Baltimore HUD Homes Blog

What your bank does not want you to know…

We appear to be starting a period of financial instability , with four key factors negatively affecting the economy.

They are; increasing interest rates and depressed property values, higher credit card minimum payments, swiftly increasing fuel costs and the recent Wall Street crisis. The results of these could spell disaster for many families already struggling on the edge of bankruptcy.

The current credit crisis was fueled by country wide home loans being given to low-income families for over-valued homes and now the storm has hit many people find themselves with ‘negative equity’ – their home is worth less than their mortgage! As well as the mortgage market, consumers with an over-reliance on their credit cards are being hit hard too. The minimum APRs on even the low rate cards are at least 4% higher than two years ago. As well as this, some companies have been forced to double minimum payments on customers with higher interest cards! When these facts are combined with the shocking rise in the price of fuel it is easy to imagine that many families will be hit hard and will be forced into foreclosure and ultimately bankruptcy.

Don’t make the mistake of thinking that it couldn’t happen to you! If you are in arrears in your loan repayments you should be aware that there is a clause in your mortgage with the financier that allows them to ‘call’ in the loan whenever they wish. In simple terms; they can force you to pay enough to settle yourself into an equity position or foreclose on the home. Why would the banks do that?

A bank is a business and their business, like everybody else, is to make money. In fact the instructions to call the loan may just as likely come all the way from China as from your local bank. The shocking fact is that China now holds over 40% of all American country wide home loans mortgages!

As for your credit card debts – there is a very good reason that minimum payments have doubled and it has nothing to do with the companies explanation of helping customers get out of debt quicker , or any other ‘help the consumer’ nonsense. When you call your credit card company and explain that you cannot spin] meet | pay [/spin] your minimum payment they may offer you something called ‘debt consolidation’, depending on how much equity they estimate you to have in your home. Should you accept their offer of a debt consolidation loan it is guaranteed against your house and means that should you default on your credit card they are entitled to take your house! Be very wary of any such offers in the present climate.

Another service to avoid is that calling itself ‘consumer credit counseling’. These guys masquerade as , pro-consumer organizations, but are in fact paid by the credit card companies and report directly to them. Rather than helping people avoid bankruptcy they actually clandestinely ruin borrower’s credit history and set them on the path to bankruptcy! It has been seen time and time again!

This brings me to ‘adjustable rate mortgages’ ARMs, which represent another way that lenders entice borrowers into financial difficulties. ARMs are first time home buyers grants which lends money to people who could not normally afford to repay the loan and thus buy the house. Now whilst this may sound like a great way to help people afford that dream home, it isn’t. The arrangement is basically a gamble on the market that interest rates will not rise over the course of the loan. Now as most country wide home loans are over a period of about 30 years this is plainly ridiculous. What happens when the rate increases? The first time home owner cannot afford to pay the mortgage and is pushed to foreclose. As of this writing, we are already at an all-time high for foreclosures with Indianapolis in first place, Atlanta in second place and Dallas-Ft. Worth in third place. As rates continue to rise and the credit crunch continues to bite, we will see a glut of foreclosures that could well go beyond what we witnessed in the 1980’s.