Nationwide, home foreclosures are increasing at, what many economists and financial experts suggest is an alarming rate. State and federal politicians and regulators have also begun to sound the alarm.
The first half of 2007 saw a 56 percent increase in foreclosure filings nationally compared to the same time in 2006. While June 2007 was down 7 percent from May, it increased a whopping 87 percent compared to June 2006. In fact, the national foreclosure rate for June according to a RealtyTrac report was one foreclosure filing for every 704 U.S. households.
Foreclosure rates continue
to increase
Especially disturbing, the increase includes all income levels and all home/property values.
Nevada, way ahead of the pack, lead the nation with one out of every 175 homes in foreclosure, California second with one in 315, Colorado one in 317, followed by Florida, Arizona, Ohio and Michigan.
Why the soaring increases in foreclosures?
There are many reasons that homeowners may find themselves in trouble. Poor health and/or unexpected medical expenses, job loss or drops in income, unanticipated increase in expenses like winter heating fuel, gasoline, education or sudden costs such as roof or furnace repairs are some commonly mentioned reasons for financial problems.
Experts in the industry suggest a big part of the problem is the result of the popular variable rate loans, ARMs and rising interest rates, dropping home prices, increased household expenses, rising property tax valuations and stagnating wages.
Unlike the more traditional 15 or 30-year fixed rate mortgage, with a variable or adjustable rate mortgage (ARM) when interest rates dropped, extremely low mortgage interest rates were offered. These loans are typically associated with subprime lending (borrowers may have spotty credit) as well as lower or moderate income households struggling to achieve the American Dream of homeownership.
Now with interest rates on the rise, as the interest rate on the ARM loan “re-sets” the result will be increases in the monthly mortgage payment. As ARMs account for approximately a quarter of all outstanding mortgages, and many of these loans are due to re-set within the next couple of years some homeowners may be surprised to find their monthly house payment will increase - potentially growing to double what they currently pay. According to RealtyTrac 58 percent of properties in foreclosure can be linked to subprime loans.
With housing sales slowing, the once quick sale to make money or get-out-from-under may not occur in time to help those in trouble.
If your mortgage payment starts rising and you are in a debt management plan with Credit Advisors contact us immediately.
Michaela Harper, CAF Program Director recommends vigilance, “Maintaining a successful DMP can be difficult in the best circumstances and requires special attention if you have an ARM. I would recommend you keep in close contact with our certified credit counselors so that you can stay on top of any changes that may need to be made to your current action plan.”
Harper also counsels homeowners to make every effort to pay the mortgage and contact CA for further assistance.
“My experience is that most people want to meet all of their obligations but in a budgetary crises situation it is important to make sure your priorities are clear,” Harper said. “It’s tempting to ‘do something even if it’s wrong’. For example, people will realize they don’t have enough to pay a full mortgage payment so they’ll pay down credit card balances to feel they are taking some sort of action. Keeping priorities straight means whenever possible focus on maintaining your homeownership status.”
The number one rule, according to Harper, during financial difficulties is: Do not avoid the mortgage company.
“If you’re having difficulty, they have a vested interest in helping you resolve the situation. The mortgage company does not want to own your house,” reassures Harper.
“They want to earn the interest from your payments. The sooner you contact them the sooner you can find out what programs they have available to help you and a quick resolution will save your relationship with the mortgage company and your rating with the credit bureau.”
More intense negotiations may need to be completed by a certified credit counselor.
Selling or refinancing your house may have been easier in the last few years due to the swiftly moving housing market but these are still options worth considering if you are in an especially difficult situation. Other options may include special forbearance, partial claim, or deed-in-lieu of foreclosure – be sure to ask your lender about these options.
As homeowners struggle to
make mortgage payments other
consumer spending suffers too.
Some states are also taking action by setting up funds to help homeowners. Maryland, Massachusetts, New Jersey, New York, Ohio and Pennsylvania hope by helping some low to moderate income homeowners facing foreclosure they will assist neighborhoods from weakening and falling into a downward spiral.
Unfortunately, too often when homeowners struggle or are unable to make mortgage payments other consumer spending suffers too. In such situations it is likely that other debt goes unpaid while homeowners conserve spending on clothing, going out to eat, and other types of entertainment in an effort to meet the demands of the mortgage payment. As a result, it doesn’t take long for retailers, restauranteurs, theaters and other local businesses to feel the pinch as well in at risk neighborhoods.
Finally, beware of scams. Yes sadly, there are people out there who would attempt to take advantage of you during this difficult time. The old rule still applies: if it sounds too good to be true, it usually is.
The U.S. Department of Housing and Urban Development adds these important points:
Don’t lose your home and damage your credit history if you can help it
Call or write to your mortgage lender immediately
Stay in your home to make sure you qualify for assistance
Arrange an appointment with a housing counselor
Cooperate with the counselor or lender trying to help you
Explore every alternative
Beware of scams
Do not sign anything you don’t understand
Make sure you get all ‘promises’ in writing
Beware of any loan assumption (or signing over the deed to someone else) where you are not formally released from liability for your mortgage debt
Act now. Delaying can’t help. If you do nothing, YOU WILL LOSE YOUR HOME and your good credit.
