4 Common Factors that Contribute to Increased Mortgage Delinquencies and Foreclosures

Mortgage delinquencies are a major problem for the economy as a whole. When delinquency and foreclosures are up, this affects many other aspects of the economic system. There are also many common factors that tend to contribute to increased mortgage delinquencies and foreclosures. Here are a few of those factors that contribute.

1. Questionable Lending Practices

One of the most common factors that contributes to these problems is questionable lending practices. Mortgage lenders have high standards that they need to live up to. They have to accurately determine whether or not borrowers can afford their payments. However, sometimes lenders start to think more about how much money they can make instead. They start to offer loans to people that should never be able to get them. When this happens, people that cannot afford to make these large payments are awarded loans. As a result, many of them will be delinquent on their payments and eventually go through the foreclosure process. This could be avoided if more lenders would stick to using strict criteria when approving loans.

2. Unemployment

Another big factor that plays a role in foreclosures is unemployment. When the unemployment rate grows, mortgage delinquency and foreclosure tends to follow. When jobs are not abundantly available, the mortgage market tends to suffer. More and more people cannot find work that they need even though many of them have mortgages Fannie over their head. When this happens, it is usually only a matter of time before many of them lose their homes.

3. Credit Cards

Something else that helps contribute to mortgage delinquency and foreclosure is the abundance of credit cards. Many consumers regularly hold 4 to 6 credit cards at one time. Most of these cards have balances on them and they are paying interest on these balances. If you have ever dealt with a credit card, you know exactly how high the interest rates can be. When you start to build up credit card balances, it can negatively affect the rest of your financial life. Your payments start to get bigger and bigger and you have less money to spend on other things. Before long, between all of the credit card payments and your mortgage, something has to give. As a result of this, many people cannot afford their mortgage payments anymore. This leads to their homes being foreclosed upon and even more financial problems for them in the future.

4. Adjustable-Rate Mortgages

Another common factor that is frequently involved with foreclosure is the adjustable-rate mortgage. Many consumers have signed up for adjustable-rate mortgages over the last few years because of the initially low interest rate. However, after the introductory interest rate is up, things tend to get much more difficult for the borrower. When interest rates go up significantly in the market, this can cause the mortgage payment to go up drastically as well. Many people have seen their mortgage payments double in the last few years. When this happens, it is no wonder that many people cannot afford the payments.