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Final wave of foreclosures starting now?


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2012 Sep 13, 12:47am   5,014 views  16 comments

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http://money.cnn.com/2012/09/13/real_estate/foreclosures/

CNN/Money reports foreclosures are eking back up in judicial states - these might be the last wave of the 5-year ARMs coming to market. Will this wave be the end of the big crunch, will it cause another foreclosure ripple, or will it even be too small to matter? I don't think that prices in Florida can fall substantially further.

Foreclosure filings rose in August as lenders in several states continued to work through a backlog of delinquencies and defaults, according to an industry group's report Thursday. Foreclosure notices -- including default notices, scheduled auctions and bank repossessions -- were filed on 193,508 properties during the month, an increase of 1% compared with July, according to RealtyTrac, which markets foreclosed properties. But filings were still 15% lower than the year-earlier period.

#housing

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1   joshuatrio   2012 Sep 13, 1:07am  

If people would just quit financing home purchases and pay cash....

2   BoomAndBustCycle   2012 Sep 13, 1:57am  

joshuatrio says

If people would just quit financing home purchases and pay cash....

Yea and if pigs would only start flying...

3   Goran_K   2012 Sep 13, 2:12am  

joshuatrio says

If people would just quit financing home purchases and pay cash....

If you got rid of these things:
- FHA
- below 20% down mortgages
- the ability to squat 1-3 years in a short sale home (at most 90 days after NOD)

Housing would return to normal within a year.

4   bubblesitter   2012 Sep 13, 8:37am  

joshuatrio says

If people would just quit financing home purchases and pay cash....

Oh it's coming. Once govt. will not have anymore money to buy out bad mortgage securities - cash will be King.

5   CL   2012 Sep 13, 9:05am  

cc0 says

these might be the last wave of the 5-year ARMs coming to market.

Weren't there plenty of 7 year ARMs too?

6   cc0   2012 Sep 13, 12:44pm  

CL says

Weren't there plenty of 7 year ARMs too?

I don't recall those, but they may have existed. 1, 3, and 5 were the popular terms. I put the peak of the bubble around this time in 2006, the 5-year ARM resets happened in 2011. A lot of these actually reduced payments because rates are so low now, but some of them had balloon payments due.

I'd have to go digging for data but because rates started rising and these ARM people haven't been able to refinance because of negative equity their rates have likely been going up as well, which is reason enough for the FedRes to buy more MBSes and try to drive down rates.

Foreclosures in this area have picked up a decent bit (50-80%) from this time last year, but are down considerably from the peak years ~2008.

I think the plan is to keep rates low and keep the housing trickle slow so as not to depress prices further; as the market lifts and enough people can get their mortgage within current values, they can refi into fixed rates and then the normal foreclosure process can resume, leaving only the poorest to get evicted.

Problem is, this process could very well take a decade; meanwhile, I think we're seeing a floor, at least in certain markets.

7   37108605   2012 Sep 13, 10:21pm  

APOCALYPSEFUCK is Shostakovich says

Are you shitting me?

We haven't begun the first wave.

Precisely! 100% correct without a single question of validity in my opinion.

8   37108605   2012 Sep 13, 10:23pm  

Goran_K says

joshuatrio says

If people would just quit financing home purchases and pay cash....

If you got rid of these things:

- FHA

- below 20% down mortgages

- the ability to squat 1-3 years in a short sale home (at most 90 days after NOD)

Housing would return to normal within a year.

No it would not because these three issues cannot be wiped out. Why?

1. The masses are too depended on FHA and their bullshite.
2. Today far less than 1% have 20% down and those who do aren't going to pay a single cent over REAL market value. (This does not even speak of the 1% of 1% who actually have good credit. Also the job market is in shambles. These are two issues I won't even factor into the equation unless we want to turn three into five.)
3. They cannot control that because it is too pervasive. There will always be these types.

9   taxee   2012 Sep 13, 11:12pm  

bubblesitter says

joshuatrio says

If people would just quit financing home purchases and pay cash....

Oh it's coming. Once govt. will not have anymore money to buy out bad mortgage securities - cash will be King.

DO YOUR MATH

bubblesitter says

joshuatrio says

If people would just quit financing home purchases and pay cash....

Oh it's coming. Once govt. will not have anymore money to buy out bad mortgage securities - cash will be King.

DO YOUR MATH

Partially true. When you think it through, and based on results, the counterfeiters are king.

10   swebb   2012 Sep 13, 11:48pm  

cc0 says

these might be the last wave of the 5-year ARMs coming to market.

