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The Rising Foreclosure Rate
by Mark Sumpter

While the number of new mortgages boomed between 2000 and 2003, foreclosure rates also hit record highs. Conditions have improved somewhat since mid-2003: over the last two years the foreclosure rate has flattened. The delinquency rate has also improved slightly with the number of delinquent loans hovering near 4.4%, down from highs of almost 4.8% a couple of years ago.

Yet more homes are being foreclosed upon than ever before. Why? While the foreclosure rate has remained fairly static, the rate of home ownership in the United States has continued to increase. Stephen Blank of the Urban Land Institute, quoted in the St. Louis Daily Record, cautioned that, The level of home ownership is reaching unhealthy levels cited at 70% of the population, and moving towards 80% which foretells of a looming increase in foreclosures. In effect, the percentage rate has remained flat, but the total number of homes in foreclosure has risen due to increased home ownership. More homes are owned – and more homes are being foreclosed upon.

Experts predict the trend will continue. Home ownership is at record levels and interest rates have remained at historically low levels for a number of years. In addition, over 150 different types of mortgage loans now exist, allowing purchases by consumers who would not have previously been able to qualify for a home loan. Buyers enjoy zero-down mortgages, no-documentation loans, 106% loans to allow for no-cash closings, and even 40-year mortgages.

Looser lending standards contribute to high foreclosure rates because owners with no equity in their homes find it easier to simply walk away from their mortgages. And if interest rates rise, many of the ever-increasing number of homeowners with ARMs may be unable to obtain suitable replacement financing or to meet the new, larger monthly payments required when the initial ARM term expires.

Studies show that a loan’s default risk is directly tied to the size of the down payment: the lower the down payment, the greater the likelihood of default. Even in cases where down payments were made, low interest rates have encouraged growth of home equity loan advances and cash-out refinancing, allowing homeowners to take out cash generated from down payments and from appreciation.

The Census Bureau estimates that in 2004 approximately $569 billion in home equity was extracted through refinancing, taking out second mortgages, or simply pulling out cash during a move. The less equity that remains in a home the higher the likelihood of default, and with cash-out extractions continuing to rise, more and more homeowners are at risk.

Liberal lending standards have also led some consumers to borrow more than they can afford: the Census Bureau recently released statistics showing that the average household spends almost a third of their income on housing costs, up from about 20% in 2000. As a result, financial difficulties like the loss of a job, unexpected medical costs, or other emergencies quickly put a homeowner's mortgage in jeopardy. Rising consumer debt burden means almost any disruption in financial circumstances like lost income, illness, or divorce can seriously impact a homeowner’s ability to make payments.

What’s the result? When interest rates rise, foreclosure rates will rise. And if the real estate market flattens or dips, homeowners with ARMS or interest-only may find themselves upside-down on their mortgages… with foreclosure their only real alternative.

Bio:

Mark E. Sumpter who has been dubbed, the "Short Sale Expert", is a sought after national speaker on how to buy and sell pre-foreclosure properties and teaching his wealth building strategies at an array of real estate investor events that create an interactive learning environment for both seasoned real estate professionals and novice investors.

Mark E. Sumpter was born and raised in Los Angeles, California. He attended Central Missouri State University, where he received a degree in Criminal Justice and was eventually hired as a police officer by the Kansas City, Missouri Police Department.

While Mark enjoyed being a police officer, the long hours associated with his assignments didn�t allow him to live the quality of life he wanted for himself and his family. So he made a decision to change his life through real estate pre-foreclosures. In his first year investing in pre-foreclosures, Mark acquired $496,000 in pre-foreclosures within the first 90 days, using none of his own money. Although Mark holds property for great cash flow, his passion is short sales in the pre-foreclosure and short sale arena.

Since then, Mark founded The Wealth College Inc, and has developed the most comprehensive, systematic approach to buying and selling pre-foreclosures available today. Using his Secrets of Short Sales system and employing only one full-time assistant, he has perfected the art of short sales like no one else has. At one time, Mark Sumpter and his assistant were simultaneously handling 88 different short sales deals.