Wednesday, September 23, 2009

Foreclosures; Another Shoe is Dropping

Currently, in the City of Pittsfield, MA, there are 190 properties in some stage of foreclosure; 69 are currently in default, 30 are Bank owned, 16 are awaiting a foreclosure sale date, and the rest are in some part of the process (such as sale completed but deed not yet recorded or waiting for the sale with a date set).

For a city the size of Boston, or Atlanta, or even Springfield, MA, that number might not be worthy of note, but in a city of 40,000, to have 190 HOMES in some state of being taken from the homeowner is alarming. What is more concerning is the fact that there is no action on the part of the city to assist those homeowners in trouble. There are no meetings inviting homeowners to learn how to protect their home which is probably their biggest investment; the local community college, which offers courses and seminars in all types of subjects, has no offerings to educate homeowners about how to avoid the common pitfalls that lead to defaults and foreclosure. There isn't even a hotline that is well publicized, that a homeowner in trouble can call to get emergency legal assistance/counseling.

What is most disturbing is that the situation in Pittsfield is not the exception, but the rule. This issue pervades the country and, yet, because we have moved to a new news cycle, gets no attention anymore. The stock market is nearing 10,000 again; the dollar is low so exports are high; oil is over $70/barrel but not too much; gold is over $1,015 per ounce but that is because of the weak dollar; inflation is under control; and the Federal Reserve is continuing to give the banks cheap money to lend. The fact that it isn't being loaned to consumers or small businesses also goes undetected.

We are facing a real housing crisis. As has been commented on and explained in earlier postings, the next wave of adjustable rate increases is about to hit - the so-called Option-Arms, were "prime" borrowers could get a mortgage, and pick a payment for the month. Well, that period of pick as you may is starting to change. Most had that scheme for 3-5 years. The 3 year period is beginning to end (2006-2008) was most of the activity, so we will start to see loans that have to have PRINCIPAL & INTEREST PAID each month for the remainder of the loan term (27 years generally). That will be coupled by a rate increase of 2%-3%, based on the contract (mortgage documents).

So, will the better qualified borrowers start to default and hit the statistics as a "property in foreclosure"? Not all of them but YES, many will! Keep in mind that many of these borrowers no longer have the jobs they did when they got the loan, or hours have been cut, or the second job is gone, or there is no overtime. This will start another decline in home prices and cycle of panic.

Mortgage lending has already slowed to a trickle of what it was. That is not all bad, but when people cannot refinance or buy a new home, even when they have a steady job and decent income, but only a 670 credit score (680 being the line between prime/regular and the evil sub-prime borrower) we have a major problem.

In many areas, local banks and credit unions are trying to fill the void, but the demand is greater than the supply of loans. And, many institutions have new financial requirements to meet per FDIC, OTS, OCC and the rest of the alphabet; the locals have little to lend on anything but the best prime loans.

One hidden factor regarding the recovery of home prices and the market: banks that have foreclosed on homes, many homes, are NOT putting them on the market for sale, hoping for a recovery in pricing and not wanting to flood the market and further depress prices by increasing the supply of "existing" homes beyond the demand.

So much for the good news!

1 comment:

face of foreclosure said...

Foreclosure generally happens when the homeowner buys a property on a huge loan and cannot pay back the debt. But in recent times, there have many uncommon reasons for foreclosure and the behavior of the mortgage lenders who’ve been taking charge of the foreclosed properties. Such as, illegal occupancy of foreclosed properties, eviction of innocent tenants due to foreclosures, mysterious suicide due to foreclosure.