A foreclosure occurs when a bank (or other lending institution) needs to seize a home, business, or other property because the owner has stopped making mortgage payments. Next, the property is sold to someone else (if possible), to recover some or all of the money the bank lent to its previous owner.

When a borrower does not repay a loan (such as a mortgage), the lender can seize any relevant collateral, which real estate property qualifies as - similar to how a pawn shop can keep and sell collateral items if the borrower doesn’t pay back the loan and interest. Banks often remain reluctant to initiate foreclosure, particularly when home sales are down. They would rather avoid using the money and time it takes to resell a home, and prefer to keep making money on interest the borrower is paying.

The bank will also attempt to obtain payment from any co-signer on the mortgage after failing to receive it from the primary borrower. After the home has been seized, it will usually be sold at an auction. Authorities often force the previous owners to leave if they do not vacate the property voluntarily. What more, the previous owner’s credit record and score are severely damaged, making it difficult to borrow money for several years. However, there are a few options to prevent this or at least limit its detrimental effect.

In some cases, lenders are willing to renegotiate a mortgage, depending upon what capability the borrower has to continue making payments. Filing for bankruptcy often delays a foreclosure, and sometimes enables the owner to obtain a different payment schedule. Another possible option is to hand over the home’s deed to the lender instead of allowing foreclosure to occur. What this does is to reduce harm to the borrower’s credit record, although it doesn’t change the rest of the process a great deal.

If the property fails to sell at auction, it may be sold through other methods such as a real estate agency. The exact process varies from one state to the next. The new owner typically obtains the property at a rather low price, although it may be in disrepair after being neglected for months or years following the foreclosure. Some previous owners and others have removed fixtures from vacant foreclosure homes, along with anything else of value.

Following a seizure by the Federal Office of Thrift Supervision, control of IndyMac was transferred to the FDIC and the California bank has been renamed IndyMac Federal Bank. The confiscation of the bank came on the heels of a two-week period where customers withdrew more than $1.3 billion.

John Bovenzi, who was placed in charge of IndyMac said, “Our objective is to preserve the bank’s value and return it to the private sector, which we plan to do in the upcoming months.” Though many IndyMac accounts are guaranteed, stockholders will likely be “wiped out” according to Bovenzi, IndyMac’s new CEO.

The bank has 265,000 customers with insured accounts that will be guaranteed by the Federal Deposit Insurance Corp. and Bovenzi insists their insured money is safe. Those with deposits exceeding the insured limits are covered for those amounts and will have immediate access to 50% of their uninsured balances.

Bovenzi said stockholders will likely be “wiped out” once the bank’s assets are sold. IndyMac shares already were down to 28 cents on Friday, and shareholders won’t receive the proceeds from the bank’s eventual sale, he said.

IndyMac grew rapidly during the recent real estate boom years, specializing in “Alt-A” loans that required little or no evidence of income or assets from borrowers. But it suffered losses when the market for mortgage-backed securities dried up.

A less conventional type of home loan is the balloon mortgage; unlike with other mortgages, there is a large amount of principle that the borrower must either refinance or pay off when the end of the mortgage’s term has been reached. Here are some more details on what a balloon mortgage is, along with an explanation of its pros and cons:

With this kind of mortgage, the borrower usually receives a lower interest rate and makes monthly payments for a term of five to ten years. Occasionally these mortgages offer longer terms like 15 or 40 years. Unless the home is resold beforehand, he or she is required to repay or refinance the “balloon payment” (the remaining principle) at the end of this term, which is likely to be a substantial amount.

This could become a problem if the borrower isn’t able to secure refinancing. There is also the drawback of having to pay closing costs when the loan is refinanced. Some banks and other lenders will guarantee the home owner that the option of refinancing will be available when the term expires. An advantage of balloon mortgages is that they are available in both fixed and adjustable varieties.

