It's no secret that a lot of today's foreclosures--the ones not prompted by illness or job loss--are evidence of what happens when someone gets a subprime loan for which they never should've qualified.

ABC's "Extreme Makeover" built a new home for a Georgia family just three years ago, and the property is now in foreclosure. Mark Davis from the Atlanta Journal-Constitution believes lack of monetary strategy played a major role.

"Somebody takes out a $450,000 loan and apparently loses the money, maybe they didn't listen too well to their financial planner," Davis said.

Or perhaps they didn't have a financial advisor in the first place. But home lenders now fear an even larger wave of foreclosures is on the way--from folks with alternative-mortgages, the ones given to people with a good credit score but no proof of income. Some may say homeowners facing foreclosure have only themselves to blame.

"You're a big boy," says Larry Winget, author of You're Broke Because You Want To Be. "When you sat down to sign those papers, you knew what your payment was going to be. Nobody held a gun to your head and forced you to sign the papers for that much money."

In the case of the Lake City, Georgia couple with the 2005 "Extreme Makeover" home, they used the house as collateral for a business loan, and the planned construction company didn't make it. The lender, JP Morgan Chase, says the home is now in foreclosure. Their house is one of those up for bid August 5.

Banks will pay the price, just in a different way than homeowners. JP Morgan Chase, for example, predicts their losses on prime loans will triple within months. Winget says if you're a homeowner with this kind of mortgage, it's not the time to put your head in the sand.

"People don't want you to lose your home," he says. "Your lender wants to help you, but they can't if you're dodging their calls, avoiding their letters and not talking to them. The instant you think you're in trouble, get on the phone and talk to them. They'll help you."

Banks generally hold more prime and Alt-A loans than subprime ones, so lenders' losses on a new round of foreclosures could be even bigger than what's been seen to date--and that means more houses up for auction on the courthouse steps.

Ron Ianieri, chief market strategist for Options University, does not anticipate a turnaround in the mortgage crisis anytime soon.

"It took a long time, and a lot of overage and a lot of greed to get us into this situation," says Ianieri. "It's going to take us at least the equivalent amount of time to get the heck out of it."

Tuesday, August 5, 2008

What others are saying

There are no comments yet. Be the first to post one!