Defaults Show ‘The Bubble May Be Seeping’
A roundup of foreclosure reports. “Massachusetts homeowners are falling into mortgage foreclosure at the fastest clip in 10 years, new figures show. The Mortgage Bankers Association reported yesterday that during the first quarter, roughly one Bay State homeowner in 294 entered foreclosure, the process banks use to seize properties for loan nonpayment.”
“That’s double the foreclosure rate recorded less than three years ago, as well as the state’s worst showing since first-quarter 1996.”
“MBA Senior Economist Mike Fratantoni attributed the problem to the state’s shrinking population, weak job growth and slowing housing market, which make properties hard to unload fast. Fratantori said Massachusetts appears to only face ‘a mild slowing of the housing market.’ He said the current slowdown doesn’t look like ‘a repeat of the early 1990s.’”
The Miami Herald. “More Floridians are falling behind on their home loans, as interest rates on adjustable mortgages rise. One potential problem looming: The soaring popularity of adjustable rate mortgages in recent years. A faint uptick appears to be taking place, said Stuart Gitlitz, a South Florida attorney who specializes in foreclosures. ‘What was a trickle is now becoming a drop,’ said Gitlitz.”
“Other experts say the issue certainly doesn’t appear to be a looming threat. ‘It takes at least a year’ for economic problems to manifest into foreclosure actions, said (banker) Vivian Sierra. And while there is unceasing speculation about the South Florida real estate market, she doesn’t see any major problems with the residential market. ‘I don’t see a bubble bursting.’”
“Ken Thomas, a Miami banking analyst, concurred. ‘The bubble may be seeping,’ Thomas said of real estate. ‘But my gut feeling is that there’s no evidence of major problems.’”
From a press release. “Notice of Trust Sale filings in Maricopa County, Arizona increased 19% in May and pre-foreclosure inventory crept up after 16 months of decline according to Tim Rocho, a foreclosure data provider. Notice of trust sales filings increased from 624 in April to 745 in May, the number of Auction properties increased from a historic low of 35 to 55 and cancellations of pre-foreclosures decreased from 701 to 690, turning the tide of consistent declines to increase outstanding pre-foreclosures from 2243 to 2272.”
“‘I certainly wouldn’t call this a steep reversal in the market but it does signal that the number of foreclosures are about to increase. With average house prices above $300,000, MLS inventory around 40,000 and interest rates topping 6.5%, the market is beginning to level off and defaults will follow,’ Tim says.”
From California. “With many interest-only and other ‘non-traditional’ mortgages set to adjust upward, some local real estate and lending professionals think the end of the year might bring some unpleasant news. In late 2006 or early 2007, many homeowners will see introductory fixed rates expire on interest-only and other types of adjustable loans they first took out over the past five years.”
“‘I’m not necessarily seeing a panic, but I am seeing people come in here wondering how they’re going to handle those higher payments,’ said (mortage broker) Patricia Chill in Palm Desert. ‘People are nervous, because some of them are in programs they shouldn’t have gone into,’ she added. ‘Some of them are going to be paying taxes and insurance that they didn’t figure into their original payments.’”
“In the Coachella Valley, in the first quarter of 2006, there were 305 notices of default issued, according to DataQuick. That was up 41 percent from the first quarter of 2005.”
The Associated Press. “This year, more than $300 billion worth of hybrid ARMs will readjust for the first time. That number will jump to approximately $1 trillion in 2007, according to the MBA.”
“In 2002, Christopher Jones refinanced into a hybrid ARM with plans to refinance again when the rate started to readjust. At the time, his downtown Atlanta house appraised for $108,000. Now, his monthly payments have shot up, but Jones can’t sell his house for more than $84,000 and he can’t get an appraisal for more than $85,000.”
“The appraisal firm told Jones that the value of houses in his neighborhood have fallen victim to a cooling market. With no other options left, Jones has decided to pack it in and foreclose on the house. ‘I’m just going to take the loss,’ he said. ‘That’s all I can do.’”
“Some homebuyers, especially first-time buyers, may not have fully understood the risk of ARMs. In the rush to close on a house sale, especially in the frenzied market of the past few years, many first-time buyers often failed to get the full details of their loan from their mortgage broker.”
“‘Sometimes buyers are very optimistic of how much mortgage they can handle, especially in a strong housing market with aggressive marketing of riskier mortgages,’ said (credit counselor) Suzanne Boas.”
“When Dora Angel of DeSoto, Texas bought her first home in 2003, she paid $141,000 for the brand new home. At the time, her mortgage payment was $1,400 a month. DeSoto originally thought that she had a fixed-rate loan. But about five months ago, she noticed that her monthly payment kicked up to $1,900. She only made the monthly payments by sacrificing payments on her credit cards, which pulled down her credit rating.”
“Now, DeSoto can’t continue paying $1,900 each month, but, because of her credit ranking, she doesn’t qualify for a fixed-rate mortgage. ‘I was a first-time buyer. I was blind. I didn’t know what questions to ask,’ she said. ‘And the mortgage brokers are there telling you what you want to hear just to get you in the mortgage.’”
Thanks to the readers who contributed to this post. This stories always have some comment comparing current numbers with the depth of the last crash. Many foreclosure experts will say that if a housing market bottoms in year X, the peak of foreclosures will be two or three years later. It does appear that the lax lending is speeding up the cycle this time.
