Thursday, September 29, 2005

What Happens When Borrowers Get Behind

The Dallas News takes a look at how families get behind. "Once you get behind, it just compounds real quick," said Reid Remington, housing counselor at Consumer Credit Counseling Service of North Central Texas in McKinney. 'After the second payment is late, if you don't send in the full amount, then they'll stop accepting any payments, and that's when they just seem to spiral downhill real quick.'"

"Some consumers don't see the many places they can cut nonessential expenses. 'They're still going out to eat lunch and dinner or they have a $150 cell phone,' said (credit counselor) Beverly O'Pry. 'Is my cable more important or is it my house? If you don't have a house, you don't need cable.'"

"'Some mortgage companies won't work with you if you don't have a cash cushion, because they want to make sure that the client can afford this mortgage,' Pry said. 'If it looks like it's so tight that they can't afford it, they'll go ahead and foreclose.'"

Wednesday, September 28, 2005

Credit Card Delinquencies Up

Reuters has this report. "The percentage of credit card payments that were past due shot up to a record high in the second quarter as surging gasoline prices strained budgets and made it difficult for some people to pay their bills."

"TThe seasonally adjusted percentage of credit card accounts 30 or more days past due rose in the April-to-June quarter to 4.81 percent. That followed a delinquency rate of 4.76 percent in the first quarter and was the highest since the association began collecting this information in 1973."

"'The rise in gas prices is really stretching budgets to the breaking point for some people,' economist Jim Chessen said in an interview. 'Gas prices are taking huge chunks out of wallets, leaving some individuals with little left to meet their financial obligations.'"

"The survey also showed that the delinquency rate on a composite of other types of consumers loans, including auto loans and home equity loans, climbed to 2.22 percent in the second quarter, up from 2.03 percent in the first quarter."

Tuesday, September 27, 2005

'We're Building Too Many Houses' In Colorado

The Rocky Mountain News has this update on Colorado. "Almost 10,500 homes in the metro area ended up in foreclosure in the first nine months of the year, about 15 percent more than during the same period last year. This looks to be the second-worst year on record for foreclosures, as the market is on track for about 14,000 homes to enter foreclosure this year."

"'We're building too many houses. It's not matching up to our population growth,' Tucker Hart Adams said. 'Some people say we're not in as bad shape as other places in the country because we have not had the appreciation they have had. That is absolute nonsense. Foreclosures are a lagging indicator, which means when a whole lot of other things are getting better, we're still going to have foreclosures.'"

"An estimated 10,496 foreclosures will be opened in the first nine months of the year in the seven-county area. That compares with 9,107 foreclosures opened in the first nine months of 2004. The good news is that the percentage increase in foreclosures has been cut in half from 2004. Last year, foreclosures rose 29 percent from 2003."

"'It has slowed, but it is still atrocious,' said Peter Lansing, head of one of the largest locally based mortgage lenders."

"Lansing said one of the big culprits is that buyers with bad credit are able to get loans to buy homes. And many people are buying homes with no down payments, making it easier to walk away if they have trouble making their mortgage payment, he said."

"'I'm not surprised by the high number of foreclosures when you considered the high level of credit- card debt people are carrying these days,' Lansing said. 'To me, the rising foreclosures (are) much more a reflection of easy credit than it is a reflection of our economic times.'"

Sunday, September 25, 2005

Payday Loans In Surprising Neighborhoods

The Denver Post reports ona new trend in payday lending. "This Advance America Cash Advance store is in a suburban shopping center, next to a dealer of high-priced artwork and two doors from a yoga center. And it is surrounded by households with median annual incomes of $71,295, about 50 percent above the state median."

"The industry has exploded over the past decade by targeting the working poor who live paycheck to paycheck, but in recent years, companies have set their sights on higher-income borrowers."

"The number of payday-loan stores in Colorado has surged from 186 in 2000 to more than 550 today. Thirteen are in communities where the annual household median income surpasses $70,000. Ten of the 13 have opened in the past two years."

"'These loans really help when you need some extra cash,' said Highlands Ranch resident Carol Hill, 56. She first took out a payday loan three years ago when her taxable household income was about $78,000, to help pay income taxes."

