The Boston Federal Reserve Bank has examined two of the leading causes of foreclosures across the nation, and neither of these causes are the often-cited "unaffordable mortgage payments" due to adjustable rate loans. The two most important causes of the high foreclosure rate and failure of loan modification programs are declines in property values and job loss.
The real estate bubble encouraged speculation and buying of homes (or second and third homes) as investments. Now that values have fallen in the most inflated markets, homeowners are more than willing to walk away from a losing investment than to keep making payments, whether they can afford them or not.
The fall in prices has always been a sticking point of government plans to address the foreclosure crisis. Many of these plans have required banks to mark down mortgages to be in line with current fair market values, forcing the banks to acknowledge enormous losses just to unload a home that may face foreclosure. But the banks have been unwilling to acknowledge these losses, opting for foreclosure and bailouts instead.
Also, the government plans to help borrowers fail to address the problem of speculators who took out mortgages hoping for 20 or 30% price appreciation in a year who never had any intention of living in or improving the property. Homes were seen as little more than expensive, low risk, high reward stocks, and now these investors are just walking away from losers.
Without the huge appreciation rates experienced during the boom, these homeowners do not want to keep paying for their properties. A mortgage modification to a lower monthly payment will not change the fact that the value of the property has fallen and that it will be difficult, if not impossible, to sell it for a reasonable price. Walking away is seen as a better, easier option.
The issue of job losses due to the economic recession is also a change in a family's financial situation that may lead to a foreclosure that mortgage modification will not fix. Banks are notoriously difficult to negotiate with for a reasonable modification, and a significant change in income is almost a guaranteed way to get turned down without professional help.
Unfortunately, the redefault rate on government assisted modification programs is disturbingly high. This may be due to the fact that the programs are meant to solve the issue of "unaffordable mortgages," but are being used by borrowers to stay in their properties for a few extra months before falling behind again or deciding to walk away.
Real estate speculators may be able to secure a modification from their bank in the hopes of the market improving over the next few months. When property values remain stable or decline even further, continuing to pay for the overvalued property (even with the payment lowered) is still a losing option for investors.
For homeowners who have experienced a job loss but qualify to modify their mortgage, they may discover that they can not keep up with the payment because their income has dropped too far. In fact, selling the home at a short sale and finding a rental may be a better option at this point, instead of throwing scarce money at an expensive negotiation plan.
While rate adjustments have caused serious damage to borrowers, it is not the main cause of the foreclosure crisis. The fall in housing values and the recession are taking more out of borrowers than a subprime mortgage. Thus, the plan to address the foreclosure rate by modifying "unaffordable" loans will not be nearly as effective as politicians seem to believe.
Author Resource:-
Nick writes daily articles specializing in how you can save your home from foreclosure while there is still time left before a sheriff sale or eviction. Learn to defend the bank's attempts to take your home, find a reputable lawyer, delay a trustee sale or eviction, qualify for a foreclosure refinance program, and put together a reasonable alternative that will let you keep your property from being auctioned out from under your feet. Visit his site to read more about your options to avoid the loss of a home and understand more about how and why the real estate market has been collapsing for several years now: http://www.yousaveforeclosure.com/
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