During the course of the last year overall foreclosure numbers saw a steady rise in the United States. Analysts predict that with rising interest and inflation rates along with high housing costs, the future outlook of foreclosures remains substantial. In fact, many believe the foreclosure rates will reach record levels within the coming year or so.
According to the U.S. Foreclosure Market Report, 92,845 properties nationwide entered some stage of foreclosure during July of 2006. This is a 5 percent increase from the previous month and an 18 percent increase since July of 2005. The report also indicates a national foreclosure rate of one new foreclosure filing for every 1,245 U.S. households.
The Reasons Behind Foreclosures
Why do so many consumers default on their mortgage payments? Clearly, people do not take out a home loan with the intention of defaulting the loan. As a Debt Management company, we understand that while high interest rates and inflation do have adverse effects on homeowners in general, personal matters such as those below play a much bigger role in foreclosure situations.
Income Losses: For instance, according to Freddie Mac, one of the leading mortgage brokers in the U.S., nearly 41 percent of foreclosures are attributed to job losses and reduction in overtime pay. The same study revealed that family illnesses followed by a death in the family are the second and third most common causes behind foreclosures.
The Housing Boom: Over the past couple of years, the U.S. housing market experienced a remarkable growth and we are just beginning to understand how this tremendous growth had impacted the U.S. foreclosure rates. During that period, many consumers acquired large housing loans in order to take advantage of some attractive financing options. As a result, many consumers had to stretch their finances to make monthly mortgage payments. When they were unable to meet the payments, they had no option other than to give up their homes.
Personal Savings: Larger housing loans take more money out of your pocket every month and this results in a lower level of individual savings. Generally, personal savings act as a buffer zone during difficult financial times. Without this protection, many are unable to pay their mortgage payments during short-term financial setbacks.
How to Avoid Foreclosures
Contact Your Lender: If you are experiencing a short-term financial crisis and you are unable to make your mortgage payments, call your lender immediately and explain your situation. Lenders usually appreciate this upfront and honest approach and may give you additional time or even suspend your principal payments until you have straightened out your finances.
Utilize Your Private Mortgage Insurance: Consumers who made a down payment of 20 percent or less were most likely compelled to purchase Private Mortgage Insurance (PMI) by their lender. The PMI is somewhat of a safety net for the lender against possible foreclosures. If you face financial difficulties, PMI could loan you money to cover your payment shortages and save your house from a possible foreclosure.
Seek Debt Counseling: Consumers who often fall behind on their mortgage and other payments should obtain professional assistance from personal finance experts. Non-profit credit counseling companies such as, CreditGUARD of America can help you organize a personalized budget and assist you in bringing down your monthly expenses by consolidating all your bills into a one low monthly payment.