Although market observers had initially predicted that the third quarter of 2011 would end with a decrease in mortgage delinquencies, the number of mortgages 60 days past due or more increased. This is the first time the rate of mortgage delinquencies has increased since 2009.
Observers are scrambling to explain what happened, but the weak economy is likely a major factor. In addition to a struggling housing market and unemployment, the European debt crisis and a weak stock market appear to have undermined consumer confidence. It is also possible that people are failing to see the point in continuing to pay their mortgages.
Homeowners in Illinois who are underwater might benefit from a graceful exit strategy. Recent data demonstrates that 29% of mortgages are underwater. That tends even higher for Chicago, where over 45% of homes are underwater. With 1 in 4 homes underwater nationwide and almost half of Chicago's mortgaged properties underwater, housing values may not improve for a while. Homeowners seeking relief can bide their time and wait for some meaningful principal reduction efforts from the government.
Those unwilling to wait have other options. In addition to the statutory remedies of consent foreclosure and deed in lieu of foreclosure, the U.S. bankruptcy code provides some excellent remedies for underwater borrowers. For example, in a Chapter 13 bankruptcy, an entirely underwater second mortgage can be stripped and paid off like a credit card. You may be able to surrender the property to your lender and avoid further liability. Until we see real remedies from Washington and Springfield, Illinois homeowners will have to be creative if they want to exit a bad investment.