What's Behind Foreclosures?

www.ksl.com, AP ^ | December 14th, 2007 | RACHEL BECK

[meadsjn]

ALL BUSINESS:What's Behind Foreclosures? December 14th, 2007 @ 10:31am By RACHEL BECK AP Business Writer

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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.

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[brytlea]

I’m curious how they get the information? Is it self reporting by the home owner, or is it verified? My point is simply that if self reporting, the person is going to try to come up with an excuse that seems to keep them from being at fault.
susie

[ColdSteelTalon]

I wonder how much its actually costing to give jobs to people overseas.

[Hoosier-Daddy]

Horsesh*t

[Hoosier-Daddy]

Do you know what’s behind foreclosures? Investor opportunities. The reason for this mess is the amount of liquid capital available after the tech bubble. Everyone thought they were a real estate expert. Well, the experts inflated the market, the banks provided vehicles to capitalize, and guess what? Income could not sustain the prices or the rents. It was the most obvious and unnecessary collapse in years, and the most illogical.

[ATOMIC_PUNK]

And just where and whom do you think will own or control all that foreclosed on property ?

I’ll bet in the long run the Government either owns or controls 85% of it for subsidised housing thousands of homes for new HUD properties given over by the banks who won’t be able to afford the upkeep and influx of so many properties to tend to!

[businessprofessor]

Bush and the rats have both proposed tax-free status for loan forgiveness. I understand how loan forgiveness could be used to avoid taxes. In situations in which someone loses a home, it seems ridiculous to consider loan forgiveness as taxable income. Your son may avoid a tax bill if he can postpone the default until next year.

[Deathmonger]

Wait till the negam recasts hit next year. Something like 40-50% of loans in CA at least were negams the past couple of years. When their principal balances hit 110%/125% of the original loam amount (depending on the program), the borrower gets hit up with a fully amortized payment that may be more than double what they payed before.

The real pain hits next year. This year has been painful merely because of the anticipation of what’s coming.

[Tom Bri]

I am a Realtor so I have a personal stake in this. I often tell people that banks will push them right up to their financial limits. So back off to 75% or even 50% of what the bank says you can borrow.

How will you furnish the house if you are already borrowed to the hilt just with the mortgage? Road to ruin. And then what if something happens to your income? Like one spouse getting pregnant and stopping work?

Never borrow as much as the bank says you can. Common sense, but, a lot of people don’t listen to me and go ahead and buy too much house. You can always buy up later, and save a bit of money now to take the family out to eat once in a while.

I blog about real estate among other topics at www.getnbetter.blogspot.com

[irishjuggler]

I think I would need to call BS on this ap story, where is the hard data!

I agree. I don't buy this at all. I haven't heard about any widespread cuts in wages. These so-called "cuts in income" are probably just the difference between the fictitious incomes that they claimed on their loan applications and their actual incomes.

[Standing TAll]

I live in Manassas, Virgina and the majority of homes being foreclosed or left for auction are primarily Spanish owned who have lost jobs due to the housing market downturn. Having been in the banking business for over 30 years, these loans should never had been made in the first place, but governmental intervention to force minority lending in the past five years has created the crisis at least in my area. Hope this provides some insight to the problem facing our nation

[meadsjn]

I didn’t write the article; I just posted it.

[JasonC]

It is really very easy to restore market transactions in real estate. Just drop the prices.

In CA, you might have to drop them by half. Yes half. Even that might not be enough, frankly. But you'd get transaction volume again. In the northeast, a third to half would do it, and in the rest of the southwest outside CA, even a third.

But pretending the bubble nosebleed prices are real and holding out for a buyer? Hell will freeze first. More to the point, the banks will get stuck with $100 billion in property, which they will dump, first. And prices won't stay up after that happens.

Lower prices won't hurt nearly as much as people fear. In fact, zero transactions for five years would be much worse.

