'More Losses Will Crystallise': UK
Fitch Ratings
had this to report today. "Fitch Ratings says in a just-published report that UK non-conforming residential mortgage-backed securities show slight improvement in the second quarter of 2006. However, the improvement in arrears levels needs to considered in the context of the rise in sold repossessions, leading to exits from the portfolio, which would otherwise still remain part of these arrears figures."
"Stronger house price performance in the London area in recent months may have resulted in the rise in repossessions as lenders take advantage of the better recovery prospects in the more buoyant market."
"As these repossessed properties are worked out of the portfolios, Fitch foresees that more losses will crystallise. In the case of Farringdon Mortgages No. 1 Plc, a substantial rise in losses in the quarter ultimately led to the second drawing on its reserve fund."
Bay State Defaults Up 56%
The
Boston Herald reports from Massachusetts. "New figures show the number of Bay State homeowners falling into foreclosure has shot up 56 percent, and more than doubled in parts of Eastern Massachusetts. ForeclosuresMass.com plans to report today that banks initiated foreclosure proceedings against 1,348 Massachusetts homes last month vs. just 866 in July 2005."
"Things are even worse in much of Greater Boston. Filings rose 102.4 percent in Plymouth County, 72 percent in Bristol County, 65.2 percent in Worcester County and 63.1 percent in Suffolk County."
"ForeclosuresMass.com President Jeremy Shapiro attributed the increases to a combination of 'soaring energy costs..our slumping housing market and tightening economy, with no end in sight.'"
"He particularly noted that Massachusetts home sales have cooled at a time when mortgage rates have risen. That means homeowners in jams, say, someone whose adjustable-rate mortgage’s interest rate has shot up, are often unable to either refinance or sell.
'Next Year Is Going To Be The Bad Year'
The
Contra Costa Times reports from California. "By the time Janie Kent received the notice that her two-bedroom, one-bath cottage in San Leandro was going to be sold in three weeks, she was desperate. 'I was in denial, sitting in my house and didn't know what to do,' said Kent. Kent isn't alone. Hundreds of people in Alameda County will lose their homes this year; 176 already have. Thousands more will sit in their home, awaiting what they feel is the inevitable outcome."
"Home foreclosures are on the rise across the East Bay, with Alameda, Contra Costa and Solano counties all reporting data similar to the post dot-com bust years of 2000-01."
"Alan Wolf, a mortgage banking attorney said that interest-only and negative amortization loans seem to be fueling the higher default rates. 'Once those refinanced adjustables hit, it's going to be a big problem,' he said. 'This is not the bad year. Next year is going to be the bad year.'"
"San Ramon Loan consultant Ed Jeffry puts some of the blame on lenders who haven't been historically gentle with borrowers but also faults borrowers for not thinking through loan decisions. 'A lot of problems occur when people enter into a high-cost or subprime loan,' he said. 'Usually because there's no plan and no strategy.'"
'An Unbelieveable Increase': Massachusetts
The
Taunton Gazette reports from Massachusetts. "A disturbing number of homeowners in Greater Taunton have not carefully enough been thinking through just what it takes to own a home. Some intentionally inflate their earnings on loan applications, or are encouraged to do so by unscrupulous mortgage originators, in order to get approved."
"Many have previously opted for adjustable-rate loans that blow up in their face with monthly payments they can't afford as soon as interest rates rise. And others get starry-eyed at the mere thought of owning a home and end up signing onto a deal they simply can't afford."
"A 2006 UMass Boston/Northeastern University study shows Massachusetts as tops in the country in terms of having the highest housing price appreciation index from 1980 to 2005; 618 percent from first-quarter 1980 to third-quarter 2005. That represents a jump in median home value from $48,400 in 1980 to $378,758 in 2005."
"The national price appreciation level for the same period was 273 percent; the state with the second highest level was New York, which posted a 511 percent increase."
"Also telling is the Massachusetts home value to personal income ratio. In 1980 the median per capita income in the Bay State was $10,602, which results in a ratio of 4.57. By 2005 median personal income was just under $44,000, but median home value had risen to $379,000, resulting in a ratio of 8.67 percent."
"Mary Ellen Rochette, executive director of the city's non-profit that helps low-income families attain home ownership, is convinced too many inexperienced buyers have been making seriously bad decisions. 'Two years ago I was getting one to two calls a week from people going through a foreclosure,' Rochette said. 'Now it's one a day. That's an unbelievable increase.'"
