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1. Foreclosure: A Growing Trend In this module: Defining foreclosure Foreclosure statistics

1. Foreclosure: A Growing Trend In this module: Defining foreclosure Foreclosure statistics Reasons for foreclosure. Definition of Foreclosure The forced sale of a piece of real estate to repay a debt – mortgage, unpaid property taxes, builder and mechanic liens, delinquent income taxes

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1. Foreclosure: A Growing Trend In this module: Defining foreclosure Foreclosure statistics

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  1. 1. Foreclosure: A Growing Trend • In this module: • Defining foreclosure • Foreclosure statistics • Reasons for foreclosure

  2. Definition of Foreclosure • The forced sale of a piece of real estate to repay a debt – mortgage, unpaid property taxes, builder and mechanic liens, delinquent income taxes • Can result from seizure/forfeiture due to criminal activity

  3. Foreclosures on the Increase • 925,986 foreclosures were filed in the first half of 2007. • This is a 55 percent increase from the first half of 2006. • National foreclosure rate for first six months in 2007 is one filing for every 134 households.

  4. Why the Increase? • Congressional reports & secondary mortgage market findings • Impact of heavy refinancing • Debt load of the American consumer • General economy fears of inflation, higher interest rates & flat income • Underlying causes may point to mortgage fraud and predatory lending.

  5. Mortgage Fraud • Deliberate criminal activity • “Lenders” that falsify information • Practices include: • Ignoring the right of rescission • Using inflated appraisals and fake documents • Selling to straw buyers • Phantom second loans

  6. Mortgage Fraud

  7. Predatory Lending • Misrepresentation of lending programs • Practices include: • Guaranteeing approval and not verifying income • Charging high fees and penalties • Delaying closing • Inflating appraisals • Asking borrowers to sign blank documents or ones they don’t understand

  8. Predatory Lending Creative lending programs, which will be covered in Module 3, should NOT be assumed to be predatory lending practices. Deceitful and abusive actions constitute predatory lending.

  9. Predatory Lending Predatory lenders target subprime borrowers. Why are subprime borrowers attracted to these loans? • More money for college education, home improvements, etc. • Quick money • Assumption of continued increases in home equity • “Perceived” lower costs associated with ARMs and other types of financing

  10. Predatory Lending Subprime mortgage market experiences much higher rates of delinquency and foreclosure. Foreclosure Rates by Loan Type, 2007 Q1

  11. Foreclosure “Rescue” Scams • Companies tell desperate homeowners that they will renegotiate their mortgage terms and stop foreclosure proceedings for a fee. • Companies encourage homeowners to sign over title for a year or two, during which the homeowner can pay rent to the company. Once the homeowners are caught up financially, the company promises to sell it back.

  12. Discussion Question 1 • Reasons for foreclosure • In your opinion, what causes the most foreclosures? • Which cause do you think will increase most in the future?

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