That MBA economist may think that there’s a mild slowing of the MA housing market, but according to this link:
http://realestatecafe.blogs.com/real_estate_cafe/2006/06/homes_selling_f.html
One in four Boston homes is selling for less than assessed value!
I keep track of Maricopa County AZ notices of Trustee’s Sale. The “foreclosure data provider” Tim Rocho is using misleading MOM figures and declaring that foreclosures are “up 19%” in the same manner that the real estate industry uses YOY median prices. In any case, here are the counts, and it’s clear that there is no apparent distress in the Phoenix Market when comparing the historical foreclosure numbers. When the rate is double the current average of appx. 700, then it will be officially a distressed market, IMO.
Jan 05 1297
Feb 05 940
Mar 05 1040
Apr 05 766
May 05 759
Jun 05 767
Jul 05 748
Aug 05 795
Sep 05 669
Oct 05 728
Nov 05 704
Dec 05 749
Jan 06 726
Feb 06 687
Mar 06 790
Apr 06 638
May 06 764
There may not be any rain drop yet, but the storm clouds are gathering. Just like Katrina.
The speculators from CA are trying to unload, trying to unload, trying to unload …
Meanwhile, interest rates are going up, going up, going up …
Somebody posted this link for state by state foreclosures Q1 ‘06.
http://tinyurl.com/mvsxt
It’s pretty interesting for those who haven’t seen it yet. WA. state was way higher than you’d be led to believe at 1 foreclosure for every 443 households.
I thought we were all so rich here! What happened?!
The market is normalizing, it’s in transition, no it has leakage, er, no, uh, seepage, yeah, that’s it, seepage.
Seepage. Wasn’t “seepage” what you got when you ate those special potato chips with the fat substitute? Oh, no — that was “leakage,” sorry…. Scarfing down huge bags of fat-substitute potato chips gets you “leakage.” Hundreds of thousands of ARMs resetting and homebuyers foreclosing gets you “seepage.” Gotta keep these terms straight in my head….
I guess “seepage” is better than to say oozing toxic loans and vomiting up equity.
Actually instead of vomiting it should be “dry heaves”. Most of these people have no money. Bwahaha!
Vomiting blood will the next symptom of the disease.
I rememberthe NPR story on this, it was set in Cedar Rapids, IA, which was the initial test market for Olestra. They were interviewing a number of the test subjects, who were all trying to find a polite way to tell the interviewer that the chips made that sh!t their pants.
So then this is the Olestra market?
I think it should be the Wow! Market. That’s what Frito-Lay named their Olestra/Olean infused chip brands.
Wow! as in “Wow I have negative equity!” or “Wow! My mortgage just went up $500 a month for no apparent reason!”
Maybe you should suggest that to Ms. Appleton-Young. I hear she is looking for a new moniker.
How about the “Ooops I crapped my pants” market?
Ooops!
“Ken Thomas, a Miami banking analyst, concurred. ‘The bubble may be seeping,’ Thomas said of real estate. ‘But my gut feeling is that there’s no evidence of major problems.’”
Ms. Appleton-Young had better be careful. The “Wow!” market might manifest itself slightly lower down than the gut….
They’ve become experts on transitive verbs to describe what’s going on. The key is it can’t sound too scary…nothing that sounds too quick or damaging. Keep it slow and gradual, don’t alarm anyone, let them think they’re safe and things will be alright.
Speaking of not alarming anyone, did anyone see that interview on CNBC this PM ? they were talking to the CEO of KB Homes and the pres. of the NAR. At the bottom of the screen was this heading (in bold):
HOUSE OF CARDS
these numbers are going up quickly
mid may was 799,000
6/10/06 was 836,471
6/14/06 was 840,935
6/17/06 was 846,120
6/20/06 it is 850,715
http://www.ziprealty.com/maps/index.jsp?usage=search&cKey=74rbwvlk
The recent rate of national inventory growth is about 87% annualized.
I did a back-of-the-envelope projection to see where this would take us by next June if the crash continued at the recent rate until then (it won’t, but projections are useful for guaging how quickly things are unfolding)…
Date t Inv_t
—– - ——–
6/10/2006 0 836,471
6/14/2006 4 840,935
6/17/2006 7 846,120
6/20/2006 10 850,715
6/10/2007 365 1,560,544*
*Projected at recent rate of inventory growth
Dora Angel originally thought that she had a fixed-rate loan ‘I was a first-time buyer. I was blind. I didn’t know what questions to ask,’ she said. ‘And the mortgage brokers are there telling you what you want to hear just to get you in the mortgage.’
Hey lady, if you can produce the documentation showing that the mortage broker told you it was a fixed rate loan, you and your attorney can make sure that you never have to work or make house payments again.
I suspect that she signed the paperwork without reading the fine print. Heck, would she have understood it even if she HAD read it?
You’re assuming she can actually read.
Credit cards have a 24.99% default rate for 1(!!!) late payment.
Who reads the fine print…
I try to file it at least but they send you new fine print every six months it seems!
‘But my gut feeling is that there’s no evidence of major problems.’
