I hate these general nationwide articles, but the graph was pretty – plus I figure that Ronald McMansion was biting his tongue on this one, from WSJ.com:
http://online.wsj.com/article/SB125530360128479161.html
An excerpt:
Foreclosures are rising in more expensive markets as home values in those areas fall, leaving more homeowners with mortgages that exceed the value of their properties. Prime loans accounted for 58% of foreclosure starts in the second quarter, up from 44% last year, according to the Mortgage Bankers Association. Subprime mortgages accounted for one-third of foreclosure starts, down from one-half last year.
The prime category includes so-called exotic mortgages that were increasingly used to buy more expensive homes, including interest-only mortgages that allowed borrowers to defer principal payments during an initial period. Borrowers often aren’t able to refinance out of these products because the drop in home values has left them with little equity in their homes.
Default rates are particularly high and expected to rise on option adjustable-rate mortgages, which allow borrowers to make minimum payments that may not cover the interest due. Monthly payments can increase to sharply higher levels after five years or when the outstanding balance reaches a certain level. A study by Fitch Ratings found that 46% of option ARMs were 30 days past due last month, even though just 12% of such loans have reset to higher monthly payments.
Zillow estimated that nearly one in four homes with mortgages was worth less than the value of the property at the end of June. Mr. Humphries said he didn’t expect to see foreclosure volumes level off until later in 2010.
Option-Arms are great, aren’t they? It’s the gift that keeps on giving.
Chuck
“A study by Fitch Ratings found that 46% of option ARMs were 30 days past due last month, even though just 12% of such loans have reset to higher monthly payments.”
Even I find that hard to believe. Scary. The graph tells me subprime deadbeats have mostly been worked through, and now it’s time for the move-up deadbeats to be worked through. You don’t need bad credit to be irresponsible.
Neg-am mortgage owners are jumping ship before they hit an iceberg.
Wouldn’t it be prudent for the lenders to make some statements/advertising to help instruct their customers on how the loans work, and offer real options?
“until later in 2010.”
unless the government digs its grubby lil hands in the process even further, delaying things even more [aka: guaranteed to happen]
Jim, how many people who can buy a $1M property (even on an option arm) are completely financially clueless? I’d guess very few (remember: stupid != clueless)
They knew what they were doing, and they still do: they’re not throwing good money after bad, and they’re taking their option to give the collateral back to the loan makers.
Agree re: the usefulness of national statistics; they provide little insight when trying to read the SD market … even on a micro level, CV data has little to do with Solana Beach housing. Each area has its own Micro Housing Data, and it needs to be interpreted separately. Just about the only truth the NAR is touting right now is that “all real estate is local”.
You might be able to make some very lose correlations, but trying to read the tea leaves from events in one area and extrapolate to another isn’t proving reliable from what I’ve witnessed.
“Wouldn’t it be prudent for the lenders to make some statements/advertising to help instruct their customers on how the loans work”
Yes, it would have been prudent, but the banks didn’t really care when the bubble was in full swing. They figured we’re going to label the mortgages with an AAA credit rating and sell them to someone else anyways. Or even if they default, we can just sell the house at a higher price and make a profit, since homes never lose value.
Thanks Jim.
I hadn’t seen this article yet. I keep hearing stories and seeing statistics of a fairly sizeable amount of shadow inventory that’s been building over the past year or more. It seems fairly clear that the subprime loans had no way of curing, and they had fuses as short as 2 years. The banks had no alternative but to foreclose. The mid to high end that used “affordability” loans, like Option-ARMs and such, were made to people who could afford those payments, at least until the recast, which was usually set for 5 to 10 years from origination.
HAMP has been producing 3-month trial modifications for many of the homes that would have gone to foreclosure recently. The big question going forward is whether or not these trial mods will stick or if they were just a way to kick the can down the road.
I like this quote:
“The foreclosure wave is still out there…but it is more of a tsunami now. When tsunami’s build the tide (foreclosures) rolls out for a protracted period of time while the sea (foreclosures in process) swells. Due to foreclosure prevention efforts the sea of foreclosures in process has swollen larger than ever before. In the end these efforts will only serve to make the wave larger and the hit, longer in duration.”
http://mhanson.com/blog
“Jim, how many people who can buy a $1M property (even on an option arm) are completely financially clueless? I’d guess very few (remember: stupid != clueless)”
I know plenty, depending on what you mean by “can.”
Wouldn’t it be prudent for the lenders to make some statements/advertising to help instruct their customers on how the loans work, and offer real options?
The closest I’ve seen to this is the Ditech ads offering to switch you to ~6% 30 year fixed. If you can’t afford that, you shouldn’t have bought that house.