Foreclosure notices hit all-time high?
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Homeowners struggling tο deal wіth sharp increases іn thеіr adjustable mortage payment, gοt hit wіth a record number οf foreclosure notices іn thе spring аѕ thе crisis іn subprime lending intensified.
Whаt exactly dοеѕ thіѕ mean?
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Filed under: Foreclosure
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It means that the mortgage payment went above their budget and can’t make the payments.
Many banks and mortgage companies looked for creative ways to make more money in the short-term by coming up with different ways of getting money from people. One of those ways was allowing people to buy more house than they could really afford using Adjustable Rate Mortgages (ARMs).
And ARM is a type of mortgage where people pay lower amounts on their mortgages for 3, 5, or 7 years (sometimes even 10!), don’t pay down the principle (what the house was worth at the time the house was bought–how much the house sold for), and then after a set amount of time the mortgage amount increases by up to 2% of the loan value.
ARMs allow people to buy more house (read: houses they couldn’t really afford). When people are struggling to make their mortgage payments every month and then the mortgage payments increase by several hundred dollars a month, they get into financial trouble, can’t pay for their houses, fall behind in payments, and the banks start the foreclosure process. Foreclosure is when a bank tries to get its money back by forcing a sale of the house.
The real problem comes in when the house value decreases, people haven’t paid down any of the principle (the owe more money to the bank than the house is worth), and banks get stuck with a bad loan (no one paying on the loan) and they cannot sell the house for what’s owed on it.
The banks and mortgage companies created their own mess. Let the Darwinian process unfold, kill off the stupid and unfit financial institutions, and let the smart, strong, and adaptable survive.
Adjustable rate mortgages change with the prime interest rate. If you had a 30 year fixed rate mortgage, your payments would stay the same for the life of the mortgage. With ARMs, the interest can change. In some cases, mortgage payments can double depending on the prime rate.
Subprime as I understand it – and I am no expert and could be wrong on this – has to do with mortgages given to people who didn’t have enough down payment or a good enough credit history to qualify for a regular mortgage. Some people also signed up for no down payment mortgages which means they borrowed the entire amount of the purchase price of the home, leaving themselves with no equity.
People who couldn’t keep up with the changes in the mortgage payments (some doubled) cannot afford to pay on time. A bank can technically forclose on your first late payment, but most don’t. Unfortunately, banks are losing money and they are taking the homes.
Again, I’m no expert, but that’s how I understand it. I have a fixed mortage myself and I prefer knowing exactly what I will be paying for such an important purchase. Taxes,utilities and insurances costs can change but I can always shut off a light and clip coupons to make ends meet. It helps my savings too, in case of a major repair or other emergency.
It’s a sad situation that so many people are losing their homes.
my2cents
It means many have defaulted in their mortage repayment. This is not a good sign.
very likely to loose the house over to the bank
It means they didn’t read into it good enough when they took out their mortgages…. they knew they were going to go up– but, they were only living for today- buying more of a house then they could afford… but.. now I hear the government is going to bail out some of these people…. doesn’t make sense to me… they go years living beyond their means, and now the government bails them out.
Next time will they go with a fixed rate? Most likely not – because they are not smart enough to do that!!
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