Homes entering foreclosure at record

[phk]

Homes entering foreclosure at record

The housing slump, Midwestern economic woes and resetting ARMs send late payments higher.

By Les Christie, CNNMoney.com staff writer
September 6 2007: 1:26 PM EDT

NEW YORK (CNNMoney.com) -- The delinquency rate for mortgage borrowers spiked higher in the second quarter and the number of homes entering the foreclosure process hit a record high, according to a report released Thursday.

Deliquencies hit 5.12 percent of all outstanding mortgages, up from 4.39 percent a year ago, the Mortgage Bankers Association (MBA) said in a quarterly survey.

Serious delinquencies, those 90 days or more late, jumped to 1.11 percent of all loans, from 0.98 percent in the first quarter.

The loans actually entering foreclosure proceedings stood at 0.65 percent, a rise from 0.58 percent in the first three months - and the highest rate in the MBA's 55-year history. (Latest home prices - 149 markets)

More Americans are falling behind in their mortgage payments as stagnant home prices, auto-industry weakness and climbing interest rates have taken a toll on housing affordability.

The survey revealed steady increases in all categories of delinquencies among mortgage borrowers, but problems in subprime adjustable rate loans drove much of the increase.

"There is a clear divergence in performance between fixed rate and adjustable rate mortgages due to the impact of rate resets," said Doug Duncan, the MBA's chief economist.

Duncan called the delinquency trends "a story of seven states." There are the three midwestern states - Michigan, Ohio and Indiana - where defaults and foreclosures are linked to serious underlying economic and job issues. Michigan alone has lost 300,000 jobs since 2000.

Then there are the once red-hot housing markets of the Sunbelt. According to Duncan, homes entering the foreclosure process in Arizona, California, Florida and Nevada drove the national increase - the national foreclosure rate would have otherwise declined.

"The data shows dramatic effects of speculative investing in those four states," said Duncan. High levels of non-occupied houses there coupled with a high percentage of ARMs made markets particularly susceptible to delinquencies.

Many investors simply do not have the same level of interest in retaining their properties than do owner-occupiers who have, historically, always strived to keep their properties.
Coping with foreclosure

Delinquencies are expected to continue a steady climb for the next year or so. The number of adjustable rate mortgages (ARMs) that reset to higher rates will peak this fall and many of those borrowers will likely fall behind on payments.

Many borrowers in default work out their problems without undergoing foreclosure. Some rework their loans in cooperation with their lenders, often cleaning up arrears by making extra payments later. Others get free of unaffordable ARMs by refinancing into fixed rates.

Many sell their homes before they lose them, especially if they still retain some equity in the properties. Even if there is no home equity, they may get their bank to agree to a short sale in which the bank will forgive the debt not covered by the sale of their houses.

A minority of homeowners will actually go through the entire foreclosure process and their numbers are not forecast to peak until 2008, as homeowners scrambling to find a solution to their unaffordable loans abandon the fight.

The ultimate foreclosure total may be influenced by several of the initiatives being discussed in Washington. President Bush floated some proposals last week that sought to help responsible borrowers stay in their homes.

Bush's proposals, if followed through on, could make it easier for some families to refinance from ARMs into fixed rates.

In addition, regulators recently informed mortgage servicers, which act as liaisons between investors and borrowers, that rewriting the terms of mortgages does not violate accepted accounting practices if it's done for the benefit of the investors. That should remove one of the legal stumbling blocks faced by servicing firms that want to help borrowers by modifying or refinancing their mortgages.

Other proposals - such as increasing cap limits on HUD loans - that offer some relief to troubled homeowners may also reduce the total of loans that actually go into foreclosure.

If, however, the housing-market slump deepens, delinquencies and foreclosures could worsen. And turmoil in the credit markets could tighten the liquidity squeeze that has made it much tougher for many potential home buyers - as well as owners looking to refinance - to obtain loans.

That has caused demand for homes to plunge in many areas and the national inventory of homes on the market has doubled over the past three years. There is now about a nine-month supply of listings at the current rate of sales. Top of page
Flippers fuel foreclosure

Foreclosure fallout: Rescue scams

[Frodo]

Too bad the slump in housing prices isn't also being seen with rents for apartments and condominiums. 

