Tuesday, February 28, 2006

Loans, 'No-Fear Factor' A 'Mixture For Failure'

Some updates on defaults. "Delinquencies and foreclosures were on the increase in some southeastern markets. 'While there is less overvaluation in these markets, relatively low employment in states like Virginia, West Virginia and Kentucky are putting more homeowners in financial distress,' said Alexis McGee. As an example, she pointed to the fact that the unemployment rate in Louisville, KY exceeded 6% in the 4th quarter of 2005. She added, 'These states are heavily dependent on the manufacturing sector of the economy, and that sector continues to lag behind others.'"

"McGee also cited a report by PNC Bank that showed an increase in personal bankruptcies in the Louisville metro area to nearly 11,000 at the end of 2005. 'We realize that there was a spike in filings before new laws took effect on October 1, 2005, but filings continued to rise to the end of the year.' She went on to say that filing bankruptcy was a common tactic used by homeowners in distress to forestall foreclosure. 'That move will delay foreclosure,' said McGee, 'but it won't stop it altogether.'"

"Housing markets along the eastern seaboard are a mixed bag as the shift from a seller's market to a buyer's market continues and the risk of foreclosure increases. McGee pointed to a 35% year over year increase in foreclosure activity in Massachusetts at the end of 2005 as confirmation that slowing housing markets produce an increase in mortgage defaults."

"'Our research has always shown a correlation between foreclosures and a flattening home price appreciation curve,' said McGee. She went on to say that while a seller's market continues in parts of Pennsylvania and New Jersey, she did not expect that to last as eastern markets cycle over the top and that local economic changes would also impact the foreclosure picture. 'In Delaware, for example, severe job loss is expected as a result of Bank of America's acquisition of MBNA,' said McGee."

The Des Moines Business Record. "The Polk County sheriff’s office received notice of 365 foreclosure situations and sold 250 of those houses, with the rest going back to the mortgage holder. By last year, the numbers had exploded to 1,153 foreclosures and 769 homes sold by the sheriff’s department."

"'Everybody predicts the foreclosure rate is going to increase,' said Linda Busick, an independent appraiser who serves on the Des Moines Area Association of Realtors board of directors. 'Part of it is because of low interest rates. People can afford to buy a lot more house, but when you borrow 100 percent of the price, then you get a divorce or lose your job, you have to walk away. You’ve got no equity, and you have to pay somebody to sell it.'"

"Another web site recently showed 216 Polk County homes in foreclosure. The majority are valued at the lower end of the market, but the list included three homes in Johnston valued at more than $300,000."

"From a lender’s point of view, 'the reasons why property goes into foreclosure are out of your control when making a loan,' Busick said, referring to the divorce and job-loss factors. 'Lenders don’t consider collateral. If you make enough money to make the payments, and your credit record is good,' you’re likely to get the loan you seek."

"'There are some lenders who are on commission and have an incentive to get the deal done and get people in the house,' said Dan Vessely, president of Iowa Bankers Mortgage Corp. 'That may not be in the best interest of the customer in the long term, with no room to breathe in case of a financial crisis.' On the other side of the table, however, 'it seems like most people want to buy as much house as they can possibly afford,' Vessely noted. 'It seems like in the last couple of years there’s been a lot of that. I think it’s a mentality of more young people owning homes who have that no-fear factor; they don’t have the experience, and they want to buy as much home as they can possibly qualify for. Couple that with creative financing, and it’s a mixture for some failure.'"


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