The Mortgage Has Become The Last Bill To Be Paid

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

There was a time when the mortgage was the first bill to be paid.  But for a few years now that is not the case any more, and The Mortgage Has Become The Last Bill To Be Paid.    The mortgage no longer taking priority as the first bill to be paid, started to become more of a trend in the last decade, and has continued with the increasing number of foreclosures.  This is a trend that is unlikely to change unless the Foreclosure Process changes.

When I was growing up I did not know anyone who lost their home to foreclosure except in the movies.  Credit Cards were a relatively new thing, which meant most everything was paid with cash, and bills were mainly limited to utilities, rent, or mortgage.

Credit cards started to become more and more common, along with cable TV, and cell phones.  This meant decisions needed to be made about the order bills were paid.  But one thing remained constant the mortgage or rent was paid first.

Fast forward to post 2000, and now foreclosure is a common word.  Credit cards are the norm, not the exception.  Cell phone bills, cable bills, and Internet service are now large monthly bills along with huge Student Loans.  Monthly bills have gone from three or four bills, to a pile to numerous to count.  The choices of which bills to pay first are now much more of a challenge.

But why would the increase of monthly bills cause the mortgage to go from first to last in many cases?  If you think about it, the answer is not very difficult.

What happens when you do not pay your cell phone, cable, and Internet service?  You guessed it, it gets turned off immediately.  Credit cards have a little leeway, but if payment is not made for a couple of months the credit card is likely to be shut off, and a major source of purchasing power is gone.

Now lets look at what happens when you do not pay your mortgage.  It is 3-4 months before the Lender is even allowed to start the Loss Mitigation Process.  Once Loss Mitigation is start it takes about 9 months until all options are exhausted before the Lender is allowed to start the Foreclosure Process.  By the time the homeowner is foreclosed on, they will have lived in the property approximately 18-24 months without making a mortgage payment.

Once foreclosed on, all the homeowner needs to do is pay everything on time for three years, reestablish credit, and they can purchase a home again.  In the days of Subprime they didn't have to wait anytime at all, they could purchase the day after foreclosure. 

So if a homeowner has to make a choice of paying the mortgage, or all the other bills mentioned above, which choice do you think most homeowners are going to make?  You guessed it, in many cases it is the mortgage which will be the last to be paid, and they will live in the property up to 2 years without making a mortgage payment.

There are homeowners who have lost their home due to circumstances out of their control.  They may have lost their job, or a major life change because of a loss of a spouse or partner.  Some may no longer be able to due to illness, and unable to earn income during that time.  These homeowners did not choose to be in the position they are in, and are unable to make their mortgage payments through no fault of their own. 

On the other hand there are other homeowners who have gone through foreclosure because of financial mismanagement.  Even though foreclosure is not an experience these homeowners would want to go through, it can be a time to use the 18-24 months they will not be making a mortgage payment to get their finances in order. But that is not what normally happens, and financial mismanagement continues during that time.  These homeowner do not take the money from the mortgage payments they are no longer making to pay down their other bills, or put the money away to purchase a home later.  What normally happens is these homeowners take this money and spending it on new toys, and further increasing their debt.

As long as the Foreclosure Process stays the way it is, more foreclosures are likely.  The Foreclosure Process needs to be shortened, and the choice between the mortgage and the toys made tougher to make.  We need to get back to a time when food and shelter is the priority again, and not more and more toys.  Until that happens The Mortgage Will Continue To Be The Last Bill To Be Paid.

 

 

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Bob "RealMan" Timm 03/18/2017 12:34 PM
Topic:
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Location:
Connecticut
Groups:
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Mortgages
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Rainmaker
141,366
Lee Potts
Aloha Group Maui - Lahaina, HI
The smarter we work, the luckier you get.

Well said George! I can't even imagine what people will be thinking/doing in the next generation...

Mar 16, 2017 05:09 PM #1
Rainmaker
3,206,454
Dorie Dillard
Coldwell Banker United Realtors® ~ 512.346.1799 - Austin, TX
Serving Buyers & Sellers in NW Austin Real Estate

Good evening George Souto ,

Your post makes so much sense..what a great assessment of why people don't make their mortgage payment when things go south. We just don't see that here..everyone has jobs and aren't forced to choose what to pay. VERY low foreclosure rate but your are right..we need to get back to a priority of food and shelter and quit the need for instant gratification of toys!

