The housing slump has sent home values plummeting, and it has left an ever-growing number of homeowners upside down in their mortgage loans: They now owe more on their mortgage than what their homes are worth. This unfortunate economic reality has led a growing number of consumers to debt consolidation loans to help reduce the amount of credit debt they are carrying.
The National Association of Realtors reported recently that the median home sales price across the nation in December stood at $168,800. That’s down 1 percent from a year earlier, and significantly from the highs in home values the country saw in 2005 and early 2006.
In better times for the housing market, homeowners would have simply taken out low-interest-rate home equity loans to pay down their high-interest-rate credit card debt. That strategy to eliminate debt, though, is becoming rarer today. Far too many homeowners don’t have any equity in their homes, making home equity loans an impossibility. These homeowners, then, have few other choices but to turn to debt consolidators to help them gain a handle on their rising credit card debt.
Consumers who turn to this method will take out a loan with a debt consolidation company. Debt consolidators will then use the loan payments to pay down consumers’ outstanding debt. Often, debt consolidation firms will negotiate with creditors to reduce the amount of debt their clients owe. The negatives with debt consolidation loans, though, are significant: These loans often come with high interest rates and fees. Consumers often end up paying more in total by taking out a debt consolidation loan than they would have had they simply paid off their debt on their own. Debt consolidation loans also harm consumers’ three-digit credit scores – a big problem in today’s financial world.
However, with housing values continuing to take a beating, many consumers have no other choice for bad debt consolidation. Consumers in such a situation should be careful, though, to do their research before taking out a debt consolidation loan. They should ask their debt consolidators exactly how much they’ll have to pay in fees and how high their interest rate will be. They should also ask exactly how long it will take them to pay off their existing debt. By asking the right questions, consumers dramatically improve their odds of taking out a debt consolidation loan that will provide them with real financial relief.
The U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of the Treasury released the February 2011 edition of the Obama Administration’s Housing Scorecard. The latest housing figures show increased existing home sales as home affordability remains high, but officials caution that the market remains fragile, as prices are unsettled.
“In the face of the deepest economic recession and housing crisis in decades, the Obama Administration has taken unprecedented action to promote stability in the market—keeping millions of families in their homes and helping millions more to save money by refinancing.
But the data clearly show that the market remains extremely fragile,” said HUD Assistant Secretary Raphael Bostic. “While we cannot stop every foreclosure, we know that many responsible homeowners are still fighting to make ends meet. Through the broad range of programs this Administration has put in place, we can put help in reach to those homeowners as early as possible.”
The housing market remains fragile as data through January 2011 paint a mixed picture of recovery. Existing home sales ticked upward in January, but remained below levels seen in the first half of 2010.
Mortgage delinquencies continued a downward trend compared to early 2010 and foreclosure starts and completions remain below peak. However, as lenders review internal procedures related to foreclosure processing, many foreclosure actions have been delayed. The decline is likely to be temporary as lenders eventually revise and resubmit foreclosure paperwork in the coming months.
Given the current fragility and recognizing that recovery will take place over time, the Administration remains committed to its efforts to prevent avoidable foreclosures and stabilize the housing market.
Consumer bankruptcy filings ticked up in February, but so far the rise has slowed from 2010.
The number of personal bankruptcy filings rose 11% to 102,686 in February compared to a month earlier, the American Bankruptcy Institute and the National Bankruptcy Research Center reported recently.
“Though consumers are striving to reduce their debt burden, high unemployment and a still-poor housing sector continue to fuel new bankruptcies,” Samuel J. Gerdano, the American Bankruptcy Institute’s executive director.
Compared to the same time a year ago, however, personal bankruptcies fell 8%. While it’s still early, data for the first couple months of the year could indicate that consumers won’t have a repeat performance of the surge in filings in 2010. More than 1.6 million consumer bankruptcy filings were reported last year — the highest level in five years.
A more tempered pace of filings is partly from consumers saving more and paying down their debts. It’s also because less credit has been available, which makes it harder for Americans to incur new debts.
Economists at Moody’s Analytics say homes in many parts of the country are at their most affordable levels since before the housing boom took off in 2003, the Wall Street Journal reports.
According to the Journal, housing affordability – comparing home prices to household incomes – has returned to its average levels from 1989 to 2003 in 47 of the major markets included in the report. On a national level, the ratio of median home prices of household incomes has dropped to 1.6 from a high-water mark of 2.3 in 2005.
“Based on incomes, this is as affordable as it gets,” Mark Zandi, chief economist at Moody’s Analytics, told the WSJ. “If you can get a loan, these are pretty good times to buy.”
The paper added that many economists think prices may continue to fall a bit further because of weak demand.
However, qualifying for a mortgage to take advantage of those conditions may not be simple. A survey from Fannie Mae late last year found that more than half of Americans found that getting a mortgage would be difficult.
The Obama administration is laying out three broad options for overhauling the mortgage lending system, but will let Congress make the final decision…
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