Posted on 12/27/2008 7:29:45 AM PST by TigerLikesRooster
Low Mortgage Rates to Spur New Wave of Defaults
Posted on December 26th, 2008
Talk about unintended consequences. The following is significant insight from the street level. This is especially important for those of you thinking that these low mortgage rates will lead housing and the consumer to the Promised Land.
/snip
These days the process has changed a bit. Now the first thing done after the loan application is taken is to call the appraiser for a comparable sale check to see if the value at which the home owner states the house is worth is on target.
Therein lays the rub.
From early reports since rates fell sharply in early December, 80% of the loan applications are not getting out of the starting gate easily. Loan officers are all saying the same thing — that appraisals are not coming at value due because ‘all of the foreclosures and REO sales have taken the value down’. In the majority of these cases, this kills the loan.
The loan officer then notifies the borrower of the news and they are in disbelief. All home owners think that their home is worth the most on the block and I have been told that this is a tough pill to swallow. This brings the crisis home instantly.
Everyone trying to refinance into lower rates at once should hasten the national reality that the largest portion of the home owner’s net worth has evaporated in the past year. One loan officer I spoke with equated this call to a Doctor notifying a patient that they had a terminal illness.
(Excerpt) Read more at mrmortgage.ml-implode.com ...
Ping!
I’m fairly competent at reading the English language.
I liked this article so much I read it twice...
and still don’t know what the H this guy is trying to say!
He represents EXACTLY why we are in deep shinola. Doublespeak and three card monte!
This is exactly the news contained in the real estate section of our local newspaper a couple weeks ago.
I think what he/she is trying to say, that people that want to refinance at lower rate are finding their equity went up in smoke. Their house isn’t worth what they owe on it.
We are doing a refi to well under 5%. An appraisal is done as part of the process, duh. So we expect the appraisal to show a lower value then in the past. Great ammo to go to my local taxing authority and have them drop the market value to reflect reality.
All the while fleecing those not wise enough to figure it out.
Where I disagree with Mark is the cure. While I don't support the appraisal waiver on refinances, I do support the relaxing of guidelines and pricing bumps. If you successfully allow a borrower to lower their monthly payment through refinancing, I don't believe this would cause a new wave of defaults. Rather, this should create a more solid block of paying customers.
One thing here, this credit scoring system is a very flawed method of determining a borrowers credit worthiness. How on earth did our mortgage/housing market ever survive for years with no scoring system, actually having live underwriters looking at applications to determine a borrowers ability to repay a loan.
Well, that woulda been easy to say!
I believe, but cannot point it out exactly, but I believe I read something recently that said about one third of residential mortgages in the country now were upside down.
That’s like 10+ million units.
Fortunately, I own my home and have for some time. But were I a mortgage holder, the loss of substantial equity would certainly not drive me stop making payments or force me to sell at a loss. After all, I would still need a place to live! It seems quite obvious that those who are not making payments are either the quick profit seeking speculators or the owners who could not afford to make those payments in the first place.
Fearful and interesting times we live in.
Payoff debt and collect drygoods and ammo.
They are trying to walk an impossible tightrope.
On one hand, they want to come up with methods to lower payments, thus stabilising the base of payers.
On the other hand, they want to avoid at all cost home devaluations, and the affects that can have on neighborhoods.
These are two incompatible goals. It’s the astronomic rise in haome valuations that caused the bubble in the first place.
I wish I knew of a good way to short real estate. I’d be richer than Warren Buffet!
Translation: “Your house is worth less, and your credit score / FICO has gone down, and the rates you read about don’t exist”
Okay.
Can someone explain what “recourse” means with respect to mortgages?
Dad explained it to me, which the particulars pretty much escape me, in our state the “millage rate” (per thousand?) can go up with the assesed value going down. Bottom line: taxes go up or at least, don’t decline.
That makes sense to us, but not to the banks. How, for instance, would the bank sell and package the new mortgage, which is greater than the value of the property securing it? Even if the mortgage is not sold, how will the bank value the mortgage on its own books when it is underwater right from the start? Admittedly, the original mortgage is underwater as well, but it won't have to be revalued if the property is not sold or refinanced.
With so much of the country's real estate now worth far less than the mortgages on it, a great block of the real estate sector is literally dead to commerce: it cannot be sold or refinanced, only abandoned or foreclosed on. Since so many people derive their incomes from real estate, starting with real estate agents and bankers, cable installers, plumbers, carpenters down to the clerk at the local hardware store, I don't see how the economy will pick up if we just let things drift along as they are. It may take a decade or more before inflation solves the problem for us. Somehow, congress is going to have to come up with a method of cramming down mortgages to at least property value at the same time they are bailing out the banks.
While it is true, equity has gone through the chimney in -the formerly hot markets, people forget that the vast majority of the country never had runaway price increases. Mortgage refinancings work fine for these people. Even in markets where prices got out of control, there are millions of people who bought their house before the boom. These people can refi, too. We’re in a bad situation, but seeing everything with nothing but doom and gloom is not facing reality but indulging in emotion.
“Somehow, congress is going to have to come up with a method of cramming down mortgages to at least property value at the same time they are bailing out the banks.”
If congress would stay out of problem, would likely be solved faster.
Free market could solve by having investor’s buy discounted real estate(foreclosures) for dimes on the dollar, then investor could resell to buyers for markup of dimes on dollar above cost.
Banks are able to get bad debt off books, investors are able to profit. Also banks could probably write off difference
Or someone who is no longer employed.
IMHO the shakeout over the last 18 months has pretty much taken out the folks you seem most concerned about......now we'll start seeing the real bloodletting among the newly jobless middle class.
I'm sure you'll enjoy it.
I think the whole article boils down to the fact some homeowners who try to refinance find they are “upside down on the mortgage”; owing more from the original mortgage than the house is currently worth.
I think the whole article boils down to the fact some homeowners who try to refinance find they are “upside down on the mortgage”; owing more from the original mortgage than the house is currently worth.
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