Debt Free

It doesn’t take a rocket scientist or an economist to realize that the economy (which has recently, to a significant extent, been supported by the rapidly appreciating housing market and rising home equities) as a whole is going to be affected in a negative way when real estate appreciation stops, and worse, the foreclosures rise. According to RealtyTrac, the leading experts on real estate foreclosures, there were about 600,000 foreclosures filed in the United States in Q4 of 2007. That represents approximately a 250% increase foreclosure filings during the prime of the residential real estate boom, Q4 of 2005. By any standards, 250% is not an inconsequential number.

What are the causes of this dramatic increase in house foreclosures, and house foreclosures in general? Traditionally the top 3 causes of foreclosure for residential mortgage holders have been medical problems, divorce, and unemployment. Has this changed as foreclosure numbers continue to do their Sir Edmund Hillary impersonation? If the causes of foreclosure have changed, does this also change what the average troubled homeowner can do to prevent them? According to statistics released from Countrywide financial in the summer of 2007 the traditional top three causes of foreclosure are still at the top. Interestingly, the Countrywide statistics attribute adjustable rate mortgage payment adjustment as the cause of only 1.4% of foreclosures. Weather or not the increased mortgage payments were contributory in any of the other foreclosures was not revealed.

Countrywide did attribute 6.1% of foreclosures to investors who were unable to sell their properties in a softening real estate market. Presumably such investors would be more likely to let properties fall into foreclosure than would homeowners facing a similar situation with their primary residence. That could possibly account for part of the relatively high percentage of foreclosures experienced by these investors. As an aside, Countrywide indicates they have modified approximately 81,000 mortgages to help prevent mortgage holders from falling into foreclosure, while the Mortgage Bankers Association just reported that 54,000 such modifications took place industry wide in Q3, 2007. Do these numbers add up? Countrywide may be counting some of the 180,000+ mortgage holders who restructured their payment plans with lenders in the same Q3 of last year. The MBA indicated that the difference between a payment adjustment and a modification is that modifications include interest rate adjustments.

If you do need a mortgage however, times have never been better to get one, if you can pry the money from your lender’s clammy fingers, as mortgage interest rates have dropped to near record lows. As this is written, Bankrate.com is reporting the average interest rate on a 30 year, fixed rate mortgage is an attractive 5.31%, while a 15 year loan will reward you with an average 4.82%. This points to the importance of refinancing an ARM, if in fact you still have one. Most people who have an ARM have already been frightened into converting to a fixed rate mortgage by the voluminous press regarding foreclosures and other mortgage problems.

If you have not done so, and you’re not planning on selling your house soon, it would be prudent to take advantage of these low rates. Not to sound like one of those ads we all hate for mortgage lenders, but it really is a good idea. It amazes me that so many people bought well over their heads using one of the plethora of creative mortgage products that were introduced in the first 6 years of this decade. If you were one of these folks, take advantage of the silver lining that our current economic fears have spawned, historically low mortgage interest rates (that we thought would never be back).

If you are facing foreclosure, there are things you can do to help head off the proceedings at the pass, so to speak. I did a post on how to avoid foreclosure a few months ago which you can reference for more information on avoiding or stopping foreclosure proceedings.