Be Careful When You Are Buying a Mortgage: You Never Know What You’ll Get

August 8th, 2007

The booming real estate market has encouraged a new player in the market i.e. Credit extending agencies. These agencies provide loans to people at low interest rates. Wooed by this, people buy a new house thinking the rates will not change much. But the scheme that seemed to work very well in the beginning has now proved out to be nothing but a pure farce as the number of foreclosure filings are increasing every day.

Home loans offered in this segment often bypass verification by lenders, brokers, agencies, firms and investors. Being spread out all over the countryside, this makes it very difficult to map out genuine ownership. In the case of Chase Home Finance (CHF), for instance, a homeowner used to send payments of his mortgage to CHF. The homeowner had to divert his monthly mortgage payments towards some other responsibility and so he could not meet his payments. It was CHF who initiated foreclosure proceedings and scheduled the auction date of the borrower’s house.

The homeowner asked for either a break with a new payment scheme or a delay in foreclosure proceedings, though there was little CHF could do as they were not the actual investors. They were just a service provider. It was an unknown investor who was actually calling the shots. The investor denied making any changes.

Similarly, there are many other homeowners trying extremely hard to save themselves from delinquent payments. But what they get at the end is nothing but a simple ‘we’re just the service provider” line. A couple of decades ago the scene was different. Then, neighboring institutions carried out the entire procedure and services of mortgages. The current situation has made the attempts of officials in Massachusetts and housing lawyers very difficult in resolving this problem.

Nowadays, lenders sell off mortgages to an investment banker. These banks in turn sell bonds to investors, assuring them pay offs with ready money from the payments of mortgages received by the borrowers. These bonds are called mortgage-backed securities. In this, property mortgages are traded for profit like buying or selling a house.

The foreclosure problem has not affected real estate prices too much. In fact, as stated earlier, foreclosed homes are being looked upon as an opportunity by investment bankers. People should be more cautious. They should know the complete details of a deal i.e. what they are buying, when they are buying and whom they are buying from. It could end up saving them a lot of grief later.