"Seventeen percent of the industry's customers have annual household incomes of more than $50,000, and 20 percent have at least a bachelor's degree. Lauren Pursur, an assistant manager at Loan Depot in Castle Rock, said the income level of her customers is wide-ranging and somewhat surprising."

"One couple that has taken out loans from the store makes $17,000 a month, or $204,000 a year. 'It's from the CEOs of companies down to restaurant people,' Pursur said. 'It goes from one realm to the next.'"

"Krista Kibel, a customer of the store in Littleton, said she took out a $500 loan in March before leaving for a one-week vacation to Arizona. 'I don't manage my money well,' said Kibel, 25, a graphics designer who makes $36,000 annually. 'I was going on vacation and wanted to pay my bills before I left.'"

'Creative' Lending Producing Foreclosures

Author Tom Kelly has this editorial on lending. "It's difficult to have a housing slowdown when there is very little inventory. But inventory is only one component. What has become more of a factor is the incredibly flexible loan programs offered by many lenders. When a buyer can get 95 percent to 100 percent financing on an investment property with stated income and a lousy credit score, it becomes a road map for trouble, especially in a flat market."

"When a buyer purchases an investment property with very little or no money down, there's no margin for error when the renter bolts in the middle of the night because of job loss or a death in the family. Lenders are floating a carrot, and there's nobody to save overeager consumers from following it. An example is a recent advertisement in California that says 'Buy the home you want..not the home you can afford!'"

"Appreciation is no longer floating all boats in all regions of the country. Some areas of Colorado, Georgia, Indiana, Michigan, Ohio and Texas have been absolutely flat, and homes in those places haven't even rendered enough appreciation to pay the closing costs for a seller who bought in 2003. The bottom line is that foreclosures are up in areas that once were strong, and lenders are getting more real estate-owned, or REO, property back on their books."

"Tom Dimercurio was asked to give a broker price estimate on a well-kept home in a nice Denver-area neighborhood. He said all three of the comparable sales that he used to arrive at his selling price were foreclosed homes. 'I've never seen that before in any neighborhood,' he added."

Saturday, September 24, 2005

Foreclosures Coming To Hot Markets

This report by Kenneth Harney looks at foreclosures and appreciation rates. "Families in high-cost real estate markets are stretching their household budgets to the breaking point to buy even a modest home. Some families are devoting 40 percent to 50 percent of their monthly incomes just to hang on to their high-priced houses."

"Given all that gloom and doom, you'd think that homeowners' growing financial challenges would be visible in their payment performances on their mortgages. But the reverse is true: Late payments on home mortgages were actually lower in mid-2005 than they were at the same time the year before, 4.3 percent of all homeowners were at least slightly behind on their payments this year versus 4.6 percent last year."

"The highest rates of late payments, by contrast, turn out to be in states with relatively low housing costs, below-average appreciation rates and slow economic growth."

"Mississippi homeowners had the highest delinquency rate among the 50 states at mid-year (8.5 percent), followed by Louisiana (6.7 percent), Indiana (6.66 percent), Tennessee (6.32 percent), Texas (6.31 percent) and Ohio (6.13 percent). All of these states have moderate- to below-average housing costs and ranked among the slowest-appreciating markets in the country last year."

Mr. Harney fails to see this unfortunate fact; many more folks in California would be bankrupt if it wasn't for the appreciation of their house. And many will become bankrupt, subject to the new rules, when appreciation levels off or falls, as is happening now.

The economy isn't that great in the US, and artificially high home values with the attendant equity-borrowing are merely masking that fact.

Friday, September 23, 2005

Katrina Victims Face Default

CNN Money reports that some Lousiana hurricane victims may be forced into default. "Hurricane Katrina victims with weak credit are getting shorter grace periods from mortgage lenders than their better-off counterparts."

"Homeowners with damaged credit, who pay higher rates for their mortgages, known as sub prime loans, could face foreclosure on their homes as soon as the end of the year, according to a statement from community advocacy group ACORN."

"'Subprime borrowers are not getting the same treatment,' said ACORN Chair Alton Bennett. Among people displaced by Hurricane Katrina, many borrowers with better credit were allowed to delay mortgage payments by three months, and in some cases for up to 12 months, the report said."

"Meanwhile, subprime borrowers were often only given relief from their mortgage payments and waivers for late payments for the month of September."