Job Losses Push Safer Mortgages to Foreclosure

[Amerigo Vespucci]

Source: The New York Times

As job losses rise, growing numbers of American homeowners with once solid credit are falling behind on their mortgages, amplifying a wave of foreclosures.

In the latest phase of the nation’s real estate disaster, the locus of trouble has shifted from subprime loans — those extended to home buyers with troubled credit — to the far more numerous prime loans issued to those with decent financial histories.

With many economists anticipating that the unemployment rate will rise into the double digits from its current 8.9 percent, foreclosures are expected to accelerate. That could exacerbate bank losses, adding pressure to the financial system and the broader economy.

“We’re about to have a big problem,” said Morris A. Davis, a real estate expert at the University of Wisconsin. “Foreclosures were bad last year? It’s going to get worse.”

Read more: http://www.nytimes.com/2009/05/25/business/economy/25foreclose.html?_r=1&hp

[obliviously]

1. The foreclosures

have got to stop! I see pictures on tv of perfectly good houses that have been foreclosed on and are being bulldozed. The properties are then sold cheap as lots while the families that lived in them are kicked out on the street for being two payments late. Who gains anything from this?

[Lorien]

3. I doubt that foreclosed properties are being bulldozed

but you can provide a link if you've got one to back up your claim. The banks gain a lot from this; they can "flip" homes for far more than the amount owed on them and they make a tidy profit, obviously.

[Tansy_Gold]

4. Actually, the banks aren't gaining.

If they were, they wouldn't be holding 500,000 foreclosed properties off the market.

At least, the banks aren't gaining on the foreclosed properties; what they're gaining on is the govt hand-outs, the CDSs, and other bullshit.

Homeowners not so much.




TG

[obliviously]

5. They showed

it on our local tv station. They said it was cheaper to do that then for the mortgage companies to keep up the properties. In many cases they were offering the properties to the neighbors and they were buying the lots for as low as 25.00. I will see if I can find a link.

[obliviously]

7. This is not the

specific story I refereed to.I could not find it. But it is similar.

http://emac.blogs.foxbusiness.com/2009/05/15/derided-housing-fix-catches-on/

[Autumn Colors]

14. You doubt that foreclosed properties are being bulldozed, huh?

You won't believe it without links? Here you go....

"Are Bulldozers Now the Best Neighbor?"
http://www.cnbc.com/id/30580830/

http://www.youtube.com/watch?v=qvrc7x3Amps

http://themoderatevoice.com/29597/many-foreclosed-homes-throughout-the-country-doomed-to-be-razed/

http://www.cnn.com/2009/US/04/16/damaged.foreclosures/index.html

http://piggington.com/20_new_homes_to_be_bulldozed_in_temecula_signaling_a_bottom

http://www.boston.com/news/local/massachusetts/articles/2008/11/23/foreclosures_double_in_new_bedford/

Not a new phenomenon, though. Here's an article from 2007 regarding the same in Flint, Michigan:
http://www.npr.org/templates/story/story.php?storyId=15766619

[DollyM]

16. I saw newly built homes being bulldozed . . .

I think in California, developers are bulldozing houses that are newly built or are in the stage of being built as they know they cannot maintain them. It is cheaper I suppose to take their losses early rather than let them sit and deteriorate.

[Skink]

18. There is a lot of Chinese drywall out there.

Nothing against the Chinese. Cheap drywall the toxic asset.

[Demobrat]

30. In some cases entire subdivisions are being bulldozed

http://abclocal.go.com/kabc/story?section=news/local/inland_empire&id=6797624

[Javaman]

35. You asked, you got it...

Lenders, Saddled With Foreclosed Properties, Decide To Bulldoze Them?

http://www.just-a-regular-guy.com/2009/04/28/lenders-saddled-with-foreclosed-properties-decide-to-bulldoze-them/

[AllentownJake]

8. I can think of a reason the mortgage companies are doing this

Real Estate taxes. If they keep the property as is, they are now responsible to the state and local government for the real estate taxes. If they devalue the property, they no longer are responsible.

It means that the banks think this recession is going to be longer than anticipated.

[xxqqqzme]

32. High property taxes can be a

motivator for destroying homes. Back in the S&L failure days, I participated in a massive asset sale of commercial properies doing due diligence on delinquent properties. Making certain property taxes were current was part of the drill. Although money had been set aside to pay the taxes, (Bank of America, seller) most of them had not been paid (These were properties that came through the Resolution Trust Co. set up to 'manage' to assets.) The asset properties were scattered all over the west so some of the properties had already been sold at tax sales. By the time some of these assets made it through the system, (unfinished, huge commercial projects that were stopped because the money ran out) like ski resorts, malls, etc. had to be torn down primarily because of weather exposure It was a mess.

It ended up as a boon for me because what started out as a temp job turned into permanent position w/ the consulting firm doing the due diligence.

[Ecumenist]

17. Where do you live, Obviously?

I've never seen foreclosed bulldozed and I'm near the epicenter of the foreclosure disaster.

[obliviously]

34. Northeastern Oklahoma

We are still more fortunate than many other states but it is coming our way. I was late on our house payment this month but next month I should be on time. It is hard to pay the bills with one income and that income is cut in half by the recession. Health care and any extras right now are out of the question for us.

[dugaresa]

22. i think those homes you saw were bulldozed due to construction problems as well

as the fact that the builder went bankrupt.

[DJ13]

2. Hey all you Congressional Cowards

Cram Down that!

[Amonester]

6. Oh, I'm sure they don't care.

They've got their financiers (the ones they rewarded with our grand-grandchildren's money).

They've got their healtcare plans (the ones they allocated themselves by just voting for them).

They've got their retirement plans (the ones they... well, same old, same old...).

And still, they don't see anything close to moderately BIG crowds protesting anywhere (seriously).

Why would they care then? :grr:

If anything, they'll be back on their re-election campaings promising anything they'll never deliver afterwards and they know they'll be voted back in.

[AllentownJake]

9. There is no way to prevent the coming depression

Geithner and his pals fooled Obama and the democrats with the bailout. I'd say they fooled Bush but I'm sure he wouldn't care if he knew he was giving trillions to his banker buddies.

[obliviously]

11. you are right

we are in this depression for the long haul . I think the banks and Insurance companies fooled everyone.

[AllentownJake]

12. They are professional con artist

[obliviously]

13. They have

forced the entire planet into a state of misery and they will likely get away with it.

[krabigirl]

25. Yep. The bailout should have focused on job creation and penalties for offshoring.

[lifesbeautifulmagic]

10. tell the freaking profitable companies to quit laying people off,

the stockholders can wait, and they can drop the outrageous executive compensation.

Did they not think the layoffs would trickle down?

[bobshin]

15. Seemed pretty obvious to me. The next wave will result from the devaluation

of the market from all the foreclosure sales exacerbated by the people on unemployment who can afford to make payments only as long as their unemployment checks come in. The extension of unemployment benefits will delay those foreclosures. There will be no comps to support even lowball values. Even if the banks were lending, I'm sure they'd hold off to see what's further down the line. To make matters even worse is the loss of property tax revenue that will concentrate the tax burden on the shrinking number of homeowners who are keeping up- the next wave.

Thanks to Obama and Congress for giving all our money to the banks and not to the people in trouble. Now the snowball is swiftly rolling down the hill.

[Demobrat]

19. The next wave of foreclosures will be the result of

pay option 5/1 ARMS made in 05 & 06 recasting due to negative amortization. 2010 is going to be a big, big year for foreclosures. We ain't seen nothin' yet. Count on it. Oh, and don't even think about buying a house for at least two years. Prices are headed in only one direction, and this next wave is going to hit mid and high-priced homes just as hard as the low end got hit in '08. Good times.

[PSPS]

21. You're the only one so far on this thread that accurately states the upcoming problem

There is a tidal wave of pay-option ARM's (a.k.a. "liar's loans") being recast now through 2012, and the majority of those will go NOD to foreclosure. There's no escaping this, as there's no way the buyer would ever qualify for a real mortgage on the house. They never made enough money in the first place -- hence their choice to go the no-doc route to buy what they couldn't afford. Plus the house is worth maybe half of what they owe on it. Many of these people will just walk away.

As for the future of housing prices and when is a good time to buy, there's no rush. Prices will continue to decline for at least another two years. Some areas, like lower-priced ones, have already seen their prices get hit hard. The middle and upper-priced areas have much further to drop, but they will. And housing prices won't start going up when they bottom out, like a 'V' shaped curve. Instead, it will be more like an 'L' with prices staying at about their bottoms for at least another ten years, maybe even twenty if we continue to have the criminal banksters running the country. The fundamentals just aren't there to justify housing prices going up anytime in the foreseeable future. There has to be higher wages before the price of housing can go up again and wages have been stagnant for thirty years.

Some people think we'll bottom out at 1990 prices but I'm not so pessimistic. I think we'll see housing settle at about where it was in 1995 or 1996. I guess we'll find out as the years go by.

[Dappleganger]

28. The resets have already begun...

we are only 1/3 of the way into foreclosure hell.

[Demobrat]

29. Yep. Banks like Wachovia were still making those loans in 08.

Assuming those homeowners manage to hang on for the full five year intro period they won't work their way through the system until 2013. Resets, where the APR goes up, are bad enough. Recasts, where years worth of neg am resulting from paying less than the full interest due each month is added to the principal at the same time the intro rate ends, are a whole other form of misery for the hapless homeowners. Combine that with lower property values and walking away becomes a no-brainer.

[Dappleganger]

31. Here's an interactive map to show where this is happening

http://www.newyorkfed.org/mortgagemaps/

Here's the Map of Misery from 2006: http://www.businessweek.com/common_ssi/map_of_misery.htm

You think the sub-primes were bad, just wait until these take full effect. I think that 90% default rate is rather hopeful in this scenario. :(

[Demobrat]

33. Great map. CA is sooooo effed.

But we knew that. There is a bright side to all this for some people, those who will be looking to buy their first homes in five years or so. They'll be able to do things the old fashioned way. Save up a down payment, get a mortgage that's 3X their annual income instead of ten and live happily ever after. The boomers, on the other hand, are taking the brunt - which means those who can will be hanging onto their jobs a lot longer, to the chagrin of those right behind them....

[KillCapitalism]

20. I wish they would quit lying about the unemployment rate.

If it were really only 8.9%, these problems wouldn't be near as bad.

Take 8.9 X 3 and you probably have the real unemployment rate.

[obliviously]

24. They only sow those who are drawing unemployment

A lot of peoples benifets have run out like my wife and they are no longer listed.

[Cass]

23. People cannot pay their bills without jobs.

Doesn't matter how good your credit is, you can't pay your bills without a job. It is alarming that this fact is often overlooked in the media coverage about the economic crisis. The economy cannot begin to recover until we get the spiraling unemployment rate under control. This is not rocket science.

[slackmaster]

26. I went across the street to look at a bank-owned, foreclosed house yesterday

The previous owner, a single mom, had paid $162,000 for it in 1996. My job gives me easy access to public information like property history, so I am able to see what money was borrowed when. Over the next 12 years she managed to increase her debt load to $702,000. She had done everything wrong - Interest-only, no documentation, three-year ARM, etc.

I went in with my lady friend to check it out. I told her that I wouldn't reveal my profession until the realtors lied to me. The agent couldn't get ten words out without saying something that I knew was not true. She said the asking price was $379,000, and that the figure was "based on various appraisals". I told her "No it isn't. I am familiar with the property's history. I know that IndyMac has already eaten a quarter million, and the price you quoted is what they would take if they agree to lose another even $100K." She got very quiet. The house is very custom, multiple split level on an oddly contoured lot. There is no way to appraise it accurately, especially with so few sales happening. I asked what is the probability that someone is going to walk in off the street and say "Wow, this is the exact home I dreamed about last night!"? The agent just shook her head and looked down at the floor.

There was obviously a lot of bad energy in the house. The police were there about once a month for the last two years.

There were apparently some domestic issues going on. Most of the bedroom and closet doors have holes that appear to be the result of someone punching them with a fist, or kicking them. The garage has an obviously unpermitted modification into a bedroom of sorts. There are all kinds of highly questionable modifications throughout. Plumbing and electrical work are wrong, possibly dangerous. I can't accurately gauge how much it would cost to make it right, but my best guess is at least $50 K.

There is massive termite damage. A safety rail was hastily constructed in the front yard by a handyman who also did some expedient repairs on a wooden deck in the back; just enough to keep people from getting injured in falls.

The kitchen floor was done in tile, obviously by an inexperienced amateur who was trying to be artistic.

The woman who had her property foreclosed made a series of bad personal and financial decisions. She surely had some help from crooked lenders and a system generally out of control, but she bears most of the responsibility for what happened to her.

The truth is that IndyMac's subsidiary that deals with REOs is trying to dump the property and get whatever they can. I'd pay $150,000 in cash, then raze the house and build something more normal. But I don't think they're desperate enough for that. Not yet.

[davsand]

27. Banks don't want to be landlords.

The real estate market is gonna take even bigger hits as the number of foreclosures swells. Banks only make money as long as they have an active mortgage, and as a result they are unloading these properties as fast as they can. Average sellers are competing against those bargain basement properties, and that bodes ill for their outlook as well.

One of the most serious potential problems with buying any property that has gone into foreclosure is the condition of that property. You are maybe gonna be looking at deferred maintenance or non-maintenance issues, and sometimes the kind of stuff you describe (and my personal nightmare scenario!) DIY or amateur work that is sub standard. With that kind of thing you have to wonder what you CAN'T and aren't seeing.

Some properties get stripped out leaving nothing behind (like plumbing fixtures or even kitchen cabinets or even wiring) and some people choose to damage the house prior to turning it over (the holes in the doors and walls you describe could partially be attributed to that, btw.)

Any property with something like termite damage should ALWAYS be viewed with extreme caution, but I gotta tell you that by itself should be enough to scare anyone off that house you looked at yesterday. You are right--that property may end up being worth the value of the lot it sits on, and maybe even less depending on the demolition costs.


Laura