A downside of taking out a balloon mortgage is that the speed of building equity is slow. This means that it will take longer for the owner to be able to take advantage of home equity loans, second mortgages, or reverse mortgages. If the home is sold, a greater amount of principle will need to be paid back because of this. On the other hand, the borrower’s monthly payments are lower with this type of mortgage.

When the real estate market is going well, borrowers who aim to resell their properties might prefer to use these mortgages. Reselling the home before the term ends would eliminate the “balloon payment” and refinancing issues; also, the smaller monthly payments could make it easier for the owner to afford making repairs or improvements on the property intended to increase its resale value.

Overall, this kind of mortgage offers the advantages of a lower interest rate and the option to obtain a fixed rate, but has the drawback of needing to pay or refinance the balloon payment. Banks that offer this type of mortgage include MetLife, Nationwide, and Wells Fargo. Some local banks and credit unions also provide balloon mortgage options.

PMI, or Private Mortgage Insurance, is often required by banks when borrowers make a relatively small down payment. After a borrower’s home equity reaches a certain level, cancellation of PMI by the borrower or lender becomes possible. But what could this mean for the borrower and the lender, and when does the insurance become eligible for cancellation?

A mortgage borrower can request that PMI be cancelled after surpassing twenty percent equity, according to the Federal Trade Commission. Lenders are generally required by law to cancel the insurance when twenty-two percent equity has been achieved on loans originated after 07/28/99. However, some situations which indicate continued risk to the lender - such as recent late payments - could delay the cancellation of this insurance. It is typically not possible to cancel PMI on federally insured loans or mortgages with LPMI, and there are a couple other exclusions as well.

So what could it mean for the home owner if he or she is eligible for the cancellation of PMI? The most significant change would be that the borrower will make a lower monthly mortgage payment. Rates for insurance on a $100 thousand dollar mortgage generally range from about $25-65 dollars/month, according to sec.state.ma.us, but differ depending upon other characteristics of the loan in question. It could also mean the end of deducting PMI from federal income taxes, if the borrower is eligible for this deduction and has been using it; this will save some time when paying taxes.

Private Mortgage Ins. does not safeguard the borrower from any type of loss, so he or she is not losing protection by requesting its cancellation. As for what cancellation of PMI could mean for the lending institution, it would be susceptible to greater loss if the borrower becomes unable to keep making payments and the home is foreclosed upon. Regarding the insurance company, it stops receiving monthly premiums from the home owner, but no longer has to protect the mortgage lender from loss on the specific loan for which the insurance has been cancelled.

Basically, the cancellation of PMI will mean that the borrower’s monthly expenses are lower, but it is generally not in the interest of the bank or the insurer. It doesn’t mean much else, except that the borrower has a substantial amount of equity and may no longer be able to use a tax deduction for Private Mortgage Insurance.

Some banks and credit unions in North America provide Green Mortgage programs, which reward borrowers for using more energy efficient homes. It may be necessary to have a qualified inspector verify the home’s efficiency before a borrower can apply for this kind of mortgage. Here are some more details on what a green mortgage is and how it works.

For example, North Carolina State Employees’ Credit Union offers a green mortgage on homes which meet the Energy Star standard. Borrowers qualifying for this mortgage receive lower interest rates and don’t have to pay as high of an origination fee. Another example is Columbia Credit Union’s Living Green mortgage; it claims to reduce costs by “up to $1,500″ if the mortgaged home has qualified for Earth Advantage, Leadership in Energy and Environmental Design (LEED), or Energy Star.

These mortgages vary significantly in what they offer. A different program from TD Canada Trust gives rebates to borrowers when they purchase products which have received Energy Star certification. They also offer a Green Home Equity Line of Credit, which works in a similar way. In the United Kingdom, the Norwich and Peterborough Building Society plants forty trees (among other benefits) when someone initiates a new Green Mortgage. Another lender offers to reduce closing costs by four-hundred dollars.

So what are the main benefits of a Green Mortgage program? They help the borrower by decreasing closing costs and/or interest rates. The main benefit to the lender is that such mortgages help attract borrowers who are concerned with energy efficiency. These programs reduce the negative impact upon the environment by encouraging people to build and buy homes which are energy efficient, or raise the efficiency of existing houses. Thus they provide some advantages to all parties involved.

