Foreclosures At Highest Rate Ever
(The housing market is slowing down, or at least leveling off, and this is resulting in a variety of problems throughout the real estate and mortgage world. )
One huge problem that many analysts fear could get increasingly worse in the next couple of months is foreclosures. Foreclosures happen when a homeowner can not make their mortgage payments and the house essentially gets repossessed by the bank.
The reason why we are seeing an increase in the amount of foreclosures lately is because of adjustable-rate mortgages or ARMs. These are a type of mortgage where the interest rate is low and fixed for a certain amount of time and then "adjusts" according to the current market rates.
This results in higher payments than the homeowners were used to paying during the initial period. Thousands of these loans are posed to reset this fall, which may cause many people to not be able to make their higher payments, resulting in foreclosures.
A September 8, 2006 article by Money Coach Elaine Zimmerman of Whitaker Bank, "Why are foreclosures at a 52-year high?" looks into the reasons why we are seeing so many foreclosures lately.
"The foreclosure epidemic is real and getting worse. Foreclosures will account for 1% of homeowners this year, the highest percentage in 52 years. That means that every neighborhood will have someone who is struggling to make his payments. That is why investors are searching nationwide for foreclosures and pre-foreclosures as investments."
Although there are various reasons that contribute to the increased amount of foreclosures, the ARM, is one of the strongest contributors to people not being able to make their monthly payments.
"In the last four years, Adjustable Rate Mortgages have offered starting rates as low as 1%. Many first time homebuyers could move from renting to qualify to purchase a home. Renters rushed to buy homes."
"This strategy to bring new homebuyers into the market was a foreclosure disaster in the making. Neither these new homebuyers nor their loan mortgages$$ were prepared for this major miscalculation."
Although there are many mortgage professionals out there who give their clients all of the facts about their particular type of mortgage, like the mortgage coaches at LEI, there are some that are not so honest.
The thing that many people did not think about is that when you apply for a mortgage you are only supposed to put down 30% of your gross monthly income to housing payments. Now this is fine when they have a low interest rate, but once the mortgage adjusts, payments could and will take up a lot more than just 30%, and this is where people run into trouble.
People should be very aware of this potentially dangerous situation so they can try and fix things before its too late.
"This, coupled with increased fuel costs are draining Americans of a lot their disposable income, has made foreclosures rates the highest in more than fifty years."