Foreclosure Mess: What It Means for You
Every day we learn more about ingredients of the housing foreclosure mess: incompetence, fraud, greed, and irresponsibility mixed together in a witch's brew that has poisoned the economy. While the federal government, the banks, and all 50 state attorneys general work to sort out the mess, what does it mean to you, the homeowner? If you are in default, the foreclosure freeze may buy you a little extra time. But it probably won't save your house. And even if you are dutifully paying off your 30-year, fixed-rate mortgage on a peaceful street, you are not immune.
The foreclosure freeze is likely to drag down home values, is certain to add to your tax bill, and could even lead to default for those who pay on time. As painful as foreclosure is for those involved, delaying the inevitable prevents the market from figuring out what the right price is for house, and will therefore prolong the slump. "There are a lot of homeowners who simply can't afford to stay in their homes, and these houses have to be flushed through the system so that the housing market can begin to rebuild itself, " explains MoneyWatch.com real estate expert Ilyce Glink. Here's how you'll feel the effects of the foreclosure mess:
- Your taxes will go up. More than half the mortgages in this country are insured by the government, and a foreclosure freeze only extends the time that the loans go unpaid. Taxpayers will pick up the tab.
- Your title may be called into question. "Years from now, some homeowners will discover that their own titles are clouded, due to the sloppy sale and resale of loans," says MoneyWatch.com columnist Jane Bryant Quinn. If you are buying a house, make sure you have clear title.
- You may be at risk of default — even if you are paying on time. Part of your monthly mortgage payment probably covers taxes and insurance. But if those costs increase without your realizing it, your lender could record you as being in default.
- You may not benefit much, even if you are in foreclosure. State attorneys general are trying to push lenders to the negotiating table with homeowners, to encourage loan modifications that will keep homeowners in their house, or at least short sales, which are better than foreclosure. But since two-thirds of loans have been repackaged and sold to investors, the lender often cannot make a deal.
For more on how the crisis will affect you, and what you can do about it, read on: