What is Going on with Foreclosures?
Posted on: December 18, 2007
Pick up a newspaper, turn on the TV or even look around your email’s junk folder and there will no doubt be something regarding foreclosures for you to investigate.
What exactly is going on in with foreclosures you ask?
Well, the way I see it, there are many different situations on the rise, and foreclosures will be around for the duration! I could write about all of them for hours, but let’s address just a couple here.
Currently, we are seeing rising foreclosure rates across the country. Some people blame the subprime mortgage industry for the rise in foreclosures. In fact, this is the easy target most magazines and local newspapers decide to focus on. I have to disagree here!
Now don’t get me wrong, I am certain that many folks in foreclosure have subprime loans. In fact, I know it to be true. We (the loan industry) have been writing loans to people with no credit, no cash reserves and sometimes even no jobs! These loans have to have a higher default rate than the guy who’s been on the same job for 20 years, has a middle FICO score of 820 and buys a house with 20% down… right? Yes, and no.
Yes, they have a higher default rate, that’s why the investors who allow these types of loans charge a higher interest rate. The higher rate allows them to offset the risk. They calculate a certain number of non performing loans into the equation when they set the rates.
And No, the subprime borrowers are not the only ones going into foreclosure. Remember the guy mentioned above? The one with the 20 years on his job, the high credit score and the 20% down? Lets say he worked for Intel, Nautilus, HP or any of the other stable companies that have laid off high paid workers in the last year and sent their jobs overseas. What happened to him? Or what about the auto workers in Detroit? Check out those foreclosure statistics! They aren’t all subprime borrowers. These are blue collar, hard working folks who simply don’t have an income anymore.
Sure, the guy with the 20% down may stand a chance at breaking even on his home. Recent declines in the market may claim 10% of his homes value, while taxes and real estate commissions claim the other 10%. So he’s better off than the guy with the zero down, interest only mortgage… right? Well the bank is, but he’ out his hard earned cash. How the heck is he better off? Sure, his credit is not blemished, but his bank account sure is. He may have taken a hit on his 401k already, and now he is a new “renter”.
My honest opinion? The media has done a great job of scaring us all into a foreclosure boom. They hyped that “bubble” so much, everybody was waiting to hear it pop. And sure enough, at the first sign of slowing (a healthy and expected occurrence in the real estate market) everybody panics! Home buyers stop buying, investors start dumping houses as quickly as possible… and so the spiral begins. Then, the media strikes again. Here it goes they say, with slick story taglines such as “risky loans” and “risky real estate”. Next, Wall Street reacts to the media attention. They stop buying mortgage backed securities and the secondary mortgage market tanks. Who gets stuck here? The subprime mortgage industry. They go to securitize on Monday, and are out of business Tuesday. Nothing fuels a panic fire better than multi-billion dollar industries shrinking by the minute.
All of a sudden the subprime mortgage lenders and borrowers are the bad guys. Never mind that the lenders have enabled more Americans to become homeowners than any other segment of lending in history! Never mind that MOST of the homeowners are paying on their mortgages on time just fine, and will continue to do so for the next 30 years. Never mind that some of these fine folks have interest rates down in the 5’s and 6’s!
The foreclosure market is definitely on the upswing… or the downswing, depending on how you look at it. Personally, I am fortunate that none of my clients have called to ask for a “foreclosure bailout loan”. If they do, we will have to talk about options. A bailout loan may be available, but does that really solve the problem? Most likely not. That is where careful consideration must be given to the problem, and the solution. Today, people in these situations have options.
We, as mortgage professionals, need to be educated! Not only in lending, but also in the foreclosure process, forbearance agreements and loan modifications. Because not all foreclosures are caused by people who can’t manage finances properly, some of these options can help many people get back on track. In cases where the property must be sold, a short sale may be the best option.
A well negotiated short sale can alleviate future financial obligations related to the foreclosure, and can result in a great deal for a new buyer. Check in later for more information on short sales.
Travis Wolfe operates WhiteWolfe Mortgage in Portland, Oregon. As a local mortgage professional and real estate investor, he has been active in the real estate community since 1997. He provides residential and commercial real estate loans, as well as providing aid to persons facing foreclosure. He can be contacted at (503)367-1109.