It’s anyone’s guess if better financial literacy could have prevented the late 2000s subprime mortgage crisis from happening. More informed decisions by home buyers and lenders alike could have contributed to the U.S. real estate market’s success, but unfortunately, this wasn’t the case with the housing bust that many Americans have struggled to cope with.
Foreclosures are still affecting many homeowners across the country to the point that a new crisis may be on the horizon, according to a report published last week by the Wall Street Journal. The Journal cited a March “Mortgage Monitor” study by LPS Applied Analytics and CoreLogic, which showed that although foreclosures still remain at high levels (with new foreclosures up 8.1 percent monthly), overall foreclosures are 31.1 percent lower than numbers from a year prior, March 2011.
The report stated some more promising news: Delinquencies, as of March, are down 8.8 percent, and the amount of borrowers 90 days overdue on their mortgage payments, or in foreclosure altogether, is also down by 6.7 percent.
CoreLogic recently released its newest foreclosure report, said the Journal, indicating that 69,000 foreclosures nationwide in March was a decline of 16,000 compared to the same time last year. Mortgage delinquency rates have remained steady and unchanged for the most part, though some states in the western U.S., like Nevada, Arizona and California, actually saw improvements in their own delinquency rates.
The Journal called it a “promising sign for the stability of those markets.”
Good News on the Home Front?
If the Journal’s prediction of a new housing crisis is true, declines in some of the housing market’s more troubled areas could buffer it from reaching the same severe levels from 2008. One of the biggest recent drops was the number of home mortgage modifications in the first quarter of 2012. Modifications through the Home Affordable Modification Program (HAMP) are down as much as 33 percent from last year, notes Housing Wire — a federal program under President Obama’s administration.
The Wall Street Journal also stated in its Market Watch section that a 31 percent drop in permanent modifications from earlier this year takes into account approximately 207,000 homeowners; 147,000 also received proprietary loan modifications. Market Watch reported that an added 60,225 people took advantage of the HAMP program.
During the same time last year, there were 298,449 mortgage modifications.
Rates Low but Buyers Lower
The new statistics also point to new record lows in mortgage interest rates since the 2008 housing crisis. The Associated Press, citing mortgage buyer Freddie Mac, reported yesterday that 30-year mortgage rates dropped to a record-low of 3.84%. Fifteen-year mortgage rates fell as well, to 3.07%.
The updated numbers haven’t done much to woo new home buyers, though. Cheaper mortgage rates, noted the AP, haven’t boosted home sales — apart from one week last December, home sale rates have consistently been below 4 percent. In March, sales of both new and previously-occupied homes declined.
Are potential homeowners underestimating their own mortgage knowledge? Go Banking Rates conducted a quiz/survey of 112 people from late April until the beginning of this week that resulted in high scoring for basic-to-intermediate knowledge of mortgages.
Out of six questions, over 100 surveyed showed proficiency in their knowledge of adjustable rate mortgages, underwater mortgages and interest rates. However, 25 percent of test takers were incorrect in what mortgage refinancing entails (obtaining a new interest rate by changing the terms of a home loan).
Seventy percent of survey respondents knew that the recommended down payment on a mortgage is 20 percent of a home’s value; a majority of the remaining 30 percent of test takers believed that a down payment has no limit to what a buyer can afford.
Based on those answers, it could shed some light on the reluctancy of new home buyers in the U.S. — a combination of poor-but-stabilizing market values and an overall lack of understanding when it comes to certain topics in mortgage.
The Wall Street Journal quoted this week a mortgage specialist who said that foreclosures and the like have plateaued for the time being and don’t seem to be going anywhere anytime soon. That doesn’t mean another housing crisis won’t happen in the near future, but it does mean that anyone looking to become more financially literate in the area of mortgage should monitor the ups and downs of the housing market before buying a home and sending foreclosure and delinquency rates away from their recent record low numbers.
This article is part of the Go Banking Rates Financial Literacy Movement, helping Americans get smarter and grow richer. Take our mortgage quiz to test how knowledgeable you are!