How to escape your crushing mortgage

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Here’s the beginning of that story I mentioned yesterday:

Nearly 9% of all U.S. mortgages–or 4.8 million loans–are past due or in some stage of foreclosure. So when a company claims to offer distressed homeowners both relief from their mortgages and revenge against the bankers who saddled them with too much debt (“Give the lenders back their own headaches”), there are plenty of people eager to hear more. For $695, the Walk Away Plan promises to extract homeowners from the agony of mortgages they can no longer afford or from houses now worth far less than the amount they owe. A similarly named outfit called You Walk Away croons on its website, “Before you know it, you will have this behind you and a fresh start!” Walking away is a popular phrase these days among real estate pros and ex–mortgage brokers looking to capitalize on slumping home prices and rising delinquencies. It sounds so liberating, but what does it mean? That foreclosure can be a good thing?

You can read the rest of it here, or in this week’s issue of the magazine (the one with the Great Wall of America on the cover).

I would encourage you to pick up the paper version for two reasons. One: It’s nice for people to actually pay for the journalism we do, thus enabling us to do more. (Old school, I know.) Two: Our graphics guru Jackson Dykman did a fabulous map and chart, which you can only see in the magazine.

The map (but not the chart) uses data from RealtyTrac, a company that counts foreclosures. When I mentioned data from RealtyTrac in a blog post last month, reader R from R made a very good point, which I never responded to. I apologize for that. I was on my way to Omaha and a little swamped. I’d like to make it up to you now. Here’s what R from R wrote:

One thing I noticed about RealtyTrac’s recent release of foreclosure data: if you look at the state-by-state figures, 11 states plus the District of Columbia have their foreclosure rates footnoted as “numbers may be skewed by data collection changes.” Since many of the states so footnoted show outrageously high increases in foreclosure rates, it appears that a change in methodology may be skewing the overall rate of increase upward.
This suggests two things:
1) While there is little doubt that foreclosures are actually rising, the magnitude of the rise being reported might be due to a data collection anomaly.
2) The methodology of this foreclosure index may not be as rigorous as for most widely-reported economic/financial data.

I called RealtyTrac and got the scoop. Back in 2005, when RealtyTrac started, it collected data on foreclosure filings in about 2,200 counties, covering about 90% of the U.S. population. The thing with collecting this sort of data is that is can be hard. County courthouses aren’t always a bastion of electronic record-keeping, and in many cases RealtyTrac has to hire people to go and physically count paper filings. In the past few years, RealtyTrac has been able to add about 300 more counties to its tally, which means if you’re looking at a snapshot in time, you’ve got richer data–but if you’re looking from year to year, it’s not always apples to apples.

In other words, R from R, you’re right: The increase at the state level is, in some cases, misleading. The states where more counties have been added almost surely appear to have seen larger jumps in foreclosure filings than they really have experienced. RealtyTrac, though, holds that at the national level, the earlier data is robust enough to accurately calculate year-over-year growth.

For the map Jackson did, we used RealtyTrac data to give a snapshot of the situation in May 2008. For the chart that shows growth in foreclosure filings, we used numbers from the Mortgage Bankers Association.

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