Gut feeling? That’s what you have due to lack of (or in spite of) other evidence! And it’s not something you’d hope a business analyst relies upon when making decisions, especially when there IS in fact evidence to the contrary. Just another RE shill, I guess, or (perhaps more likely) another potential bag-holder who owns a couple of condos already and doesn’t want to see himself skewered like everyone else will be down there!
I’m halfway surprised Thomas weighed in on such a dirty business as this with such a wishy washy statement like that. The banking industry must be facing a grim future indeed. That he would risk his credibility in the face of such overwhelming evidence smacks of desperation to me. He has stepped in a cow pie with this one I’m afraid. That quote will follow him the rest of his days.
only half those questioned in a poll knew what kind of mortgage they had.not two weeks ago i spoke to an attorney who did nt know if the mortgage on her home was fixed or variable….. after talking to her for a few minutes she said”i think it is one of those hybrids”after i described various products.
Ha. I was talking to an attorney customer of mine about the high quotes she was getting from contractors. I explained that there was alot of monopoly money (HELOC) floating aound and that people being human, and not having worked for it, tended to spend it irresponsibly which in turn caused work rates to float upward. I regretted it immediately as I could tell from her response that she was guilty of doing the same thing.
She thought she had a fixed rate mortgage. How do you not know what kind of mortgage you have?
What happens to houses that are foreclosed but do not sell at auction? Do they sit and rot? Does the bank eventually just take what they can get? I’m a real estate newb and I have been learning a lot from this blog and the posters here.
“Does the bank eventually just take what they can get?”
Yes, and while they are waiting they are responsible for HOA fees and property taxes plus upkeep and utilities.
Don’t forget all the legal fees associated with the bank taking the property back. A lot of banks are small and use outside attorneys.
Don’t forget all the legal fees associated with the bank taking the property back. A lot of banks are small and use outside attorneys.
I shopped a loan for a 4 plex and I built with some partners in AK back in 01. Found a loan rate I liked for a fixed rate with an out of state firm and signed up for it. A few months later (after having spoken with the loan officer several times) when we were ready to close, what do you think showed up? That’s right, an ARM loan doc. After several phone calls and finally convincing them that I wasn’t so desparate to close that I was going to sign those, I finally was offered a fixed rate. However it was at least 50 basis points over what was agreed to on the phone as I recall. No recourse from my end unfortunately because I never asked for the terms in writing before hand. There is no doubt in my mind that it was done on purpose and I’ll bet that 9 out of 10 people caught on the day of closing with that trick will close just because so many other issues are dependant upon the close.
Auger,
Absolutely. That’s why I’m not so quick just to blame the buyers in all this. The lenders are the ones who do it every day, and know what they are doing. The buyers might only have had experience with loans once or twice before, if that. That’s why they rely on Realtors and lenders to guide them — they ARE looking to the “experts” for assistance.
I, too, got “wrong” terms on paperwork at closing, as did many others I know. Oftentimes, these people are desperate to get into homes (already made arrangements to move household, sometimes jobs). The notary will often come during the night, when you cannot get a hold of the lender/broker, and closing is right around the corner. Then, they try to rush you through the paperwork with, “these are just standard documents, you don’t need to read everything,” which happened to me — and I ignored her. I honestly believe there was A LOT of fraud these past few years, in so many ways.
Oh, don’t forget how they refer to hybrid ARMs as “fixed-rate” loans. That should be absolutely illegal, IMHO. That’s why a lot of folks are so confused.
A co-worker was caught by the same trick. She was working with a sub-prime mortgage company who repeatedly assured her (though not, I suspect, in writing) that she was getting a fixed rate loan. On the day she went to close on the house, she looked through the paperwork and realized that she was actually getting an ARM. She went ahead and closed anyway, after the mortgage people pointed out that if she backed out now she would be throwing away all the money she had already paid them in fees (some of which sounded very dubious to me).
Fortunately, she managed to refi with a different company when the ARM reset, but would certainly have lost the house otherwise. (This was a single mother buying a house priced at around 4 times her salary with no downpayment; the mortgage broker was only able to qualify her for the ARM at the initial rate by excluding the property taxes from the monthly payment, which caused another crisis for her at the end of the year…)
Yep, on the 2 pieces of RE I have bought the escrow agent was annoyed that I read every single page and made her wait.
She said both times different agent that no one bothers with reading all the documents.
Been there, done that, got my own back :).
In my case I was getting (or more accurately, trying to get) a 2nd mortgage for an investment home back in 1981 or 1982.
No problem until 10 days before settlement (=closing), then suddenly the finance company’s valuer (who “came up from Sydney every week”) is sick. A week later and he’s still sick.
Did they have another valuer to do this job they’ve had a month’s notice of? No.
Would they accept the valuation obtained for the first mortgage, given that I was putting 20% cash down and only getting a 60/20? No.
Would they (with 48 hours to go) give me a personal loan rather than a mortgage? Hell yes, sign here (at a 5% higher rate :().
And to add insult to injury, when the documentation appears for me to sign I find they’ve listed the house I’m buying as security anyway :angry:.
So 2 months later mum’s legacy comes through, and we decide we’re both better off with me taking a loan from her rather than the finance company. Walk down and ask for the outstanding balance, go out and come back with a bank cheque 10 minutes later.
Comment from branch manager after he tried to get us to buy some managed investment instead “We don’t make any money from loans that get paid off this quickly”.
