Lack of knowledge, discipline, preparedness or any combination of the three.
This may sting a little but don't shoot the speaker for delivering the data. This is long but I encourage you to read it, share it, pass it along, invite others to read it. After all, we're either working to fix the problems or we are a part of the problems. Silence is only golden when I'm watching TV.
RealtyTrac reported approximately 1,260,000 foreclosures in 2006. Here is a look at 5 select states and their relative percentage of foreclosures to housing units.
What this chart does not show is: number of units and foreclosures that we non-owner occupied, ratio of vacant to occupied units, new construction vs. existing, price of new sales compared to foreclosure value, etc.
What I can tell you as a lender is that any loan that goes into default during the first 12 months is a business killer. Get enough of them and you're going down for the count.
What I can also tell you is that the normal suspicious characters are not the only ones that contribute to the number of foreclosures. For example I have a current client who is paying their first mortgage ontime every month but has yet to pay their second mortgage. High credit scores, great assets and solid DTI ratio ... why not paying?
There are some "teachers" who tell investors that lenders can't foreclose on properties because of a defaulted second. Word from the lender: Try me. I will get my money.
So what other reasons might people default on their loans?
LACK OF KNOWLEDGE - a commonality in many owner occupied foreclosures. Sure there are scum-bag loan originators out there but if the borrower had a modicum of knowledge about the most important documents they can ever sign other than a marriage certificate perhaps they wouldn't find themselves in this predicament. I blame the government for enslaving the American people by creating a false air of educational supremacy and for continually projecting the image that Uncle Sam is always around to bail people out when they fail.
REMEDY - require every borrower to obtain a Certificate of Mortgage Understanding before they can sign for a loan document and leave the education up to the industry but have each industry insider offering the Certificate to be approved by an industry group as well as a state licensing commission at LOW COST to the provider.
LACK OF DISCIPLINE - this alone is a 500 page book about how America has lost our touch on discipline. Home discipline and guidance of our children has been stolen from us by the socialist agenda and given to a public school system which in turn fails miserably and puts it back on the parents who are threatened with imprisonment if their form of discipline does not conform to socialist guidelines and I'm not talking about beating children with a baseball bat. American children need to learn the immediate consequence of their actions from birth and they aren't getting it because of socialism in America.
REMEDY - If you bounce a check at the bank it costs roughly $35 to $50 in most banks. This should be lesson enough. If you know you have a $1500 house payment and you can only afford to spend $900 per month on food - why do you take your family out for even 2 meals a week much less 10? (I see this in a couple I really care about but they despise me because I won't lend them anymore money.) Why do you buy a car with a $600 per month care payment when the one you already owned ran fine and just needed a little TLC? Stop spending what you don't have to spend!
FAILURE TO PREPARE - not everyone can prepare for their entire life but everyone must make it a priority to stockpile at least six months of living expenses and I strongly recommend thirty six months worth! And, I admit, as of today I do not have enough reserves to match my plan but it is my goal. Eat out? Nope. It's home cooking for my family. We have long been warned that we do not have enough personal savings/assets in America. Because we have a lack of knowledge and a lack of discipline we fail to prepare.
REMEDY - strong rewards for saving and investing. If the social agenda kills some of the tax advantages for investors it will only punish the weak, undisciplined, uneducated citizen. True investors will continue to invest and those who may have invested or saved small amounts weekly or monthly may no longer be driven to do so. But too many in our elected government have the Robin Hood mentality of steal from us and give to them. Talk about weakening our strengths! But, many of you will keep voting for social agenda because you either don't truly understand economics or because you dislike a candidate for some high-schoolish reason.
TELLING IT LIKE IT IS - some people may never "get it". They can be from good families with great educations and fall flat on their face. It's not the man who falls in the water who drowns, it's the many who doesn't get out of the water who drowns. THERE ARE LIFE BOATS! If you do not get educated from reliable sources with proven track records you are being foolish. If you don't make your payments ontime you can lose your investment or your very home. Take 5 jobs if that's what it takes to pay the bills. I have worked as many as three full time jobs at once - it hurt physically and emotionally but I learned a lesson AND I recovered from the situation I got myself into.
TAKE RESPONSIBILITY - it doesn't matter, in the end, what the loan officer, real estate agent, seller or guru told you it's your duty to fulfill your obligations in life. If you can't do it alone find someone who will at least help point you in the right direction. Do not let yourself be vulnerable to the bottom feeders and cretans. Get educated, gain some knowledge and use that power over the scum.
STOP SPENDING - quit being so anxious to outdo your neighbor. Learn to have joy in abundance of living and not having to strap yourself to your job. Never use your credit card to purchase a disposable item and only use it sparingly for wise investment decisions. Most of my large appliances, yard equipment and entertainment systems have been purchased on credit cards which had no fees and no interest for a minimum of twelve months.
PAY CASH FOR - things that go down in value: televisions, refrigerators, boats, cars, vacations. Twelve months same as cash is only as good as cash if you do not spend the cash on something else instead of making the payments on time.
USE FINANCING TO PURCHASE - things that go up in value: homes, land, buildings. Even then be smart about it. Right now it's my real estate investments keeping me in line with my wealth building plan. Business is down just a bit for a short term and my investments are more than taking up the slack.
I am currently angry at the dark side of my industry, dissatisfied with my elected government and eager to fix both! If there is ANYTHING I can do to help you, a friend, a client or anyone to have more knowledge, more preparedness and more discipline please PLEASE come my way or send them my way. I have free seminars regularly and I don't pull any punches or teach any trash. I don't do seminars to sell my books, DVD's or charge thousands of dollars to join my program. I am a lender in Georgia and my wife is a Mortgage Broker in Florida and I will help anyone in any state at any time to jump up a notch!
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