New home buyers first stumble at the decision point of buy or continue to rent and it invariably ends up in an elaborate spreadsheet exercises to compare the tax benefits, cost of renting, expected appreciation and outside the spreadsheet, the thrill of pursuing the American dream. Once decided, the next grinding stage was looking for a dream home -good neighbourhood, good school districts, commuting distance to workplace and daycare , construction quality and the number of bedrooms and a host of other things. But recently the complexity of this process increased due to recession, changed terms of loans and the new foreclosure and other laws. I think the recent shake-ups in the industry got the new buyers confused to the core.
The recent foreclosure mess is a good example for things that added to such confusion. Its true that most of the banks did not do the due diligence before every foreclosure as their status as a mortgage servicing company did have more benefit in foreclosing a loan rather than modifying it . In other words, Obama administration did know that as a result of the securitization process ( Wall Street taking over the mortgage receivables and selling it to varied investors as a packaged investment ) there was less incentives for the mortgage servicing companies to modify the loans and hence offered a $700 Million package for doing the loan modification. The recent fiasco in foreclosure and the fact that all 50 state attorneys suing the major banks would change this incentive system. Now the foreclosure means more paper work and legal process where the cost of this will outweigh the benefit of the foreclosure in comparison with the loan modification. May be its good for the current mortgage holders and industry in general as every foreclosure adds a home to the already surplus inventory of the homes.
New buyers are puzzled at two things
1. are the prices at bottom? Moody's say its not and people are just waiting for a right time. Also, the income levels did not change in last five years so buyers feel that prices will eventually have to correct to justify the income levels in a no growth economy.
2. Will the rates change? There is a feeling that's the interest rates are probably at the bottom now but the mortgage prices are not.
In addition, there are more foreclosed homes that are added to the supply of homes and there is always a better deal in waiting. May be the new foreclosure messs will help remove that confusion.
The recent foreclosure mess is a good example for things that added to such confusion. Its true that most of the banks did not do the due diligence before every foreclosure as their status as a mortgage servicing company did have more benefit in foreclosing a loan rather than modifying it . In other words, Obama administration did know that as a result of the securitization process ( Wall Street taking over the mortgage receivables and selling it to varied investors as a packaged investment ) there was less incentives for the mortgage servicing companies to modify the loans and hence offered a $700 Million package for doing the loan modification. The recent fiasco in foreclosure and the fact that all 50 state attorneys suing the major banks would change this incentive system. Now the foreclosure means more paper work and legal process where the cost of this will outweigh the benefit of the foreclosure in comparison with the loan modification. May be its good for the current mortgage holders and industry in general as every foreclosure adds a home to the already surplus inventory of the homes.
New buyers are puzzled at two things
1. are the prices at bottom? Moody's say its not and people are just waiting for a right time. Also, the income levels did not change in last five years so buyers feel that prices will eventually have to correct to justify the income levels in a no growth economy.
2. Will the rates change? There is a feeling that's the interest rates are probably at the bottom now but the mortgage prices are not.
In addition, there are more foreclosed homes that are added to the supply of homes and there is always a better deal in waiting. May be the new foreclosure messs will help remove that confusion.
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