Response from me (truthfully, because of the tax situation here) “If you’d given me the mortgage I wanted in the first place, I would have continued with it until it was paid off”.
Silence, as he printed out and signed the receipt and loan acquittal.
Uhhhh, let’s do the math on that $1,400 payment on the $141,000 house, shall we? Assuming she got 100% financing, that would mean she had a loan with a rate of 11.5%, and she thought it was fixed. If it wasn’t 100% financed, that means her rate was even higher. Now she is paying 16%???? That fool and her money were lucky to get together in the first place.
Tax + insurance + pmi would run in Desoto to about 3% of the $141,000 ( or $352/month ) which makes her original loan to a little over 8% which adjusted to about 12%.
I quote: “her mortgage payment was $1,400.” It doesn’t say her “PITI”, or her “monthly payment,” it says “mortgage payment.”
“Ken Thomas, a Miami banking analyst, concurred. ‘The bubble may be seeping,’ Thomas said of real estate. ‘But my gut feeling is that there’s no evidence of major problems.’”
What a solid analysis, Mr. banking analyst! LOL
‘But my gut feeling is that there’s no evidence of major problems.’”
Because He’s too lazy to do any actual study of the matter. When does his employer call him on the carpet and ask why wasn’t he doing his job and aware of the problem ?
Unfortunately, he is doing his job. He works for the banking industry. His clients have a direct interest in a “soft landing”. He is a shill for the banking industry.
I think there is a misperception about how we, the public, see economists (analysts) and how economists see themselves. The public typically thinks of economists as “prophets”, who’s job it is to try to predict the future. Economists see themselves as “shepherds”, who’s job it is to coax the economy in a certain direction.
This is why most economists are “predicting” a soft landing. It’s not that they really believe a soft landing is in store, but rather they are trying to engineer a soft landing by trying to gently calm the market.
In a way, he’s being honest. His gut is telling him what he needs to say in order to keep eating. His brain, on the other hand, knows damn well this is all crashing and burning.
what is troubling here is if you agreed to buy house two days before price drops 200K does wouldn’t that mean you over paid by 200K?
1200 Via Gabriel, Palos Verdes Estates, CA, 90274 $1,180,000*
Status: ACT Orig Price: $1,395,000
2029 square feet built in 1956 located somewhere on that big hill you see flying into LAX from left side of jet.
I’ve been watching the PV market for the last 6 mos. or so and 200-300K reductions are de rigueur. I’m surprised to see these kind of reductions so quickly. It’s also worth noting that even after reductions the houses aren’t moving.
“It’s also worth noting that even after reductions the houses aren’t moving”
Well, I guess it’s apparent the realtors just aren’t holding enough open houses or planting enough signs! If a realtor does his job homes sell… don’t they?
I’ve never seen so many homes either for sale in PV or getting ready to be sold in PV. My girlfriend and I *dream* of living there when all of the dust settles. There is a flip that we hope to bid on after it goes through BK.
$1.5 million for a home that was $650k just a few years ago…
Obviously the problem is that they held only 3 weekends of open houses.
Neil
Whereabouts in PV was the flip house? It seems that prior to 2004 a good swath of of PV could be had for 700-900K. Now these same house seem to be priced 1.5-2.OM. What is they say about reversion to the mean?
A faint uptick appears to be taking place, said Stuart Gitlitz, a South Florida attorney who specializes in foreclosures. ‘What was a trickle is now becoming a drop,’ said Gitlitz.”
He’s certainly not an attorney who specializes in metaphors. From what I know of leaky sinks, a trickle is more than a drop.
“Ken Thomas, a Miami banking analyst, concurred. ‘The bubble may be seeping,’ Thomas said of real estate. ‘But my gut feeling is that there’s no evidence of major problems.’”
What a laugh!!! Who in the hell is going to buy all the inventory in S.Florida at these astronomical prices??? Last time I checked, the median income in Florida was less than $50K and isn’t going to rise anytime soon. In addition, the builders are going full throttle in Palm Beach county on projects - lots of McMansions. I haven’t got a clue as to who can afford these houses.
You forgot. All the Baby Boomers are going to retire to Florida and have boatloads of money in their savings accounts from the 90’s stock market boom and their voracious savings plans…..and will be inheriting more truckloads from their elderly parents.
Where have you been? These stories were being told all the time the the market was rising. Oh! and one more thing…..lot’s of rich foreigners with oil and commodity monies.
Florida will be a destination for rich people until the next century because…..”everyone wants to live here”.
Does that refresh your memory??
http://money.cnn.com/2006/06/13/magazines/fortune/boomers_retirementguide_fortune/
“That’s because wealth, including stockholdings, is concentrated among the rich, with the wealthiest 10 percent of Americans holding some 90 percent of stocks. Average Americans, even if they emptied their retirement plans, would have relatively little stock to sell. The median amount in a boomer’s 401(k) is just over $44,000, according to Hewitt Associates, an employee-benefits consulting group. And the superrich wouldn’t need to dump their assets to pay for their retirements”
This statistic can’t be true, can it? Median balance in 401k for Boomers WHO HAVE 401KS, is $44,000? uh oh…
It looks to me like we’re seeing the beginnings of a vicious spiral (OK, I think it’s a good spiral, since I rent and want to buy once prices are reasonable again). 1. Rates are ticking up, not through the roof, but ticking up. 2. The economy is slowing, not anything major yet, but slowing from a very fast pace. 3. ARMs are re-setting, some this year, a LOT next year. 4. Property prices have, at best, stagnated over the last year in most places - very few places left with high appreciation rates. 5. Lenders appear to be tightening slowly, as we now hear stories of people actually not being able to qualify for purchase or refi loans (this was unheard of the past couple of years). 6. Homebuilders are moving from incentives to actual price cuts, or a mixture of both. 7. Supply is up dramatically, and demand is continuing to go down.
