Lowell Sun Reports on Foreclosures

The Lowell Sun ran a front page above-the-fold story today on rising foreclosure rates in the greater Lowell area, a topic we have frequently visited on our blog (full disclosure: I was interviewed for the story and am quoted in it) . While showing that the numbers are up significantly as compared to last year (Lowell’s foreclosures are up by 18%, Tewksbury’s by 22%, Dracut’s by 25% and Westford’s by 69%), the story also explained the dilemma facing many homeowners. Taking advantage of historically low interest rates and greatly relaxed lending practices, many folks have acquired homes by financing almost the entire purchase price. Others, who bought homes when prices were lower, have exploited the increased value of their homes by repeatedly refinancing, each time drawing out more and more cash. The problem with both of these situations is that heavily-leveraged homeowners have no equity cushion – they owe an amount that is almost equal to the value of the home. If they get laid off or suffer a medical setback or some similar bad event, they might be able to sell the house and receive enough money in return to pay back the amount owed on the mortgage. But what happens when the value of the property goes down? Unfortunately, the amount owed is not reduced proportionately, so the homeowner finds himself owing more than the house is worth. If he’s forced to sell, he must come up with additional money to pay of the balance of the mortgage. Realistically, most people don’t have this kind of money in savings. If they did, they wouldn’t have borrowed so much in the first place. Anyway, congratulations to the Sun for writing about this important issue.