As expected 2007 was not a good year for home owners. With foreclosure rates up as high as 80% over 2006 figures approximately 250,000 home owners lost their homes due to missed mortgage payments.
Hardest hit were Nevada, Florida, Michigan, California, Colorado, Ohio, Georgia, Arizona, Illinois and Indiana. The states with the least foreclosures were South Dakota, Vermont, Maine and West Virginia.
It is expected that in the 2 year period starting in 2007 approximately 2 Million people will lose their homes but there is a trend within this group that includes investment owners and speculative builders.
What is the cause of this? Well it seems that many lenders will have to answer how they made choices to lend to people that are now defaulting. The practice of no documentation loans being given to investor buyers to allow leveraging of single properties to fund the purchase of homes that investors wanted to flip for a higher profit backfired at the end of the 2003 – 2005 property boom.
What does this mean to the rest of us? If you are a home owner with a ARM or Adjustable Rate Mortgage you should really be thinking about refinancing to a Fixed Rate 30 year Loan if you can. Most lenders are willing to work with people now since defaulting on home mortgages requires that the lender resell the home at or below market value to recoup their financing losses.
Unfortunately the country as a whole is seeing lower spending patterns and this means that the Retail industry which includes 60 million workers is now seeing layoffs and cutbacks. This in turn means that people from this sector can not purchase items or services from other businesses.
In the short run it is in everyones best interest to pay down short term credit like a credit card or car loan. You should also put aside cash for living expenses for 6 months to a year. You can do this by purchasing Short Term or Escapeable CDs from your bank or by placing money in a High Interest Rate Money Market Savings account. Although you should continue investing in your IRA or other Retirement Funds you may want to limit your investments to just the amount that is matched by your employer or reduce your investment to build up your short term cash.
Paying off a Credit Card now while you have money means if you are hit with problems later you wont have creditors coming at you from all directions. If you have more then one card you should transfer balances to the lowest interest card and make more then minimum payments until your debt is gone.