Posted on 02/02/2010 6:51:22 AM PST by TigerLikesRooster
Rising FHA default rate foreshadows a crush of foreclosures
By Dina ElBoghdady and Dan Keating
Washington Post Staff Writer
Tuesday, February 2, 2010; A12
The share of borrowers who are falling seriously behind on loans backed by the Federal Housing Administration jumped by more than a third in the past year, foreshadowing a crush of foreclosures that could further buffet an agency vital to the housing market's recovery.
About 9.1 percent of FHA borrowers had missed at least three payments as of December, up from 6.5 percent a year ago, the agency's figures show.
Although the FHA's default rate has been climbing for months and eating into the agency's cash, the latest figures show that the FHA's woes are getting worse even as the housing market shows signs of improvement. The problems are rooted in FHA mortgages made in 2007 and 2008. Those loans are now maturing into their worst years because failures most often occur two to three years after a mortgage is made
(Excerpt) Read more at washingtonpost.com ...
P!
More “green shoots”?
Love the mantra, “the housing market is showing signs of improvement”.
The truth? With the current economy and the ridiculous hoops all borrowers must jump through to even obtain financing, the housing market has no bottom in sight.
They need to account for walk-aways in these stats. I knew a flipper who had 11 houses when the bottom fell out. There was no way.
Another guy bought a $500,000 house that fell to half that a year later.
There are circumstances where the right thing to do is to walk away. The poor little innocent mortgage companies knew what they were doing when they gave the loan. It is a deal you give me money to buy the house. If I don’t pay, you get the house. Walking away is a legitimate and legal business transaction based on changing circumstances.
Neither of these guys is going to be homeless. They didn’t get fired or go through a layoff. They simply exercise an option of their loan agreement.
Wow, Washington Post, obama’s mouthpiece is actually reporting on this.
In the old days, when property value only went up, most banks wouldn't bother to chase down the borrower because the residual debt wasn't large enough to warrant the additional cost.
These days, however, more banks are making continued additional payments a condition of short-sale agreements, and are hunting down deadbeat borrowers who leave the keys in the mailbox.
I am by means an expert on such thing but I find you comment interesting.
I can see it. But can a challenge be brought that when the loan was made, both parties agreed that the home is worth $X and both parties agreed that the home is in lieu of $X?
Maybe it depends on how the contract is worded.
For example a repo guy may take your car but you don’t get sued on top of that or do you?
I am interested in what you have to say.
This surprises no one who knows anything about the industry. As soon as the subprimes went away everyone started using FHA as the sub-prime alternative. I knew brokers who in 2008 did almost exclusively FHA loans because they were the only ones that had lose enough lending rules to let people through.
I said it back then that FHA was another sub-prime debacle waiting to blow up.
I have first hand experience in selling a house to an FHA-financed buyer. Short story: The wife’s credit was so bad she wasn’t allowed to sign on the mortgage. The husband had to go to credit counseling and repair his credit. I sold a house to the husband for $128k and his total cash commitment at closing was around $1,200 to $1,500. This one is a foreclosure waiting to happen.
Only if the buyer is unlucky or irresponsible. Unlucky enough to become unemployed, that is. FHA buyers have to qualify financially, wages vs. debt, etc. If they can't prove the ability to make the payments, they are denied the loan.
When I consider the wife has bad credit and the husband has had bad credit, I think the chances of default are pretty high. I, personally, would never make them a loan, but FHA did.
There goes some of the $6.3 Trillion obama kept off the books
http://www.bloomberg.com/apps/news?pid=20601110&sid=aqifb.wX_npo
I've worked with a number of clients who had that (or a similar) profile, but cleaned up their act. FHA must believe in redemption!
I think the first part of the hypothetical (i.e., agreeing on the value of the house) is valid, but the second part (home in lieu of principal amount) is not, due to the way the mortgage doc is written. The principal amount is denominated in dollars, and the repayment schedule is laid out and specified in dollars.
I think ultimately the laws depend on the particular state. Some limit the lender to only taking the house, others do not.
You're right that GMAC doesn't come after the borrower for the deficiency after they repo his car, but someone defaulting on his car loan probably doesn't have much money or assets, so it will likely cost more to pursue legal action than to hire Emilio Estevez to boost it. It's also possible that states limit recourse as well.
I understand.
Thank you
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