Struggling Indianapolis Homeowners Risk Re-defaulting

Heavy efforts are being made across the United States to keep homeowners from going into foreclosure. Many Indianapolis homeowners are finding themselves upside down on their mortgages, meaning they owe more than their house is worth in today’s market. Struggling home values in the Indianapolis real estate market and across Indiana are really being affected by today’s economy.

With the nature of real estate nowadays, it’s hard to compete against the Indianapolis homes for sale around the area. Some sectors of our city are not as affected but those that are struggling are definitely feeling the impact, according to Indianapolis REALTORS®.

As homeowners are trying to avoid loan modification scams and searching for foreclosure options, they are met with programs and services like the Obama Administration’s Making Homes Affordable initiative and local programs like the Indiana Foreclosure Prevention Network.

Finding initial solutions to help homeowners escape the weight of their current mortgage through such loan modification programs may only be part of the efforts needed. A recent study showed that over 50 percent of the owners who modified their loans in the first six months of the previous year have already missed making at least two mortgage payments within a year. This information was gathered by the federally-based Office of Thrift Supervision and the Office of the Comptroller of the Currency.

The fact that some homeowners redefault isn’t overly shocking but does continue to be a problem needing to find a solution. One such answer could be simply working to make payments more realistic as this study did also show that a substantially fewer number of homeowners who were able to reduce their installments were missing payments a year later.

Approximately one-third of the borrowers who were able to have their payment reduced by at least 20 percent found themselves unable to make a payment. On the other hand, lenders are seeing homeowners re-default by a rate as much as 60 percent for those who were not able to have their payments reduced by this much.

The ongoing default challenge is one continuing to be presented to the current Obama administration which has already put a great deal of effort, and $50 billion in bailout funds, into addressing the foreclosure disaster.

Some of the efforts by the administration are just seemingly getting off the ground. Recently, about 12 percent of owners, or over 350,000 eligible borrowers, were registered for preliminary modifications. If the owners are able to keep up with their payments, the trial is supposed to be extended from it’s current three-month probationary period to five years.

Experts are finding that some of what owners are experiencing deal with the effects of not having a true loan modification. For example, typically, lenders outline a payment plan that allows for owners to make up for missed payments. However, such modifications usually are not subject to a reduced interest rate and therefore culminate in an increased monthly payment.

Conversely, officials believe that loan modifications being backed up by the Obama administration will be viable for homeowners because, as an example, interest rates can dip to as little as two percent for as long as five years under his plan.

Heavy pressure is being put on lenders to focus on the reduction of monthly payments for borrowers in order to avoid having more homeowners re-default. It may be working because approximately 80 percent of the new loan modifications for the second quarter reflected lower payments. This was increased from nearly 50 percent for the first quarter.

The report considered nearly 35 million loans and represented over 60 percent of current home mortgages.