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Resets of Interest Rates on Exotic Loans Expected to Cause Another Wave of Foreclosures

September 14, 2009

As San Bernardino loan modification attorneys, we were already cautious about the chances of a rapid recovery for the housing market. Judging by a Sept. 8 article in the New York Times, we may be right to be pessimistic. The Times covered the problem of "exotic" loans whose interest rates are expected to reset in the next year, particularly the interest-only mortgage loans that were once so popular here in Southern California. In those loans, homeowners pay nothing but interest for the first five, seven or 10 years of the loan. When that period is over, the payment increases by as much as 75% to include the principal.

The article focuses on the Moller family of La Mesa. Edward and Maria Moller bought their home for $460,000 in 2005; it is currently worth $310,000. Like a lot of homeowners with interest-only loans, they expected the housing market to stay strong, allowing them to build enough equity to refinance or sell -- but then the market crashed. Now, the schoolteacher couple expects payments to jump 20% when they reset in 2013. If the market doesn't recover, Edward Moller said, they may not be able to hold on to their home. According to the Times, $71 billion in interest-only loans will reset in the next year; by mid-2011, that figure will be $400 billion. Experts believe the resulting higher payments could trigger a wave of foreclosures with each reset, slowing or stopping any recovery in home prices.

The article goes on to point out that lenders have not been at all helpful to homeowners who know they will face this problem in a few years, flat-out telling one homeowner that he had no options at all. As Escondido loan modification attorneys, we are not at all surprised. We have represented numerous homeowners in loan modifications and related lawsuits over the past nine months, and over and over, these clients tell us their banks refused to help. Banks have incorrectly told our clients that they don't qualify for help; lost paperwork several times; started foreclosures despite a pending loan modification; or simply never answered borrowers' phone calls. Frequently, it's not until the clients come to us for help and we initiate legal action that lenders finally take action.

Howard Law LLP negotiates aggressively on behalf of clients who need a modification to a home loan that is no longer affordable. We have successfully modified many loans for our clients, winning changes to interest rates, repayment periods and sometimes even loan structures. In many cases, our Reseda loan modification lawyers find that our clients were misled or even outright lied to by lenders, brokers and others who stood to make money by selling them properties they could not afford. Whenever possible, we use evidence of these predatory lending practices as leverage to negotiate a new loan for our clients -- one with a realistic, affordable monthly payment. Our goal is to get each of our clients the best possible changes to their loans -- changes that allow them to stay in their homes for good.

Howard Law offers free consultations to all potential clients, with no further obligation on your part. To set one up or learn more about how we can help, please contact us through our Web site or call 1-800-872-5925.