Wednesday, September 22, 2010

2nd Wave of Foreclosures Soon to Hit the US

Check out the four recent headlines below. These articles are from Bloomberg, Yahoo Finance and from some of the top financial blogs in the world. These articles should convince you that there is a new housing crash coming our way.

U.S. House Prices Face 3-Year Drop as Inventory Surge Looms
About 2 million houses will be seized by lenders by the end of next year, according to Mark Zandi, chief economist of Moody’s Analytics in West Chester, Pennsylvania. He estimates prices will drop another 5 percent by 2013.

House Prices decline 0.6% in July
Bank Repossession of Houses Sets New Record in August

According to CNBC:
The nation’s banks repossessed a record number of homes in August, according to industry sources. July’s repossession number was the second highest on record. The last highest was 93,777 in May of 2010.

House Prices Drop in 36 States; Prices to Stagnate for a Decade
Although home prices were flat nationally, the majority of states experienced price declines and price declines are spreading across more geography relative to a few months ago. Home prices fell in 36 states in July, nearly twice the number in May and the highest since last November when national home prices were declining,” said Mark Fleming, chief economist for CoreLogic.

Freddie Mac estimates house sales to fall another 23% in 3Q
Freddie Mac expects third quarter new and existing home sales to reach an annualized rate of 4 million, a possible 20.7% decline from last year and 23% drop from the previous quarter.

In its September economic outlook, Freddie said recent reports of plummeting home sales and near record-high delinquencies has shaken confidence in the “fragile” housing recovery. After the homebuyer tax credit expired in April, the National Association of Realtors (NAR) reported existing home sales fell 27% in July, and new home sales have fallen to the lowest point since 1963.

The bottom line; home prices are still too high – and they will be coming down another 15 to 20% or even more in some parts of the U.S.

Strategic Defaults will be on the rise. Many homeowners who held on during the first wave of foreclosures will be ready to walk away and give up on seeing their equity return anytime soon. Owning a home with little equity, or with an upside down mortgage is a huge incentive to just walk away and start over. Instead of making that $2,000 a month or more house payment, just move down the street and rent a house for $1,200 and pocket the difference. Many homeowners now understand that home prices are not going to rebound for over a decade.

Saturday, August 28, 2010

Give Mortgage Reduction a Try

More than 50,000 homeowners lined up in the rain last Friday outside of the Palm Beach County Convention Center in West Palm Beach with hopes of saving their homes from the growing foreclosure crisis. The headline Friday in the Palm Beach Post was “Desperate homeowners’ line up for mortgage modification marathon.”

This is a round-the-clock event where NACA counselors will counsel with homeowners to come up with an affordable mortgage payment that would be 31% of less than their gross salary. It was interesting that many of the NACA counselors were wearing yellow T-shirts displaying the slogan: “Loan Sharks Beware.”

This event was billed “Save the Dream Tour:” Will this modification marathon help these desperate homeowners? Only time will tell. What is important to point out is that nearly half of the 1.4 million homeowners who enrolled in the Obama administration’s flagship mortgage-relief program have dropped out. The administration’s program was set up to help those at risk of foreclosure by lowering their monthly mortgage payments.

HAMP is not working. The government program is petering out. It is taking in fewer homeowners and more are dropping out and fewer people are ending up making their mortgage payments in a permanent modification. Now why is this? How many of the 50,000 desperate homeowners will qualify for a loan modification and how many will stay with the program? Only time will tell.

One of every five US homeowners owed more on their mortgage than their home was worth in the fourth quarter of last year and this trend has accelerated the first quarter of this year. There are now over 11 million homeowners underwater on their mortgages. Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process. This is a growing trend that is posing a serious threat to the housing market recovery. As we have seen, homeowners with “underwater” mortgages are more prone to defaults and foreclosures. Why? Because they do not qualify for refinancing even with the record low rates and they are unable to sell their homes because they do not have the cash at closing time to pay off their mortgage.

Of all the loans backed by the FHA in 2007, 24% of them are now in default, and for those generated in 2008, 20% are in default. The FHA is out of money. The banks and lenders sitting on and servicing all of these real estate portfolios are in denial. People do not understand how grave this situation really is.

Loan modification is not the answer for many homeowners. Mortgage reduction is what is needed. The HAMP program has been considering principal writedowns. This would allow homeowners with loan-to-value rations greater than 115% to get a reduction in their mortgage principal, which would then lower the monthly payments. At this time there is no set date for the mortgage reduction program to begin.

