Spotlight Turned on Foreclosed Properties
November 25th, 2008 by 
Joseph Smith
Even with the staggering $700-billion bailout of troubled financial corporations, the wave of foreclosures is still continuing and the expected stimulation of profitable lending has not occurred.
To help end the housing crisis, two of the largest banks in the country, Bank of America and JP Morgan Chase, have announced programs that would help homeowners at risk of foreclosure and borrowers who have already become delinquent.
JP Morgan Chase has officially announced that it will defer foreclosure procedures by 90 days in order to give time to homeowners to work out remedies to save their homes. The bank will examine their mortgage loans to determine if they are eligible for interest rate reduction or loan balance reduction.
According to JP Morgan, it has already assisted more than 250,000 families and more than $40 billion in total loan value. It has committed to rescue another 400,000 borrowers with more than $70 billion in mortgage loans.
Mortgage loans provided by EMC Mortgage Corp. and Washington Mutual, the financial companies recently bought by JP Morgan, will also be examined for possible modification.
Some analysts have reservations about the banks’ loan modification initiatives and their impact on the foreclosure crisis. They doubt if the banks can really give the level of interest rate that would significantly reduce monthly payments
Analysts say that reducing loan principal balances is more realistic for borrowers on the verge of foreclosure. It also reflects the current market values of homes and it would help stabilize the housing market.
To illustrate the favorable effect of principal balance reduction, the loan contract of a house purchased for $250,000 is considered. If the home is revalued at $180,000, the monthly payments are drastically reduced. The homeowner then is able to pay the amortization and will avoid foreclosure. The price levels for comparable homes will then also drop to $180,000, but not to the level of $130,000 to $120,000, which happens if the home is foreclosed and sold at an auction