"Rochette largely blames the allure of adjustable rate mortgages coupled with an uneducated public for the recent ratcheting up in the number of foreclosures. 'They're so excited about getting a mortgage that they don't read the fine print,' she said."
"She also points to the peril of so-called 'stated income' loans. Rochette recounts the case of a professional cook earning $36,000 a year who stated on a loan application he was making $68,000 annually. She said his wife, a teacher's aid who was paid little more than minimum wage, followed suit claiming she made $40,000. Rochette said after making the first few payments the couple realized they wouldn't be able to keep up with the payments."
"Kristin Lagersstadt recalls a girlfriend with a daughter and granddaughter who took out a loan with a well-known mortgage company, knowing full-well she couldn't afford the monthly payment. 'The mortgage payments were more than her take-home pay,' she said."
"'Some people want a house so badly they want to believe it,' she said, of first-time buyers who persuade themselves into believing they'll somehow find a way to pay for a house they can't afford."
"Rochette said one Raynham family wasn't nearly so fortunate. The husband is a truck driver earning approximately $50,000 to support his wife and four children. After falling three months behind in their payments the family hasn't been able to find a bank willing to take the risk of refinancing them. 'It looks like the only way out for them is to sell,' she said."
"Worse, and perhaps more pathetic, was a woman who called Rochette one night in tears. 'She said they were closing tomorrow and wanted to know if there was anything I could do,' she said. 'They just don't think it's going to happen to them.'"
HUD Program Driving Colorado Defaults
Some
forclosure reports from Colorado. "The Denver-area housing market is experiencing far more weakness at the lower end of the market than at the upper end, in contrast to the cooling of luxury-home sales in many other parts of the country. Economist Michael Kone said the Denver market is 'behaving a bit differently' from the overall U.S. market."
"'The bottom end of the food chain is where there is a lot of pain,' Kone said. 'We're looking at some real weakness in the lower end and pockets of strength in the upper end.' In Adams County, for example, his analysis indicates that 20 percent to 25 percent of the lower priced homes on the market are in foreclosure."
The
Denver Post. "Timothy Lewis knew he could not save the house. So when the foreclosure notice came, he packed. Lewis, a 43-year-old craftsman who makes house doors for a living, can no longer afford the ranch house he bought with help from the Federal Housing Administration. 'I just can't make it. The mortgage is too big,' he said. 'It's so far behind now, I'd need $15,000 to save it.'"
"A key factor in the state's record-setting wave of foreclosures, critics say, is an FHA program that allows people to borrow more than their houses are worth with little or no money down. Nearly 6,000 FHA loans have wound up in foreclosure in Colorado in the past two years, and during that time the program allowed more than 25 percent of FHA buyers to use gifts as down payments."
"Recent studies say HUD itself exacerbated the problem by sanctioning the gift program, which lets home sellers cover a required 3 percent down payment by routing it through a nonprofit organization. The seller then typically raises his price to recoup the money. An appraiser OKs a slightly inflated house value. Closing costs and FHA insurance premiums get folded into the home loan, and the buyer ends up borrowing more than the house is worth."
"'If it wasn't FHA, it would be fraud,' said John Head, a Denver lawyer who represents victims of mortgage-fraud schemes."
"To buy the house he is losing, Lewis said he participated in a down-payment gift program to sell his previous home. The buyer's agents 'asked me to sell it for more,' he said. He agreed to raise his price by $4,000 and donate an equal sum to a third party providing the buyer's down payment for an FHA loan. The family 'lost it a year later,' Lewis said."
"A
small number of mortgage brokers account for a large number of Federal Housing Administration loan foreclosures in Colorado. All passed what federal officials call a rigorous application process for the right to originate federally insured loans."
"Michael Richardson, said his business was effectively closed by December 2004, six months before the Denver field office terminated its right to approve FHA loans. 'My company got infiltrated by a mortgage-fraud ring,' he said. 'In about seven months, they did enough damage to me to put me out of business.'"
"Richardson said he fired five employees in one day after discovering they had been recruited by a man who supplied false loan-application information, Social Security numbers, driver's licenses, pay stubs, to qualify buyers for homes. 'Anything that particular borrower was missing, they'd fix it,' he said."
"Richardson, who had been in the mortgage business for 26 years, said the people who ruined Primero and put many buyers in homes they could not afford have not yet been charged with any crime. 'I'm out of business. Two-and-a-half years later, they're still committing fraud every day,' he said."
'A Lot Of Hard-Luck Stories' In Arkansas
A
foreclosure report from Arkansas. "The number of Arkansas homes in some stage of foreclosure is up nearly 20 percent for the first six months of 2006 over the corresponding period last year, according to Realty-Trac. Some central Arkansas firms that do foreclosure work have seen a big rise in business in recent months."
