The national foreclosure rate has climbed steadily throughout 2007. While most reports attribute the bulk of the foreclosures to ARM resets, the reality is that more than half of the borrowers who are defaulting are still in their first year of the loan.
An IAFF exclusive - for immediate release.
The national foreclosure rate climbed to one filing for every 555 households in October according to the most recent report from RealtyTrac.
The foreclosures have added to the 11 month inventory of unsold homes and helped to put downward pressure on prices. Banks and investors have reported millions in losses since the trouble began.
As bad as the crisis seems, it is about to get worse. A real wave of resets is on the way.
Bank of America Securities estimates that rates will reset on $362 billion worth of adjustable rate subprime mortgages in 2008. At the same time, resets will also occur on $152 billion worth of other loans with adjustable rates, such as Alt-A loans and jumbo loans (loans over $417,000).
The prediction is significant because the majority of the foreclosures documented to date are not the result of ARM resets but other factors like falling home prices and lax underwriting standards.
Rod Dubitsky, an analyst with Credit Suisse, recently stated that more than half of the foreclosures and subprime delinquencies in 2007 involved loans that did not yet reach a reset point.
In other words, the majority of borrowers are not defaulting because of rising payments; they are losing their home because the initial payment is too much to handle.
How Bad Will It Get When Rates Reset?
Christopher Cagan of First American CoreLogic Inc estimates that 81 percent of the borrowers facing a reset in 2008 already have an interest rate of 6.5 percent to 12 percent. On average, these borrowers will see a 33 percent increase in the size of their monthly mortgage payments.
Approximately 80 percent of the ARM loans facing a reset in the next few years were current as of October, but experts predict default rates will spike as soon as the resets begin.
Since ARM resets in the first four months of 2008 are expected to exceed the value of ARM resets for the first eight months of 2007 combined, it would not be surprising to see foreclosures follow the same
6 responses so far ↓
1 Sven // Dec 1, 2007 at 2:36 am
From what I can see in MN, the bulk of the homes currently on the market for re-sale after having been foreclosed seem to have been foreclosed as a result of fraud. Most of these sold recently for amounts vastly in excess of their highest-ever real value. It appears that buyer, seller, real estate agent(s), appraiser & loan broker colluded to inflate the purchase price, suck money out of the new lender & split the proceeds. These felonious rings went around & “flipped” numerous houses per buyer. The buyers in some cases knew that they would go into foreclosure, demolishing their credit, but decided it was worth the quick profit. Other buyers were told, “we’ll give you $10,000 cash under the table per house, and then we’ll rent back the house for a modest cash-flow”. Only the rent-back never happened and the buyers quickly went under. Many of these borrowers are not “victims”, they’re criminals. The victims are the lenders who were defrauded & the neighbors of the properties that were left vacant and exposed to vandalism.
Memo to news reporters: THE BUYERS WERE IN ON IT !
2 michaelsblomquist // Dec 1, 2007 at 1:03 pm
Lenders are the victims. Thats a good one.
The lenders abandoned prudent, legal guidelines, which virtually guaranteed this would happen. In the interim many executives got rich beyond their wildest dreams and the tax-payers and dollar will continue to pay the consequences.
The overwhelming majority of these foreclosures were not from fraud for profit; they were from fraud for housing.
Lenders didn’t care if borrowers could qualify because rating agencies and investment banks were aiding and abetting the fraud.
http://www.youtube.com/watch?v=Oya0PlwA-NM
Make sure you get to the GMAC loan.
The trillion dollar smoking gun is to tie this pandemic to the government ala Shock Doctrine.
What has happened is a complete dislocation from reality. Fraud of epic proportions.
I have yet to see any opinions from the BIS, but I am certain there will be consequences. This could destroy the global economy and financial markets.
We are only in the first inning of a double header.
http://www.discountrealty.com
3 Sven // Dec 1, 2007 at 2:11 pm
If I leave valuables prominently displayed in my home and visible from the outside, and if I leave my doors unlocked and my house is burglarized, I am stupid, but I am still the victim of the burglary. There’ll alway be a lawyer to defend the burglar, saying, “He couldn’t help it! The homeowner made it too tempting and too easy. The defendant couldn’t stop himself.”
Mr. Blomquist, I looked at your websites. I agree that we are in the first inning of a double-header. I too think Option ARMs were created to deceive and should be illegal. I too think that virtually the entire financial world foresook sound underwriting guidelines in pursuit of short-term gains. And I too think the government should not be bailing out anyone. The point of my original post was to point out that in my particular neck of the woods (I don’t know about CA, NV or FL), the houses CURRENTLY in foreclosure appear to me, after a detailed investigation of public records, to have involved fraud for profit. That’s why they went into foreclosure virtually immediately after the origination of the loans. The coming waves of foreclosures in 2008 (subprime ARMs) and 2008-2011 (Option ARMs) by and large did not involved fraud for profit (by the borrowers at least). I would agree that the marketing of Option ARMs, in many cases, was deceptive. I wish you all the luck in the world in suing on behalf of legitimate owner-occupants who were misled. Since they seem to be a minority of borrowers who were recently foreclosed, my guess is that you may have to wait to sue on behalf of the option ARM borrowers before you really hit the jackpot.
4 Top producer // Dec 1, 2007 at 2:15 pm
The banks continue to allow the fraud to happen by not forcing a 4506 upfront to stop the problem. Now that the subprime is gone, Prime loans will be the target,because we are dealing with the same borrowers. If the government doesn’t step in with new law enforcing banks to stop Fraud the mortgage industry can take down the U.S. economy.
5 admin // Dec 1, 2007 at 2:27 pm
Top Producer, yes, right on there. The good ole 4506 and yes, it looks like our government is aware that we are heading into HUGE turmoild if they do not step in.
Sven, that’s why we are here, for the legitimate homoenwer, not the fraudster or speculator.
You made some great points and I appreciate your comments.
Michael, right on as always.
However, it looks like our government is trying to put a stop to the double header with the mass loan modification campaign.
6 Dougw // Dec 23, 2007 at 1:09 am
I think Sven and Michael are both right.
Michael is right that the lenders are not really “victims”. The lenders who got deep into this got caught up in the whole notion that these loans could get packaged into mortgage backed securities (with largely illegitimate credit ratings) and become someone else’s problem, so that they basically gave up on all rational lending standards and just pumped out the loans for their commissions.
However, from the deed records that I’ve seen in Detroit, I’ve also found that the bulk of the current foreclosures are very quick Early Payment Defaults, which are fraud for profit. This may not mean that the majority of foreclosures nationwide are fraud for profit, but I think it’s a much larger percentage than people realize. Also, the subject of this thread “Foreclosures Aren’t the Result of ARM Resets” would lead me to believe that a significant percentage are due to fraud for profit, since ARM Resets are pretty much fraud for housing.
In any case, it doesn’t matter that much, because the lenders abandoning prudent, legal guidelines (due to the spreading/hiding of risk in these securities) is the root cause of the massive increase in BOTH fraud for housing AND fraud for profit.
Sven, if it would be possible for you to contact me with some of the public record info you have in MN, I would be very interested, I could share my info from Michigan. dway at mailcan dot com.
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