Mar 16, 2017 05:11 PM #2
Rainmaker
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Sam Shueh
(408) 425-1601 - San Jose, CA
mba, cdpe, reopro, pe

If that is true there will be a surge in defaults. Americans still have not learned to refrain from living beyond their means..... Instant gratification.

Mar 16, 2017 05:21 PM #3
Rainmaker
1,072,073
Bob "RealMan" Timm
Alliance Real Estate - Minot - Minot, ND
Bob Timm, Broker Associate, Alliance Real Estate

Great insite George Souto , thanks for opening the eyes of many.

Mar 16, 2017 06:14 PM #4
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Jeff Dowler
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude - Carlsbad

Hi George

That's a pretty scary thought, when you consider it's the probably the largest bill to pay and there are some pretty significant consequences of not paying in in a timely manner. It's clear when you visit some homes that people really spend a ton of money on others things - cars, adult toys, kids toys, gadgets, and more. The credit card business is thriving. And then we have all the online retailers tempting us non-stop 24/7!

Jeff

Mar 16, 2017 06:19 PM #5
Ambassador
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Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

In the age of self gratification not losing the phone or  Internet takes a priority over keeping the roof over their head.  Something wrong with that thought process

Mar 16, 2017 08:07 PM #6
Rainmaker
2,487,466
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

George what a great informative post, in the "old days" my parents paid the mortgage 1st, then the car payment 2nd and my tuition 3rd... food, clothing etc could become a luxury. We did not have all the MUST have DON'T needs... now those have become the priority... all I can say is bad strategy... Endre

Mar 16, 2017 09:58 PM #7
Rainmaker
500,515
Nathan Gesner
American West Realty & Management - Cody, WY
Broker / Property Manager

George Souto , I have to agree. Our current system actually encourages people to give up rather than work hard to keep their home. I've known many people that were told they couldn't get any mortgage assistance unless they stopped paying on their home, which they did. It sometimes took a couple years of no payments before they finally applied for assistance and received really low rates, really long mortgages, and then started paying. In other words: bailout. This will always, always, always result in a weaker society and the greater likelihood of future problems. 

Mar 17, 2017 04:37 AM #8
Rainmaker
1,370,919
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

George - you certainly make a good point.  It is also the biggest monthly nut.  I think some even intend to initiate a short sale.

Mar 17, 2017 04:37 AM #9
Rainmaker
3,937,875
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Good morning George.  I, too, am amazed at how some people handle their finances these days.

Mar 17, 2017 04:40 AM #10
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Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

Hi George - You're right, and we've all seen that. For us, though the only bill that gets paid before the mortage is the quarterly tax extimate - never mess with the IRS. Have a great weekend!

Mar 17, 2017 12:41 PM #11
Rainmaker
231,723
Lynnea Miller
Bend Premier Real Estate - Bend, OR
Premier Real Estate Service in Central Oregon

George - this is excellent insight into the thought process of many Americans. Whatever happened to people who did everything rather than miss their financial obligations? Foregoing vacations and luxuries rather than not pay their rent or mortgage? We as a nation have created a situation where people leverage their housing to pay for frivolities. I agree - this needs to change so that those of us who always pay our bills are not picking up the slack for those who don't in higher interest payments or mortgage insurance.

Mar 19, 2017 08:34 PM #12
Rainmaker
1,296,320
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Area Real Estate

Have to agree with you & the penalty of 3 years isn't tough enough. It's almost nothing at all.

Apr 15, 2017 12:10 PM #13
Rainmaker
557,059
MaryKay Shumway
The Kellstrom Ray Agency, Inc. (Est. 1948) - Sister Bay, WI
Door County Wisconsin's Real Estate Expert

My title closer says it all at every closing:  you pay you stay, you don't you won't. This is the first bill I pay, and I stress it to every first-time homebuyer.  Great post.

Apr 15, 2017 12:48 PM #14
Rainer
253,675
Mick Michaud
Distinctly Texas Lifestyle Properties, LLC Office:682/498-3107 - Granbury, TX
Your Texas Lifestyle is Here!

The foreclosure process is an external factor.  The internal issue of being responsible is what needs to be addressed. 

Apr 15, 2017 04:54 PM #15
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