"One trend is that pricier homes are being lost. 'We’re seeing this around a house payment that’s $ 1, 000 rather than $ 500 or $ 700 per month,' said Rosanna Henry, managing partner of a Little Rock law which focuses on foreclosures."
"'It’s not just people with the small homes,' said Ann Ball, president and managing broker of Crye-Leike’s Real Estate Owned division in Little Rock. Many homeowners 'are living beyond their means and have no money saved and are up to their necks in credit cards,' she said. Ball said Crye-Leike, one of the largest managers of foreclosed homes in central Arkansas, recently received five high-priced properties in Maumelle in a month. Crye- Leike is also hiring three additional employees to supplement its staff of 12 to handle a big increase in foreclosures, from 10 to 15 new properties a month at the beginning of the year to 30 to 40 a month now."
"Ball said about a third of those new properties are priced over $ 200, 000, and there are a greater number in the $ 500, 000 range. The average price of a home in Arkansas for the first six months of the 2006 was $ 147, 798, according to the Arkansas Realtors Association."
"In the first half of this year, 6, 089 homes in Arkansas were in some stage of foreclosure. RealtyTrac’s Rick Sharga said many of those houses will never actually be foreclosed because the homeowner will catch up or sell the house."
"But the wild card in foreclosures, and what could cause an even greater increase in the next two years, are adjustable rate mortgages. Ball, the Little Rock Realtor, said she recently dealt with a property in Maumelle where the monthly payment on an ARM had shot up from $ 5, 200 to $ 6, 600 over the course of a year. The homeowner could not keep up, and the house was foreclosed."
"Some homeowners who face foreclosure have overextended themselves lured by a bigger home or that extra amenity. 'It goes back to living above your means,' Ball said. 'There are a lot of truly genuine hard-luck stories,' Ball said."
'Speculators Are On The Run'
Some
foreclosure news from across the US. "Foreclosure activity in several Western markets rose in the second quarter compared to second-quarter 2005 after a dip in the first quarter year-over-year foreclosure activity, according to a foreclosure research company."
"'Both Las Vegas and Phoenix were impacted by speculators,' president Alexis McGee said, and more than 25 percent of new home sales in both markets were going to out-of-state investors. 'The speculators are definitely on the run, and walking away from properties they cannot afford to hold and cannot sell at a profit.'"
"Foreclosure activity in the Denver metro area was among the highest in the nation. About 5,300 homes in Colorado have already been lost in foreclosure this year, and more than 11,300 homes were in a pre-foreclosure process as of Aug. 11, McGee reported."
"'A more severe situation, however, is in California,' she stated. 'A primary reason is the overwhelming use of so-called creative mortgage products people were sold in order to buy ever more expensive homes.' An estimated $1 trillion of these unconventional mortgages were expected to reset in the next 18 months, 'and payment shock to such homeowners would be severe if not financially fatal,' McGee said."
"In Florida, rising foreclosure activity may be a sign that property flippers who bought at the peak of the market 'were simply walking away from houses they were unable to sell at a profit,' Foreclosures.com reported. About 8,500 properties in Florida went into foreclosure in June, McGee said, and the use of 'creative mortgage products' may have contributed to the rise."
"'Now, price appreciation has gone flat and even reversed slightly and this trend is colliding with rising interest rates. People who bought at or near the market peak are being squeezed out of their homes and speculators find themselves trapped by rising costs and negative cash flows,' McGee stated."
"In Georgia, about 8,900 properties have already been lost this year through foreclosures."
"'As of
mid August, more than 6,400 homes in Massachusetts are in foreclosure and over 3,800 have already been auctioned off,' said McGee. She pointed to rising interest rates combined with continued job loss in the region as primary factors contributing to the rising tide of defaults."
"'During the recent run-up in prices over the last few years east coast markets became severely overheated, especially in the Boston metro area,' said Ms. McGee. 'Prices there have declined about 4% over the last year,' said Ms. McGee. She added that the cooling market was also in part to blame for the increase in foreclosure activity. 'Our research has always found a correlation between slowing markets and rising foreclosures. People in distress lose the refinance option, and can no longer use their homes as ATM machines to raise cash,' said Ms. McGee."
"She added that foreclosures never completely go away, but that it takes a confluence of several factors to drive defaults off their historic baselines. 'That's what's going on in the northeast now. The hot market we saw over the last five years was just not sustainable and prices got completely out of whack with incomes,' she said."
