10-Jun-2019 12:51 AM
The last few years of the past decade have been treacherous and full of hardships for many people from all walks of life. Most industries in the United States have been negatively impacted by the global financial crisis. However, one particular industry piqued my interest and as such therefore, I will discuss briefly the mechanics of the housing industry.
A substantial percentage of the US residential housing is upside down. This means that the owner owes more than the market value of their home. This might be viewed as a negative thing because the owner will make a loss in the event that the house is sold and in addition to losing the home, the proceeds from the sale of the house will be insufficient to cover thepersonal loans for bad credit guaranteed approval hence the owner will still be under obligation to cover the balance.
As a result of the upside down status on the best installment loans online, what incentive does the owner have to continue servicing the loan? One might argue that the fear of losing shelter might prompt one to continue making payments and also, if one's intention is to live in the house for the long haul then the house's current value is of little or no concern to the homeowner. Therefore, upside down or not upside down bears no impact in the overall scheme of things.
In order to provide some form of assistance to the struggling homeowners who have upside down homes, the Obama administration intends to make use of the loan modification strategy which in my opinion does little in the way of providing a long term solution. The strategy only offers a temporary fix to the problem. Mortgage modification refers to a situation whereby a lender modifies the terms of a homeowner's loan to lower payment.
The reason why loan modification offers a temporary solution is because most of the modifications last only up to five years. Thereafter, the lender is at liberty to revert to the original loan terms. What happens then? The same chain reaction that happened recently might be repeated all over again and another financial crisis might be triggered as a result of the chain reaction.
In addition to being a short term solution with no long term guarantee of protection, mortgage modification might not be the best option because according to a top banking regulator, almost 53 percent of the loans modified in the first quarter of 2008 went bad again within six months. 53 percent is quite a high percent to be ignored or overlooked.
Therefore, the continual use of the loan modification strategy has certain negative implication that is quite telling of the administration's ability to solve key problems. Failure to learn from past mistakes is inexcusable to say the least and if the administration pursues the same strategy regardless of the fact that loan modification is ineffective, this goes to show that history always has a way of repeating itself.
Furthermore, the loan modification program might not work because the program does not address the up side down issue effectively. In spite the fact that monthly payment will potentially be reduced, the program does not go far enough to reduce mortgage principle. Monthly payment will be reduced through interest reduction and term extensions. However, the principle will not be reduced under this program. Since this is the case, how then is the gap betweenpayday loan lenders not brokers for bad credit value and market value closed? The key to reconciling the differences in value lies in reducing the principle to match the current value of the house.
A key component of the mortgage modification program is the selection process. I acknowledge the fact that a selection mechanism system is important to the extent that it is efficient and reliable but if this is not the case, then the benefit will be outweighed by the cost and the program will be rendered useless. It is important to establish eligibility guidelines for example providing proof of financial hardship.
Such a move requires a homeowner to provide documents that show loss of income etc. However, since the Federal Government has a reputation of often times being slow and bureaucratic, getting instant assistance under the mortgage modification program will be a mirage of a dream for many. Struggling homeowners will be required to master the skill of patience and positive thinking. Otherwise, they will flounder in despair because the mortgage modification process will be too time consuming and bureaucratic.
From a personal perspective, the Government should lay a greater emphasis on long term solutions to the housing industry problems as opposed to short term solutions that only work temporarily. A well thought out plan is vital to the future prosperity of the country. In as much as it is important to solve current problems through any means necessary, it is also equally important to keep an eye on the future as well. Therefore, the drawing board needs to be pulled out once more.