Divorce, Loss of Job and Death are Three
Main Causes of Foreclosure
The reasons homes go into foreclosure are as varied as each individual that purchases a home. Some of the major traditional reasons that houses go into foreclosure include the death of the breadwinner, loss of employment, divorce, an illness or an accident that places the homeowner in the hospital for a long period of time. All of these reasons can put the homeowner in default on their mortgage payment.
In addition to the normal reasons there are other causes for foreclosures. The widespread use of non-traditional mortgage products such as hybrid adjustable-rate mortgages with complex interest rate terms and conditions—originally created for wealthy individuals with fluctuating incomes—were increasingly sold to middle- and lower-income families over the past 10 years amid the nationwide housing boom. These hybrid ARMs, which offer easy lending terms but the possibility of hefty rate increases in a few short years, were often peddled to less experienced consumers alongside minimal underwriting requirements that allowed many borrowers to purchase homes without assessing their ability to handle payments over the life of the mortgage. The result is that many such homeowners today are vulnerable to much higher mortgage payments than they were probably able to afford when the loans were originated.
The problem is multiplied in the subprime mortgage market, where borrowers generally have weaker credit histories, lower incomes and fewer assets to support their loans, requiring them to pay higher interest rates than in the prime mortgage lending market. What’s worse, many of these borrowers had to pay costly origination fees on their mortgages, which left them with little cash left to invest in their new homes or to service their mortgages when their adjustable interest rates rise.
It only takes missing one payment and you are in trouble. After 90 days, the lending company will file a Notice of Default with the county clerk and then an auction on your home will be the next step.
Losing a home is particularly destructive of personal wealth. A foreclosure often costs upward of $10,000 in various legal, sheriff and bank fees. And people who have gone through foreclosure end up paying more for insurance and credit card interest and can get turned down for jobs that require good credit.
Be prepared and know what you must do in order to stop foreclosure and save your credit. You may be able to re-finance your mortgage loan, file bankruptcy or sell your home and purchase a cheaper one. Search out help and the information you need prior to losing your home.
