Mortgage Rate News

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For the third month in a row, foreclosures have declined. October saw a decline in home owners ready to lose their homes. Thanks to programs aimed at helping home owners refinance or modify their loans, foreclosures have been slowing. However, as BloggingStocks reports, there are still concerns for the future:

The number of homeowners on the brink of losing their homes continued to decline in October for the third straight month, as foreclosure prevention programs helped more borrowers. But foreclosure filings are still up 19% from a year ago, reaching more than 332,000 households, or one in every 385 homes. Rising unemployment could threaten the stabilizing trend.

Programs to help at-risk home owners aren’t much good if these home owners do not have jobs that can provide income. Therefore the continued weakness in the labor market is providing some concern. Advance unemployment data for last week is offering some hope, though. Jobless claims appear to have dropped by quite a bit, bringing the number down to around 502,000. This is the lowest it’s been for months.

However, the fact remains that jobs are still being lost.  They are being lost at a slower rate, but they are still being lost nonetheless. A dramatic reduction in the pace of job losses will be needed in order to provide a solid basis for economic recovery and quiet fears of continued destabilization in other parts of the economy.

At any rate, there is optimism that slowing unemployment will help matters in the housing market, also leading to slowing foreclosures. And, as more people take advantage of government programs meant to help them afford their homes, there is a strong likelihood that they will not have to be subject to foreclosure. And that in turn may help keep the housing market from sliding back into another dip next year.

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The news, of course, is that the recession is over. But, even though there has been a technical end to the recession, it doesn’t mean that things are suddenly going to get better. Indeed, there are still foreclosures likely, and the unpleasant fact that many people still can’t afford their mortgage payments — whether they got a home they couldn’t really afford in the first place, or whether they fell on bad luck and job loss during the recession.

As it looks as though more foreclosures could be coming in the future, and the housing market may dip again, it is little surprise that some are starting to look around for a solution to their problems. And, in some cases, the solution is presenting itself in what is known as strategic default, or foreclosure on purpose.

Walking away from your home mortgage loan

Some markets have been so hard hit, and will probably take so long to recover, that there are those that feel that the only viable option is to allow foreclosure. Indeed, Mish’s Global Economic Trend Analysis shared a letter from someone who recommended just such a course of action:

I said the answer was easy, walk away. In fact, I told her I would stop paying the mortgage and see how long it took them to foreclose. She might be able to live there 6 months or more rent free.

Her fiancé was there and he didn’t agree with my answer. He said that her credit would be ruined for ten years and that the value would come back. I responded that a foreclosure would stay on a credit report for 10 years, but if you work hard at re-establishing your credit, the score can come back in a year or two.

I have seen people plenty of people with credit scores over 700 within one year of a bankruptcy or foreclosure. As far as the value coming back, I told him that it would take 10 years or more before that value comes back.

It’s an interesting thought. But in some cases, foreclosure can be a way to get a new start — as long as you aren’t too emotionally invested in staying in your home.  But if you decide that strategic default is the way to go, you should have a plan to rebuild your credit. The letter writer on Mish’s suggested that you have a credit card and a good car. You won’t be able to get a good rate on a car loan, so you need a good one. And you need a credit card to help rebuild your credit. Just don’t max out the credit card.

What do you think? Is strategic default a viable option in some cases?

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There seems to be a bit of confusion with regard to what is happening with foreclosures. Indeed, it is commonplace to read about how foreclosures are both increasing and decreasing. Mainly because “foreclosure” is being used to report homes in various stages of foreclosure. Real Estate Pro Articles points this out about foreclosure coverage:

However, it is also the case that the number of foreclosure filings fell in both August and September of this year even though REOs actually rose in September by over ten thousand properties.

The numbers are fairly straight forward in this issue and the fact remains that there are a great many families who’ve tragically lost their homes. It is unfortunate that it is so hard to get a clear idea of what trends we’re actually seeing at this point because there are so many numbers and trends being reported all under the umbrella term of “foreclosure” without any real explanation of what aspect of the foreclosure procedure is being reported on.

In the end, it is important to look at foreclosure filings, which represent the very first stage of foreclosure, and the number of foreclosures that actually go through to completion. These are two different things, since the foreclosure can be stopped after the filing takes place, with the help of loan modification and through other means.

Another trend to look at is the fact that foreclosures are moving up the “food chain” in the housing market. With unemployment on the rise, many prime borrowers are suddenly finding themselves in the unexpected position of no longer being able to make mortgage payments. This is also causing problems, since for loan modification or refinancing to work in order to stave off foreclosure, some sort of income is needed to ensure that payments will be made.

It’s a tricky situation right now, and many are anxious to get a clear picture of what’s going on. However, in this particular situation, it is difficult to find a great deal of consistency and clarity.