How to Avoid Foreclosure

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If you are having a problem paying your mortgage, the first thing you need to do it is to face the situation and take action. Experts suggest that delaying only deepens the difficulties. Foreclosure Snapshot The number of properties with foreclosure filings has been rising dramatically, according to Rick Sharga, vice president of marketing for RealtyTrac Inc., the nation’s leading online foreclosure marketplace with a comprehensive foreclosure database. There are steps you can take to avoid a foreclosure. In 2005, there were more than 500,000 foreclosure filings; in 2006, more than 700,000; in 2007, more than 1,200,000; and from January to June 2008, more than 1,300,000. Who, What, Where Foreclosures are happening across the country; the national average is one in every 171 households. The states with the highest numbers are Nevada, California, Florida, Ohio, Arizona and Michigan but most areas are seeing at least some increase in foreclosure activity. Sharga says RealtyTrac data suggests that “a high-level analysis of our data in the first and second quarters shows that about 50 percent of the foreclosure actions for which we have loan information associated (about 600,000) were on loans with interest rates of 8 percent or higher. About 23 percent were on loans with interest rates of 9 percent or higher. That suggests to us that a disproportionately high number of loans in foreclosure would be considered subprime.” Interestingly, foreclosures are not all primary residences. Sharga said an analysis in May 2008 of owner mailing addresses of homes in foreclosure found that 33 percent of homes in foreclosure nationwide have an owner mailing address that is different from the property address. The implication is that those homes are not the primary residences of the owners, so they may be second or vacation homes or rental properties. Reasons for Foreclosures Experts suggest there are many reasons for a foreclosure. Consumer advocates point to “creative” financing options offered to unsophisticated borrowers that trapped them in loans doomed to fail. These mortgage products included cash-out refinancing loans, interest-only loans or 2/28 Adjustable Rate Mortgages that are fixed for two years and then rise. Sharon Reuss, spokesperson for the Center for Responsible Lending—a nonprofit, nonpartisan research and policy organization—says that subprime borrowers in trouble were given defective mortgage products. With these products and poor underwriting, the initial “teaser” rate is followed by rate adjustments that the borrower cannot afford because he or she was only qualified for the loan at its introductory rate.

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