Study: Prime Defaults and Foreclosures Rising, Job and Income Loss Cited as Primary Cause

by Alex Stenback on April 29, 2009

reasons-for-foreclosure.png

Suzanne Ziegler at the Strib unpacks the data in a fresh study from the Minnesota Home Ownership Center that has picked up a shift in those seeking foreclosure prevention counseling.  From the article:

60 percent of those seeking help at the center had prime mortgages, while only 37 percent had subprime. In 2007, 57 percent had prime, 43 percent subprime. Of those with prime mortgages last year, 27 percent were adjustable-rate mortgages,

The report also gives some insight into one of my pet issues, and further evidence against the popular-but-wrong notion that loan type (Subprime, Adjustable rate, option ARM, Alt-A, Interest Only, etc.) causes most foreclosures.  From the study (also see graphic above):

Thirty-five percent cited reduction of income and 15 percent cited loss of income. After that, reasons were poor budget management, medical issues, increase in loan payment, divorce or separation and others.

Got that?  Lots of other great data in the study itself – should be required reading for real estate/mortgage people and interested citizens. Download the Study (PDF!) here.

{ 3 comments… read them below or add one }

Dan April 29, 2009 at 3:48 pm

Since this data contradicts my political and social beliefs I choose to ignore it. Besides, it has long been documented that excessive risk taking by mortgage bankers caused this mess.

Adam May 7, 2009 at 1:50 pm

Alex,

With all due respects, one cannot say that ‘mortgage type’ has nothing to do with foreclosure rates. While the majority of mortgages foreclose due to \Lost Income\ or similar reasons,sub-prime mortgages are typically, but not always, held by those most likely to lose their primary source of income in any economic downturn, and lack the sufficient means to maintain their obligations, until a new source of wages is found.

For one to say that an individual with a sub-prime mortgage is more likely to foreclose than any other type of mortgage, is neither completely true or untrue; however, it is plausible that those with sub-prime mortgages are more likely to lose their jobs if the recession continues, and thus, be subjected to foreclosure.

I enjoy the website and commentary,

Adam Jewett May 28, 2009 at 9:59 pm

Hello, I disagree with you Adam. Even though your name is Adam also, I can not side with you. The mortgage type does matter. I foolishly signed up for an interest only loan. I had a beautiful house 3900 square feet. I was on top of the world, flying high as a area manager for Checker Auto Parts. I was up and coming. All of a sudden the bottom fell out of the mortgage industry. I found myself behind on these interest only payments. I had no equity built in this house. Checker was going under….I was going under, like the Leonardo in the titanic……What was I to do? This has all been a slap in the face. Long story short, I sit here in a library downtown Minneapolis, wearing only my addidas shorts and my reversable kobe bryant/kevin garnett jersey. I am homeless with 72 dollars to my name. All due to interest only loans. Any thoughts?

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