The Rising Foreclosure Rate

While the number of new mortgages boomed between 2000 and 2003, foreclosure rates also hit record highs. Conditions have got improved somewhat since mid-2003: over the last two old age the foreclosure rate have flattened. The delinquency rate have also improved slightly with the number of delinquent loans hovering near 4.4%, down feather from highs of almost 4.8% A couple of old age ago.

Yet more than homes are being foreclosed upon than ever before. Why? While the foreclosure rate have remained fairly static, the rate of home ownership in the United States have continued to increase. Sir Leslie Stephen Space of the Urban Land Institute, quoted in the St. Joe Louis Daily Record, cautioned that, “The degree of home ownership is reaching unhealthy degrees ― cited at 70% of the population, and moving towards 80% ― which foretells of a looming addition in foreclosures.” Inch effect, the percentage rate have remained flat, but the sum number of homes in foreclosure have risen owed to increased home ownership. More homes are owned – and more than homes are being foreclosed upon.

Experts foretell the tendency will continue. Home ownership is at record degrees and interest rates have got remained at historically low degrees for a number of years. In addition, over 150 different types of mortgage loans now exist, allowing purchases by consumers who would not have got previously been able to measure up for a home loan. Buyers enjoy zero-down mortgages, no-documentation loans, 106% loans to allow for no-cash closings, and even 40-year mortgages. Looser lending criteria lend to high foreclosure rates because proprietors with no equity in their homes happen it easier to simply walk away from their mortgages. And if interest rates rise, many of the ever-increasing number of homeowners with weaponry may be not able to obtain suitable substitution funding or to ran into the new, larger monthly payments required when the initial arm term expires.

Studies show that a loan’s default hazard is directly tied to the size of the down payment: the lower the down payment, the greater the likeliness of default. Even in cases where down payments were made, low interest rates have got encouraged growing of home equity loan advances and cash-out refinancing, allowing homeowners to take out cash generated from down payments and from appreciation. The Census Agency estimations that in 2004 approximately $569 billion in home equity was extracted through refinancing, taking out second mortgages, or simply pulling out cash during a move. The less equity that remains inch a home the higher the likeliness of default, and with cash-out extractions continuing to rise, more than than than and more homeowners are at risk.

Liberal lending criteria have got also led some consumers to borrow more than they can afford: the Census Agency recently released statistics showing that the average household passes almost a 3rd of their income on lodging costs, up from about 20% in 2000. As a result, financial troubles like the loss of a job, unexpected medical costs, or other emergencies quickly set a homeowner’s mortgage in jeopardy. Rising consumer debt load intends almost any break in financial fortune like lost income, illness, or divorcement can seriously impact a homeowner’s ability to do payments.

What’s the result? When interest rates rise, foreclosure rates will rise. And if the existent estate market flattens or dips, homeowners with weaponry or interest-only may happen themselves upside-down on their mortgages… with foreclosure their lone existent alternative.