According to an October survey conducted by the Mortgage Bankers Association, nearly 1 percent of American mortgage loans have started the foreclosure process.
The sheer number of homeowners who fail to qualify for traditional refinance deals has spurred some creative thinking among bankers, attorneys, and investors. Some of their ideas have generated new laws and regulations to protect homeowners, while other brainstorms resulted in scams. In the middle of the spectrum sit the ideas too new or too bizarre for experts to classify.
House lease exchanges: crazy ideas to save home
One scheme involves what participants call a "home lease exchange." The strategy exploits a provision in the "Helping Families Save Their Homes Act," passed in 2009 at the height of the mortgage crisis. The law was written to help encourage mortgage lenders to accept home loan modifications. In addition, the Act protects tenants from forcible eviction during a foreclosure proceeding.
Under the terms of a home lease exchange, two families facing foreclosure agree to lease their propeties to each other. The proponents of this strategy suggest that mortgage lenders would rather settle for a less favorable loan modification than take a loss at auction. In some cases, the original homeowners buy back their property during a foreclosure auction or a sheriff's sale for pennies on the dollar.
Long-term perspective drives mortgage lenders to refinance
Such extreme measures only approach sensibility when a home loan has gone so far delinquent that a mortgage lender refuses to consider any other reasonable offer. However, relatively few Americans have reached that crisis point. With refinance rates still low in most parts of the country, many lenders look for the opportunity to make money through closing costs and processing fees instead of on the long-term profits generated by finance charges.
While mortgage lenders have been reluctant to participate in federal home modification programs, low-equity deals have become more common among bankers who believe in their communities. If you find yourself worrying about facing foreclosure, talk to your current lender about their own refinance deals.
Ask other mortgage brokers for refinance quotes to compare with your own lender's offer. With more money to lend and with less pressure to take properties to auction, banks are more likely than ever to modify loans without the need for gimmicks.