Posted on 12/14/2007 6:29:13 PM PST by meadsjn
ALL BUSINESS:What's Behind Foreclosures? December 14th, 2007 @ 10:31am By RACHEL BECK AP Business Writer
-- snip --
Data from Countrywide Financial Corp., the nation's largest mortgage lender, backs up this point. The No. 1 reason its customers have been defaulting on mortgage loans is because their income was cut. That accounted for almost 60 percent of its loan defaults in the first 10 months of this year; add in sickness and divorce and the total jumps to more than 80 percent.
Way down on the causes-for-foreclosures list at Countrywide _ just under 2 percent _ is a payment adjustment.
In other words, there's little evidence so far that the mortgage mess is a product of cash-strapped home owners being crushed by resets on adjustable-rate mortgages, or ARMs, that send their monthly payment soaring.
That could change as ARM rate resets pick up speed in the months ahead. Bank of America estimates that will peak next year, with $361 billion subprime ARMs shooting higher, and $148 billion will reset in 2009. Still, the Countrywide data give a clear view of what may really be pushing some homeowners over the edge.
-- snip --
(Excerpt) Read more at ksl.com ...
What’s behind foreclosures - people not paying their bills. Simply really.
Ping!
Which means the new bill will do absolutely nothing to fix the problem, doesn’t it?
Sorry, but data from Countrywide is as suspect as a pimp talking about why fewer people are paying for hookers.
Ok, what does that mean? First, a cash out refinancing means the person already had a mortgage, and took out a new one to pay the old one off in full - and took some money out, as well. Rather than paying down, this means the mortgaged amount increased - it was for more than the old mortgage or was used as a way of taking out some of the home equity.
But what a second - what makes a mortgage subprime to begin with? Poor credit for the borrower. OK, what is the leading cause of that poor credit, present in nearly every case? A missed mortgage payment, frequently 2 or 3 in the previous year.
In other words, half of the subprime originations were people who couldn't pay the old mortgage, getting *paid* by the bank, to take out a *bigger* mortgage. The "paid" part could then be used to stay current on the next few mortgage payments.
This means the banks were throwing good money after bad, and avoiding an event of default by loaning more and more to their deadbeat borrowers. Why were they doing this?
Because they believed higher house prices would save the day, even for deadbeat borrowers who could not afford their smaller, older mortgages. They were engaged in a greater fool theory trade - they expected the borrowers to ride house prices ever higher, even without being able to pay the interest, and to pay said interest *out of* the house price appreciation.
And eventually to sell at a big fancy price, and pay off the loan in full.
OK, sell to whom?
Crickets chirp. And here we are.
Seems to be -- also from the article:
That undermines the notion that the government's biggest move yet to deal with the credit and housing crisis will have a dramatic impact _ or lessen the chances that the economy will fall into a recession just as the presidential election year begins.
Why, that’s such a mean thing to say about a respectable corporation. You might hurt the stockholders’ feelings.
Not much, really if this is the case.
On one hand maybe they’re trying to pre-empt it? OTOH, who knows.
Glad I could be of service!
They're so blinded by the sting of their own irrelevance that they're still taking potshot at him, and he can't even run again.
I think I would need to call BS on this ap story, where is the hard data!
This is exactly what happened to my 36-year-old son. It was his 3rd house in 5 years. His present Las Vegas house (the one he is now losing) was worth $486,000. He had paid $386,000 a year earlier, while it was being built. He said, "Dad, this capitalism thing is fun!" I said, "Son, don't take that ARM second mtge. It'll bite ya." He said, "Awwwww, we're only gonna hold it 4 years, then flip it". Instead, he took a house in a state where prices (and crime) are much lower, to raise his family. The housing market went south in Vegas, and he is way upside-down on the Vegas house and can't sell it. He is losing it, and his credit rating for the next 7 years, and will be hit with an enormous IRS bill. That, in microcosm, is the nature of this beast.
This was an enormous risk that ultimately ruined him financially -- even more so than taking out a large mortgage on the Las Vegas home.
Fortunately, it sounds like he's at least got some time to repair his credit record -- and has another home in which to live.
Homes don't sell, painters aren't painting and carpenters aren't nailing.
Real estate agents aren't earning, settlement attorneys and title companies
County and State budgets lose revenue on transfer and recordation taxes and plain sales tax.
We're all gonna die!
And they keep insisting on lending money to these people who don’t have enough income to pay their bills! go figure.
Falling home values are the #1 reason. Even if someone loses their job, if they have significant equity in their home, they will find a way to save it. Losing a job and having no equity or worse being upside down makes it real easy to walk away from a home.
You have assessed it well. He did the wrong thing for the right reason, and should be alright, for the most part, with a roof overhead (a nice one at that), and they both have good, high-paying jobs. And no credit. I've heard of worse. Time to lick the wounds and get on.
But don't let him take that as some kind of encouragement to get back on the real estate bandwagon!
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.