UNDERWATER MORTGAGES

Unemployment and Mortgage Payments

Suppose you lose a job but still have monthly mortgage payments to make. Unfortunately, few people can keep up with their mortgage payments with only unemployment benefits to rely on. Plus, if your benefits run out before you find your next job, the situation is likely to become desperate.

Losing your house is perhaps the biggest financial risk an average American would ever face. Let us look through the steps you can follow to reduce the chance of foreclosure.

Steps to Find Help With Mortgage Payments if Unemployed

Major banking giant Wells Fargo has decided to stop offering subprime mortgages and plans to close 638 subprime lending offices that operate nationwide. The subprime mortgages are typically handed out to those in lower-income neighborhoods.

The bank decided to drop the mortgages because they simply don’t provide the business that it’s looking for anymore. However, it will still provide subprime auto loans and credit cards. As a result the unit closure, about 3,800 employees will lose their jobs (LA Times).

Recently, we produced a series about underwater mortgages – everything from what an underwater mortgage is to how to find underwater mortgage help. In case you missed it, here’s a recap along with the latest news so you can stay up to date.

Number of Underwater Mortgages Dropping – But Still High

Underwater mortgages, or homes with “negative equity,” have become a growing problem over the last several years. Recently, the Wall Street Journal reported that almost 10.7 million households held negative equity in the third quarter of 2009, according to First American CoreLogic. Borrowers in this situation are desperate to stay afloat.

In an effort to ease the mortgage crisis, the government has been encouraging lenders of underwater mortgages to reduce part of the principal balance in order to make the loans easier to pay off.

The nation’s real estate crisis is so severe that it is dragging the rest of the economy down with it. Banks, which lent out mortgage loans almost indiscriminately, are now saddled with fatal amounts of bad debt because people can’t pay these mortgage loans.

On Thursday, Freddie Mac reported that the continuous drop in mortgage interest rates has resulted in rates hitting the lowest level since the company began keeping records 38 years ago. The rate for the 30-year fixed mortgage fell to 4.69 percent form 4.72. While this rate is great for helping people afford homes, experts say that the depressed economy and lack of employment will continue to keep new home sales low.

On a good note for buyers, however, with rates and home sales low, prices are expected to drop 5 percent lower by the end of the year. Of course, this news isn’t good for homeowners who may see their properties drop underwater (Wall Street Journal).

U.S. bank regulators have proposed to make changes to the Community Reinvestment Act (CRA), which would allow banks to lend money to communities that have been hit hard by foreclosures.

Because areas with high incidences of foreclosure tend to lower the property value of the community and often result in homeowners suffering with underwater mortgages, the banks want to invest in these communities to rebuild and sell homes. By making changes to CRA, which is typically meant for low-income communities, middle-class communities hit by foreclosures could receive federal help for rebuilding. (Wall Street Journal)

A new report from the Congressional Oversight Panel discovered that for every one home saved from foreclosure, 10 more families have lost their homes. The report suggested that although President Barack Obama’s home loan modification programs had the best intentions, they’re simply not keeping the pace with the substantial number of foreclosures hitting the market.

Not Enough Modifications to Keep Up

Erik Folgate is the editor of Money Crashers, an emerging personal finance blog helping people get out of debt, make wise financial decisions, save money, invest for the future, and budget effectively. Money Crashers is a great resource for people looking to change the way they manage their money. Subscribe to their RSS feed for daily updates or follow them on Twitter. Check out the latest giveaway where you can file taxes online by April 15th for a chance to win one of 3 Apple iPads.

The past two years have been a recovery process for the real estate market in the United States. It has seen record foreclosure numbers and heavily decreased property values. Many homeowners have chosen to walk away from homes they purchased during the first half of the decade because they were either discouraged by falling home values or they entered into an adjustable rate mortgage that they can no longer afford.