Home > Blogs > Cynthia Sloop > Cyndi Sloop's Community Scoop

Bye, Bye Miss American Pie . . .(Foreclose, the loss of the American Dream)

By Cynthia Sloop

Real Estate Agent with Community Association Manager

February 18, 2007 11:28 AM

House & Flag We read about it in our newspapers, hear about it on the news and have seen it in our neighborhoods. Foreclosures are on the rise. Unfortunately, Indianapolis, Indiana has been in the top 5 states for the last couple of years. Why is this happening more and more and what can you do to keep it from happening to you?

In a recent study by the Center for Responsible Lending it was found that 2.2 million homeowners may face foreclosure. Part of this is due to the sub-prime mortgage market.

There's a number of factors that go into the sub-prime market yet the majority of the problems come from high-risk loan features mixed with ARM products that start out with a low rate that then rises to higher rates as time goes on. Mix this with prepayment penalties, low-documentation requirements and escrows not being set up for taxes and homeowners insurance on the home and now you have a deadly mix.

Sub-prime lenders and lenders in general can not be blamed for all of this problem. Other contributing factors are homeowners that over-spend with credit. This can be done with credit cards and it can also be done with home equity and sub-prime mortgages. Which goes hand in hand with a possible lack of discipline regarding staying with-in a budget in your household.

And finally the last contributing factors that can cause a homeowner to end up in foreclosure. Loss of job or an extended illness.

Quick action with the bank is required. Loss mitigation can help, calling a credit counseling agency to help you with debt and mitigation is helpful too. If you are late on payments here's a number to call for help, 1-877-601-HOPE.

If moving from the home seems like the answer for you, call a Realtor that is familiar with pre-foreclosure and short sales. In some cases the Realtor may know of an investor willing to purchase the property. Check into all your options.

Foreclosure hurts everyone. It hurts the banks, it hurts the homeowner experiencing the foreclosure and it hurts the homeowners within the neighborhood of the foreclosure. Foreclosed homes can bring down property values.

Comments(3)

Comment

Show All Comments

Sort:

Steve Dalton

219-465-8352 - Valparaiso, IN

Northwest Indiana Home Builder

Cynthia, I would be curious if you lay any of the blame on the backs of those who thought it would be nice to raise interest rates to "slow" down the housing industry? I'm a little ticked to be honest that the one industry that stayed strong and carried our economy, was flattened by government intervention of interest rate increases.

Feb 18, 2007 03:02 PM

Bob Sloop, Consultant, Indianapolis, IN

RS Mortgage Consulting - Indianapolis, IN

Hey Hon, I think there are many different factors that have contributed to our mess our here with foreclosures. You mentioned a few. I would also like to comment on our Economic Strategists who seem to think they know all the answers. I put the blame on not so much rising interest rates as I do in our economy as a whole. Jobs, being the Automotive Industry which provides so many jobs now having to close doors of so many plants. Not to mention the smaller plants located all around the U.S. that are also driven by the Auto Industry. They to have been forced to close down, and in some cases have lost their credibility with the Banks themselves for future survival. Lines of Credit Notes have been called in, and more people have lost their jobs.

Steve has a valid question. I already said I don't think the interest rates coming out of the 5.50 range to the 6.50 is enough to hurt us and sway us into foreclosure. I do feel the interest rates on Lines of Credit and Home Equity Loans tied into the Prime Rate has done a significant amount of damage. The 80/20 loans to give an example for purchases have devastated the home buyer with higher than anticipated interest being paid. The homes that have gone into foreclosure, which is another blog, as to just how many are there is another reason homes are not selling. Why buy a new home, when down the street in the same sub division I can purchase a repo for literally thousands of dollars less? It is a never ending cycle and it needs to stop. The question is, how do we as professionals help with the process? That even makes me think we are a part of the situation, I do not feel we're the cause. I do feel with the Auto Industry, and being in a War time situation has stunned our economy into a spin we are just not ready for. I have written articles regarding 1978-1981 years of interest rates going all the way to 21.00 A.P.R. and we still made loans for homeowners, still had so many refinances we did not know what to do with, so why aren't we selling more, refinancing more, and purchasing new Auto's as we did years ago? Sorry for writing a book here, but hope we can stimulate a little discussion.

Feb 19, 2007 12:23 AM

Cynthia Sloop

Community Association Manager - Indianapolis, IN

Thanks Steve and Bob for your input into this problem. The prime rate being raised and then tied into HELOC, the ARMS and HE in general did make a difference as I saw it in my own HELOC on the house we were trying to sell in Michigan. So my answer to Steve would be, I don't think the raising of rates hurt people who took out a "fixed" rate mortgage as much as having a mortgage that was tied into prime rate and adjusted each month because of the changes.

I don't know if anyone can point a finger at one thing and say that it was to blame. It's several things and possibly a lack of financial education to the borrower that has added to the problem.

Feb 19, 2007 12:43 AM

Bye, Bye Miss American Pie . . .(Foreclose, the loss of the American Dream)

Comments(3)

Cynthia Sloop

Real Estate Resources

Recent Posts