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| Defaulted Mortgages |
| Do Not Disregard Your Mortgage Default Notice Many homeowners are of the opinion that if they miss a mortgage payment or two, no problem, no big deal. Wrong! It is a problem. It's not like being late on a cellphone bill, or the electric bill. Late mortgage payments lead to defaulted mortgages, which could eventually lead to the homeowner losing his home. The mortgage statement will show when the payment is due. Usually the due date is the first of each month. Lenders will often allow a grace period of 10 days to 15 days. After this the lender will consider you as defaulting on a mortgage. Defaulted mortgages are a problem in the housing market. My neighbor has a Countrywide mortgage, which as we know is now a Bank of America mortgage. His payment is due on the first, and the statement clears says, "any payments received after the 15th of the month is considered late". In other words he has to get the payment in the hands of the lender on or before the 15th. So he can't wait until the 12th or later and put the check in the mail. Thirty days after the due date and a payment is not received by the lender the mortgage is considered in default. At this point there will be a late fee applied. Usually most lenders charge 3%. So on a $900 payment the fees will be $27. The lender will give the homeowner a "friendly reminder" telephone call. Within 60 to 90 days the lender will send a notice of default to the homeowner. The letter will be certified mail. This is the first step in the foreclosure process. During this time the homeowner has an opportunity to pay all the monies owed and bring the mortgage in good standing. If the homeowner does not comply and misses the deadline, the problem becomes serious. The file is sent to a lawyer and this is when the fees begin to skyrocket. If the mortgage default is not resolved, the lender has to right to proceed with foreclosure. In short, the lender evicts the homeowners, takes the house back and sells it. A late mortgage payment usually will not get a negative report sent to the credit reporting agencies. However, homeowners should try at all costs to avoid default. They might not lose the house, but the lender will send a report to the various credit reporting agencies, and this blemish will hurt their credit scores. As a result it would be difficult to get credit in the future. To avoid problems the homeowner should call and speak to the lender as soon as he realizes that a payment will be missed. prev: next: Home: Readers of this article also enjoyed: Fannie Mae Sets Timeframe For,,, Streamline FHA Mortgage: Less... What Is Foreclosure? FHA Provides Early Relief To Struggling... |
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| Why Do Borrowers Default On Their Home Loans? When we talk about defaulted mortgages, we silently think to ourselves, "should I default on my mortgage? I can sure use the monthly mortgage payments to pay some medical bills, do some home repairs and put some money away for college tuition". Many experts will argue that homeowners default on mortgages because the mortgage payments are too high. This could be case when an adjustable rate mortgage resets the rate. The payments can go from $1,200 to $2,400 in a heart beat. If we look at the 2/28 ARM mortgage in 2005 the rate was around 8.5% for the first 2 years. When the first reset occurred in 2007 the rate jumped to about 11.25%. This increase resulted in a payment increase of one-third. Option ARMs which allowed negative amortization had a higher payment shock. Some mortgage payments doubled. With a fixed rate mortgage where the payment doesn't change, the payment is not the problem. I believe that there are three important factors that influence the decision to default. These are before high mortgage payments in the ratings game. There are negative employment prospects, declining house prices and peer pressure. When a borrower sees coworkers being laid off, and companies across the nation closing their doors, defaulting on the mortgage looks very inviting. The Federal Reserve of Atlanta produced a paper in May 2009, "Reducing Foreclosures: No Easy Answers". The paper estimated that a 1 percentage point increase in the unemployment rate boost the chance of a 90 day delinquency by 10% to 20%. Unemployment hit a high of 9.9% in 2010. It closed out the year, December, at 9.4%. This figure should translates into lower defaults. TransUnion reported that delinquencies were 6.21% at the end of 2010. The credit report agency also predicted a drop to 4.98% at the end of 2011. This is good news when we consider that the delinquency rate was at 6.89% for the fourth quarter of 2009. Unemployment was high during this period, 10.1% in October, and 9.9% in both November and December. The Federal paper said that a 10 percentage point drop in house prices raises the probability of default by more than half. Falling house prices lead to the erosion of existing equity, and in many instances negative equity. If the homeowner perceives that house prices will not recover at a rate that will at least equal the outstanding balance of the mortgage, then default is a high probability. Your social network plays an important role on whether you default or continue to pay your mortgage. When you know someone that has defaulted, the urge gets stronger to do the same. It gets even stronger when you are aware of the circumstances of the individual that simply walked away. You know the house and you know that the homeowners can afford to pay the mortgage. A study in 2009, entitled "Moral and Social Constraints to Strategic Default on Mortgages" concluded that people who knew someone that defaulted are 82% more likely to declare their intentions to default. The authors, Luigi Guiso, Paola Sapienza and Luigi Zingales also said that people who considered it immoral to default were 77% less likely to default. So back to the question, why do people default? There is no single reason. There are combinations of reasons. In the mix are peer pressure, falling house prices and the uncertainty of employment. prev: next: Home: Readers of this articles also enjoyed: Home Equity Line Of Credit Still A Great... Banks To Buy Back Bad Loans How To Obtain A Lien Release Good Neighbor Next Door: Mortgage For... |
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| Strategic Defaults Mortgage defaults are in vogue today. Especially the strategic default variety. We have a moral obligation to repay what we borrow. But we also have an obligation to our families. We have to make financial decisions based on their well-being. Bottom line, put your family first. Watch the slideshow: |
