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 ...
The current mess started because we did not wake up to the problem sooner.
This problem has been in the making for almost a decade. This is an abrupt correction in progress.
Yes, problems two time zones from an area with stable real estate values can away affect the entire economy. But a surge of mortgage refi’s in stable areas without the torubles can also stimulate the economy. For the first time, we have a glimmer of light and we should not fail to notice. Let the foreclosures continue in California, Arizona, and Florida, and other places. But at the same time refi’s in other areas will improve household finances in potentially millions of homes before it’s all over.
Typical mortgages are loans (the note) secured by the property. If the borrower does not pay the lender can only look to (foreclose) on the security. If the note/mortgage has a recourse clause then the lender can pursue any losses due to the loan against ANY of the borrower's assets including garnishing wages long into the future. I think. ;-)
It's the same phenomenom that caused so many complete idiots to go taking out adjustable-rate mortgages even as fixed rates were at historic lows: financial Darwinism.
The solution is the same bank that holds the origianl loan ( at the higher rate ) should be forced to refinace at the lower rate. They already own the worthless property - so there's no reason not to refinance.
Sure, that's one way, but how long do you think it would take for all those foreclosed properties to be resold and equalize the resale market to the point where property values rise enough to create equity in everyone else's property? I think ten years maybe. In the meantime, property values remain too low to permit enough resales or refinancing to create employment. Then too, banks can't make money unless they lend money, and -- as the article points out -- they're stymied until property values rise enough to exceed the existing mortgages. Meanwhile, we're debasing what's left of our currency by dumping trillions of dollars into what are essentially failed banks.
It never happens with 1st trusts on residential mortgages; second mortgages or home equity loans, yes, but not 1st trusts. The problem is that the foreclosing bank almost always bids the property in for its own claim, thus leaving no deficiency. And even if there were a deficiency, many states, like NC, have anti-deficiency laws, and the borrowers have an easy out in bankruptcy anyhow.
In addition banks are only lending up to 75% of the homes value is what I was told when we closed on a loan recently.
” Sure, that’s one way, but how long do you think it would take for all those foreclosed properties to be resold and equalize the resale market to the point”
It will certainly be less time, than having congress mess with situation.
Free market will start working when prices drop to level that brings in investors, if banks get hurt that is part of free market.
Keep govt out of this issue, and real estate will turn around. We have over supply of over priced housing.
Stop propping up banks that made bad investments(mortgages).
Why do people think they can pass bad investment decisions (a house) along to the rest of us?!
Just make your ***ing payments!...
Eventually, prices will go up over the long term - JERKS!...
When people realize they can’t refi the entire mortgage balance at a lower rate, due to Prop Value declines, they walk away from the property.
I think that is what the author is saying...
But it worsening NOW, because many people are JUST NOW entering the market, to find out this news, as they attempt to re-fi at a low, fixed rate...
The headline has no real relationship to the article except as a ‘shoehorn’ to fit it in past your common-sense firewall; the interest rate is real - what the writer’s complaint amounts to is just a rehash of the fact that mortgage brokers are somewhere below pond scum and used car salesmen in the sceme of things.
Where in the H did my h go...?
Scheme, darn it...
That’s how I understand it.
What I remember reading - 1st, or “primary” mortgages are (in many/most?) states are non-recourse loans. EXCEPT - if the loan has ever been refinanced, it is now a completely new loan and subject to garnishment of wages, etc. This gives me pause, albeit lenders aren’t in much of a position to do much these days. Point being, not everyone is aware of this feature.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.