Does the remarkable home foreclosure rate indicate a hidden problem in the economy?
Question:
This is an issue that is troubling and interesting. 180,000 foreclosures reported in July, 93,000 in that same month one year ago, and that, was considered a high mark. We are approaching some 2 million foreclosures a year quickly. To put this in perspective, there are about 100 million households in the U.S., with about 60% of those, owning homes. This means that more that 3% of households will forclose on their property, PER YEAR! Could we be looking at the foreclosed home generation?
I am not indicating that the government should bail people out of their losses, rather, wait is the problem underlying the issue? Predatory lending or wacky ARMS might be a contributo, but, they are but a small piece of lending, with 10 - 20 down with a fixed mortgage of 30 years, still, the average, the norm.
What's going on?
Answer:
The problem is even bigger than most think. 10-20% downpayment is not the norm btw. Aggressive lending guidelines over the past 10 years due to investors buying these loans were the problem. As long as lenders coud sell these loan and make $, they did. Also, the public in general looks at their home a a line of credit and many have refinanced many times and got equity lines. So many questionable and good credit people bought homes with 0 down or did 100% refis without regaurd for the loan type assuming they can just refi when there loan adjusts. Then foreclosures started in the urban areas first.These houses were sold by the banks to investors for a loss, causing comparable sales for appraisals on future mortgages to go down. This has bled out to the suburbs now,causing house values to plummett and will continue in a snowball effect.
Now,even people with good credit are going to have around a 30% increase when their loan adjusts which will create even more foreclosures and lower house values. They can't
refi because their house is now worth les than what they owe.
I definitely see a recession on the horizon and this will take years for home values to turn around. Until home ownership goes back to around 40% where it belongs,it wil get worse.
Yes. Adjustable Rate Mortgages. They should be outlawed.
They is the reason we are in the mess we are in today.
.
people are over extending themselves, thinking that the good times are just going to keep on rolling and not seeing the consequences until it is too late.
I have an ARM, I couldn't afford my home without it, but I made sure I got one with a fixed rate for 5 years and once the rate can change, my interest rate can never go up more than 5% from where it intially started and after the first year can't change more than 2% from one year to the next. So I will never have to worry about my mortgage payments suddenly doubling and have a better chance of keeping my home through the bad times than someone who just took on more than they could handle...
Greed is the root of all evil. Money just happens to be what the greedy crave. Someone trying to make a decent living and have a nice place to live and they are preyed upon by the greedy. Greed is everywhere and it seems to be getting worse.
First of all, you need to realize that neocons do not respect education. So your degree means nothing to them.
Secondly, any problem with the economy is Bill Clinton's fault. But the foreclosure problem, they blame on all those "liberal" banks out there who lend money to people who have less than stellar credit ratings.
What they don't realize is that it doesn't matter how good someone's credit rating is, if the prices of consumer products keep going up and up and up, and salaries aren't increasing at the same rate, eventually, people have to choose between making mortgage payments and feeding their families.
The problem I see is too many banks and mortgage companies were loaning money to people they knew couldn't afford to pay it back.
It is symptomatic of the low rate of savings in the US today...
Folks do not save to purchase or make significant down payments - they opt for credit debt instead...
Banks were giving out loans to people who are risky so they gave them high interest rate loans. The banks have made hundreds of millions of dollars on the housing boom. The house flippers who wanted to take the risk to buy a home do a little fix up and put it back on the market hoping to sell it for a profit before the first payment comes due, are not folks that I feel need or deserve financial bail out.
nothing gets by you, does it? you need an MBA to tell you that?
I live in San Diego and have seen the price of homes go through the roof. This increase was sustained for such a long period that (I believe) many people acted like it was never going to end.
If that was the case, everyone would be OK. But housing prices flattened and are now going through a correction. Many people are finding themselves "upside down".
We are now living in the fast food generation.. everyone wants what they want, and they want it NOW!! Instead of working up the ladder, people are buying homes beyond their means and stretching their budgets to the point they are thinner than ice. Eventually, the ice breaks. It's like a friend of mine, depsite my trying to reason with him, he insisted on building a brand new home as his very first home. He was an average payed union worker... making about $18 an hour. After having taken out the taxes from his wages, his mortgage was almost as much as his monthly salary. Sure enough, one weekend, while workin on his house, he fell and broke his arm very badly. Now all they had was wifey's income to fall back on because they had always been spread so thin that they hadn't been able to save any money. She made about $12/hr. which wouldn't even cover the mortgage, let alone the bills. so they lost everything....
Had they have bought sensibly, it would have been rough, but they could have made it through. Instead, they bought beyond their means, and lost it all. This is the fast food generation. and yes, it's going to get worse because we promote this way of thinking. Likewise, the people lending the money are making these sorts of loans, when anyone decent at math can easily calculate what the end result of these types of loans will be..
I just think it means that people are not making wise decisions about spending their money. Nothing new there.
Simple...
First
Home values were jumping up at a 20-30% a year pace. Income levels were not rising during this time but due to refinancing equity cash outs there was a lot of spending liquidity for the consumer.
Second
The lending market allowed no qual, income stated loans which used to be the exception to become the standard because the ratios were becoming so obscene that very few people would qualify for a loan. Couple that with a ARM and now you've set up a time bomb.
Solution is... Let the market correct itself. It's going to be a bloody mess in all sectors but it needs to correct. The Fed infusing more cash and lowering interest rates is just killing our currency value and also just putting off the inevitable collapse.
In about 8-12 months there will be some nice properties for savvy investors to buy.
I still love the Dick Cheney quote, "Deficits Don't Matter" Explain that to the Marshall on the Tuesday the bank forecloses on you/
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