Ways to improve the energy efficiency of a home include adding insulation or installing Energy Star qualified appliances, cooling/heating systems, and fixtures. In addition to potentially qualifying for green mortgages and home equity loans, such measures can decrease electricity and heating fuel costs, while limiting pollution.

Other lenders with green mortgage and/or home equity loan programs include Bank of America, Citizens Bank of Canada, and Seattle Metropolitan Credit Union. Some also offer Green Auto Loans, which decrease interest rates when people borrow money to purchase a fuel efficient vehicle. Both types appear to be most common among major national banks and local credit unions.

A HELOC is an abbreviation for a Home Equity Line Of Credit. This is a loan where a lender agrees to lend a borrower a maximum amount within an agreed time period. It’s different than a standard loan or a reverse mortgage because the sum isn’t given to a borrower up front, but uses the loan as a line of credit to borrow smaller sums that don’t total more than the agreed upon amount.

If your HELOC does get frozen the first step to take is to find out why. The reasons can range from local home price declines to your credit being seen as negative. Once you know you can try to appeal to your bank to get the funds unfrozen. If that doesn’t work you can also ask for a lower line of credit.

If the reason is due to home prices dropping in your area, you can ask a realtor to check the prices of homes sold within a three mile radius of yours in the past six months. This can help prove your neighborhood hasn’t been affected by lowering prices. You can also have your house reappraised or ask the mortgage originator to intervene.

Finally, don’t forget to shop around. Just because your original HELOC has been frozen doesn’t mean you won’t qualify somewhere else. Generally, if you have at least 10% equity in your home there are places that will approve you.

It is well known that a home appraisal is used to ascertain the monetary value of a real estate property. Banks regularly use appraisals to help determine whether or not they should approve a mortgage application, so that the property’s value is sufficient should a foreclosure occur. However, what is the value of an appraisal to a home owner/seller?

1. Getting a property appraised will clearly establish its value, which makes it more difficult for real estate agents or potential buyers to underestimate how much it is worth.

2. An appraisal can help the owner more realistically determine a selling price for the home, rather than roughly estimating its value or relying upon a realtor to set the price for him or her.

3. Generally, appraisals remain valid to mortgage lenders for 90 to 180 days, so they won’t require a new appraisal as part of the closing costs if the property sells within this time period.

4. An appraisal may be necessary before obtaining a second mortgage or home equity loan from a bank. This will remain useful for selling the property until it is out of date.

5. Appraisals may also be used for some types of home insurance valuation purposes. Some appraiser and city web sites indicate that an appraisal can be utilized when disputing property taxes as well.

Unfortunately, there are also some factors which limit the value of appraisals. One such factor is the potential for inaccuracies to exist; for example, an appraiser may not see less obvious problems that a thorough home inspection might reveal - accidentally causing the property to be overvalued in the appraisal.

Another problem is the possibility for unexpected events to increase or reduce the home’s value at any time after it is appraised. In some cases an owner can adjust the valuation relatively easily (an acre is seized by eminent domain) to suit the changes, while in others he or she cannot (a noisy business appears across the street).

Basically, the value of a home appraisal is that it can be used for mortgage and insurance purposes, it gives a clearer indication of how much the home can be sold for, and it prevents others from undervaluing the home. However, it is not without the potential to quickly become outdated and/or contain inaccuracies.

The current U.S. housing crisis involving subprime mortgages, increased foreclosures, mortgage industry layoffs, and reduced real estate sales started early last year and shows few signs of being over just yet. However, is the worst of the housing crisis over?

Unfortunately, many negative indications for the housing industry continue to appear in the news. On July 11, Bloomberg News reported that oil prices have reached a new record high and the government may need to “rescue” the Freddie Mac and Fannie Mae mortgage corporations. The two companies’ stock rapidly fell during the week over concerns about the implications of this.

