Michigan Hit Hard with Mortgage Defaults
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Michigan Hit Hard with Mortgage Defaults

Many states are getting hit hard economically by the mortgage situation these days. Michigan is one of the hardest hit states due to the job loss and other conditions in the area.

The mortgage crisis has been a nationwide problem for the last couple years. However, some states have been hit harder with others due to unemployment, cost of living and other factors. In California, the housing crisis has created a problem in which millions of homes are valued less than they were when the homeowner signed up for the mortgage loan. Michigan is dealing with the same problem on top of the loss of manufacturing and factory jobs, which is what the state has built its economy on for several decades.

Between 2005 and 2008, the number of people who have walked away from their homes and left them up to foreclosure has tripled. In 2005, about 5,100 people walked away from their mortgage repayment responsibility. In 2008, about 17,250 people did the same thing. Those numbers come from a report released by Experian-Oliver Wyman. Mark Zandi, an analyst for Moody’s Economy.com, said the problem will probably get worse, too. He told the Detroit Free Press that more and more people will make the decision to just “walk away” in the near future because it just “doesn’t make sense” to keep making payment while trying to make ends meet.

Michigan ranks fourth in the country when it comes to underwater mortgages. About 39 percent of the Michigan homeowners are in that type of situation, which equals more than 532,700 homeowners. While people who plan to stay in their homes continue to pay their mortgage payments, this problem is greatly affecting the ones who want to move somewhere else where they can find a job or people who want to downsize their home so they can afford the lower payments. Most of the homeowners who find themselves in this dilemma only walk away after they try to get a loan modification and cannot come to an agreement with the banks or lenders.

Another contributing factor to the number of people walking away from their mortgages is their self-image. With the economic problems and the huge number of foreclosures in recent years, it is becoming less of a stigma to walk away from your mortgage if you can no longer afford the payments. According to John E. Jacobs, a real estate attorney in Southfield, Michigan, your moral compass changes when financial times get really bad. The things you say you would not normally do begin to change when you have to decide between making your mortgage payment for the month and putting food on the table for your kids. Priorities change and you have to do what you have to do in order to survive.
One Michigan homeowner – Sondra Malone, 35 – is just one of the hundreds of thousands of people who have had to make the difficult decision to walk away from their home and mortgage responsibility. In 2005, she purchased a home in Eastpointe, a suburb of Detroit. She signed up for an adjustable-rate mortgage and had a $1,200 payment each month. Combined with high heating bills, a car payment and other major expenses, it was not long before she found herself underneath a mountain of debt. To add on to that problem, when she decided to sell her home in 2007, she still owed $116,000 on it but it only listed for $99,000.

That is when she decided to walk away from her home. She tried to negotiate lower payments with the lender but that did not work. She tried selling her house but that did not work either. She eventually found herself renting a condo and leaving her home behind soon after.

Malone, a social worker in Michigan, said she did not know what else to do. She was embarrassed for not following through with her financial obligation, but she had no other choice. But her story is not uncommon in Michigan or in other states where the economy has gone downhill quickly in the last couple years. The number of vacant homes is on the rise and the falling property values are not helping the problem either. These vacant homes are compounding the problem because they are causing the dropping home values which is also leading to fewer jobs because people are leaving the areas. This reduces the tax dollars for that local area and cities and counties are forced to lay off workers as a result.

Jim Fouts, the mayor of Warren, says that there is no easy solution to this problem. In fact, things may even get worse in his city as there is a proposal on the table to cut the pay for the union workers by as much as 20 percent. Warren’s home prices fell by nearly 10 percent last year and this proposal probably is not going to make things any better.

Analysts are worried that the rate at which people are walking away from their mortgages will start to affect how mortgage rates and prices are calculated. According to Charles Ed Haldeman, Jr. of Freddie Mac, if the problem becomes much worse, the mortgage prices are going to be higher in order to help these lenders recoup some of the money they are continuing to lose. This may also lead to a stricter mortgage process in which fewer potential home buyers will be approved for a loan.

Is this a problem that will just have to solve itself or do you think there are solutions to what is happening? Let us know your thoughts below.

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  • James Mucci

    March 16, 2010

    There is another option, even for Michigan home owners who are underwater.

    It the Home Affordable Refinance Program (HARP).

    This program allows eligible borrowers to refinance their Mortgage so they can reduce their payments, even if they are underwater. It allows a loan amount up to 105% of their homes value, and does not require any private mortgage insurance (PMI).

    There are restrictions, of course, but for those borrowers who are eligible and qualify it is a much better alternative, then ruining their credit and crippling their ability to get the best financing options in the future.

    James Mucci - Michigan Refinancing

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