There are different reasons that could cause someone to default on their home loan. The number-one reason for foreclosure differs by state and region. Few choose to go into foreclosure voluntarily. It’s often an unpredictable result of a host of reasons. Let’s take a look at some of the current economic theories for the distressed housing market. As we discussed earlier in this book, when the economy collapsed some years ago, foreclosure became a fact of life for millions of Americans. About 250,000 new families enter into foreclosure every three months, according to the Federal Deposit Insurance Corporation (FDIC). The Great Recession showed us how bad the situation for homeowners could become when a housing bubble bursts. A study in 2007 by the Federal Reserve Bank of Boston found that home values are a huge contributing factor to foreclosure. According to the study, homeownerswhose home value dippedby 20%ormorewere about 14 timesmore likely to go into foreclosure than thosewhowitnesseda 20%increase in the value of their home. During the Great Recession, many homeowners with “underwater” mortgages made the unfortunate decision to simply walk away and stop making their payments. They chose —or felt they were forced— to ignore the many harmful ramifications to their credit and personal lives. In some cases, selling their home did not seem like a viable option for them. Countrywide Financial also cites economic performance as a cause of foreclosures. In its 2007 survey, Countrywide found that the main reason for foreclosure, was “curtailment of income” (58% of the time). This far exceeds some of the other reasons, such as:
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