Ask the Expert

Why are so many people losing their homes, lately, to foreclosure?

All the foreclosures and bad news in the media about homeowners losing their property is very disconcerting for most consumers. And, to be truthful, there are a lot of foreclosures taking place. The numbers in some sates, New Hampshire included, are double what they have been in recent years. But, one needs to take a closer look to find out the reasons. After all, we are not in a period of high unemployment; quite the opposite. The economy is not doing poorly. As a matter of fact the Dow Jones Industrial Average just hit a historic high in recent days. (Mortgage) interest rates are at historically low levels and have been for several years. So what is the problem? It’s the old saying, I think, that no one plans to fail, but many times fail to plan. There’s no shortcut to wealth and the same is true of the real estate market. It’s a great time to buy a home, if you have planned for it.

In recent years, as prices of homes began to gain momentum and then, practically overnight, rose in double digits, everyone, it seems, wanted a piece of the action. So, everyone who could, bought a home -- even as it turns out -- some buyers who really couldn’t afford that home long-term. The desire to own something that has the potential to rise significantly in value in a relatively short period of time is a very strong motivator. “Instant wealth”, if you will. Couple that with a period in time when lending institutions became both very competitive and very creative in ways to get those buyers into homes and we have a formula for problems down the road. In most cases, the buyers bought in at a time when prices were rising very quickly. Many of them, in hindsight, never planned on keeping the property, long-term. They just wanted to get in and get some equity built up and then either refinance or sell the property and bank the profit, or invest in another home but this time with a larger down payment and a more traditional loan. The key at the time was just to get in, or so they thought.

Few buyers paid much attention to the long-term cost of ownership or the “creative” loan program they used to acquire the home. For many it was a chancy deal, at best, and when all was said and done, a poor choice.
 
Like most things in life, there are no short cuts.

Barbara Cunningham

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