More than 2.3 million homes were repossessed by lenders since the recession began in December 2007, and economists are expecting the number of foreclosures to continue to grow well into next year.

Foreclosures and distressed home short sales have pushed down the home values and have crippled the broader housing industry. This has made it difficult for homebuilders to compete with the depressed prices and has discouraged thousands of potential sellers from putting their homes on the market. So where does it all end? No one has the answer.
Each distressed homeowner must check all of their options and become educated as to what, when and where and then take action. Reading the Tower Report, Stop Foreclosure and Keep Your Home or Just Walk Away, would be a recommended place to start.

Saturday, August 21, 2010

Record Foreclosures, Record Bankruptices, Fannie and Freddie Hurting

Foreclosures are continuing to set new records each coming month. Home foreclosures set another record for the second consecutive month in May. According to RealtyTrac, a total of 1.65 million homeowners received foreclosure filings during the first half of 2010. This works out to be over 9,060 homeowners are receiving a foreclosure notice every day. This is a staggering number.

All of these foreclosures will be adding to the massive inventory of unsold homes, called the shadow inventory that I talk about in the TOWER REPORT. As of March, banks had a shadow inventory of approximately 1.1 million foreclosed homes. This was up 20% from a year ago. While the demand for loans to purchase homes sinking to a 13 year low, it is going to be hard for banks to get rid of this massive shadow inventory of homes. In these economic times very few people can pay cash for their homes, so without more loans there is not going to be an increase in housing sales. Needless to say, this is going to have a considerable depressing effect on not only the economy but housing prices in the months and years to come.

Many banks are now increasing their efforts to repossess homes that are in default. Banks repossessed 269,962 homes during the second quarter of 2010. This set a new all-time record. The days when defaulted homeowners could stay in their homes rent-free are fast coming to an end.

The number of Americans falling behind on their mortgage payments continues to increase. According to The Mortgage Bankers Association, more than 10% of all homeowners with a mortgage missed at least one mortgage payment during the first quarter of 2010. That set a new all-time record and represented an increase from 9.1% during the same time period in 2009.

The number of the long-term unemployed in America continues to set records. Because of the lack of jobs and the growing unemployment crisis, mortgage delinquencies are also growing at a very alarming pace. As of March 31st, serious mortgages delinquencies at Fannie Mae and Freddie Mac had increased over 50% from a year earlier. Over 6% of mortgages held by Fannie and Freddie are either seriously delinquent or in foreclosure. To top this all off, Fannie Mae and Freddie Mac are facing over $5 trillion dollars in liabilities that the government is going to have to deal with before the mortgage and housing industries completely collapse. Both Fannie and Freddie have become gigantic bottomless money pits.

Bankruptcies are on the rise and setting new records every month. Over 1.4 million Americans filed for bankruptcy in 2009. This was a 32% increase over 2008. And 2010 is working out to be another record setting year.

So what does a distressed homeowner do? Where can he turn? Many answers can be found in the TOWER REPORT. One strategy in the report reveals how a homeowner can use DIY bankruptcy to stay in their home for many months, maybe even years.

Tuesday, August 17, 2010

Foreclosure are getting worse

Many experts are predicting that foreclosures may reach as many as 7 million mortgages in the next twenty-four months, and that an additional 5 million are at risk of default because borrowers owe more than the property is worth. This is called being Underwater with your mortgage – check out chapter 8 of my book for more information.

Looking ahead, our nation’s foreclosure problems are going to get much worse before they get better. There are thousands of delinquent home loans piling up on lender’s desks. A high percentage of these delinquent homeowners will default on their mortgage loans. This will prompt lenders to file for foreclosure. So the flood of potential foreclosure filings is swelling among the major financial institutions across the nation.

So How Bad Is It?

Will we see the start of another housing collapse before the end of 2010? How about the by the end of 2011? The truth is that there are many troubling signs in the housing numbers. The massive tax credit that the government was offering to home buyers helped prop up the housing market for quite a while, but now that the tax credit has expired, many real estate professionals are bracing for the worst. The reality is that foreclosures continue to set all-time records, the mortgage industry is a complete mess and another massive wave of adjustable rate mortgages is scheduled to reset in 2011. The record high rate of mortgage delinquencies and foreclosures remain the banking industry’s biggest obstacle towards financial recovery. The horrific statistics for the first quarter on mortgage defaults provides little reason to believe that the housing crisis will end anytime soon. It is going to get worse before it gets bad. How are you feeling now?

