Mortgage Defaults Slow in January 2011

According to recent reports, fewer homes in US defaulted on their mortgage payments and thus fewer homes entered the mortgage foreclosure processing. The total number of homes which received notice on their default lowered by 1%, in January, 2011. However, still the percentage of homeowners who owe (in mortgage) more than what their house is worth is supposed to double to 48% in 2011 from 26%.

Reasons for the Decline

The foreclosure rates fell mainly due to the paperwork problems during the fall last year. As a result, many foreclosure proceedings were stopped. Most of the mortgage lenders were forced to reconsider their foreclosure cases. This was mostly the case in Florida. Still Florida has the second highest rate of foreclosure. Some other states that had high foreclosure levels in 2010 were Michigan, Georgia, Illinois and Colorado.

But with the advent of the New Year the rate of foreclosures dipped all the more. In Atlanta, Georgia, the foreclosure rates dropped to record lows. It is at its lowest level for the first time in 18 months. The reason is the same as discussed above. Freezes were put on most of the banks due to the problems in the paperwork.

Other than Atlanta, Cartersville showed the greatest decline in the rate of foreclosure. However, financial experts are of the opinion that this drop in foreclosures is only short lived. This is because the banks are adapting new foreclosure proceedings. It was discovered that the mortgage foreclosure was on a record level at 1.2 million in the United States before the trouble with filing the documentation was discovered late in the month of September in 2010.

Most of the banks who were on a temporary hold, have resumed their processing of foreclosures, but at a slower pace.  There are lingering after effects of the paperwork issues. In the state of Florida, the total number of homes which received warnings in relation to foreclosure dropped by around 16% in January and about 54% in December last year.

The foreclosures also lowered as the real estate market did not perform well in the last couple of years. The main reason for this is the economic downturn of the country after the recession. As a result, many banks suffered huge losses. For example, Crescent Bank & Trust, the $ 1 billion Jasper bank, which was heavily invested in the real estate market, suffered many losses due to the lows in the market. Crescent has suffered the most in Georgia.

But, as said before, though the foreclosure rates have lowered, it is expected that the proceedings will increase again. This is because most homeowners owe more than what their home is worth. Experts say that of the total prime conforming mortgage loans, about 41% of these will be “underwater” within the first quarter of the year 2011, which is up from 16% of that at the end of first quarter of 2009. About forty-six percent of the prime jumbo loans are also going to be larger than the property value and will be up from 29%.

There has also been serious drop in the home prices in the last year, which eliminates homeowner equity. This will cause many borrowers to walk away from their mortgage and the foreclosure rates unfortunately, will rise again.  As foreclosure rates increase, opportunities will arise for new buyers and investors.  There has never been a better time to buy a home.


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