"Mortgage
defaults in the Chicago Metro area had risen sharply in the second quarter of 2006, increasing by 60% over the first quarter of the year. 'As of mid-August 17,467 homes were in some stage of foreclosure in the Midwestern region that includes Chicago, Gary IN, and Kenosha in southern Wisconsin,' saidMcGee."
"She pointed out that one had to look at the foreclosure numbers per household in a community to see what's really going on. 'For example, Indianapolis IN is a much smaller city than Chicago, but one out of every 101 households in that city is in foreclosure. In the Chicago Metro it's one out of every 198 households.'"
"She added that Texas, while a very large state, is still part of the southern Midwest, and has the dubious distinction of having the largest number of properties in foreclosure in the nation at 16,965, with 12,377 homes already lost in foreclosure as of mid-August."
Record Foreclosures In North Texas
A pair
of reports from Texas. "More and more North Texas homeowners are in big trouble. Residential foreclosure postings are at record levels, up 30 percent from a year ago. More than 3,800 houses are threatened with foreclosure next month in the Dallas-Fort Worth area. And for the first nine months of 2006, more than 28,000 home foreclosure postings have been recorded."
"'This is bringing back nightmares of 1988 and 1989,' when thousands of Texas homeowners lost their properties during a regional recession, said George Roddy, president of Addison-based Foreclosure Listing Service. 'The average number of postings in 1989 was about 2,000 a month,' Mr. Roddy said. 'And that is when we saw a massive devaluation of residential properties in some areas.'"
"This time, however, instead of a recession, poor financial planning and rising living expenses appear to be putting record numbers of North Texans out of their homes. 'Some of the mortgage originators are not going over the worst-case scenario with borrowers,' said Gary Akright with Dallas' Dominion Mortgage Corp."
"For September's foreclosure sales, the number of home postings is up 32 percent in Dallas County and 36 percent in Collin County. Denton has a 38 percent increase. The increases are higher in Rockwall County, up 68 percent."
"Housing analysts worry that if foreclosure rates stay at current levels, the overall housing market will suffer. 'If this continues, it's going to have an impact on values,' Mr. Roddy said."
"So far, lenders aren't deeply discounting the foreclosed homes they resell in North Texas. 'We are not seeing distress sales yet,' said Ted Wilson with Dallas housing analyst Residential Strategies. 'But I think it's something we have to watch.'"
"Mr. Wilson said home loan defaults could grow next year when borrowers who have adjustable-rate loans get hit with higher interest rates. 'When these loans adjust, there will be a lot of homeowners who will not be able to make their payments,' he said."
"Tarrant County home
foreclosures have reached their highest numbers since the real-estate crash of the late 1980s, according to figures released Thursday. The 1,220 homes posted for the auction block in September are nearly a quarter more than the 983 a year ago."
"The latest figures are nearing the numbers seen during the crash, said Jim Brown, who owns All American Title Services and has watched foreclosures for more than 30 years. 'It’s starting to hit those levels,' he said. 'It’s getting really scary.'"
"Homeowners may try to stave off debt by paying increased mortgage costs and bills while charging groceries and gasoline on their credit cards, said Carey Ebert, a Hurst bankruptcy lawyer. 'At that point, you’re just moving deck chairs around on the Titanic,' she said."
"When finances go awry, sometimes their mortgages go upside-down, when the homeowners owe more than the house is worth. The homeowner can’t refinance it without owing even more money, and thus has little incentive to save it from the auction block."
"'It’s completely widespread; you’re seeing it in all neighborhoods,' Brown said. 'You’re seeing it in Colleyville, in Southlake.'"
"Ted Wilson, a partner at Dallas housing analyst Residential Strategies, points out that although the new foreclosure numbers are eyebrow-raising, there are still buyers at the foreclosure auctions. During the real-estate crash, there were few, if any."
Defaults Renew Surge In July
Inman News
has this report. "RealtyTrac, a marketplace for foreclosure properties, reported an 18 percent increase in properties entering some stage of foreclosure in July compared to July 2005. The company also reported a 5 percent increase in foreclosure activity from June to July."
"Colorado had the nation's highest state foreclosure rate for the fifth month in a row, according to the report. The state reported 3,810 properties entering some stage of foreclosure, a 3 percent increase from the previous month and a 55 percent increase from July 2005."
"Nevada had the nation's second-highest foreclosure rate for the second straight month. The state reported 1,626 properties entering some stage of foreclosure, a 31 percent increase from the previous month and a foreclosure rate of one new foreclosure filing for every 533 households."
