Why all the forclosures? That is the million dollar question in the air right now. I believe it all started with all of the ARM (adjustable rate mortgage) loans taken out by the home owner. As a home owner it is easy to take the bait of the ARM payment rather than make the higher payment that a fixed rate loan offered. It was all to convienent to cash out and take a low payment two years ago than it is now. Rates on cash out refinances are now where they should have been two years ago. Why would a home owner take a ARM rate? First, it was presented all to easy to just refinance after your two years is up. Second, in most cases the new payment WITH cash out was lower or the same as the original payment before the refinance. Third,most home owners were prepared to sell their home before or within the two year period.
What actually happened within that two year period is plain to see. Homeowners did not take care of their credit! Most cash out refinances were originated to "pay off debt". In most cases that did not occur. Homeowners that took cash out of their home to pay debt still had that same debt two years later. Credit cards ran late, the mortgage payments could not be met due to the original debt that still stood strong. With credit card payments arriving late, or not at all and the mortgage payment not met on time that homeowners credit rating dropped. Most homeowners that signed on ARM loans would have refinanced to a fixed rate if their credit rating did not drop from the credit card and mortgage lates. Due to failing credit scores that same homeowner that took the ARM mortgage cannot refinance off that loan. This means most ARM customers witnessed their loan adjust! Not because they planned or even wanted to, they just had no choice. Most forclosed homes had owners who had every intension on paying their mortgage but just could not after it was out of control from the adjustment. Something for us all to think about!
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