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Posts Tagged ‘hardships’

If there is one great thing that may come out of this housing crisis is that banks may develop more innovative mortgage products.  In the past, innovation at banks meant figuring out how to fleece consumers.  Now that banks are failing left and right, maybe they will develop mortgage products that are more focused on keeping borrowers in their homes.

For the most part, foreclosures are caused by job loss, divorce, and medical issues that result in the borrower losing the ability to pay the mortgage.  Over the past several months, mortgage lenders have been working to modify mortgages to more affordable terms for in trouble borrowers. 

I wonder if a bank will come out with a mortgage that doesn’t need “modification”.   Lenders should have built in modification processes and terms for borrowers who are truly in a tough spot temporarily.  For instance, a borrower loses a job and they are able to postpone payments up to six months without penalty once during the life of the loan.  The postponed payments would be added back into the principal.  Maybe the borrower would also need to get permission and show hardship before being able to exercise the option. 

There will always be people who would not be able to make their payments under any circumstances, but having this type of flexibility built into a mortgage would be a much more cost effective way for banks to work with borrowers who are truly in a temporary hardship.

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