1. CNN reported today that foreclosure filings are up 120% more in the second quarter of this year than what they were this time last year. It really should come at no surprise to anybody.
2. Right now a lot of people that took out adjustable rate mortgages from 2003-2005 are starting to see their interest rates finally adjust on them and are trying to deal with the increased payments. Many of these same people that took aout an adjustable rate mortgage also took a home equity line of credit when their property was increasing in value. They also took out their home equity loan right up to 100% of the value of the home more than likely to pay off credit card debt or other things they did not need. Now they have two loans combined and owe around 125% of what the home is worth.
3. Parts of the country like the mid-west, especially Detroit (1 in 66 homes in foreclosure) and parts of Ohio like Akron and Toledo are being severely hit with this foreclosure epidemic. The crazy thing is that they do not even lead the nation in this category. Stockton, CA leads it with 1 out of every 25 homes. Its probably due to the ridiculous home prices that were in that area during the refi boom because San Francisco is so expensive to live there. People thought they could make the drive from Stockton to San Francisco for their jobs but now with fuel prices around $4 a gallon its just too much to do.
4. The mid-west is suffering from major job losses in the automotive industry. It’s almost everyday that you hear one of the auto manufacturers like Ford, GM, and Chrysler laying off more workers. Its not that home prices were very high even during the refi boom because many auto workers made good money to afford the homes. Now its that just don’t have any money to pay their mortgage payment. In California and Nevada home prices were past what market levels should have been at and people are now stuck owing 25% more than what they owe on them. Inflation is pushing home owners out west to foreclose, not loss of jobs.
5. The National Realtors Association has been changing their estimates on how many homes they think are going to be sold. I don’t know why they make estimates in the first place. Why don’t they just say that “there are a ton of homes for sale and nobody wants or can afford to buy them.”
6. With all of the bad publicity about adjustable rate mortgages and sub-prime home loans you will see pretty much everybody start asking for 30 year fixed rate mortgages. I guess we all learned from out mistakes and know that gambling on what interest rates will be like in the future is not a calculated risk. Many mortgage companies told clients that rates go up and down every 3 years and that when their loan would adjust they would refinance them into a fixed loan.
7. Of course they would refinance them into a fixed loan because then that meant more fees and closing costs they could collect. Mortgage companies do not get paid on the interest rate they charge. They get paid when they originate your loan and sell it on the secondary market to a larger bank or hedge fund that collects the interest from your payment.
8. Right now this strategy from the mortgage companies is back firing on them because now you would think that there are a ton of people (there are) looking to refinance their home and get out of the adjustable rate. Problem is that they cannot refinance because the mortgage companies guidelines have changed dramatically in the past year and many home owners cannot get approved on a new home loan.
9. Many people are stuck in loans in which they owe more than what their house is worth. No mortgage lender will do loans over 100% of the value of the home and most will only do up to 95% at the maximum. The FHA loan is becoming popular again because of funding from the government (thanks but no thanks). This takes the burden off of the mortgage lenders because the FHA is insuring the loan in case of default. Interest rates on a FHA loan are usually .5% lower than a normal conventional loan but it does not matter. On a FHA loan the borrower has to pay a mortgage insurance either up front or monthly with the payment. This extra insurance should be considered an interest rate. Interest rates on a 30 year fixed as of July 25, 2008 are around 7.5% with no points on a 30 year conventional loan. A FHA loan is around 6.75% with no points. The reason the FHA does this is because they determine what they want to do (because they are the man they set prices on whatever they want) while major investment firms cannot do this. You can see why the FHA is becoming popular again.
10. We should expect foreclosures to continue well into 2010 at the same rate before things start leveling off. There is not going to be a real estate rebound or recovery. How will it? People are losing jobs left and right and there is no new technology or thing we can manufacture on the horizon. So many home owners are doing their best to avoid foreclosure but there is not that much they can do. If you are smart you will wait to buy a home until 2010 regardless of where you live. Foreclosures affect every home value for every property within a 1 mile radius.