Are You Behind on Your Mortgage?

Reports Finds US Mortgage Problems Increasing

According to a recently released government report, mortgage problems are increasing, instead of decreasing. What is the most troublesome about these statistics is that it covers the increasing delinquency of prime and sub-prime borrowers, known as Alt-A mortgages, which have proof of income and good credit risk factors. The sub-prime mortgages that initially started the mortgage crisis are high in percentages and some of those that had loan modifications fell behind again in a few months time. Those mortgages that were modified by lowering the monthly payments, however, had the highest success rate.

Of course, this makes sense, because most people fall behind when the mortgage payments are too high in proportion to their income. At the urging of the President, loan servicers were encouraged to modify mortgages to 31% of a borrower's income, which lowered payments on many loans and only 22% of those people have fallen behind after the loan modification, versus 60% of those that had past payments forgiven or put at the end of the mortgage, with no payment reduction.

These statistics show that foreclosures have slowed in the markets where the loan modifications have adjusted monthly payment. The most concerning part of the report is the increase in delinquency on the good credit risk borrowers, which doubled in a few months time. If this trend continues, there will be another round of home foreclosures, unless these loans are modified, too.

The majority of modifications did not lower principle balances, only the monthly payment, so it indicates that lenders are willing to lower interest rates and monthly payments to prevent delinquency. Homeowner's are willing to accept the new terms, which allow them to keep their home. It could be important to learn from these statistics, if the better credit risk mortgages continue to increase in delinquency.

By addressing the problem quickly with loan modifications that lower the monthly payment to reasonable ratios of income to debt, mass foreclosures can be avoided in this market of mortgage loans. Many of the poor credit risk loans were made at high loan to equity ratios, or no equity ratios with no proof of income. It should be no surprise that these mortgages encountered problems, since they are mortgages that should not have been made to begin with.

The class of Alt-A and prime mortgages are loans that appeared safe on the surface, before the recession, which is a number that indicates an increasing problem that is moving into a different class of borrower. If we learn from the past mistakes that occurred in these high-risk loans, then loan modifications should be offered quickly to those that are starting to fall behind on payments, before foreclosures become widespread.

For those that are having a hard time making ends meet, the best thing to do is talk to a loan modification specialist and have them work towards getting your mortgage payment lowered to the 31% of income. For those that have lost their jobs, loan modification specialists can often get a lender to agree to other options, including short sales to save your credit and prevent foreclosure. Don't wait until your mortgage is seriously delinquent to act on these options.