All of this has lead to an uptick in foreclosures. Granted, foreclosures have been at historically low rates in recent years, but that is to be expected when property is appreciating at 20%/year and is easy to sell in a seller’s market. Now, we’re starting to see the foreclosure rates tick up, and it seems that they will continue to do so as all of the factors above continue to put downward pressure on prices and the economy slows further (thanks to the housing ATM being put out of commission). More foreclosures will continue to pressure prices to fall, which will lead to more foreclosures as people are unable to refi or sell their house because they are underwater. This will lead banks to continue tightening, which will also lead to more foreclosures, as more ARMs re-set and the FBs are unable to pay the higher payments and cannot refi.
It will take a little time for this to really get going. But just the fact that it has already started, without the help of a recession (which I believe we are heading for), shows how wrong many of the economists/shills have been, who said that prices cannot drop without first having a major economic downturn. I expect that foreclosures will continue to grow at a slow pace for the rest of this year, but will really take hold in 2007.
2007 will be a good year for CNNMoney to contact all their “Millionaires in the Making” that were holding 3 or 4 properties in 2005 and see how that’s working out for them.
I encourage everyone, who hasn’t already, to check out the HBB Photo Gallery (on this page). As the saying goes, a picture is worth a thousand words. And I thought I was already “hip” to how bad it is out there. A just spent several minutes perusing the submissions . . . well, I’m just blown away!!
Maybe sending the link to the “bulls” out there might give them a bit of a reality check.
““That’s double the foreclosure rate recorded less than three years ago, as well as the state’s worst showing since first-quarter 1996.” But, but, but how can that be, the winter selling season was to be hot and the spring selling season even hotter, I know because the NAR told me so (barf)….
” ‘I was a first-time buyer. I was blind. I didn’t know what questions to ask,’ she said. ‘And the mortgage brokers are there telling you what you want to hear just to get you in the mortgage.’” No dearie, you are just another irresponsible adult trying to pawn off your stupidity on the rest of us who actually think about the consequences of our actions before we act……plus you are probably one of those who raised the 1st quarter CC debt by borrowing to pay for Xmas and your property tax bill and maybe even line up your prepaid summer vacation cruise..
We went from red hot to “normalizing” part of the curve in 6 months. Following the same slope of decrease, we will be in the negative territory within the next 6 months. This bubble is losing steam a tremendously more rapid pace compared to the previous downturn cycle.
When I first moved into Salinas I checker in with the Realtor(tm) assigned to my relocation. When I told her that I wasn’t going to buy at elevated prices she hung up. Several times over the past two years I’ve left messages and she didn’t return one because she was tooo busy. I even stopped by her office but she didn’t have time for me and gave me an office assistant to talk to. Well, yesterday she called the house and wanted to talk to me and my son who took the phone call said that I was tooooo busy to talk to her……hope she’s living on peanut butter and jelly sands soon….
The worm turns…
Salinas,
That’s a great story. I’ll go out on a limb here and bet she’ll be one of the Realtors who has to go back to her waitressing job in the not-too-distant future.
IMO, you could play games with her and pretend that you want to buy. Make her waste a lot of time (heck, it’s not like she will be busy anyway) and really lead her to believe you want to buy, now that it’s a “buyer’s market.” Drop the “not interested in buying right now” bomb on her after about three months.
That would be a mean and wicked thing to do, and we bears should be above that sort of behaviour.
“I was a first-time buyer. I was blind. I didn’t know what questions to ask,” she said. “And the mortgage brokers are there telling you what you want to hear just to get you in the mortgage.”
Many buyers are more concerned with the paint color being chnaged on the walls than figuring how they will be able to afford payments once rates adjust up. It’s a shame, especially with the information readily accessible to those willing to do a little research. 2007 will be ugly.
What is it with people and the ARMs? Why were people taking out ARMs when mortage rates were at historical all time lows? Idiots!
Instead of buying the small fry on the fixed rate mortgage they got the ARM and Supersized!
Buy it now or be priced out forever.
Don’t you remember Greenspam’s comments? He said that people would be FAR better off buying with ARMs because those average 1% (or some such number) less than fixed rate, on average. Sadly, it was not an average-interest-rate time when he said that.
Not that most people bought because of what he said, but the fact is, buying with an ARM meant paying only 4% instead of 5.5%. For some people, it works:
I have a friend who specifically mentioned Greenspan. This friend bought a house on a 5/1 Hybrid, 3.99% for 5 years, then (likely adjustment) to 5.99% in year 6, then 7.99%, then possibly up to 9.99%! Yikes!
