Political Musings

The Complexity of What is Not Being Spoken About The Real Estate Crisis

Thu Nov 13, 2008 9:03 am
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Real Estate, Real Estate, Real Estate, most Pundits and Politicians have stated the obvious. Home prices have plummeted and mortgages are not worth the paper they are printed on.

The unstated in this effort to "fix" the mortgage crisis is what and how will local Governments reconcile the loss of tax revenues and how will mortgage servicers reconcile the under-funded escrow accounts of home owners that have not paid mortgage payments, in some cases, for a year or more.

Typically Mortgage Servicer's will include with principal payments escrows for taxes, insurance etc. When homeowners are current in their mortgage payments the "mortgage servicer" will, typically every six months, submit to local Governments the amount due on the homeowners tax bill. If there is a shortage in the escrow account the mortgage servicer will send to the homeowner an update, via written communication, of what monies are due to have sufficient funds in their escow account for the next payment cycle.


Here lies the "rub". If for the sake of argument a homeowner works out a payment arrangement with the lender, to avoid foreclosure, with an amount that is less than the old "principal and or interest payment", what about the rest of the escrow?

What will the homeowner do when the mortgage servicer sends a letter advising there are delinquent taxes and the escrow account needs to be replenished? I have not heard anything stated from any entity as to what if any solutions to this issue have been promulgated.

This will have the type of result nobody wants, the homeowner back in financial crisis with a high mortgage payment due to taxes in arrears. 

Will local Governments just stand by and forgo the tax revenue, I do not think so. What makes this issue even more "dicey" is the fact that with home values declining how will local Governments reconcile the lost tax revenue from lower home values?


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