Why are so many people losing their homes to foreclosure?

[LadyFromThaD]

The reasons that you all have cited are valid, but here in Detroit (on the top 10 metro cities with the highest foreclosure lists, #1 on one listing I read), the declining auto industry has played a huge factor in the foreclosure rates. The manufatoring jobs that so many have counted on for so long here has taken a nose dive and plant closings have left folks with no income, as well as no marketable skills. When you were making $30+ an hour in the factory with overtime, it was easier to afford that $200,000 house.

And it ain't just us black folks, the whites in white collar jobs with the autos have been pink slip'd left & right. Michigan is currently #1 or#2 on the unemployment list as well. Alot of people I know are moving out state, and though, I don't work in the auto industry, I may have to start looking in that direction myself.

[matrixone05]

There are several possible reasons, aside from job loss or major illness, a lot of people do not understand the homebuying process. They don't know what the different types of financing are, and how each type of financing can impact them long term. They also don't understand that just because a loan officer says they qualify for a $200,000 mortgage doesn't mean they should buy a $200,000 house. They have not added blinds, appliances, accessories, furniture, upgrades, rising taxes and a whole list of other add ons into their calculations.

The majority of the foreclosures in Houston are with new homes. The builders have their own lending companies and will approve people with marginal credit, that would not get approved through a traditional lender. They then bundle and sell those mortgages and they lose nothing.

In Houston, a large majority of new home owners are losing their homes due to deficient escrow accounts. The taxes on a builder lot are at least 80% less than on an improved lot. For example, as long as the builder owns the property, the taxes on the lot may be based on let's say a value of $20,000.00. This is the basis that is used for the tax escrow. When a home is built on the lot, the tax value is increased to the resale price of the home, which we'll say is $150,000. The taxes on the $20,000 lot may be $1,2000 per year. The taxes on the $150,000 improved lot may be $5,000 - $8000 or more, depending on the location.

If the initial escrow is based on $1,200, then the portion of escrow added to the mortgage payment is $100.00 per month. At the end of the following year, the taxes have to be paid, and they are now based on the improved lot value, which if it is $8,000 causes an escrow deficiency of $6800.00. Who has that amount of money. Usually, the mortgage company will pay it and add the deficiency to the monthly payment. I'm going to be generous and say they allow you a year to pay the deficiency back. That's $567 more a month to the mortgage payment. Plus, your escrow has now been adjusted to reflect the correct amount of taxes and they add another $567 a month to have enough to pay the taxes at the end of the upcoming year. If you manage to afford it, you can only pray, there is no appreciation in value of the home.

If you can't pay it, they foreclose on your home.

I know this because one of the subdivisions I manage had over 45 foreclosures last year and another had 39. Those topped the list of the 10 subdivisions I manage.

Personally, I think people should be required to take homebuying classes so they can understand what they are getting into.

[Istlota]

Originally Posted by matrixone05

Personally, I think people should be required to take homebuying classes so they can understand what they are getting into.

Personally, I think lenders who engage in such practices as you described should go to jail. But, instead, we live in a society where the laws are written to protect the loan sharks. In America, deceiving your customers is considered good business practice, protected and even encouraged by the laws of the land.

A year ago, I said to hell with the whole credit game, cashed out my 401K, and got completely out of debt. Yes, I took the IRS hit. But, I could see the direction the country was going in with all the legalized loan sharking and I wanted out, now, before I ended up so far in the hole I could never get out.

It is now legal for lending institutions to charge you ANY amount they wish for late fees. There is NO limit, no maximum on such fees. That alone should scare the hell out of everybody.

But, it gets MUCH worse. It is now legal for ALL your creditors to jack up ALL your interest rates to 30% if you are late on any one bill, even if that bill is a utility bill. You want to be frightened out of your mind? Add up all the debt you have -- credit cards, loans, car notes, etc. Then calculate what 30% annual interest would be on that amount for one year.

In America, because most of us are no more that sheep, programmed machines, we have accepted this crap quietly, buying in to the hype that we, the victims, are at fault instead of the greedy blood sucking immoral money worshiping thugs who all have their hands in our pockets.

Wake up, People.

[Nyela]

Consumers MUST...I REPEAT...MUST take responsibility for irresponsible financial behavior. Both the lender and the consumer is responsible...
If you choose to use credit, be responsible...Pay it back as promised or leave the money/items alone...

By being responsible you spend within your means...you read the fine print...you pay on time...and you leave the Jones' to compete with themselves...

I love this topic...been thinking about some of these issues for a while...

[matrixone05]

Originally Posted by Istlota

Personally, I think lenders who engage in such practices as you described should go to jail. But, instead, we live in a society where the laws are written to protect the loan sharks. In America, deceiving your customers is considered good business practice, protected and even encouraged by the laws of the land.

I agree. I used to think the builders did not advise these potential buyers of this, but when I built my home last year, I had to sign a disclosure statement about the taxes and other items. A major issue is that most people DO NOT READ what they sign and if they do and don't understand, THEY DON'T ASK QUESTIONS.

