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Foreclosures, delinquencies reach new heights

by Morgan on September 5, 2008

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Foreclosures reached a 30-year high and delinquencies are triple what they were during the height of the housing boom reports Bloomberg. Of course, much of the problem stems from borrowers in adjustable rate mortgages who are faced with higher monthly payments. (Adjustable mortgages are typically higher once the short-term, fixed period expires.) With reduced home equity (or negative equity) and tighter credit guidelines, even good credit borrowers are unable to get in to a fixed mortgage.

We have been saying for a long time that these good credit ARM resets (including the negative amortization Option ARM loans) will be the next surge in the downturn. And that any pundit ignoring that reality is basically the Mad Hatter.

From Bloomberg on the increasing foreclosures:

Foreclosures accelerated to the fastest pace in almost three decades during the second quarter as interest rates increased and home values fell, prompting more Americans to walk away from homes they couldn’t refinance or sell.

New foreclosures increased to 1.19 percent, rising above 1 percent for the first time in the survey’s 29 years, the Mortgage Bankers Association said in a report today. The total inventory of homes in foreclosure reached 2.75 percent, almost tripling since the five-year housing boom ended in 2005. The share of loans with one or more payments overdue rose to a seasonally adjusted 6.41 percent of all mortgages, an all-time high, from 6.35 percent in the first quarter.

Tumbling home prices are making it difficult for even the most creditworthy owners with adjustable-rate mortgages to sell or get a new loan as their financing costs rise, said Jay Brinkmann, MBA’s chief economist. Prime ARMs accounted for 23 percent of new foreclosures and subprime ARMs were 36 percent, he said.

“People chose the lowest payment option to get into some of the very expensive housing markets and now that prices are coming way down, they can’t sell and they can’t afford the higher payments,” Brinkmann said in an interview.

Last 3 posts by Morgan

Related posts:

  1. Surprise, Surprise Alt-A and Subprime Delinquencies are…UP
  2. Job Cuts Reach 80,000
  3. Foreclosures Exploding, Surprised?
  4. Foreclosure rate rises to highest since 1979
  5. CMBS delinquencies rise as larger loans default

  • Ann
    Ok..so what are the lenders who have these time bombs of NEG AMS going to do? It seems that this country is always playing catch up on our problems rather than dealing with them on the smaller level...these lenders should start to be proactive and protect their shareholders by contacting these borrowers, especially the ones that are current, and make efforts to transfer these high risk loans to fixed low interest ones..forget trying to do the whole..lets see if you qualify..we already know most of these borrowers WON'T qualify under today's guidelines and these lenders should eat their own crow with the days of easy lending..but the time has come to deal with the storm before it hits the American economy...
  • Sue
    Ann,
    I agree with you all the way! Why don't the banks allow people to switch to a more affordable mortgage rather than guarentee themselves to have more foreclosures? I think many homeowners would be willing to eat the loss of equity on their home if their loan conditions were more favorable. Hindsight certainly is 20/20, but given the conditions of the housing market today it would seem prudent to limit your losses.

    Sue
  • Fielding Mellish
    The beginning of the end of falling home values is when we reach rough parity between mortgage payments on a house and comparable rental income for the same house. When a house that would rent for, say, $1,500 / month can be bought for a roughly comparable mortgage payment (including taxes & insurance, using a fixed rate mortgage with minimal down payment), then home prices will have reached their natural historic levels. A house that rents for $2,000/mo is not worth $600,000 in most cases.

    Another way to look at it is that home values should equal approximately 100 times gross monthly rent. That's a historical standard that goes back a century. It may not hold true in Manhattan or San Francisco, but should hold true in Atlanta and Houston, etc. A property that rents for $2,000 is worth $200,000 +/-, but not $400,000 or more.
  • Mick Mortgage
  • Its not like we did not see all of these foreclosures coming. I do not see why anybody would want to buy a home in the next two years if they do not have too. Home prices are going to continue to fall. Do not think that you are getting a deal by buying a foreclosed home because its worth half of what it was worth when it was bought 3 years ago. Find out what the property was worth in 2001 than make an offer 5% below that.
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