5 year ARMs started in 2007 would probably get *cheaper* if they reset today. LIBOR is _far lower_ today than it was in 2007 (4-5% less). Many loans are indexed against LIBOR, so they should drop significantly, I would think. (and no matter what rate they are indexed with, it's surely lower today than in 2007)

11   cc0   2012 Sep 13, 11:57pm  

swebb says

5 year ARMs started in 2007 would probably get *cheaper* if they reset today.

I'm pretty sure I said that:

cc0 says

the 5-year ARM resets happened in 2011. A lot of these actually reduced payments because rates are so low now, but some of them had balloon payments due.

I'd be interested in your thoughts on what else I wrote there though.

12   ELC   2012 Sep 14, 12:23am  

cc0 says

I don't think that prices in Florida can fall substantially further.

It can and it will in South Florida. The market here is severely sick and crippled. Underwater owners hoping some cash rich Canadian or South American will save them. It's almost impossible to get a conventional loan here and even if you do the house won't appraise anywhere near the asking price. FHA is still making risky loans but too many are falling through. The only people Realtors take seriously is cash buyers and except for the oceanfront condo market there aren't that many of them. See http://ewm.com/trends

13   swebb   2012 Sep 14, 1:26am  

cc0 says

I'm pretty sure I said that:

cc0 says

the 5-year ARM resets happened in 2011. A lot of these actually reduced payments because rates are so low now, but some of them had balloon payments due.

I'd be interested in your thoughts on what else I wrote there though.

I was responding to your original post where you suggested the increase in foreclosures was triggered by ARM resets.

cc0 says

these might be the last wave of the 5-year ARMs coming to market.

I'm not sure why you would think 2012 would be so different from 2011 in that regard.

As far as other thoughts...If the 5 year ARMs were resetting higher, I still wouldn't expect that to result in a foreclosure bump so soon -- unless the banks are changing the way they pursue foreclosures (processing the recently delinquent loans before attacking the backlog.) But I don't know how the industry works and who holds the ARMs vs who holds the conventional loans, etc.

As for the balloon payments on 5 year ARMs -- I wasn't aware of that being common practice, so I hadn't considered that it could be a trigger -- but it sure could be, as many of the ARM borrowers likely couldn't qualify to re-finance the balloon and would go delinquent even if they would have otherwise continued paying. Any idea what percentage of 5 year ARMs had a balloon payment at 5 years? (I once had a second mortgage amortized over 30 years, but with a balloon payment due at 15 years -- not sure how common that is.)

My guess is this "wave" isn't going to change things much. The bigger question is what happens to all of the existing foreclosures / delinquent houses that have happened in the past several years -- the extra foreclosures may make the problem worse, but a secondary factor at best. Of course that could change with the number...2 million foreclosures per month -- that would be a big deal.

14   RentingForHalfTheCost   2012 Sep 14, 1:40am  

Goran_K says

joshuatrio says

If people would just quit financing home purchases and pay cash....

If you got rid of these things:

- FHA

- below 20% down mortgages

- the ability to squat 1-3 years in a short sale home (at most 90 days after NOD)

Housing would return to normal within a year.

The only problem would be what is normal. My guess would be about 30-40% price reduction from where we sit today. Doing the above 3 things would remove the smoke and mirrors from the equation and make us all realize how crappy this housing economy really is today. Even the Asian buyers would disappear. ;)

15   cc0   2012 Sep 14, 1:53am  

swebb says

I'm not sure why you would think 2012 would be so different from 2011 in that regard.

It seems to take ~12-18 months for a foreclosure to show up at auction, and I'm seeing an increase in foreclosures at auction now. It seems something is pushing them higher suddenly.

I was never in the origination market so I don't know all loan details, but a lot of people were buying houses with 80% equity by getting 25% seconds, using the extra 5% for closing costs & renovations. I don't know how many ARMs were secondaries, but I haven't done all the title work to see if the current foreclosing entities are firsts or not, either.

Many ARMs were below-market rates, though, and when they reset you had to make up the difference in lost interest. This is what I refer to as the 'balloon'. A quick search online doesn't find the data, but I do see references to 7 and even 10-year ARMs as well. If I recall, these products weren't significantly cheaper than a 30 fixed so I may have just forgotten about them.

16   Goran_K   2012 Sep 14, 1:58am  

RentingForHalfTheCost says

The only problem would be what is normal. My guess would be about 30-40% price reduction from where we sit today. Doing the above 3 things would remove the smoke and mirrors from the equation and make us all realize how crappy this housing economy really is today. Even the Asian buyers would disappear. ;)

I like ThomasWong's definition: 1995 + 1.5 appreciation. That being said, if the 3 things I mentioned disappeared, we would get even lower prices. It's kind of eye opening how far the government has reached to prop up this market.

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