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Have You Ever...- 10-24-07

Wondered Why There Are So Many Foreclosures Lately?

By ChaChanna Simpson

I know you’ve heard the news: homes are foreclosing all around the country. Anytime you turn on the television or open a newspaper, someone is talking about it and how it’s affecting the economy in the worse way. Mortgage companies are closing their doors, builders are getting laid off because contractors are nervous about building more homes, and now I think there is talk that we might go into a recession. It’s complete madness!

You might be wondering why there are so many foreclosures. There are a couple of reasons. The first reason is simple, people are not paying their mortgage. And you’re probably thinking: “Well, shouldn’t they have known they couldn’t afford the mortgage before they signed?” Yes, they should have, instead they jumped on the bandwagon and opted to get one of those risky mortgages such as:

Subprime—A loan for those who have less than desirable credit and can’t qualify for a regular loan. The interest rate for this type of loan is going to be higher than a regular loan from a bank.

Adjustable rate mortgage (ARM)—Your rate changes after a couple of years and your monthly mortgage payment increases by a couple hundred dollars, after your low introductory offer expires. Lendingtree.com has the following example on their site. Your mortgage is $200,000 with an introductory rate of 4%. Your monthly mortgage payment is $955. If your mortgage adjusts to 7.5% your payment would increase to $1337 a month, an extra of $382 a month. That’s not including taxes and insurance.

Stated income—You tell the lender what your income is without providing any documentation to prove it. And they don’t check to verify your claim. This type of loan was originally created for self-employed people who have a hard time proving their income. But for some reason lenders were allowing people with income from salaries to qualify for this type of loan.

Another reason for the foreclosures is that people really didn’t understand what they were signing up for and got tricked into a loan they really didn’t qualify for. But because lenders were looking to make money during the booming housing market, they made it happen. Or the lender told the prospective borrower their monthly mortgage rate but conveniently didn’t tell them what the mortgage would be with the included insurance and taxes.

In an article on MSN Money’s website written by Liz Pulliam Weston titled “Let’s fix this subprime mess,” she writes that Ameriquest Mortgage Company, which no longer exists, is facing allegations that they set out to defraud consumers. “’According to investigations by the Los Angeles Times and National Public Radio's " Morning Edition, "’ former employees claimed that:

Tax forms and other documents were routinely altered, a practice known as "taking the loan to the art department."

On occasion, documents for a fixed-rate loan would be placed atop a contract for a riskier adjustable-rate loan. After the borrower signed all the documents at closing, the fixed-rate pages would be discarded and the borrower would be shackled to the more hazardous loan.

Mortgages were larded with hidden fees and borrowers were misled about loan terms, including whether rates were fixed and for how long and whether they would face prepayment penalties if they tried to refinance.

“Other ways you can get foreclosed on are if you don’t pay your taxes. The city can foreclose on your property. And if you live in an area with a housing association and you don’t pay your dues, the association can foreclose on your house,” says Rosemarie Serpe, Esq., Foreclosure Attorney

There are two different types of foreclosure, strict and foreclosure by sale. “A strict foreclosure is when you don’t have any equity in your house and the bank takes your house. Foreclosure by sale is when you do have equity in your house and in that case your home will go to public auction,” says Serpe.

Before your home goes into foreclosure

You get a notice from whichever institution you owe, and at that point you are in preforeclosure, which can last two to three months. They will notify you of when you must be out of the house or when the house will be auctioned. “During the preforeclosure period, you have the option to pay the balance you owe, plus any fees, to be reinstated. Or you can sell your house yourself, so that the foreclosure won’t go on your credit report. If you sell your house yourself or your home goes to auction and the house is sold for more than what you owe, you are entitled to that extra money,” says Serpe.

Let the lawyer in

When your home goes into auction, a lawyer, whose job is to sell your home, is assigned. They are a neutral party and they can give you tips on how to make your home more attractive to prospective buyers so you can get more money at the sale. So let the lawyer in. They are only there to help you and do their job.

If any of you twentysomethings are looking to buy a home, take note of the previous mentioned reasons people go into foreclosure and don’t make the same mistakes. Happy Living!

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