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Reworked mortgages not working - Even after help, over 50% o

 
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news



Joined: 14 Jul 2007
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Location: Greater Boston

PostPosted: Tue Dec 09, 2008 2:18 pm GMT    Post subject: Reworked mortgages not working - Even after help, over 50% o Reply with quote

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Description: Reworked mortgages not working - Even after help, over 50% of homeowners end up back in default
URL: http://www.boston.com/business/articles/2008/12/09/reworked_mortgages_not_workin ...truncated...
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PostPosted: Tue Dec 09, 2008 2:37 pm GMT    Post subject: Reply with quote

From the article:

Quote:
Ask LaWanda Fils. This single mother was behind on payments on her Dorchester two-family home when she asked for help from her lender, Option One Mortgage Corp. The solution Option One offered didn't seem to make sense - she would pay $800 a month more, after rolling in past-due principal, taxes, and insurance. Desperate to save her home, Fils agreed to the deal anyway in February.


What doesn't make sense to me is the author's claim that the higher payments "didn't seem to make sense." From the information we are given, Ms. Fils was apparently past-due on previous payments and owed them immediately. It makes perfect sense that when the lender allows the past-due amount to be repaid over time instead of all at once, the monthly payments will need to go up.

More important may be what The Globe didn't say. Judging from the name of the mortgage company, Ms. Fils probably had an Option ARM. Those are the loans which have payments for the first few years which don't even cover all of the interest, let alone principal, and so the total owed actually grows for the first few years until the loan resets and payments explode. Could it be that Ms. Fils was being offered a chance to refinance into a fixed rate loan? Of course the monthly payments now would have been higher for that - payments actually work toward paying off the debt rather than growing it. What The Globe should have done was compare her monthly payments after the rework to what her monthly payments were going to be after her Option ARM reset. They should have also disclosed any shift from variable to fixed rate as the reduced risk is worth a higher payment.

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JCK



Joined: 15 Feb 2007
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PostPosted: Thu Dec 11, 2008 2:38 pm GMT    Post subject: Reply with quote

Good point. Also anyone who needs their mortgage reworked is in a pretty dire financial state. A 50% success rate, under those circumstances, can't be considered all that bad.
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PostPosted: Thu Dec 11, 2008 3:08 pm GMT    Post subject: Reply with quote

That's a good point as well. People's expectations were probably way too high about how effective the reworks would be.

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