"Texas reported 13,103 properties entering some stage of foreclosure, the most of any state for the eighth month in a row, and a 15 percent increase from the previous month."
"Other states reporting foreclosure rates among the nation's 10 highest were Georgia, Utah, Florida, Michigan, Indiana, Ohio and Illinois. The six states with the most new foreclosure filings, Texas, Florida, California, Michigan, Ohio and Illinois, accounted for 54 percent of the nation's foreclosure activity in July."
'Florida had 10,757 documented properties entering some stage of foreclosure, a 25 percent increase in documented foreclosures from June to July. California reported 10,025 properties entering some stage of foreclosure, six fewer than the previous month but more than twice the number reported in July 2005."
"'After dropping to their lowest level of the year (in June), U.S. foreclosure filings rose back above the 90,000 mark in July and the national rate of foreclosures was almost identical to the foreclosure rate reported in May,' said James J. Saccacio, RealtyTrac CEO."
"'While foreclosure activity continues to remain slightly below historical averages, the number of properties in some stage of foreclosure from January to July has increased by 39 percent compared to the same period of 2005. This increase is due largely to the combination of increased interest rates on mortgages, and a slowdown in residential real estate sales. It will be very interesting to see where the market goes over the balance of the year, as billions of dollars of adjustable-rate mortgages reset at significantly higher rates,' said Saccacio."
Bankruptcy Filing Heads Back Up
MSN Money has
this report on a pickup in bankruptcies. "Consumer bankruptcy filings continue to increase, with Chapter 7 liquidation filings rising 54% in the second quarter compared to the previous three months. Consumer bankruptcies had plunged following the passage of a tough new bankruptcy law last year. By the second quarter, however, the pace of filings had picked up to 2,200 to 2,300 new filings per business day, more than four times the level in November 2005 after the bankruptcy law went into effect, according to Lundquist Consulting."
"Individuals filed 85,449 Chapter 7 cases in the three months ended June 30 and 142,815 bankruptcy cases overall, a 39% increase from the previous quarter."
"Meanwhile, the leading credit-counseling organization says bankruptcy reform is putting unprecedented strain on counselors' finances. Bankruptcy filers are required to undergo credit counseling before they can proceed with their cases, and agencies affiliated with the National Foundation for Credit Counseling say such sessions now comprise one-third to one-half of their caseload, according to marketing director Bob Ensinger.'
"But many debtors arrive at the counselors in such sorry shape that they can't pay the nominal fee the nonprofit agencies impose. 'We're running (these sessions) at a loss,' Ensinger said."
"If charge-offs and other delinquencies start to tick up, however, we could see the pace of bankruptcy filings quickly follow.
Credit counselors are already reporting an increase in the number of debtors seeking help because of high gas prices and adjustable-rate mortgages that have reset at higher rates. Those debtors may well enter the bankruptcy pipeline in the next year or so."
"Lundquist thinks filings could eventually return to 90% of the old rate, although the pace will depend on the long-term effects of the new law. 'Are more people discouraged from filing bankruptcy? Will more file Chapter 13s instead of Chapter 7s? Will more people chose alternatives to bankruptcy?' Lundquist asked. 'It's just too early to know.'"
'Defaults Jump' In Newport-Mesa, CA
From the
Daily Pilot in California. "The number of defaults on Newport-Mesa home loans jumped dramatically in the second quarter of the year compared to 2005, a rise some experts say could be the result of the sluggish real estate market. According to DataQuick, in Newport Beach the number of defaults skyrocketed, showing a 118% jump from the periods in 2005 to 2006. The number of defaults in Costa Mesa went up more than 50%."
"'The real story is not just the number of defaults going crazy, but the number of properties that are actually making it to auction, and that has increased dramatically,' said Kurt DeMeire, CEO of a Huntington Beach corporation that researches and processes foreclosures."
"In today's market, more homes are making it to auction and going back to the lender because the home no longer has equity, DeMeire said. 'Most people think it's just junkie properties that go into foreclosure,' he said. 'Every neighborhood in the county has foreclosures every day.'"
"Keith Cotarelo, president of Signature Loan Group, said he expects to see more bank-owned homes after the auction process is complete. 'Personally I think you're going to see a lot more bank-owned properties, and in turn they will have to change some of the lending practices,' he said. 'I see it coming around to eliminating some products.'"
"In particular, Cotarelo said, the practice of 100% financing has hurt homeowners in the long run."