But he’s got a fair amount of money behind him and can handle 10% with no problem. Seriously. Maybe he’s the single “sophisticated borrower” the mortgage bankers like to hold up as an example! And heck, he might even be able to pay the whole thing off if the rate peaks. In the meantime, he’s not spending the money he’s saving from that cheap rate; it goes in the bank at 4.65%.
But oh my, is he the exception!
Most people got into those ARMs because it seemed the cheapest way at the time to get into the house. Ignorance is bliss — for a year, or three! Then (for most people) it becomes hell as they realize they cannot no-way refinance again at that original low rate.
LOL! Gotta love typing the same thought at the same time.
It wasn’t only Greenspan. In my area, Tampa, I was watching a mortgage infomercial over the weekend. The “mortgage expert” they brought out said the worst loan you could get would be a 30 year fixed rate mortgage. You were better off with a 3 year, 5 year, 7 year “fixed” (never an ARM) loan because most likely you weren’t going to stay in the home for 30 years. I’m sure this infomercial was made in 2003 or 2004. Who is sleeping a lot better in 2006, borrower A who got a 30 year fixed mortgage at 5.50% in 2003 or borrower B who was has a 3/1 ARM at 4.50% in 2003, but just got a statement from their mortgage servicer that their rate was going up to 6.50% and will most likely go up to 7.50% in a year if things stay the same. Granted, there were probably quite a few borrowers who were able to sell their properties within that 3 year period and benefited from the lower rate, but I don’t think they all did. At least the 03 and 04 ARM purchasers should have equity, 05 ARM purchasers are an entirely different story. They aren’t moving out any time soon. I think they will be end users for quite a while.
There is a right time to get an ARM but that is when fixed rates are high and there is a gap between long and short rates. If the fed stops raising short term rates and the long term rates increase, then ask about ARM’s.
Is this the same shill that runs the “mortgage program” on the AM radio band???
His schtick is “this is not your grandfather’s mortgage market, and you shouldn’t get an old-fashioned loan…..today you have choices !!!” Get in over your head with the help of their friendly mortgage counselors.
HA ! I can’t stand these people !!!
The “old-fashioned ” mortgage FIXES your expenses, so you know what your housing costs are, anyway.
I prefer it that way myself.
Diogenes
I don’t think it’s the same company. The one on TV was Safety Harbor. I’m not sure about the radio show (I believe it’s on 1250 am). The radio show was even better the 5 or so minutes I listened to it. The guy starts off by saying what a great investment real estate is and you should put down 20% to ideally buy a house. Then he says, you should buy a second house, with 20% down, but if you don’t have it, buy one anyway. Then if you own a second house, you should absolutely own an investment property because of what a great investment RE is. Nevermind how you will possible pay for three homes and only one income (presumably with negative cash flow). I love the TV infomercial that says they have $200 million to lend to people this month.
Thanks for the feedback.
Greenspan thought it was a good idea so why not follow Mr. Magoo’s advice?
Massachusetts - MBA Senior Economist Mike Fratantoni…”the current slowdown doesn’t look like ‘a repeat of the early 1990s.”
Florida - (banker) Vivian Sierra…”I don’t see a bubble bursting.’”
Florida - Ken Thomas, a Miami banking analyst…”The bubble may be seeping…but my gut feeling is that there’s no evidence of major problems.”
Arizona - Tim Rocho, a foreclosure data provider…”I certainly wouldn’t call this a steep reversal in the market”
California - (mortage broker) Patricia Chill “I’m not necessarily seeing a panic”
These people are just being dishonest and misleading in their statements. Thank goodness we’re hearing alot more from people like Shiller and other experts bringing hard evidence to the table to shut down this type of chatter.
Huggybear -
I think we missed the meeting. All these shills and the ones in every article in the last few months are repeating the same thing; Everything is fine, good time to buy, won’t be like the 90’s, etc…
Last year it was- Not making anymore land, you will be priced out forever, South Florida only goes up, Its different this time.
Next year these sames clowns will be saying - You want fries with that, would you like armor all on those tires for any extra $1, brother can you spare a dime, …
each of the comments above was followed by a word that was only heard inside their head - “yet”.
Massachusetts - MBA Senior Economist Mike Fratantoni…”the current slowdown doesn’t look like ‘a repeat of the early 1990s.”
Agreed, Mikey, definitely worse this time around…
It’s not just poor folks. It looks like Conrad Black is defaulting on his house, and it’s part of his bail, so he is going to cool his heels in the klink.
http://suntimes.com/output/business/cst-fin-holl20.html
Earlier post:
“What is it with people and the ARMs? Why were people taking out ARMs when mortage rates were at historical all time lows? Idiots!
Instead of buying the small fry on the fixed rate mortgage they got the ARM and Supersized!”
Here is the answer:
Normally, one should lock in borrowering rates for long term when rates are low, but…
I took a scenerio of payments and what size loan someone could afford at a certain income, with the changes the last few years.
An income of $120,000 a borrower can afford a house with a $400,000 loan at 8%, 30 year fixed, using normal underwriting guidelines, when adding in the taxes and insurance.
When rates dropped to 5%, the same person could afford a loan of $546, 000. Taking a 5% interest-only ARM loan, the person can afford a loan of $704,000. Getting an option ARM, with a 1.5% teaser rate for the first month, adjusting monthly after that, the loan amount they can “afford” goes to $850,000.
