The Indiana Realtors believe that one of the most troubling aspects of Indiana's housing market is our persistent high level of mortgage foreclosures. We continue to be in the top five states nationally in this dubious statistic. Foreclosures take a tremendous toll on Indiana families and our real estate markets. High levels of foreclosure depress property values and sap neighborhood vitality.
Our research shows there are many causes for the problem. Job loss, slow rates of home price appreciation, mortgage fraud, and high loan to value ratios are clear factors. Loose lending standards emanating from the federal government also contribute.
Our experience also shows that a high proportion of homeowners that experience trouble with their mortgages fail to seek assistance. Many of thesed individuals could avoid foreclosure if they were aware of their options and acted in a timely manner. Those who enter foreclousre could minimize their losses by taking propert actions.
In my opinion one of the major contributors to this are mortgage originators who encourage home buyers to take a 1st & 2nd mortgage, make an offer for more than the asking price and ask for the seller to pay the closing costs & prepaids. This works just fine if a home owner plans to stay in the home for many years and if the home may be worth more than the seller is asking. It typically takes about 5 years after a purchase where a person puts down about 10% to hit a break even point in the resale of a home. If the life situation changes and a person needs to sell their home within that time frame then they are in a position where they owe more on the home than it is worth and it would cost them more to sell it than they have in the bank. Add to that the fact that often times these 'no money down' loans come with prepayment penalties and I have seen those be as much as $9000 on a home that is worth about $110,000. Suddenly the lender has all of the equity in the home and the home owner, with no good options, gets frustrated and walks away. In some cases at the time of original purchase it could take a person as much as 10 to 15 years in a home to begin to realize any equity. Here in Indiana we did not have a 'bubble' like many markets experienced. This scenario was not as much of a problem in markets that were experiencing 25-30 percent appreciation. It is a big problem here where we are seeing approximately 4-6 percent and in some areas where job losses are great the housing market has actually experienced depreciation.
The moral to this story: Don't buy more house than you can afford and do not buy as much house as the lender will loan you the money for! Determine your comfort zone in a house payment and save some cash for a down payment before jumping in to purchase a home. A good Realtor will help you do this. Just ask them.
Moral number Two - A very important one....: Use a local lender or originator that you trust. Watch out for the mortgage brokers and check their references, many of them are terrific but there are some bad ones out there who just care about earning the origination fees. The good ones can do very good things for you. The local lenders are often extremely competitive. Avoid the internet lenders at all costs. You never know who you are dealing with.
The Indiana Realtors have been working with the State Legislature to improve this situation. We made great strides over the past few years but we have a lot more work to get out of the 'top 5' list for foreclosures.
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