"'A lot of them have been caught in the crux of creative financing and the reality of what the rates have done. A lot of lenders selling the product were not explaining it very well,' he said."
Four Texas Cities In Top Ten
Some
foreclosure reports from Texas. "Four Texas cities are on a list of top 10 cities for foreclosures as foreclosure rates climb in Texas, and the Dallas/Fort Worth Metroplex is near the top. Home sales are big in Dallas/Fort Worth but so are foreclosures, at three times the national average."
"It seems the biggest problem is a lot of people believe they can afford the home of their choice, and they can't. 'I think what we're seeing in the foreclosure side is the fact that people have gotten into too much property,' foreclosure expert George Roddy said."
"Roddy said job loss isn't what's driving foreclosures now, the soaring cost of living is. 'The cost to air condition and heat your home has gone up, credit card minimum payments have doubled in some cases, and taxes have actually gone up,' he said."
"The issue of foreclosures is so touchy that people going through it are often too embarrassed to talk about it, but many people know someone who's faced it. 'Absolutely, I've got two colleagues that come to mind that are professional individuals, make a very good living,' homeowner Jack Lynch said."
"The
Houston area saw rise in foreclosures in the second quarter, according to RealtyTrac. The Houston-Galveston-Brazoria area ranked sixth in the country for foreclosures. The region had a foreclosure for every 145 households."
"Austin-San Marcos ranked sixth, at just under 2.5 times the national average. San Antonio ranked 10th, with a little more than two times the national average of foreclosures. Austin and Houston ranked among the top 10 for the first time."
'Just The Tip Of The Iceberg'
Newsweek has
this report on foreclosures in the US. "When Shawn Howell saw the house in the summer of 2004, he thought he couldn’t lose. The location-close to family and in an upscale subdivision in Louisville, Ky. The price was a little high at $217,000, but the couple learned they could purchase it with no money down by taking out two adjustable-rate mortgages."
"The monthly payments would start at a manageable $1,100. And Howell figured the value of their home could only go up in the five years they planned to live there. Instead, two years later, the family have put their home on the market for less than they paid for it—desperate to find a buyer before the bank forecloses on the property. 'Looking back, I wouldn't advise anyone to do what we did,' says Howell, who worked two jobs but still fell short on the monthly payments after they jumped by more than $300. 'We just couldn't afford the house anymore.'"
"Across the country, millions of homeowners are finding themselves in a similar situation. Real estate purchases that once seemed like such moneymakers have become financial burdens instead. U.S. homeowners now owe about $9 trillion in mortgage debt. Of that, about $425 billion in adjustable-rate mortgages-initially, designed to shift with market trends after periods ranging from one to 10 years—will reset sometime this year, according to Freddie Mac."
"Another $600 billion in home equity lines of credit (or HELOCs) and second-lien mortgage loans, which became popular when rates were low as a means of paying off credit card debt or financing home improvements, are also being readjusted.'
"Howard Dvorkin, president of a nonprofit debt management organization, says up to 10 percent of those now seeking counseling are being squeezed by adjustable-rate mortgages or home equity loans. 'And this is just the tip of the iceberg.'"
"Existing home sales in June were down 8.9 percent from June 2005, while the number of existing homes on the market last month was up nearly 40 percent from a year earlier. 'That cannot make anyone feel comfortable about the stability of this market,' says economist Joel Naroff. 'It appears that anyone who has any hope of getting out has put their home on the market.'"
"'Add in the increase in energy costs, the doubling of minimum payments on credit cards that went into effect in January, and it's the perfect financial storm for consumers,' warns O. Max Gardner III, a bankruptcy lawyer in Charlotte, N.C., who specializes in mortgage servicing issues."
"In 2003, homeowners took out an estimated $332 billion in new sub-prime mortgages. By last year, that amount had more than doubled to $665 billion, according to Freddie Mac. While the delinquency rate for conventional prime loans remained low at 2.25 percent in the first quarter of 2006, Mortgage Bankers Association figures show it as as much higher—11.5 percent and 12.2 percent respectively, among those who took out sub-prime mortgages or mortgages insured by the Federal Housing Administration."
"More than one out of every 10 homebuyers with this type of mortgage is behind in payments—some by three months or more. 'If you purchased property with very little money down or no money down and you don't have much home equity and suddenly the market turns and values are stagnant or declining and you lose income or you get sick, you could end up in default or foreclosure,' says Frank Nothaft, chief economist at Freddie Mac."
