More homeowners selling houses for less than they owe

[UpInArms]

http://seattletimes.nwsource.com/html/businesstechnolog...

After years of borrowing in a sizzling housing market, more homeowners are finding themselves upside down on mortgages.

They borrowed more to buy or fix up homes than they can now afford, and a growing number are turning to short sales — selling homes for less than they owe — to unload high payments and avoid foreclosure or bankruptcy.

No organization tracks short sales, but real-estate agents, housing counselors and mortgage companies say they have been seeing more of them since the economy tanked and employers began laying off workers.

Most are the end result of delinquent mortgages — those not paid for more than 90 days — which have risen dramatically in the Seattle-Tacoma area the past three years. The number of delinquent mortgages rose 50 percent between June 2000 and July 2003, according to Loan Performance, a San Francisco firm that tracks mortgage data monthly.

...more...

note to mods: this may be just outside of the 12 hour LBN, but have not seen it anywhere and thought it was important - thanks

[Nottingham]

1. We all been waiting for the Housing Market to get Hit!

It looks like its starting

[Starpass]

2. This is exactly the type of thing that went on during Papa's depression

I was in Iowa at the time - the Quad Cities - and people were selling their houses for less then they owed and throwing in the family car, etc. to boot. We have a massive debt problem out there and a lot of people got sucked in on this "low interest" jag just like got sucked into the stock market jag in the 90's. Good. If they hurt more maybe they will finally wake up. Too many people who think that "bad" stuff doesn't happen in the US of A.

[cosmicdot]

5. bingo: went on during Papa's depression

exactly

the DC market went from people bidding on a house ... to short-selling to just to move it ... I recall a picture taken in suburban northern Virginia ... the owner's possessions were sitting on the curb in front of the house ... in the District, I walked pass more than one eviction possessions on the street ...

I fear the quake a'building will make Poppy's economic slump look like a blip

[janx]

14. Talk about history repeating itself!--but this is much worse,

as history will show. I remember what happened on the coasts ten or so years ago; people just leaving their houses and running. At the time, I lived in Connecticut for a couple of years. I will never forget it...but this is worse, much worse. The ramifications aren't evident yet. It makes me sick.

[hedda_foil]

3. I haven't seen it anywhere either and it's very important.

This is just the beginning. As more people lose their jobs, housing prices soften and the people who are desperate to sell have to take a loss ... which pushes prices down farther. And with all those upside down mortgages from the real estate bubble ...

[janx]

15. You are not kidding. I can't believe the extent to which

mortgage companies extended themselves in the nineties. It was ridiculous. This is not political; this is just incompetance and greed on the part of the mortgage companies and banks. They loaned money to people via adjustable rate mortgages, etc.--oh man, I'm glad I'm a Deaniac and a fiscal conservative!

[bleedingheart]

4. its going to get ugly...there are lots of people with excessive debt

rolled into their mortgages...

[happyslug]

9. I have had several such people talk in my office.

Now, I do not get the 200,000 income client as mentioned in the story, my client tend to earn 20,000 when they were working, but I have had several foreclosure.

It is easy if they only have one mortgage, than that mortgage company will generally agree to take the property in lieu of Foreclosing, the problem is when there is a second, third or more mortgages on the property AND the owner can not make the first Mortgage. In such situations the Banks will always foreclosure for when a bank foreclosures on its mortgage it wipes clean all the other mortgages on the property (Other states may vary but that is the general rule).

The reason the banks foreclose is that if they take the house back in form of a deed lieu of Foreclosure, the second, and subsequent mortgages are still valid liens on the property, on the other hand if their foreclose subsequent mortgages are wiped clean off the property and the buyer of the property (Generally the bank who holds the mortgage) than sells the property to a third party.

A deed in lieu of Foreclosure is cheap, quick and almost painless, foreclose can take months and the costs are added to the debt of the former owner of the property.

One last comment, while subsequent Liens on the property is eliminated the Debt owned by the former owner of the house remains and must either be paid or discharged in Bankruptcy.

Thus you loss the house AND STILL HAVE THE DEBT.

[janx]

16. Yes, there are--because if and when they got into any kind

of financial trouble, they acted like Chimpy and borrowed more money!

