Foreclosures hit record high in the first quarter. In California, foreclosures and short sales comprise 46% of the housing market inventory. According to The Mortgage Bankers Assnociation, nationally, 1.3% of loans started the foreclosure process in the first quarter.
Most common belief is that the cause of borrowers defaulting on their loan is because of high mortgage payments. According to the Federal Reserve Bank of Atlanta, unaffordable loans is not the main reason. Why do borrowers default on their mortgage? The main reason is unemployment. The FED paper estimates that a 1% increase in unempolyment increases the chance of a 90 day delinquency by 10%-20%.
The paper also loooked if it is in the best interest of lenders and investors to modify delinquent loan instead of foreclosing on the homes back by those loans. Although the gains from modifying the loans rather than foreclosing runs as high as $180 Billion, they feel that modifications don’t save much and many modifications fail.
So how do we prevent defaults and foreclosures? More attention should be placed on programs to help prevent job losses. Another solution is to boost short sales where lenders take a loss on the sale of the house that has declined in value. Short sales should be explained clearly to homeowners. There is so much misunderstanding and myths regarding short sales. Many homeowners have the erroneous belief that it is better for them to let their home go into foreclosure rather than do a short sale so they deliberately walk away and let their home go into foreclosure which hurts home values in the neighborhood and the economy all the more.
For a better understanding of short sales, request your free copy of a report entitled: “Short Sale VS. Foreclosure”.
Elizabeth M. Eugenio, (909) 376-8615Email: Elizabeth@HomesByLiz.com, Website: www.HomesByLiz.com
Certified Distress Property Expert (CDPE), Certified Residential Specialist (CRS), Graduate Realtore Institute (GRI)
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