After the Dust Settles…What Happens to Homeowners After Foreclosure?
The shame…the despair…the shock. These are only some of the emotions former homeowners experience when they lose their home due to foreclosure.
Currently, the country is wrought with this type of scenario, plaguing over one million families. Because the current generation has never experienced financial despair that cut so deep, families are often shocked, although the warning signs were apparent for months.
The Wall Street Journal reports that the foreclosure hemorrhage won’t coagulate until homeowners who lost their homes remedy their credit score and purchase a new home. In fact the national home ownership rate has dropped 2% since 2004’s peak of 69%.
If your home has been repossessed by the bank and your American Dream is in shambles, what do you do and where do you go? Many families are asking what’s next?
Where Do Families Go When They Lose Their Home?
According to a study conducted by the American Mortgage Bankers Association, the majority of families faced with foreclosure are opting to move in with other family members instead of establishing a new household. Today it isn’t uncommon to find several generations of family members living under the same roof, much like what occurred during the Great Depression.
Apartment complex managers in Newnan, Georgia told Times Herald reporter Jeff Bishop that rental patterns are erratic; however the overall market seems to mirror that of past years.
Although the rental market may be experiencing some softness, Section 8 housing applications are on the rise. With more and more Americans losing their jobs, those without options, such as moving in with family or renting an apartment, turn to applying for government subsidized housing.
Sadly, some families have fallen victim to becoming homeless after losing their home. According to a report published by a coalition of agencies that work with homeless populations, Americans impacted by the foreclosure crisis are at a higher risk of becoming homeless. The coalition surveyed agencies that work with homeless populations throughout the country to gage the extent of homelessness as a result of foreclosure.
Approximately 79% of the 179 agencies that responded to the survey reported that at least some of their clients were homeless and half believed that at least 10% of their clients were homeless.
Playing the Blame Game
Homeowners experience not only a financial but emotional loss when they have to foreclose on their home. Often, owners endure the same stages of grief you would expect to experience during a loss of a loved one. One stage, guilt or blame is a large part of enduring a foreclosure.
Some owners believe that the mortgage lender is to blame because he or she was dishonest and did not explain the terms and conditions fully during the mortgage process.
Whereas others put the blame squarely on themselves and believe that they should have known better than seek a loan with payments they couldn’t afford.
However, many homeowners believe that the economy played a dangerous hand into destroying their dream of homeownership. With the jobless rate at 9.7%, many homeowners have lost their jobs and can no longer afford to pay their mortgage. Either way the result is still the same—foreclosure.
How to Get Back on Your Feet
Ohio State University research scientist, Jay Zagorsky contends that although losing your home is devastating, the majority of families who have dealt with foreclosure will eventually become homeowners again.
The immediate future may include renting or living with other family members but former homeowners can regain both their credit and a new home.
However, with the record number of foreclosures, Fannie Mae lengthened the amount of time before you can obtain a mortgage from four years to five.
You may also see your credit card interest rates skyrocket because a default on a mortgage sends a red flag to other creditors who feel that they are unlikely to collect on what they are owed.
John Ulzheimer, president of consumer education for credit.com, explains, "Credit cards have a 'default' rate, and (foreclosed owners) could see their interest rate jump to very high levels -- as much as 30%. You'll also have a hard time getting a decent car loan.”
The bright side is that if you’ve had good credit aside from the foreclosure, you can obtain better loans and rates within 24 months if you diligently pay bills in a timely manner.
How Long Will a Foreclosure Impact Your Credit?
Former homeowners may have to buckle in for the bumpy ride for quite sometime before seeing their credit score improve. A foreclosure will remain on your credit report seven years, making it difficult to obtain a traditional mortgage at a reasonable rate.
However, the FHA will qualify prospective homeowners for a low down payment mortgage after two years if you’ve kept spending under control and made efforts to boost your credit score.
Bishop, Jeff. “What Happens to People Who Lose their Homes?” Times Herald. 11 April 2010.
Melia Kennedy, Marilyn. “Life after Foreclosure.” BankRate. 4 September 2008.
A joint report from the National Coalition for the Homeless, the National Health Care the Homeless Council, the National Alliance to End Homelessness, the National Association for the Education of Homeless Children and Youth, the National Law Center on Homelessness & Poverty, the National Low Income Housing Coalition and the National Policy and Advocacy Council on Homelessness. http://www.nationalhomeless.org/advocacy/ForeclosuretoHomelessness0609.pdf. 2009
Bureau of Labor Statistics “Current Unemployment Rate.”