Headlines and stories on the evening news frequently mention the growing foreclosure crisis in the US. Over the recent years, lenders have been giving out money, like it was water, and much of it to people that are not prime candidates for loans, they are high risk and known as sub-prime.
The sub-prime loans have turned the mortgage industry inside out in America. Both people with good credit and bad credit are finding it difficult, if not impossible, to find any lender that can finance their new mortgage. It appears for now, gone are the 100% financing mortgages and other creative mortgage instruments.
Certainly, mortgages for people with blemished or spotty credit are drying up as you read this. The big problem, poor loan performance. Mortgage companies have folded up and gone bankrupt, even huge mortgage companies have been laying off significant numbers of staff in these troubled times.
Rising interest rates have meant that for people that just squeaked into their mortgages by qualifying on the original low interest rate, their monthly payments are now going up. And as those overextended people are facing more pressure from the higher monthly payment, a fast growing segment of those just simply can’t afford the new mortgage payments.
It is said that right now over 5% of homeowners are behind in their mortgage payments and the numbers are significantly higher among the sub-prime homeowners. But what has been missed here is that the number of people that have been kicked out of their homes, so the house can be sold at public auction or taken back by the bank, are still relatively low.
In the US, the financial safety net is tenuous at best with some big holes in it. One of those holes is what happens to people seeking similar shelter after foreclosure. Often foreclosure tears apart more than a family from a home, it can tear apart the emotional glue that holds family life together.
A house is more than a home for many. It is being comfortable in the neighbourhood in which you live, it is the comfort with the friends your children play with, it is the confidence in the local schools and it can be the self-worth and self-esteem you feel by living in that house.
Losing your home, especially to foreclosure means that not only do you have to change your life but that you are forced to come face-to-face with the fact that you have failed financially. This pain and trauma can result in serious life consequences such as depression. It is hard for many to walk tall and be proud that they have failed and been removed from their home. They pack up and sneak away, trying to draw as little attention as possible. In fact many of the foreclosed homes I’ve been into look like the family just drove away, leaving everything behind, including wedding photos and toys.
The difficulties don’t stop once you leave the home. It can be difficult to find suitable housing with recent bad credit and a foreclosure on your credit report. Only time will tell if commercial landlords may relax their credit standards but for many it is tough now to qualify for a rental. The best advice in that situation is to look for a new rental home from a private landlord, rather than a big commercial entity. And start looking early, before all you stuff is packed in the back of a rental truck, looking for a place to land.The Ticking Time Bomb Inside The American Foreclosure Crisis by Steve Rhode