[MODU]

Too bad the slump in housing prices isn't also being seen with rents for apartments and condominiums. 

That's because the mortgage problems are focused primarily at high-risk first-time buyers and established buyers who were trying to flip a second property.  Condo's are naturally a rough market, so you won't see much fluctuation there.

[CultureKing]

no slump here, we have a 13.1% forcasted growth in home prices in Olympia.

[opebo]

Duncan called the delinquency trends "a story of seven states." There are the three midwestern states - Michigan, Ohio and Indiana - where defaults and foreclosures are linked to serious underlying economic and job issues. Michigan alone has lost 300,000 jobs since 2000.

Good news!  Looks like Ohio will be secure, and Indiana may follow into the Democratic fold eventually.

[phk]

I'v always assumed that houses there were very cheap and not likely to be susceptible to foreclosure.

[opebo]

I'v always assumed that houses there were very cheap and not likely to be susceptible to foreclosure.

Mostly cheap things are foreclosed upon or repossessed, phknrocket, because that is what poor people buy.

[Undisguised Sockpuppet]

Bwahahahahahahahahahahahahhaahahha

[Small Business Owner of Any Repute]

Too bad the slump in housing prices isn't also being seen with rents for apartments and condominiums. 

That's because the mortgage problems are focused primarily at high-risk first-time buyers and established buyers who were trying to flip a second property.  Condo's are naturally a rough market, so you won't see much fluctuation there.

More accurately, it's because the cost of home mortgages in many parts of the country—Boston, California, and New York, for example—increased at a rate far exceeding rental prices there.

In my hometown of Somerville, MA, homes skyrocketed in value since the turn of the century, while rents actually declined slightly.

[memphis]

This was so obviously going to happen. Why on earth would a mortagage company lend $200,000 to somebody who can't get approved for a credit card? Similarly, the shafty adjustable rate mortgage was a train wreck waiting to happen. I can't believe more people didn't see this coming. Whenever the whole nation's super into something (tech stocks, homes, etc) is the exact time to sell and expect a crash. Prices can't go up forever.

[Undisguised Sockpuppet]

Suburbia is going down once and for all. THs noble experiment is crumbling.

[memphis]

Suburbia is going down once and for all. THs noble experiment is crumbling.

Care to elaborate on that hypothesis? I'm sure plenty of defaulting people live in urban and rural areas.

[Undisguised Sockpuppet]

Suburbia is going down once and for all. THs noble experiment is crumbling.

Care to elaborate on that hypothesis? I'm sure plenty of defaulting people live in urban and rural areas.

1 Peak oil will make suburbs uneconomic due to car usage even in a highly optimistic scenario being scaled down to europe/japan levels.

2 You're right that many of the defaulting people live in rural/urban areas but the defaults are most prevelant in suburbs.

3 McMansions are big, energy ineffeciant and too far from work in a cars are rare/peak oil environment. The exurbs will first become slums than the rest of the farther in suburbs.

4 This will have impacts on national elections because we'll see people fleeing the decaying ruins of sunbelt suburbia for the northeast/great lakes(areas infrastructure is somewhat less(note that I say only somewhat. This is still America)) over decades.

[Wakie]

Too bad the slump in housing prices isn't also being seen with rents for apartments and condominiums. 

That's because the mortgage problems are focused primarily at high-risk first-time buyers and established buyers who were trying to flip a second property.  Condo's are naturally a rough market, so you won't see much fluctuation there.

More accurately, it's because the cost of home mortgages in many parts of the country—Boston, California, and New York, for example—increased at a rate far exceeding rental prices there.

In my hometown of Somerville, MA, homes skyrocketed in value since the turn of the century, while rents actually declined slightly.

A big part of the problem is that lenders overextended themselves because it was too easy to sell off the risk.  Many of the parties who acquired the risk were ill-prepared to finance it in case of a crisis.  Now they are feeling the crunch.

First time buyers had a similar problem.  They ran out and bought property with the heart-felt view that "the value of real estate never plummets".  Only problem is that this widespread belief caused the value of homes to skyrocket.  Now the market is trying to correct itself with the problem being that in order to do so many people have to lose significantly on the home investment.  And since most people invest a significant portion of their life savings/earnings into purchasing a home, losing it is a HUGE blow.