This is a story of why prices increased so dramatically in the last several years, and why there are so many ARM loans that will adjust. (The buying of increasingly more expensive homes with no-down payment also played a big part.)
A huge number of people bought more house than they could afford using loans with unsustainable, artificially low payments. We get to now see how all these people can handle it, and see how the mortgage industry comes up with a solution ( I have a feeling mortgage investors have had enough and will not go for further “creativity” in loan types.)
Yep, the creative loans allowed them to get into the house, and caused massive run ups in the prices. But the vast majority of these people simply cannot afford the loans after they reset. I make pretty decent money, but I can’t afford to buy here in OC unless I use a toxic loan, and I won’t do that. It looks like these loan products were simply a bad experiment that went horribly wrong, and I hope that the mortgage industry recognizes it and returns to sound underwriting principles again. If they do, prices will fall off the cliff.
I got a creative loan for you , how about not putting people on loans they can’t afford . Serious , I would think the Industry can see by now that you can’t put people on loans they do not really qualify for by betting on the come that their income will go up by the time the payment adjusts ,or that real estate will go up and cover the shortfall .
You made interesting points about how people were getting more house pursuant the ARM payment with the low qualifying .
But come on Sensible Lender ,you know the underwriting has been nuts . I know your a good lender by your posts by the way.
Waiting in OC …I guess we had the same thoughts at the same time .
There’s a reason why economists and banks are dishonest: Regardless of how hard the crash may be, the bubble was a classic Ponzi scheme. And they are terrified to admit it.
Think:
Why did these people buy houses with time-bomb loans? They expected continued rapid appreciation, and easy refinancing or sale.
Why did banks offer people time-bomb loans? They expected rapid appreciation, and easy refinancing or sale.
Why did flippers bid up prices to astronomical levels? The expected rapid appreciation, and easy sale.
This is a Ponzi scheme. It is fed by the continuing illusion of unrealistically high returns. A constant stream of new suckers–enticed by false hopes–enters the market. Their ante pays all the profits of the existing players. But once those hopes are shattered–and the promise of quick profit disappears–the stream of suckers ceases. There is no one to pay any money into the scheme any more. And a pyramid scheme doesn’t “cool down,” “return to normalcy” or have a “soft landing.” It collapses. That’s what’s happening now.
So all the talk about a “strong economy” or “still-historically-low rates” is completely irrelevant. None of those things drove the runup in prices alone. The Ponzi scheme did. And the banks were suckered into it as much as homebuyers.
Sold at peak ……I agree with you 100% ..It all goes back to the Ponzi scheme .
We get to now see how all these people can handle it, and see how the mortgage industry comes up with a solution ( I have a feeling mortgage investors have had enough and will not go for further “creativity” in loan types.)
And yet today, I get an e-mail from one of my subprime lenders saying they will take an appraisal with only 6 months seasoning. This means if you bought a home for $100,000 6 months ago and you now can get an appraiser to justify a $150,000 value, you can get a borrower a cash out refinance over what they paid for the home. I’m sure there are some caveats built in where the borrower has to demonstrate they made “improvements” to the home to justify the value, but come on, 6 months? You couldn’t produce enough red ink for those blank flags before, but these companies are so desperate to keep the party going anything goes I guess. Same lender, 100% stated income product also OK. And this is the best one, neg am 1st mortgage also OK which means a 2nd can go behind a neg am 1st. Are you freaking kidding me?!? Does the end investor just want to throw money away? If so, please call 813-…
“mild slowing???” Everywhere you go in this state,is dead in the water.I just was in Arlington near Boston and there were tons of homes for sale. I live North of Boston and the same story here,and near the water everywhere!!!
“MBA Senior Economist Mike Fratantoni attributed the problem to the state’s shrinking population, weak job growth and slowing housing market, which make properties hard to unload fast. Fratantori said Massachusetts appears to only face ‘a mild slowing of the housing market.’ He said the current slowdown doesn’t look like ‘a repeat of the early 1990s.’”
Huh?
Exactly what kind of Greenspanesque double-speak is this????
In addition to Fratatoni’s noted problems, the New England region has undergone a monumental decades long debasement of it’s economic underpinnings.
And the housing crash is not going to unfold like ‘90/’91????????
These real estate connected talking heads have absolutely zero crediblity.
“And the housing crash is not going to unfold like ‘90/’91????????”
Nope, it won’t.
The coming crash will make many FBs think of 1992 fondly.
Mazz is going economically backwards.
3 years ago it’s unemployment was 2 percentage points below the national average.
Now @ 5% it’s 2 tenths above.
Shows ya how much illegals are really starting to distort everything.
Mazz is going economically backwards.
3 years ago it’s unemployment was 2 percentage points below the national average.
Now @ 5% it’s 2 tenths above.
Shows ya how much illegals are really starting to distort everything.
Off topic:
But do you think maybe data like this will make Bernanke more likely to raise rates?
http://www.bloomberg.com/apps/news?pid=10000103&sid=an9UsfFBthUk&refer=us
Yep. Add to that the massive bubbles in all things (mortgages, metals, stocks, bonds, etc.) and there is no way BB can’t raise rates, IMHO.
