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Sunshine | Why has there been such a HUGE increase in the number of home foreclosures in the US over the past few years? |
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glenn
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Many people (both buyers and lenders) were assuming that house prices would continue to go up at exactly the same rate they had been going up. It is always a bad assumption to think that nothing will change.
When price increases slowed down in many markets, it caught many owners by surprise and they could no longer borrow from their home equity or sell the home to continue their lifestyle. There were also those people that had bought several houses and rented them for less than the mortgage payment because they thought they would make huge profit on the sale. As those people began to get foreclosed on, that brought prices down further causeing many more people to get into trouble. People had always figured they would be able to refinance whenever they needed money and now they could not even refinance their adjustable rate loans because there was not enough value in the home.
As people continued to lose their properties the national news picked up on the story and did what they could to panic people even more. Many people began to try and sell their house even if they did not need to. This vast inventory of unsold homes caused even more drop in home prices and that contributed to even more foreclosures.
It all built on itself.
At some point in each neighborhood people will realize that the prices are extremely good and that there are wonderful buying oppurtunities. This will happen at different times in each community. When this happens people will be able to sell their homes and the foreclosures will radidly begin to reduce in number.
There is a time when a huge number of people do not yet realize that the prices are great. They will be to scared to buy. The more prices have down in your local area, the more scared the population will be about buying. That is when the great fortunes will be made. You have to decide for yourself when that is in your area. |
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rhsaunders
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It's called a bubble, and there have been many throughout history -- in many fields, not just housing. Low long-term interest rates made housing more affordable, and prices began to rise rapidly. Seeing this, many people decided to get on the gravy train, and bought houses that they couldn't really afford -- especially by using mortgages that initially required only small payments but that would reset to higher rates later. Underwriters of mortgages got sloppy, and authorized a lot of these unaffordable mortgages, and packagers bought a lot of them and re-sold them. Eventually, the bubble burst; prices stopped going up, mortgages started resetting and people could no longer afford the payments, and bingo: foreclosures started happening. In time, prices will stabilize, the bad mortgage paper will be cleaned up, and we'll get back to a more normal market. But it will take a while -- there are many more houses available nowadays than people can afford to buy. |
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Judge Sludge says:
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Because people got taken in by mortgage loans that are referred to as Predatory Loans, with interest rates that climb and some actually have significant penalties if you keep the loan after a certain time...supposedly they were temporary and the salesperson told you could refinance before you entered into the penalty, problem is no one is writing loans on overpriced property with no equity...There are ARM's that adjusted way up and people couldn't pay the new payment... Also companies were writing loans on houses that were over valued significantly, were written for 100% of this overvalued price, and the loan was secured by the individual on stated income, and they overstated their income because they wanted the house really bad and they thought they could afford it, and or someone in the household lost their job and they were already strapped with the payment...
There are a plethora of reasons the foreclosures are happening at the rate they are...
If you want a ONE WORD explanation= GREED |
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jessyl135
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unfortunately, there are some people (banks, brokers, etc.) who got extremely greedy and convinced folks to take larger mortgages than what they could reasonably afford. combine this with increased fuel costs, insurance, taxes and maintenance, and you have a recipe for disaster. |
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bull_rooster_aardvark
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I think bad loan practices and greedy buyers and lenders are a large part of the problem. Still, I think the problem has gone beyond that point now and when you see this actually happening you get a different perspective on it. Let me tell you what I se happening with many (most) of the foreclosures in an area near (about an hour away) from where I live.
In an area pretty near where I live home prices have dropped a full 60-70% from their peak just two years ago (yes, 60-70% I'm not exaggerating and even with this drop in prices the places are not selling very fast).
Suppose you bought a house for 300K just 2 years ago and now the one across the street (very similiar to yours) just went up for sale (from the bank) for 100K - and nobody is even buying it. Are you going to keep paying on a 250K mortgage you can barely afford anyhow, or stop paying - live rent free for a year (or so) and then abandon the place when you get foreclosed on. It a terrible situation, but truly in this situation the suckers are the ones who keep paying. The smart move is to let the bank have the house and just move on - its alot better than trying to pay off a 250K debt on a 100K asset.
I don't mean to demean the ones who do keep paying and I really admire those who do it for the right reasons (mostly honor and keeping your word) but ask yourself if you could essentially make 150K by simply not paying your mortgage (yes it would probably ruin your credit for 7 years but you could make do) wouldn't you think long and hard about doing that (you make 150K by wiping out a 250K debt on a 100K asset)? |
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BUBBLES
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Most part- people buy things they can't afford.
They got balloon mortgages- which increase ever year.
They got mortgages so huge that they are house poor and if one person loses their job- they are screwed.
Handful of older people who ran out of money or didn't take of the property or bills.
Lot of renter homes that are in bad shape- people are losing. I guess they just let it get so run down that when people couldn't live in it anymore they just stop paying the bills. We are looking at foreclosed homes and a lot of them are renter properties.
I notice there are ton of NEW big homes for rent right now because people realizes they can't afford their own mortgage but they want to hold on to the home. Most of them want insane amounts like 2,500-3,000 a month which is prob the mortgage!! |
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TheMom
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Because there was " such a HUGE increase in the number of" sub-prime loans handed out a few years ago. People are sub-prime because of bad history paying bills. People do not change. Given a second chance HUGE numbers of them defaulted on their home loans, just like they defaulted on other loans in their life.
This is just the natural progression of good money being thrown at bad. It will end, it is harder for people with a proven record of not paying their own way to get a home loan.
Those people never should have been given the loans in the first place. This is just the correction of the problem.
97% of the Americans will home loans pay the bill. The other 3% made their choice. The choice should have been expected, they are just following their idea of what normal is, that you can llive free and clear and screw as many people as possible in the process. |
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JM
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multiple reasons. a few years ago when interest rates were ridiculously low, EVERYONE was refinancing or buying more than they could afford. well no one paid attention to the horrible underwriting and no one realized their mortgage rate was not locked. now fast forward years later and their mortgages vary every month (happened to my brother in law and his wife). now, no one can afford it because their payments are going up.
plus unemployment is HIGH. people are losing their jobs and cannot afford the bills anymore. |
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bud68
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Bad underwriting and stupid borrowers. |
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