[JasonC]

Nah, the article is instead making the entirely conventional point that most people who lose homes they actually could afford at one time, do so because they first lose their job. It is not a matter of wages dropping, or jobs - the first are higher than ever and there are more of the latter than ever. But there is always some churn, some people lose their job and it takes them time to get a new one, which may not pay what the old one did. People move down the economic ladder as others move up; it happens. And that churning generates most foreclosure volume, in normal times. (Well, another set of foreclosures actually come from very old "tear down" houses that nobody wants to live in - after grandma dies, the kids are out of state, it sits on the market, and ends up with the bank - but those are tiny houses in rural places, under 100k).

The wave of full priced houses being lost by employed people who just took on way more than they could chew in the bubble, really just hasn't hit yet. Or more exactly, is just getting going on the low end. Which is not to say it won't be a problem. But the backround rate of foreclosures has other causes, which are always there - obsolete houses and generational turnover on the one hand, and ordinary job market turbulence on the other.

[VeniVidiVici]

but governmental intervention to force minority lending in the past five years has created the crisis at least in my area.

I've thought the same thing. Never hear the MSM mention it.

[meadsjn]

The real pain hits next year

The next couple of years could be ugly in all sectors.

The article doesn't provide much detail, and it doesn't say what percentage of foreclosed homes were under construction or waiting to be purchased. There are many large developments with houses sitting unsold, and many unfinished, where the builders have defaulted on the construction loans. Many of those foreclosed properties will also have additional liens for labor and materials, further complicating their sale. Maybe Countrywide included these in the "loss of income" category for foreclosures.

Regardless, the sub-prime problems are yet to hit their peak.

[meadsjn]

Lower prices won't hurt nearly as much as people fear. In fact, zero transactions for five years would be much worse.

I agree. IMO, the whole sub-prime mess is a result of the PTB trying to keep the prices artifically increasing, instead of allowing the market to correct.

[jiggyboy]

Which means the new bill will do absolutely nothing to fix the problem, doesn’t it?

My apologies if I'm repeating myself -- I've seen some numbers that indicate that the number of mortgages that might be "saved" by this new bill is in the 200K-250K range. But that's probably high due to some of them being second mortgages or refinancings, which eliminates the mortgage from consideration.

[RipSawyer]

“Dad, this capitalism thing is fun!” I said, “Son, don’t take that ARM second mtge. It’ll bite ya.”

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Real estate prices in my county never reached the level of some areas but did rise above the national average. We are now hearing some reports of defaults in South Carolina. I was struck back in ‘01 by the amazing number of oversized McMansions going up just across the county line from me. We have two county seats here within ten miles of each other. I remember talking to people in the business who told me that most of those big houses were being built by two income couples who just barely qualified for the mortgage and would have no money left for maintenance or any kind of emergencies. It is amazing how many people want to live right on the edge of financial disaster. I have simply never been able to understand what satisfaction is derived from living in a huge house that you cannot actually afford and having no money left over for anything else.

[jetson]

And here our government is allowing illegals ( who in bulk are renters) to gobble up jobs as US citizens are struggling to keep their homes. Traitorous bastards.

[RipSawyer]

It was the most obvious and unnecessary collapse in years, and the most illogical.
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Absolutely, people confused cost with value! Most can understand that if a billionaire were to go to the most remote desert location he could find and build a huge mansion it could never be sold for anywhere near the cost of construction. Why is it that many of the same people cannot comprehend that simply running up the price because interest rates are very low and credit is as loose as a goose does not increase the actual value of the house? I have been to a lot of auctions and I have seen bidders pay eighty dollars for a fan which could be bought new for forty and which they had to remove from the ceiling to boot. Why did they do it? Auction fever, they forgot that they did not actually have to own it, they went nuts because someone else wanted it, it is an amazing thing to watch. Judging from comments I was reading on FR just a year or two back some people would have thought there was new wealth being created by those who bid up the price of the ceiling fan!