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Bare Truth About Foreclosures
To put things into perspective, Let's look at the bigger picture: Approximately 40 percent of all homes are mortgage free. Of the remaining 60 percent, 50 percent of the loans made during 2005 were fixed rate loans. These figures are supplied by the Mortgage Bankers Association. This means that if 40 percent of all homes are mortgage free and 30 percent (half of 60 percent) have fixed rate loans, then almost 70 percent of the entire market will not have a foreclosure problem, due to these adjustable rate mortgages.
Although you may be doing the math and might be thinking that the remaining 30 percent does not need to be concerned with foreclosures, the overall health of our real estate market is affected by foreclosures. If you are one of those people who has worked hard and managed to find yourself mortgage free and think that foreclosures do not affect you, you should think again.
Look closer at the big picture--not just the one that you are in. If we look at an area of 1,000 homes, (400 are mortgage free, 300 have fixed rate financing and 300 are financed with adjustable rate or interest only mortgages) most of the homes that end up being foreclosed on in that area will be the ones with adjustable rate or interest only mortgages.
The reason for this is simple: eventually the good deal at the time catches up with you, especially if interest rates are on the rise. There are also non- traditional loans such as option A.R.M.s that allow the borrowers to make very low payments for the first few years of the loans. These payments are often not enough to even cover the interest costs.
As these TOXIC loans age, the period of low or no payments come to an end and many borrowers find themselves in a very bad position. The borrowers have the same lifestyle but now suddenly have to adjust to a higher payment.
Something has to change, and usually the last thing someone can easily do is change their lifestyle. One of the reasons that foreclosures are on the rise is because these types of loan products are now used so widely. It is easier today than ever before to obtain financing for a home.
There are more and more creative lending that these types of loans can be financially very dangerous. The key is to find the right loan product for the borrower and not just the one that can get them easily financed into the biggest house on the block. Eventually this money needs to get paid back no matter how you slice the loan pie.
Historically, usually there are approximately 1 percent of all home loans in the foreclosure process. With the use of these types of loan products even USA Today reports that because of these loan products we may see foreclosures as high as 12 times higher than normal. (Referenced from April 3, 2006 USA Today article Homeowners struggle to keep up with adjustable rates):
Now, here is where you and I come in to the foreclosure equation. Many loan companies minimize the problem saying that most people do not go into foreclosure and that this is an issue that only affects the borrower if they do go into foreclosure. This is the farthest thing from the truth, because people that are out buying homes DO NOT know the type of loan a seller has on their home.
It makes no difference to a buyer whether or not the sellers have a mortgage on thier homes. what they care about the most is how much they can buy it for, and what are the terms of the sale. Owners that are in foreclosure are not in a position to hold out for the offer they really want. Many times they are forced to sell at a below market value to stimulate a faster sale. If you or I live next door to one of these foreclosed properties, and then we try to sell it a week later, I can guarantee you that the buyers of your home will try to use that foreclosed sale as an indicator of market value in your neighborhood.
The high number of foreclosures in this country affects EVERYONE!!! Lenders who say that an increased number of foreclosures will not bring down values in an area and impact the neighbors are simply not doing their research. Have the lenders talk to those homeowners who have been negatively affected by a high number of foreclosures in their area. Areas that seem to be affected the most are often new home communities where a large number of homes have been sold at one time and the builder or developer has had one of these loan products available to make it easier for a broader base of the market to buy into their community. The buyers have gotten in but look out for what happens when they need to get out. It is imperative in this market filled with enticing loan products that you carefully assess your loan; remember eventually the loan needs to get paid back. Foreclosures negatively affect all of us!!!
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