Many purchase new homes without realtors and the a lot of the realtors don't care enough about their clients to help them understand anything. In Texas, a purchaser can request a a resale certificate that will provide information on the HOA. This resale certificate will provide financial status of the association and their legal documents, tell you if the homeowner is current on their assessments and if their are any violations on the property. Because a potential buyer can use this information to back out of the contract if they choose to, so a lot of the realtors will tell their clients it isn't necessary.

The home I own with my soon-to-be ex was 4 years old when we purchased it and our realtor (who was a friend of his) told us the resale certificate was not necessary. I was shocked. I knew they told this to a lot of people, but this realtor knew what I did for a living. I feel sorry for people that have no clue to the many aspects of homeownership.

[DBlack]

Great posts! I hope all the Afros are paying attention to this thread.

Yes, businesses should improve their ethics. There needs to be better ethics regulation in the mortgage industry.

The industry is so slanted against the consumer. Did you know that an appraiser isn't even allowed to advise or comment to a prospective buyer/borrower when onsite? If I was appraising your house and wanted to give you advice on the property, loan, sales contract, etc..., I would get into trouble with the board. The system is setup to keep the buyer as uninformed as possible.

And yes, we are ultimately responsible for our financial decisions. We have to educate ourselves and share what we know with others to empower them as well.

[Istlota]

The following link is mandatory reading for those who are starting to catch a glimpse of just how far in the hole _most_ Americans are:

Denying our debt

The point of this piece is to stress that the American consumer is in SERIOUS denial about his/her economic health. I know, most of us insist we are personally okay. But, a poll was conducted and the results showed that, well, I will just have to make it plain:

Most Of Us Are Lying, Even To Our Selves!

Some sobering stats:

- At the end of 2004, _most_ Americans were carrying over $8000 in credit card debt.

- Just a year later, 2005, _most_ Americans had bumped that number up to over $9000 in credit card debt.

Just do the math. With _most_ of us being that far into credit card debt, and with the current predatory lender regulations [or, should I say, the lack thereof], and with so many of us now paying insane mortage rates, and with the high cost of family health insurance once company benefits run out (over $500 a month), the sad fact is that MOST of us are one extended layoff away from being buried in debt for the rest of our lives. We get laid off, we fall behind on one or more bills, the 30% rates kick in, and that is it -- we are toast, royally screwed, essentially endentured servants.

You think that could not happen here in America? Well, let me lay out a quite probable future:

-- The US invades Iran.

-- Iran shuts down the Persan Gulf, which they can do with low tech incendiary devices. NATO can not prevent this because there is too much NATO hardware in the Gulf to use massive force there.

-- Gas and oil prices go thru the roof. Overnight, gasoline prices double at the pump.

-- Massive layoffs result, the inevitable result of skyrocketing energy cost overhead.

-- With so many people out of work, and so many people pegging into 30% rates, an economics driven civil war takes off in the streets. America has too many guns in the hands of too many people. At some point, when reality kicks in, and all those newly poor, and armed, Americans figure out just how royally they have been screwed by their own elected officials, there will be rioting in the streets, even in the suburbs.

[LadyNoir]

Originally Posted by charliekilothree

A lot of people got those ARM (Adjustable Rate Mortgage) and did not count on their payments shooting through the roof. When I was in the housing market back in 1994 I knew what I could afford and bought a house according to my means. I had a neighbor next door to me foreclosed a few years ago. It's not a pretty sight but happens all the time. With all of the foreclosed homes on the market along with the normal homes, there is a glut on the market.

It is a mess, all right! Besides the problems that come wirh the ARM's (which I fear like a heart attack), there are so many "creative" mortgages being advertised. Some people don't really understand what they are getting into. The lenders, who pretend they are giving interest rates of 3%, 4.5% and such, claim people can have a monthly payment of just 450.00, but I guess the buyers don't understand that they are paying only on the interest.

After a few years, everything blows up in their faces. Quicken Home Loans advertise this kind of loan all over the internet. Then there is the reverse mortgage. I think the reverse mortgage is the one they try to push onto people aged 62 and up! I've read the pros and cons but it's not something I'd feel comfortable doing.

Ordinary homeowners right alongside of real estate investors in my city are foreclosing at a higher pace than ever before. The investors are having a tough time getting the good deals they used to get, and when it comes time to flip, they're having problems getting rid of the property. Many of the foreclosures around here are investment properties; and, when houses go on sale they stay on the market a very long time now!

[LadyNoir]

Originally Posted by Phatkatt_76

Our next door neighbors just had this HUGE lock placed on their doors !!! WHOA !!!!!!! It's truly not a laughing matter, but I think this occurs because some folks are trying to keep up with the Jones'. Seek financial counseling and let's stop biting off more than we can chew.

I don't even try to keep up with the Jones' CAT!!!

[Chelbe]

This is alot of good info and I have alot of research to do. My mortgage payments for this year went up $300 and I wanted to cry. As a matter of fact I think I did.