This article hints at another interesting “hidden” trigger, perhaps the deadliest one, for foreclosures - many loans today do not include property taxes and insurance in the monthly payments. That means that these unsuspecting people are going to be presented with a surprise tax bill, which is typically due in no more than two installments, and is large - annual property taxes can be 4 times the monthly mortgage.
Wonder how this will play out - most property tax bills are due in full by October and most states today do not tolerate more than 30 days late and will send the sheriff out to post a lien in 30 days after due date.
When banks are due money, they follow the legal procedures for foreclosures, which may take months.
But when you owe the government money (including county and city government), it tends to collect very quickly!
This is actually not the case here in Allegheny County, PA. Properties can hang around for YEARS with delinquent taxes before either the county or school district forces a sale. I’ve seen this dozens of times. The banks act much more quickly.
Failure to pay taxes or to maintain insurance is a default. Lenders can foreclose even if mortgage payments are being paid on time. So the FB is giving the lender an option to step in and foreclose at whim.
DC condo watcher: How does that play out? The government places a lien, ultimately can take and sell a house if it is free and clear, but if it’s under mortage, how does that play out?
Freeloading roomate: “Inflation Ravages U.S. Wages”? That headline begs for a followup reporting on those with fixed wages. What a bloody mess that could quickly be.
I really think the bubble’s end game will be a war of boomers against boomers. More specifically, older boomers with a vested interest in protecting property values vs. those with a vested interest in protecting the buying power of their fixed incomes, and keeping the employment picture in the US from deteriorating too seriously (most fixed income being Social security.)
Am I wrong in placing this emphasis?
A co-worker was caught by the same trick. She was working with a sub-prime mortgage company who repeatedly assured her (though not, I suspect, in writing) that she was getting a fixed rate loan. On the day she went to close on the house, she looked through the paperwork and realized that she was actually getting an ARM. She went ahead and closed anyway, after the mortgage people pointed out that if she backed out now she would be throwing away all the money she had already paid them in fees (some of which sounded very dubious to me).
Wow, this seems to be happening to quite a few people.
I had this happen to me with the first house me and my husband were going to buy. A new homedeveloper was releasing a new phase of homes on the same street that my inlaws already lived on. After touring the models, we decided to buy one preconstruction, put some money down, and then waited for the home to be finished.
Lo and behold, the home was completed, we did our final walk through, and then sat down at the table to close out the final documents…only to find out that our fixed rate loan had been “mistakenly” made into an ARM. We were pressured with the same “its a mistake, just sign right here, and we’ll fix it” assurances.
So what did we do? We refused to sign anymore paperwork, and walked right out of the office. This is when we younger and didn’t know anything about credit scores and home price qualifications, but we did know about simple things like Adjustable Rate Mortgages vs. Fixed Rate…duh, it was fine print of the paperwork the mortgage company wanted to sign. Same thing as one of the previous posters above, the next day the mortgage company called back with a new fixed rate loan that was quite a few points higher than the original rate we were supposed to be getting. The mortgage company employees were literaly dangling the keys to the new house in their hands in front of us, pressuring us to sign the final paperwork.
Me and hubby looked at each other, and said, “Dammit, we are getting screwed.” We refused to go through the sale of the house after that. (It was really hard too, as we both really wanted the house). The homebuilder and mortgage company was pissed, and after returning our downpayment (they were required to by law) they threatened to sue us. We just laughed and said, “go right ahead” and nothing ever came of it. We did lose about $2K in various fees and upgrades we spent for the house, but what the hell, I’d rather lose $2K then pay in blood for an ARM that I possibly couldn’t afford over the next 30 years.
So I don’t get how these people can just sign paperwork for something as expensive as a home mortgage and allow themselves to be “duped” into signing for a loan that wasn’t what they wanted, much less not knowing what type of loan they were getting!
You do have a choice in the matter. You can say NO and walk away!
Just do not forget to call your state’s Attorney General’s Office as soon as you get home. You should have gotten your $2,000 back.
I was curious. I checked the mail today and it had something for my brother in it. It was from Ameriquest Mortgage. They state “get your personalized refinancing quote inside. Funny thing is my brother is still in college along with myself with no home equity and a job that pays only around 8 an hour. Whats wrong with this picture??? Oh and thanks to such a great site to educate the masses about the dangers of ARM, Interest only and other risky loans.
You can’t educate these ‘useful idiots’ into anything. I don’t care what you disclose, they only hear one thing at the start and one thing at closing and that is “HOW MUCHA AMONTH IS’A IT GONNA COST ME?”
She only made the monthly payments by sacrificing payments on her credit cards, which pulled down her credit rating.”
How does one “sacrifice” credit-card payments? Pile them on an altar and burn them? I believe you either make payments or you don’t, but “sacrificing” them really isn’t an option.
If folks in MA are explaining the increasing foreclosure rates and general housing “slowdown” on weak job growth and shrinking population, then someone’s gotta get the memo to the pundits and media here in MI. A couple recent reports on economic conditions in the various states showed MI looking pretty bad (no, really?) and MA looking like a great place to be…it’s that much more surreal then to see people around here trying to pretend like all is well, or will be soon.
A new IKEA just opened next town over from me, and man are people still apparently willing to add to their creditcard bills for decent-looking inexpensive veneers, european-style molded plastics and swedish meatballs!