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.