In Massachusetts, foreclosure filings have nearly doubled over the past year due to mortgage payments becoming too high for homeowners. Those who face foreclosure rallied at the Massachusetts State House on Thursday. They’re asking Gov. Deval Patrick for a moratorium on foreclosures. Patrick is a former director of Ameriquest, one of the nation’s largest subprime lenders.
This was a the story I heard this morning on NPR’s Morning Edition. It got me thinking about a foreclosure property in my neighborhood; I can walk there in less than 5 minutes. It’s a really a good deal right now for a homebuyer….
But I can’t help wondering about the former owners. How did they end up in foreclosure? How were they approved for a mortgage that in less than 3 years they would be unable to afford? Did they over estimate their ability to handle it all? Did someone lose a job? Did they use an ARM for the original mortgage and were then unable to afford the rate adjustment? Or were they ill-advised in the beginning? Did they work with a mortgage broker who directed to them higher-interest loan? Was there actual fraud?
Since the early 2000’s home prices have been escalating and with rising prices, lenders have been more comfortable lending to buyer’s who historically might not have qualified which was great as that increased the home-ownership rate to 69% by 2004. But the fall out of that is many buyers paid full market value and sometimes more (borrowing up to 103% of value to cover closing costs and down payments) and are now unable to maintain the payments along with rising energy costs. According to the article on the NPR website nationwide the foreclosure rate increased by 47% in March 07 compared to March 06.
Because I stay in contact with my past clients, I know that none of them have gone into foreclosure.However, most of my clients have been first time buyers and few of them have had a down payment. Without looking through all my records I would bet that over 75% of my buyer clients financed 100% of their mortgages. I am not a lender and do not pretend to know all there is to know about financing but I do try to help my buyers through this process by sitting down with them in the beginning and going over my Buyer’s Packet. I suggest that they interview several lenders and I give them a list of 14 questions to ask their lenders. I also caution them that in my experience if they have good credit and good credit history a lender will qualify them for much more than they can truly afford. I caution them to really think about what they are going to be comfortable paying out each month for their living expenses and tell them to stick to their budget and I only show them houses over their range if I believe I can bridge that gap in the initial negotiation. So in this respect I hope I help them find a situation that will be truly beneficial rather than finding themselves struggling to make their payments.