Is the Real Truth Concerning Foreclosures Being Over Stated?
Several years ago when the real estate market was expanding and many renters became first time buyers, I saw many buyers purchase their new homes with little or no money down. Lenders were very eager to structure loans that would help the buyer afford to buy their first home. One creative way was to avoid paying Principal Mortgage Insurance (PMI) by splitting a loan in to several chucks. PMI is required (which can cost several hundred dollars per month on an average priced home) if the value of the outstanding loan is higher than 80% of the home value. Therefore if you took out a loan with no money down the loans were split by having 80% of the loan with one lender, 20% with another; although the smaller loan usually has a higher interest rate by several percentage points. Because there were two loans, PMI was avoided and the interest rate on the second loan would be less than the cost of the PMI if the two loans we’re not in effect, often saving the buyer some money.
For some buyers the loans had to be split into three loans. The buyer could have 80% loan, 10% loan and another 10% loan. Rather difficult way to structure a loan, but it usually worked well for the mortgage lender. Unfortunately there could be three fees for the buyer instead of one, but anything to put the deal together.
So, along comes the beginning of the foreclosure process. The first bank files in Land Court indicating they are foreclosing on their loan. The court issues a docket number and the other lenders are notified of the first bank foreclosing. A few weeks later, bank number two and three (if there are three loans) file for foreclosure as well. Each bank is then issued a docket number.
As you can see, there can be three foreclosures on one property. Are the numbers we all hear about accurate? Are the numbers inflated by a lack of reasonable research by those reporting on the doom and gloom of the Foreclosure rate in Massachusetts and other area’s in the country. There’s and old phrase I learned years ago; “Figures can lie and Lairs can Figure” As I teach other real estate agents about data information, I always preach to them about looking behind the numbers. How was the numbers derived and what outside influence can be affecting the numbers? In our case above, are there three loans on one property? I think someone needs to ask the right questions instead of taking the data at face value.
