The Foreclosure Report

'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.'"

posted by Ben Jones @ 1:07 PM