"Cassandra and Davey Parker took out a HELOC for $115,000 last June at a starting rate of 5.25 percent and used it to pay off car loans, credit card debt and the 6 percent fixed-rate mortgage on their four-year-old house. They thought they were saving themselves money in the long run. But by last month, the monthly payments has nearly doubled from the initial $475 to $800. The rate is now at nearly 8 percent—more than they had been paying on their original mortgage, which they'd used the bulk of the credit line to pay off."
"'And it just keeps going up,' says Cassandra Parker. 'It's just like a different type of credit card.'"
"'It's not necessarily a disaster in the making—as long as the job market stays the same,' says David Berson, chief economist at Fannie Mae. 'But if things go wrong in the economy, there could be much worse problems.' Then millions of families could find themselves in the Howells' situation: at risk of losing the homes that seemed like such a sure investment just a few years ago.'"
Defaults Sell Faster Than Existing Homes
Inman News has
this report. "The number of new residential foreclosures hit its highest level of the year in July, while the active foreclosure inventory for the month actually dropped 3.1 percent from the June level, according to Foreclosure.com. 'The decline in active foreclosures can be attributed to many of these properties being purchased,' the company announced."
"There were 28,130 new residential foreclosures in July, a 4.95 percent increase over June and a 10 percent increase from July 2005. Michigan, Colorado and Ohio were among the states hardest hit by new foreclosures."
"The largest monthly increases in new foreclosure rates among states with more than 300 new foreclosures were recorded in Alabama (up 21.3 percent); Colorado (up 12.9 percent); Illinois (up 11.6 percent); Michigan (up 38 percent); Minnesota (up 31.1 percent); Missouri (up 48.2 percent); and Ohio (up 14.3 percent)."
"'New residential foreclosures across the nation are up this year, driven in large part by increases in adjustable-rate mortgages,' said Brad Geisen, CEO. Geisen also stated that about 35 percent of all available foreclosed homes were purchased in July, a 5 percent increase over the first half of 2006 and twice the rate of existing-home sales nationwide."
"'Cleary, investors are becoming savvier when it comes to buying homes in foreclosure,' he said."
Over 800 Phoenix Defaults In July
The
Arizona Republic has this report on Phoenix. "More Valley homeowners are in danger of losing their homes than at any point in more than a year. Last month, 837 homeowners got notices that they were at least three months behind on their mortgage payments. Those notices mean their mortgage firms are getting ready to evict them and auction off their houses on the courthouse steps."
"This is just the beginning. Tom Ruff of Phoenix-based data firm Information Market, which tracks the foreclosures, said that by year-end trustee sales could be climbing by 100 a month. In June, there were 776."
"Why the increase? Thousands of people used the non-traditional mortgages last year to afford a house in the Valley, where home prices jumped nearly 50 percent. On many adjustable-rate mortgages, the monthly payment on a $250,000 loan could easily climb by more than $100 every six months."
"Arizona incomes aren't climbing at the same rate, and Valley housing appreciation is pretty flat. So unless homeowners win the lottery or take a second job, they don't have a big chance of catching up on their mortgage payments."
"Troubled metro Phoenix homeowners had been able to quickly sell, usually for a profit, until recently. The number of homes for sale across the Valley has tripled in the past year."
"At the same time that trustee notices are climbing, canceled trustee sales, properties that are sold or mortgages that are caught up to stop the foreclosure auction, fell to their lowest level since 2001. Tim Rocho, CEO of Scottsdale-based Real Estate Fortune, said many of the homeowners in trouble are too highly leveraged to sell or refinance and get out from under their debt."
Australians 'Battle To Hold On'
The West
Australian has this update from down under. "WA home owners are bucking a national trend of a dramatic jump in loan defaults, saving their properties from repossession on the back of the State’s booming economy. The number of bankruptcies in WA also dropped in the past financial year, contrasting starkly with increases in NSW, Victoria, Queensland and the Northern Territory."
"But the WA Consumer Credit and Legal Service has warned the statistics are misleading and fail to show the drastic measures, including expensive refinancing and heavy reliance on credit cards, being taken by home owners who are struggling to meet their mortgage payments in the face of soaring property prices and rising interest rates."
"The downward trend goes against reports of more people losing their properties in the Eastern States, with similar figures in Victoria surging dramatically. Consumer Credit and Legal Service director Sue Mahalingham said foreclosures on homes were the tip of the iceberg and many families were refinancing to make ends meet, often using non-mainstream lenders that left them with higher interest rates and more stringent loan conditions."
"Ms Mahalingham said reliance on credit cards and 'pay-day' loans was also increasing, while it was likely some home owners were selling in the buoyant market to avoid hitting the wall. 'It means they might be keeping their house but at a significant cost,' she said."
