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1. Foreclosure: A Growing Trend

In this module:

• Defining foreclosure• Foreclosure statistics• Reasons for foreclosure

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Definition of Foreclosure

• The forced sale of a piece of real estate to repay a debt – mortgage, unpaid property taxes, builder and mechanic liens, delinquent income taxes

• Can result from seizure/forfeiture due to criminal activity

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Foreclosures on the Increase

• 925,986 foreclosures were filed in the first half of 2007.

• This is a 55 percent increase from the first half of 2006.

• National foreclosure rate for first six months in 2007 is one filing for every 134 households.

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Why the Increase?

• Congressional reports & secondary mortgage market findings

• Impact of heavy refinancing

• Debt load of the American consumer

• General economy fears of inflation, higher interest rates & flat income

Underlying causes may point to mortgage fraud and predatory lending.

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Mortgage Fraud

• Deliberate criminal activity• “Lenders” that falsify information

Practices include:

• Ignoring the right of rescission• Using inflated appraisals and fake

documents• Selling to straw buyers• Phantom second loans

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Mortgage Fraud

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Predatory Lending

• Misrepresentation of lending programs

Practices include:

• Guaranteeing approval and not verifying income

• Charging high fees and penalties• Delaying closing• Inflating appraisals• Asking borrowers to sign blank

documents or ones they don’t understand

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Predatory Lending

Creative lending programs, which will be covered in Module 3, should NOT be assumed to be predatory lending practices. Deceitful and abusive actions constitute predatory lending.

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Predatory Lending

Predatory lenders target subprime borrowers. Why are subprime borrowers attracted to these loans?

• More money for college education, home improvements, etc.

• Quick money• Assumption of continued increases in

home equity• “Perceived” lower costs associated

with ARMs and other types of financing

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Predatory Lending

Subprime mortgage market experiences much higher rates of delinquency and foreclosure.

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2.19

3.3

6.46

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2.0

4.0

6.0

8.0

Prime VA FHA SubprimeFixed

SubprimeARM

Per

cen

t

Foreclosure Rates by Loan Type, 2007 Q1

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Foreclosure “Rescue” Scams

1. Companies tell desperate homeowners that they will renegotiate their mortgage terms and stop foreclosure proceedings for a fee.

2. Companies encourage homeowners to sign over title for a year or two, during which the homeowner can pay rent to the company. Once the homeowners are caught up financially, the company promises to sell it back.

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Discussion Question 1

Reasons for foreclosure

1. In your opinion, what causes the most foreclosures?

2. Which cause do you think will increase most in the future?