Saturday, September 1, 2007

The Mortgage Debacle, The Market & The Fallout!

Today on this date in history...

First federal tax was levied on tobacco in 1862.

Emma M. Nutt Day, she was the first woman telephone operator in 1878.

Labor Day was declared a U S national holiday by Congress in 1894.

World World II began when German troops invade Poland in 1939 at 5:30AM.

Lead in paint is declared illegal in 1977.

The Mortgage Debacle, The Market & The Fallout!

Several things have been in the news. Yesterday, I touched briefly on the possible expanded role of the FHA in helping people to be able to refinance before they lose their home to foreclosure. I think that this is a necessary step by the government to help people and especially our economy, but my concern comes down to part of the criteria.

To qualify, homeowners would have to prove they paid their loan on time before it reset to a higher rate and must have at least 3 percent equity in the home. That is fine and also the fact that Pres. Bush is asking Congress to raise the present loan limits. But part of the criteria for one of these loans is that to compensate for the added risk, the borrowers would have to pay higher premiums on the loans and also some of the closing costs. Right then and there you are going to eliminate a lot of people who might be in dire need of help. They are already tapped to the limit. If they can't afford their present loan, how might they afford one with a higher interest rate & possibly having to come up with some of the closing costs, nevermind 3% if they do not have enough equity.

I agree that help is needed, but have to be concerned about the repercussions of this. There was an article in USA today in which Peter Wallison of the American Enterprise Institute said, “If you’re going to help someone to refinance, you’re going to bail out the person who financed him in the first place.... This will only cause the problem to arise again.” Yes, this may be true and is a concern, but that all depends on how the government handles the whole situation.

Another major group of foreclosures is coming from the investor group. We've all heard about the investors trying to grab a piece of the pie/cake. Unfortunately, this cake didn't rise as anticipated. The numbers are quite large in comparison. Nevada leads the pack of investor defaults followed by Arizona, Florida & California. Yes, all four of these states have been in the news quite a bit due to the change in real estate market conditions. They all have had incredible growth, but with that growth also comes some fallout as we are seeing now.

It was recently noted that even though Florida has shown a year over year price decline of almost 1%; the overall 5 year stats show a price gain of over 95%. Granted, this bodes well for most of us. The people that are obviously being negatively affected at this point are the sellers, especially those who've purchased within the past two years; those with ARM's that are being adjusted to higher rated; those with 100% financing, which I've always tried to dissaude people from getting involved in; and, especially investors.

Now, there is another group of people that are feeling the brunt of all this, and that's renters. According to another article that I've recently read, rents are projected to rise about 4 percent this year and next. This is being affected on many levels. Many previous owners that are finding themselves in foreclosure are turning into renters again. Additionally, more renters are also renewing their leases because they can no longer qualify for mortgages.

The only good part of this, is that some landlords are renting for less than their present mortgage on their investment properties, basically looking to just cut their loses. These people are avoiding foreclosure by doing such and because they have the present ability to afford it as well.

Anyway, till next time...Marc It Sold!

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