Friday, May 26, 2006

ARM Meltdown? We're Probably Already There

Foreclosures are picking up in so many markets, these posts will have to be condensed. "Nationwide, 87,582 residential properties were listed for sale as foreclosures in April, up 14% in a year. More than double that number, 218,935, were headed toward foreclosure, and an additional 326,889 homeowners were in bankruptcy court."

"Wisconsin echoed the upward trend, with 1,024 homes for sale as foreclosures last month, 6% more than a year earlier. But nearly three times that number, 2,898, were headed toward foreclosure and 3,600 homeowners were in bankruptcy court."

"'I'm certainly aware of the spike,' said attorney Peter J. Zwiefelhofer, who runs Milwaukee Bankruptcy Center. 'A lot of people overpaid for their house in this boom and a lot of properties were appraised at unrealistically high prices, mostly by subprime lenders looking to close a deal. Plus, there's a lot of unsophisticated people out there who look at a mortgage as just a payment and say, 'Oh, I can swing that.' But they can't.'"

"Until this year, most financially strapped homeowners could count on a booming housing market to provide them a quick sale at a nice price. But that's over."

"'What's startling isn't just the higher numbers, but who they represent, the affluent, not just the down and out. 'These are the ones with a bigger ability to get money, the executives, businessmen and professionals, buying more than they can possibly afford,' said Brad Geisen. 'They were banking on price appreciation continuing to go up fast, and pulling their money out in time.'"

"'One thing I've learned: The more expensive the house, the more difficult it is to unload,' said Milwaukee bankruptcy attorney Bruce A. Lanser. 'In a case where the house is upwards of $400,000 to $600,000, I used to think, 'Oh, great house.' But those houses are not selling that well anymore.'"

"In the suburbs of Dallas, Bridget Edwards comes home to uncertainty every day. She and her husband, James, are four months behind on their mortgage. The reason? 'We have an adjustable-rate mortgage,' she explains. 'I really didn't know it would change like this.'"

"'The reason homeowners have been buying properties that are probably beyond their means, is that they haven't been looking at what the house costs,' says Rick Sharga, who maintains a database of foreclosed properties. 'They've been looking at what the monthly payment was.'"

"That’s something the Edwardses admit, and now regret. 'I am sad. I'm angry. I'm confused,' says Bridget Edwards. 'I love this house,' James Edwards says."

"Last year, Jolene Garcia was one of the 9.1 percent of San Antonio homebuyers, about 3,500 people, who chose an adjustable-rate mortgage. Garcia's biggest problem, the one keeping her up at night, is a $3,000 property tax bill due in December. Her loan did not include escrow, the estimated property taxes paid monthly in most mortgages, and she didn't realize it."

"'There was some fairly aggressive lending going on. Young people and immigrants who have no background for buying a home can get led down the merry path,' said Jim Gaines, research economist at Texas A&M University. Today's lending landscape reminds Federal Housing Administration commissioner Brian Montgomery of the 1930s, when high-risk and high-interest-rate lending was common."

"'The economy is better today,' he said. 'But now you are seeing these really exotic loans done on a wide scale. Some families were steered towards loans they shouldn't have been.'"

The Memphis Daily News. "A total of 4,616 foreclosure sales occurred between May 2005 and April 2006, according to The Daily News. The number of properties foreclosed totaled 4,665 because, in some cases, multiple properties owned by one person were sold at the same time. Steve Lockwood, who is executive director of the Frayser Community Development Corp., has been keeping track of foreclosures in Frayser since he accepted the post three years ago."

"'It's an epidemic,' Lockwood said. 'Shelby County has the highest HUD foreclosure rate in the country and Frayser has the highest foreclosure rate in Shelby County."

"Valerie Smothers recently lost her Cordova home in foreclosure because she fell behind on her mortgage payments after her boss was late with her paycheck, she claims. In the beginning, her lender understood, but as a couple of weeks stretched into a couple of months, the mortgage company's patience stretched thin. When she finally had things settled at work and went to the mortgage company, officials refused to accept the $1,900 she had. It wasn't enough for her back payment."

"'They told me the adjustable rate had gone up,' she said, meaning she would need more cash."

"April 2006 foreclosures in Massachusetts were 44.35 percent higher than April 2005 and nearly 90 percent higher than April 2004 levels. April 2006 had 1,227 foreclosures started. That translates to more than 60 filings every business day in April."

"Driven by rising interest rates and high levels of debt, foreclosures on homes in the eight-county Chicago metropolitan area are sky-rocketing, particularly in the region's fastest-growing counties. The soaring rate of foreclosures is quickly transforming what has long been a seller's market into a buyer's market."

"'You have a situation now where you have these potential increases in foreclosures, and interest rates are going up, which will populate the market with more properties,' Jeff Metcalf says. 'The real estate market will be slowing the appreciation in prices. We're moving toward a buyer's market. In fact, we're probably already there.'"


At 6:01 PM, Blogger Chip said...

I've already told on Realtor, who contacted me about a house for sale that fits our criteria, that it pretty much would have to be a short sale for us to consider it, since we expect prices to continue to decline to no more than 2001 levels. Too bad for the FB's who are selling it, but their hardship doesn't make it my obligation to overpay. Without a great bargain, I'll sit and wait. I think that people who develop excellent locally-focused foreclosure sites will make good money -- I'd subscribe to one.

At 7:19 PM, Blogger Out at the peak said...

Chip, do you think you'll hear back from that Realtor now that s/he knows you expect 2001 prices?

In my area (Sonoma County, CA), maybe 1997 price levels would be acceptable. When I went into contract for a pre-con in 2000, I already thought it was very expensive.

At 7:24 AM, Blogger Chip said...

Out -- I think she'll stay in touch and will know to tell us if a super deal pops up (and her office or locals cannot leap on it). It was my way of saying, "Look, I know how this is going to end, so the standard hype and excitement isn't going to work. But I'll follow the listings."

Actually, I want 1997 prices, like you, but felt that date is so extreme that she'd drop me like a hot brick. With 2001, she has something to thing about during these long, lonely, customer-free hours of office time.

At 9:59 PM, Blogger Pointlines said...

Hola guys:

For what it is worth, saw a couple of homes I am interested in here in OC drop their prices 5 percent. Not close to where I will buy, but at least prices are going the right way now.

Also the emails from RealtyTrac have really been kicking up lately - I signed up for the service they have where they email you if a zip code you are interested in gets any new preforeclosure listings. I am getting a couple every other day now, where maybe I was getting one every other week....

I take this as a sign of the continued meltdown picking up speed.

At 6:19 AM, Blogger Chip said...

Bubble Butt -- have you checked into foreclosure-notification sites that deal with just the area you're in? Since they charge a fee, I'm trying to figure out how to evaluate such services in order to pick the best one.

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