Are these foreclosures due to deadbeats?

Question

In Troy, Michigan, Dorothy Guzek, a credit counselor since 1988, has seen the changing face of foreclosure.Her clients, were predominantly poor and minorities, now increasingly they are neither. Nowadays, homeowners holding professional careers with six-figure salaries regularly drop by her office. More and more they come from upscale Michigan communities such as Independence and Clarkston, once the summer retreat for Henry Ford, founder of Ford Motor Co.
In the last three months, the percentage of foreclosures for U.S. homes valued at more than $750,000 has climbed to 2.5 percent. The overall rate of foreclosures also is on pace to increase by a third this year.

http://news.yahoo.com/s/nm/20070329/us_nm/usa_subprime_foreclosure_dc;_ylt=AuRmn0EzZtM14G5uxUwEqFfq188F

Wow, It is really difficult to pick a best answer because everyone is so on target with this question.

Answer 1

There are many factors at work here. Americans have often borrowed to the full value of their homes. 10 years ago this was unheard of. They have also maxed out their credit cards, and are simply living above their heads. One blip--a health problem, a job problem, an accident--and they find themselves unable to pay their debts.

During this period, several other factors have affected people who always thought they could always pay any bills. Minimum payments on credit cards have risen to a level which will eventually pay off the debt. Previously, card minimum payments could have been paid forever and the debtor would never have paid off the debt. Bankruptcy laws have changed, making personal bankruptcy a difficult choice. Add a falling or flat real estate market, and higher daily cost of living due to higher gas prices, and many Americans are at the end of their tethers.

Are these people deadbeats? Well, they certainly fell for the idea that constantly rising real estate prices would allow them to refinance and refinance themselves again and again to pay off their debt. They also ignored the financial realities that if your monthly payments exceed what you can pay, you're in a death spiral. Many also believe there is some kind of magic bullet out there and that somebody owes them this lifestyle, no matter their income. But, did they borrow money without intending to pay it back? I don't think so.

The lenders are at fault as well. Historically, lenders knew that the best way to determine whether a loan would be repaid was to look at the ability of the borrower and the motivation of that borrower. Could he/she pay back the loan? And, did he/she have enough at stake that he/she really wanted to pay back the loan. When lenders began lending 100%+ loans to borrowers who had bad credit histories (evidence that in the past, he/she hadn't paid back their loans), those lenders began ignoring both of these key rules. So, it is hard to feel sorry for either party.

Answer 2

no. the monthly payments inrease by hundreds of dollars as the interest rates increase. On these expensive houses perhaps over $1000 more each month. Many of these people had their mortgage applications tweaked to barely qualify. Has been happening for a few years now and will only get worse.
Imagine, your house note each month is $800. You are barely making ends meet but you get by. Then one month your statement comes for the house note and its not $800 anymore its $1200. Where are you going to get the extra $400 this month, and next month and next month? Its these adjustable rate mortgages. Adjustable does not mean you can adjust it. It means when interest rates go up, and they do and will, your monthly note goes up. Get a fixed rate, even if it is a little higher than some and you have to get a little smaller house. At least you know what your going to be paying each month. This problem has little to do with overbuying or job losses. Now the tweaking thing does. SOmeone applying for a mortgage might be talked into reporting a higher income, such as expecting a raise in a year or a better job in two years or being able to pick up $500 worth of aluminum cans each month. This qualifies them for a nicer, more expensive home. Still doable until those interes rates go up.

Answer 3

Several factors are at work:

Interest rate resets on adjustable rate mortgages
Interest only loans which now require amortization
Economic difficulties in Michigan owing to difficulties in the automobile industry
Falling or stagnant real estate prices meaning that people can't sell their way out of foreclosure.
Inflated valuations to justify mortgages in the first place.
Predatory lending calculated to lead to foreclosure.
Emphasis on subprime lending by people who really could not afford what they were getting into.

When one doesn't pay, one perhaps by definition is a deadbeat. However, many of these so called deadbeats may have legitimate defenses to mortgage foreclosure under laws such as Truth in Lending Act, RESPA, state consumer fraud acts, HOEPA and many others.

Answer 4

Deadbeats may be too strong a term. Many of these people took out mortgages they could not afford. This does not necessarily mean they are 'deadbeats'. In addition, some of them may have been able to afford the mortgages at the time, but had unexpected issues such as medical problems or job loss. Bad financial decisions does not always equal deadbeat.

Answer 5

This situation is caused by:

1) People who are reaching out for a bigger slice of their dreams before they are financially ready to do so;

2) Lending practices that only had short-term outlooks in mind (get clients, no matter what; sell people on how "easy" things are to get so much more credit than they could {should} get;

3) The bubble bursting because of layoffs and the lending companies peaking out with these risky practices....there aren't enough new customers to keep over-extending loans.

There is equal blame on the consumers and lending companies that is based on a variation of the 1980s "Greed is Good" theme; this time it is based as much on Fantasy as anything else.

Answer 6

Even people who make six figures get in over their heads and make bad money decisions. Look at the economy in the area, with the price of utilities, gas & food....ya know the staples of life sky rocketing people are just getting by, and having a hard time just making it pay check to pay check. Assume nothing when it comes to money....it can all be gone in a second.

Answer 7

They are not deadbeats...they are just people that sign documents without reading them, or they read them and dont understand them.