Typical Foreclosure Process

Many blame 2006's interest-rate increases, combined with booming house prices, for the current market environment. In 2002, for example, the U.S. median home price was $187,600, whereas today, it is $224,900. If a homebuyer with good credit purchased a home in 2002 using an ARM, the mortgage payment would have been significantly less than it would be today. In addition, today's homeowners likely have higher property taxes, which often puts them in a financial crunch. Add the slowing housing market and slowing rate of appreciation, and for many, it spells trouble.

Although homeowners may be able to make ends meet with today's mortgage payment, what happens if they lose their job? And after losing their job, what if they miss one or two mortgage payments? It seems like a minor blip, but for the bank, that can signal the beginning of the foreclosure process. The process varies among states. But typically, once homeowners miss one payment, a pre-foreclosure notice is issued to both the homeowner and the local government. After three payments are missed, homeowners are forced to either pay the full balance due or the bank begins the repossession process. At any time until the repossession, homeowners have the opportunity to pay the balance due to the bank. Otherwise, the bank usually auctions the house off to the highest bidder. In many cases, homeowners will attempt to sell the house before auction, but this is usually at a loss.

A sample scenario
As long as homeowners continue to make their monthly mortgage payments, a hard-money lender can prevent foreclosure. And we can start with the basic premise that foreclosures are bad for everyone involved, from the banks to homeowners.

Let's revisit the previously mentioned homeowners in the process of pre-foreclosure. They had few options available but had a mortgage broker who provided valuable information about hard-money bailout loans. The homeowners now can remain in their home, paying a slightly higher interest rate to the hard-money lender - but only for a short period - while re-establishing their credit.

For mortgage brokers, this can be a golden opportunity. Because hard-money loans are short-term products with an average maturity of about 18 to 24 months, homeowners will need to refinance their loans at a better rate in that time.

The homeowners still have the pre-foreclosure hiccup on their credit report, so they may not qualify for A-paper just yet. After one year, however, if they have paid all bills on time, they will be ready for another loan - one in which they qualify for a better rate. For borrowers who restore their credit, it takes about 12 months to refinance into a nonprime rate and typically about 24 months for prime.

By working with homeowners on a hard-money loan, the savvy mortgage broker can complete three loans for the same borrower within four years.

But even more than that, the mortgage broker may have succeeded in creating a customer for life. By helping homeowners hold onto their home, the broker creates a special relationship - one that can bear additional fruit, including more business, which is crucial in an unstable environment.

You may apply online or contact us directly at 800-310-7577.

 
By Anthony Chao, COO, Allied Mortgage and Financial Corp.
Reprinted From Scotsman Guide Residential Edition and scotsmanguide.com, February 2007
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