An ABC story reported in September announced that the foreclosure crisis was fading fast. This is indeed the case when compared to the height of the feverish pace that banks were foreclosing on their troubled assets in 2008 and 2009. But comparing foreclosure rates today to the foreclosure rates before the mortgage meltdown draws a more accurate picture which illustrates that foreclosure rates are significantly higher than the decade preceding the meltdown.
Foreclosure rates prior to the mortgage crisis consistently ranged between four and five percent. Today the foreclosure rate is resting at a steady 12 percent of all mortgages. Twelve percent is substantially lower than the 18 to 20 percent that we experienced during the meltdown but it is still three times higher than the traditional rate of foreclosures.
Home owners are faced with a multitude of complexities today that they were not experiencing before the meltdown. These complexities are completely out of the control of the homeowner. Unemployment rates that are four times higher than the norm, decreasing home values in many areas across the country have combined to leave the homeowner with few options.
Strategic defaults and Short sales are the two most common with loan modification coming in at a distant third as millions of Americans are still underwater on their homes. As they struggle to get out from under their overpriced mortgages their options are limited. When the home owner is straddled with a mortgage that they cannot afford to pay and selling the home is not an option because the debt on the home exceeds the market value a panic can set in that people react to differently.
Strategic defaults are the most common as it is the simplest solution to the problem and it requires less effort than any other option. A strategic default is unlike a traditional foreclosure because the home owner has made a decision to walk away from the home rather than have the county sheriff perform an eviction. They tend to stay in the house and stop making mortgage payments in order to try to start new somewhere else.
Short sales are complicated and time-consuming. The benefit of the short sale (selling the house for less than the mortgage amount) is that it preserves the credit of the homeowner. This is only a valid option if the homeowner has good credit to begin with and if the bank is willing to work with the homeowner to allow the short sale to occur. Again, time and effort make this option less common and when dealing with bankers whose jobs are to get the mortgage paid they often stall in order to get more monthly mortgages paid until they eventually decline the offer. Short sales are the best possible way to avoid having a huge negative mark on a credit report but the seller needs to be reasonable and so does the bank.
Great post. Can’t imagine just walking away from my home but sometimes desperate times call for desperate measures.
The term strategic default can be misleading to some people that are facing a potential foreclosure. To be strategic they must have a plan and that plan should entail more than just the walking away part of the equation.
They should know what they are going to do once the home is eventually foreclosed on and they are evicted. This is the part of the concept that is overlooked too often when the pain is occurring in the present and the need to remove the cause of that pain is more urgent than the long term repercussions.
What advice would you give your twin sister? Follow that advice and you should be better off.
Desperate times call for more planning. Part of the planning could be to eventually walk away, but we have to sit down and think without a predetermined end point. That only leads us to answers that fit the conclusion that we think is best right now. The last person that brought this situation to me was very unhappy and we talked for a long while before he lost his patience with me as I would not agree that his solution of walking away was the best for him. A year later he was asking me to help save his house because he did what he wanted in the short term and only realized after the dust had settled that it was not the best thing to do over the long haul. Please seek advice from people that have no financial interest in you and only want your happiness? Good Luck!
I have to wonder just what will it take to completely turn things around or if it’s even possible.Twelve percent is scary. It seems almost a given that a person needs a “plan B” when moving into a home in the event that their house is foreclosed upon.
Houses don’t get foreclosed upon. People stop paying the mortgage and the mortgage is called which creates a foreclosure of the home. If by plan you mean “Savings” or by “Living below our means” or “I agree. If by plan you mean “Escape tunnel under the kitchen floor that leads to a slide that whisks you away to a land without responsibility” I don’t think I can agree with you?
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