house_palmtree.jpgIt’s no secret to most of the country that California has some of the highest property values. It’s not uncommon to see a home that would go for $100,000 in Texas go for $500,000 or more in California, particularly around the larger cities of Los Angeles, San Diego and San Francisco. There are many causes for the high property values in California, but due to reckless lending in the state, it is estimated that three million LA County homeowners will lose approximately $30 billion in property value. Why? Because foreclosures are hitting the state hard and it is estimated that the neighbors of foreclosed homes lose $8,000 in value each time another homeowner can’t afford their mortgage. Foreclosures are occurring in California in rapid numbers and the majority of these are due to the fact that the subprime mortgage industry has led to more people owning homes that they simply cannot afford and this is magnified in California to a greater degree because of the cost of real estate to start with. It is estimated that nearly 500,000 people in California will lose or have already lost their homes.

What is a Sub-Prime Mortgage and How Does Default Occur?

As the year of 2006 came to a close, the US was already seeing a financial crisis beginning to occur. This crisis would later become the “Subprime Mortgage Financial Crisis of 2007″ and a big majority of these mortgages were coming to a close through foreclosure in the state of California.

The cause of this crisis is the subprime mortgage loan. These loans are made to higher-risk borrowers who have a lower income or less desirable credit history. These loans have many “incentives” to these borrowers, such as “interest only” repayment terms and lower interest rates initially, but those tend to float and become much higher as the borrower pays on the loan. The problem was that housing prices started to drop and this meant that refinancing into a new mortgage loan became very difficult for many of these buyers. Because of this, defaults and foreclosures were sparked and California is considered to be the epicenter by many. In fact, the California news stations reported a whole block in a neighborhood that was foreclosed on because the homeowners did not fully understand the terms of the loan.

california_palmtrees.jpgThe problem with subprime mortgages is that the borrowers do not typically have a good enough credit rating to qualify for the market interest rates because of their credit and they end up in a loan that has high interest rates. This is actually a situation that most lenders would want to avoid. They have a borrower with poor credit, a loan with high interest and the borrower’s personal financial situation is unstable. In the state of California, where the real estate is considerably higher when compared to other parts of the nation, this simply spells foreclosure for many borrowers.

How can Foreclosure be Prevented?

The government has made moves to manage the resulting crisis. President George W. Bush has announced a plan that will voluntarily and temporarily freeze subprime mortgages. A refinancing option called FHA-Secure has also been created and the government is working with the private industry to assist homeowners who are in these mortgages. The US Treasury Department is also working with major banks to modify loans for a large portion of borrowers who are facing interest rate increases.

In the meantime, the best option that many homeowners have is to simply try to make their payments and keep their heads above water. One method that homeowners can do this is to obtain a cash advance. Many financial advisors will tell you that next to your health insurance, your mortgage is the most important bill to keep paid, even if this means not making a payment on your credit card bill. Your mortgage payment keeps you in your home, and by obtaining a cash advance to help you cover your mortgage payment, you don’t have to worry about going into default on your mortgage loan.

Cash advances are much easier to obtain that your typical secured or unsecured loan. The majority of homeowners in subprime loans have low credit scores and it is often difficult for them to secure a traditional loan from a bank, especially if they are responsible for high mortgage payments on their California real estate. Payday loan lenders do not require the individual to have good credit. In fact, they don’t even have to have a credit check. In order to obtain a cash advance, all the borrower needs is to prove their monthly income and have a regular paycheck. For the majority of subprime mortgage holders this is not difficult, so a cash advance can easily be the key for them when they are trying to make their monthly mortgage payment.

Cash advances are often useful to these people as they work to get their mortgage loan switched over to a fixed rate mortgage or refinanced. Refinancing a mortgage takes about a month and for many borrowers they may not have a month to wait. A cash advance can be the key to them paying their monthly mortgage payment while they work with the bank to get their mortgage to something that is more controlled and affordable. Homeowners are encourage to visit their banks and discuss their loan modification or refinancing options so that they can control their interest rates and therefore control their ever-rising mortgage payments.

The wide majority of lenders do not want to see their borrowers go into foreclosure. The foreclosure process is a timely and expensive process for banks. The majority of banks want to help their borrowers in determining how they can adjust their mortgage loan to make it easier on them to pay. There are many problems with foreclosure, but the main problem is that with the number of foreclosed homes in California increasing on a daily basis, these homes do not sell for their actual value. Because of this, many of these homes sold in foreclosure do not even get the price that they are actually worth. When this occurs, the borrower may actually still end up owing the bank money on the home that they just lost. By working with lenders and using the financial tools that are available to them, borrowers can often avoid foreclosure, but all begins with ensuring that their monthly mortgage payment is made.

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