitan areas over the first half of 2012 according to data released by foreclosure website RealtyTrac.com.  Despite optimistic indicators such as the National Association of Home Builders/First American Improving Markets Index (IMI) for August showing that the housing market is improving [1], there remains a staggering 12 million mortgages with negative equity waiting to begin the foreclosure process.  According to Brandon Moore, CEO of RealtyTrac, that amounts to $1.2 trillion.

 
Moore’s outlook for the economy is bleak at best as stated in an interview with Maria Bartiromo of CNBC, “I don’t know how the government should respond. I just know that I’m not hearing either presidential candidate talk about it and the current negative equity of properties that in the foreclosure process is $45 billion. You have 26 times that problem waiting to happen potentially.” [2] Fitch Ratings estimates that out of $381 billion in jumbo residential mortgage backed securities, almost 10% of the loans are seriously delinquent (more than 60 days past due).

There does appear to be some hope on the horizon. Homeowners with non-conforming jumbo mortgage loans (loans that failed to meet bank funding criteria set by FNMA due to loan limits) have recourse.  A handful of specialty finance companies around the country are performing jumbo mortgage loan workouts on a case by case basis for homeowners who meet a set of requirements.

These finance companies offer to purchase the existing mortgage loan at a substantial discount for cash. They negotiate that amount with the lender for sometimes up to 50% of the mortgage balance. They restructure the homeowner's debt and provide long-term conventional financing at an amount not to exceed 80% of the market value of the home. This is done for a take-out at closing while not damaging the owner's credit and drastically lowering the principal balance and debt service. The homeowner pays little to nothing out of pocket.  Homeowner requirements include very good credit scores above 700, a current mortgage, current taxes in paid status and no second mortgages or the second mortgage held by the same lender as the first mortgage. Homeowners need to take advantage of these offers now before the next wave of foreclosures.

Jumbo mortgage loan workouts are possible because of the National Mortgage Settlement reached in February 2012 between 49 state attorneys general and the nation’s five largest lenders, Ally/GMAC, Bank of America, Wells Fargo, Citi and JP Morgan Chase.  The settlement provides relief to borrowers whose loans are serviced through these lenders including principal reductions. [3]

For more information, contact us at info@consumerdebtsolutions.net.

Author – Joan Villazon, C.F.O., Consumer Debt Solutions, Inc.

Website: www.consumerdebtsolutions.net

Facebook: www.facebook.com/debtfreedom

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[1] National Association of Home Builders. (2012) NAHB/First American Improving Markets Index (IMI) [Data File]. Retrieved from  http://www.nahb.org/reference_list.aspx?sectionID=2223

[2] Video Transcript, July 25, 2012, CNBC.com, Bigger Mess Ahead for Foreclosure?

[3] National Mortgage Settlement. (2012). Federal Government & Attorneys General reach landmark  settlement with major banks. Retrieved from http://nationalmortgagesettlement.com