Primed for Foreclosure – Top Five Reasons for Mortgage Distress

When New York City homeowners come to the City Bar Justice Center’s Lawyers’ Foreclosure Intervention Network (LFIN), they seek to avoid foreclosure and keep their family in their home. The overwhelming majority of LFIN clients become unable to pay their mortgages because of significant changes in their financial situation. LFIN routinely tracks each household’s hardship—the specific reason for its financial difficulty—and recently conducted a review of its current cases to identify the top five reasons for mortgage distress among clients. (In creating these statistics, we excluded families whose primary hardship resulted from Superstorm Sandy. A significant percentage of LFIN cases within the past two years were Sandy-related.)

1. Loss of job or income: Almost half (48%) of LFIN clients encounter mortgage distress because the homeowner or another family member becomes unemployed or loses overtime or a second job, full-time or part-time. Some clients are small business owners whose businesses failed with the onset of the recession. When homeowners face significant income loss, loan payments that were once affordable become a significant burden, consuming huge percentages of their income.

2. Illness or injury: Homeowners’ lives and financial situations are made more difficult by heart attacks, strokes, cancer, job-related injuries and other health issues which prohibit them from working or force them to incur significant medical expenses. Homeowners often have to choose between paying for treatment and making their mortgage payments. These situations represent approximately 11% of LFIN cases.

3. Unaffordable loans: Approximately 7% of LFIN’s current clients experience mortgage distress because their loans were unaffordable from the beginning. For many homeowners, scraping together unaffordable payments became even more difficult with the onset of the recession.

4. Marital and other family issues: Divorce, separation, custody battles and other forms of family disintegration also contribute to financial difficulties, and approximately 5% of LFIN clients cite such issues as their primary hardship. Some two-parent households lose significant income when one parent leaves the family; other households face expenses related to the legal and logistical issues involved.

5. Death in the family: Approximately 5% of LFIN clients struggle to keep their homes after a homeowner or another adult in the family passes away. In these scenarios, households not only have to cope with reduced household income as a result of the death, but also have to find a way to pay for funeral and burial expenses.

It is important to note that the statistics above only reflect each household’s primary hardship. In fact, many clients report various hardships, which are often related. Thus, the numbers above cannot provide a complete picture of the often tremendous difficulties faced by each household, but only a snapshot of the main issues identified by a broad sample of clients. LFIN supports homeowners facing financial difficulties like those highlighted above by working with them to find a solution – usually a loan modification under the federal Home Affordable Mortgage Program – that will allow them to stay in their homes.