There is over $10.2 trillion in mortgage debt outstanding in the consumer mortgage market. Over 14% of mortgages in the US are either in foreclosure or 30 days late. If you do the math, this equates to 51 million active mortgages times 14% equals 7,140,000 mortgages in default or 30 plus days late. How can this be?

Many government programs are failing because thousands of homeowners have no ability to pay their mortgage once they have entered the program. And then you have a growing number of Americans who can pay their mortgage but are deciding to just stop paying.

Most of the problem is with the overall economy. Even though strategic defaults (walking away) are growing, 4 out of 5 foreclosures occur because homeowners cannot pay their mortgage. We have millions receiving unemployment benefits and a record high of over 42 million receiving food stamps. Until we see this trend reversed and employment growing in a healthy way without government assistance, we can rest assured that any talk of a housing recovery is merely an elaborate trick.

Nineteen million homes in America now stand vacant with our national debt at approximately $12 trillion and growing. Can you say “Tax Increase”? Wait until 1-11-2011.

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Saturday, August 14, 2010

A Banking System Collapse

We are now experiencing a banking system collapse. This should be headline news, but most Americans are more than happy to remain blissfully ignorant of what is going on as long as they get to watch “So you can think you can dance”. When the American Dream of owning your own home dies for tens of millions of Americans and the economy collapses, perhaps more people will start to care. It just blows me away how many people are floating down the river of de-nial.

In 2009, banks posted their sharpest decline in lending since 1942. This year delinquencies on real estate loans still remain a source of trouble. That's especially true at smaller and mid-sized banks. And with further declines in home prices, expected by many analysts, will cause more losses for banks.

According to the FDIC, at year’s end its problem list of US banks at risk of failing hit a 16-year high at 702. Approximately 10% of all banks in the US are now on the Federal Deposit Insurance Corporation’s list of problem banks. Last year, 140 federally insured institutions failed and were shut down by regulators. In contrast, the five years prior to 2008, only 11 banks failed. It was the highest annual number since 1992 during the peak of the savings and loan crisis. Last year's failures extended a string of collapses that began in 2008, triggered by loan defaults in the financial crisis.

The pace of bank collapses this year exceeds last year's. As of April 13, 2010 – 110 banks have failed. As a result of those failures and bank mergers, the number of FDIC-insured institutions fell to 7,932 in the first quarter. The latest list of problem banks from the FDIC now stands at 775. Seventy-three banks were added to the list since the end of 2009. That is nearly a 10% increase in less than 5 months.(And why do they announce bank closing late on Friday evenings?)

That's the first dip below 8,000 in the history of the FDIC, which was created in 1933. However, depositors' money – insured up to $250,000 per account – isn't at risk. But don’t worry because the FDIC is backed by the government. Now that makes me feel all warm and cozy. Page 30 of the Tower Report

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Thursday, August 12, 2010

The Short Sale

In the short sale the lender absorbs all the seller's costs, including realty commissions, and approves a sale based on the current market price with a short sale. Tax consequences may apply, but if you decide to throw the towel in, it's a smarter way to solve the problem since the short sale will reflect negatively on your credit report for approximately 3 years. This might prevent a home purchase until then, depending on your credit history. On the other hand an outright foreclosure will stay on your credit for 7 years.

Right now, the banks want to keep everyone in their home, because if all of these banks instituted foreclosures now, the real estate market would plummet. As a result, lower values would ultimately cost the lenders even more in diminished refinances and new loans. Banks would be cast in a more negative light than what they are facing now, with congressional hearings, bad press, etc.

So if you're upset about your home being upside down between $50,000 and $150,000 in value, you need to decide which path to take, whether to throw good money after bad and ride it out, or short sale, or just walk away and take your loss now and move on.

Property values are not coming back any time soon. If you don't plan on selling your home within the next three to five years, and you can make the monthly payments, stay and don't worry about the value. You'll sleep better and your neighborhood will benefit from one less distressed property on the market.

For more information on a short sale see Chapter 14 in the Tower Report, Stop Foreclosure and Keep your Home, or Just Walk Away.