"'The statistics do not reflect a lot of the other information we have. Welfare agencies are talking about an unmeetable demand for their services and are running out of money for emergency relief months ahead of time,' she said."
Loans A 'Built-In Financial Timebomb': Mass.
The
Beverly Citizen has this from Massachusetts. "Second-quarter home foreclosures are up across the state and in Beverly, according to figures tracked by ForeclosuresMass.com. The combination of a cooling housing market, increased interest rates and creative financing like no-interest mortgages has put a fiscal squeeze on homeowners and left some unable to pay ballooning monthly mortgage payments."
"'What we’re seeing is a perfect storm,' said Jeremy Shapiro, president of ForclosuresMass. That perfect storm is behind the foreclosure increases, say both Shapiro and Thomas McElligott, vice president and senior lender at Beverly Cooperative Bank."
"Statewide, foreclosures are up 66 percent over the second quarter of 2005 and up 114 percent over 2004. In Beverly, the city has already recorded 53 foreclosures through June 30 of this year. That’s more than all of 2005, which saw 42 foreclosures. In 2004 Beverly recorded only 36 foreclosures for the year."
"Homeowners who gambled on dropping rates and increasing housing prices find themselves in a financial vise that is squeezing them with mortgage payments increasing anywhere from $300 a month to almost $1,000 per month."
"A homeowner with a $300,000 mortgage and an adjustable-rate mortgage has seen payments go up about $240 a month, McElligott said. If that homeowner, with the same $300,000 mortgage, had an adjustable-rate, interest-only mortgage, that monthly mortgage payment would go from about $1,250 to $1,980."
"McElligott said his bank stays away from such 'creative' financing precisely because of that built-in financial time bomb. 'At some point you have to pay,' said McElligott. 'Many consumers are only looking at their monthly payment. They don’t look ahead.'"
"Worse, said Shapiro, once in a creative-financing bind, many homeowners can’t get out by refinancing, even if they do look that far ahead. 'They are damned if they do and damned if they don’t,' said Shapiro. 'They have an adjustable rate and see down the road and try to get into a 30-year fixed. But they either can’t afford the 30-year payment or they don’t qualify. Sometimes, both.'"
South Leads California In Defaults
The
Associated Press has this report on California. "Mortgage defaults in California rose more than 67 percent during the second quarter, compared with the same period last year, the result of slowing annual home price gains, a real estate research firm said Wednesday."
"Lenders sent default notices to 20,752 California homeowners between April and June, a 67.2 percent hike from 12,408 in the same period last year and a 10.5 percent increase from the first three months of this year, DataQuick Information Systems said."
"The bulk of the default notices were sent to Southern California addresses, with homeowners in Los Angeles County receiving the largest number of notices. Twenty-three counties posted an increase of more than 50 percent in the number of notices during the quarter, with Riverside, Sacramento, Placer, Stanislaus and Sutter seeing their share of notices more than double."
"The number of mortgage defaults has been edging up since last fall, but the annual increase during the quarter was the fastest since at least 1992, when DataQuick began tracking defaults."
"The number of default notices bottomed in the third quarter of 2004 at 12,145, the firm said. The second quarter total was below the historical average of 32,762 filed each quarter over the 14-year period tracked by DataQuick."
"The number of mortgage default warnings sent to homeowners peaked in the first quarter of 1996 at 59,897, the firm said. The state's annual home appreciation rate peaked in the second quarter of 2004 at 22.8 percent and has steadily slowed since then."
"Roughly 7 percent of homeowners who receive default notices typically end up losing their homes to foreclosure, DataQuick said."
Ohio Rings Foreclosure Hotline
Inman News has
this report. "A national hotline set up by mortgage lenders to help homeowners stay out of foreclosure has fielded more than 2,000 calls from Ohio, where foreclosures have reached 'crisis levels,' the Homeownership Preservation Foundation reports. Ohio residents have made nearly a third of the calls to the hotline since a statewide program launched in April, said Lauren Crandall."
"The Foundation, founded in September 2004 with a $20 million seed contribution from GMAC-RFC, is working with NeighborWorks America, which offers face-to-face advice to home buyers at 245 locations around the nation. NeighborWorks has 10 locations in Ohio, which are 'heavily promoting' the hotline, Crandall said."
"Nationwide, the hotline has received 6,468 calls to date, Crandall said. A staff of 75 counselors can handle 10,000 inquiries a month, and traffic has steadily increased to more than 100 calls a day."