High heating and transportation costs are making it more difficult for people to pay their home mortgages. Additional oil facility attacks by Nigerian rebels or a war involving Iran could push these expenses much higher. Elevated unemployment, high inflation, and rising food costs have likely contributed to the high rate of foreclosures and mortgage delinquencies as well.

Meanwhile, reports of continually decreasing home sales persist in newspapers across the country, and foreclosures remain common. A press release issued by RealtyTrac on the 10th indicated that the rate of U.S. foreclosures in June was fifty-three percent higher than it was during the same month last year. California and Nevada remain among the worst affected states.

However, there are some minor positive signs. Foreclosures in June did drop by three percent compared with May 2008, so it can’t be considered the worst month of the housing crisis in this regard. It too early to tell if this is a sign the worst is over, or if it is only temporary. Recent federal tax rebates and increased lender approval of “short sales” may be helping, to at least briefly, decrease the rate of foreclosures.

Mortgage industry layoffs are another area in which the worst of the housing crisis could be over. Although mortgage companies have announced new layoffs during June and July, a press release distributed by MortgageDaily.com on the July 7 indicated that layoffs from April through June were lower than they were in the first quarter of 2008 or the same period during 2007.

Overall, there are a few positive indications that the worst of the housing crisis might be over, but the crisis seems unlikely to end this year. The situation appears worst for people currently trying to sell homes, along with certain housing industry investors.

Many places offer home loans to buyers. You can consider obtaining a loan from a bank, credit union, savings & loans, insurance company and mortgage bankers just to name the more popular options. However, since most home loans are standardized by government rules, you can comparison shop fairly easily between places.

Comparing loans and fees amongst different lenders is the best way to get the best deal. But, first you have to figure out what kind of mortgage you want – fixed-rate, adjustable-rate or any of the hybrids that are available. Once you’ve decided then you can compare the mortgages offered by different companies.

Beyond checking the normal avenues for mortgages, you should also look into government-subsidized mortgages. The government offers loans that have low to no down payments. In addition, ask any lenders that you are speaking with about first-time buyer programs if you qualify for them.

A final way to get the money for a home loan is through private sources of money. You can borrow money privately from your parents, relatives, friends or the seller of the house on occasion. As investors want to put more money into real estate, this is becoming a more popular option.

Your credit score reflects how much debt you currently have and your performance in repaying other debts. Knowing your credit score is important for practical purposes, and here is a list of several reasons why…

1. It provides a better idea of what sort of mortgages and other credit offers you should be eligible for. People with high credit scores typically receive better interest rates. Without knowing the score, it is easier for a high-interest lender to deceive you into believing that loans that are more desirable are beyond your reach.
2. When you aren’t sure if your record has improved enough to make applying for loans worthwhile, knowing the credit score will clarify this. For example, if you made several late payments a few years ago, the score will reveal how much your eligibility has recovered since then.
3. If you are young and/or haven’t used credit much (or for very long), knowing this score is important for determining if you have conducted sufficient financial activity yet to qualify for a mortgage or other major loan. Banks are typically quite willing to offer credit cards to people with no credit history, but reluctant to allow other borrowing.
4. Knowing the score will let you discern if it is currently important to take steps aimed at improving your credit record. Such measures may include looking for and correcting important errors on the record, consolidating multiple debts, or putting a greater emphasis upon paying off your existing debt.
5. Keeping a high score isn’t as simple as some people would suggest. Factors like the number of separate debts and the amount of credit record inquiries (from lenders you have applied to) can influence these scores. It is important not to assume that the score is good, average, or poor without verifying this assertion by actually knowing what it is.

Knowing how favorably the reporting agencies have evaluated your debt management is also interesting, along with discovering how effective your financial strategy has been in this regard. Services are available that continually monitor the score, making it easier to see the impact of paying off debts, submitting late payments, or other financial changes.

The only reasons why you would forgo knowing your credit score would be because of the fee to obtain this information, or if it’s not important because you don’t plan to apply for any type of loan.