Today’s soft economy, lax lending policies, predatory lending practices, and historically low interest rates are causing overextended homeowners to default on their mortgage and deed of trust loans in very large numbers. The Mortgage Bankers Association of America has reported in their quarterly National Delinquency Survey that a near record number of single-family homes are in foreclosure. Also, other organizations that monitor residential loan trends are not making any rosy predictions about any possible future decline in the number of mortgage foreclosures. In fact, the number of home loans foreclosed on each year has steadily increased over the past 20 years. According to the U.S. Census Bureau’s statistical abstract, the number of homes in foreclosure in 1980 was 114,000, while the number of homes in foreclosure in the year 2001—was 555,000. This is an increase of over 250 percent. This is fueled by easily accessible credit in the form of credit cards. Far too many homeowners today are in debt and living on borrowed money. One of the easiest ways to keep from being foreclosed on is to sell the property while it is in the pre-foreclosure stage.

Six Factors Contributing to the Skyrocketing Number of Foreclosures Nationwide

The following is a list of the six main factors that most financial experts claim

are contributing to the skyrocketing number of mortgage and deed of trust loan

foreclosures nationwide:

1. A downturn in local economic conditions: Many local economies that are not

well diversified and are overly dependent on one or two types of low-tech

industry are experiencing a downturn due to foreign competition and the

ever-growing practice of outsourcing jobs offshore to countries like Mexico

and India. This has resulted in massive layoffs that have caused many borrowers

to lose their homes through foreclosure.

2. Overextended first-time homebuyers: An aggressive push for homeownership

on the part of state and federal government agencies and lenders has helped

a record number of first-time homebuyers buy homes of their own. However,

most first-time homeowners do not have the cash reserves necessary

to pay for emergency home repairs and the other unexpected costs that are

a part of homeownership. And, once they get behind on their bills and miss

a loan payment, they are usually never able to make up the missed payment

and they end up in foreclosure.

3. Predatory lending practices: So-called predatory lenders prey on borrowers

with low credit scores, excessive debt, and past bankruptcies and foreclosures

that keep them from being able to obtain conventional loans at

market terms and rates. They make what are called subprime loans that

typically have repayment terms that include extremely high late payment

fees and interest rates that cause many borrowers to eventually have their

loans foreclosed.

4. Government-backed loan programs: Government-backed home loan programs

such as Federal Housing Administration (FHA) insured loans and Department

of Veterans Affairs (DVA) guaranteed loans have less stringent qualification

standards than conventional loans that are not backed by any

government agency. Lax loan underwriting standards result in lenders making

loans to borrowers with marginal credit, less than stellar job histories,

and higher than normal debt ratios. This is proving to be a recipe for financial

disaster for many borrowers who end up in foreclosure.

5. Loans with high loan-to-value ratios: Conventional and government-backed

loan programs offer loans at 95 to 100 percent of the value of the property

securing the loan. The practice of making loans to borrowers who pay little

or nothing as a down payment has led to many borrowers just walking

away from their home the first time they experience any type of financial

difficulty.

6. Historically low interest rates: The lowest interest rates in 40 years have allowed

borrowers to buy larger, more expensive homes than ever before.

However, most residential loans are based on two incomes. The problem

with large loans that are based on two incomes is that when one of the borrowers

loses his or her source of income, the borrowers usually cannot continue

to make their loan payment on just one borrower ’s income and wind

up having their dream home foreclosed.