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Are the Lack of Mortgage Loan Impounds Fueling Today's Higher Home Foreclosure Rates?
By Sheryl Landrum
CMR Columnist
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Another problem fueling the high mortgage loan foreclosure rate is the lack of mortgage impound accounts. Why is this a problem and what can you do if you do not have a mortgage impound account?
Mortgage impound accounts are designed to insure the timely payments of homeowner's property taxes and home insurance. When a homeowner has property tax and insurance impounds, they are collected each month along with the mortgage loan principle and interest payment by the lenderthis is known as PITI (principle, interest, taxes, and insurance). The lender pays the property tax bills and the annual insurance premium directly to the respective agencies when they are due. While the borrower's monthly mortgage payment is higher to accommodate these costs, the borrower does not need to come up with lump sum payments each year to pay these bills. Herein lays the problem
To keep borrower's home loan payments lower to qualify for a home mortgage, sub-prime mortgage lenders did not require borrowers to have mortgage impound accounts. Home borrowers who already are on shaky ground financially and have stretched their means to get into a new home loan are prime candidates for needing impounds. Many times sub-prime borrowers cannot save the funds required to pay their property taxes and insurance contributing to a higher mortgage loan foreclosure rate. So, what can you do if your home loan does not provide a mortgage escrow account?
Call your lender and ask them to set up a mortgage impound account for you. Lenders can establish an impound account for you retroactively. If you do not want a mortgage loan impound account, but are concerned about making your property tax and insurance payments, find out what your annual costs are and make sure you save enough each month to cover them. Don't let the non-payment of property taxes and insurance add you to the high foreclosure list.
About the Author
Sheryl Landrum is a Senior Loan Officer with Charter Funding, Inc. in Carlsbad, California and a freelance writer specializing in mortgage issues.
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