[BadGimp]

6. home refinancing money is one of the things keeping the econ going

home refinancing money is one of the things keeping the economy going

there are so many ways this could go bad

but the smart money is on this being nothign more than a buyers mktg

cash rich investors will snap up the houses and turn them into rentals

rentier economy here we come...oh wait we are already...never mind

[lindashaw]

11. Years ago, Henry Gonzales got on the floor of the House and said

that the passing of the law that allowed America to mortgage away their homes would be the undoing of America. I think we about to enter the period that defines exactly what he was saying.

[leesa]

7. Well, unfortunately, this and the inevitable rise in gas prices are the

only thing that will wake up the ignorant, selfish Americans. Who will the Republicans blame this on?? All the foolish construction workers, etc. who lined up behind the Republicans to dump welfare and unemployment insurance will soon be regretting it. I saw a bumper sticker today. 'Make getting a building permit as easy as getting welfare', MeThinks they are about to find out just how much harder welfare is to get!

[freeforall]

8. Why doesn't this surprise me?

A few years ago when Greenspan kept cutting the interest rate and everyone went on a shopping spree for new houses and cars...I could see the looming disaster. I guess a lot of people don't think when they see "a good deal!"

[david_vincent]

10. Did anyone else see the thread a few weeks ago...

where someone posted a link to an economics site that had an interview with a renegade German economist? Can't remember the guy's name, but it started with an 'R' and it was long and teutonic... this guy is a real grey eminence in European economics. He predicted that the "housing bubble" in America would burst and this very thing would be happening all over the country. Anyone remember his name, or the website?

[tlcandie]

21. Yes, I read it .. was great read!

I can't recall either, but he and they analyst interviewing him gave the US 12-18 months max (when interview was done) before we hit rock bottom... harder than the depression of the 30s BIG TIME!

[jburton]

12. Here too

Colin County, Texas has had a HUGE number of foreclosures over the past year. Up by over 80% !!!

For some demographic perspective: Colin County includes suburbs north of Dallas, such as Plano. Mega-Repug territory, very wealthy (at least it was when Clinton was prez)

[cliss]

13. Very interesting article, up in arms

So -- the housing bonanza is about to burst. I believe it. I've been watching the housing market and of course the refinancing boom. Economists and bankers have said that this is about the only thing good happening in the economy right now. Or to rephrase it: the only thing that is keeping our economy going AT ALL.

And of course, why just have a little bit of a good thing, when you can go for the whole enchilada? Don't just refinance the mortgage, get it refinanced and throw in extra cash to cover credit card bills or other spending.

When the homeowners should have taken advantage of the only good thing to happen in years, instead they just painted themselves into a corner.

Currently, it's fairly easy to buy a house. If you're breathing, you qualify. Apartments are dealing with big vacancies. Houses for rent are not renting so quickly, because everybody is in a house.

That might change, especially if people lose their jobs. So we should start seeing a lot more foreclosures, and of course this will have a domino effect on our economy. It's a very bad development.

Save your money. You may be able to pick up some bargains in the near future.

[ender]

17. wonderful time to be a first-time buyer :-)

sorry for the shaedenfreud, but some of us who managed to make money in the stock market over the last couple years (mostly by taking advantage of the idiots who fell for the stock market bubble) - will manage to turn that into taking advantage of the same folks who got suckered into the liquidity trap...

MUahahah

MUAHAHAHAH


MUUUAHAHAHHAHAHHHAHAHHAHHAHH.....

people with a gross 200,000 income get no sympathy from me. none, at all... those idiots who never save a penny deserve what they get.

[TygrBright]

19. Maybe in your market, but....

>>Currently, it's fairly easy to buy a house. If you're breathing, you qualify. Apartments are dealing with big vacancies. Houses for rent are not renting so quickly, because everybody is in a house.<<


Everywhere else I'm aware of, the rental market for anything under luxury-level rents is tighter than a bull's sphincter in fly season.

Have you tried finding an affordable rental lately?

A family member just returned from an extended stay overseas and the sticker shock has her reeling. She's on a fixed income and can't find anything outside of downright dangerous neighborhoods or borderline-condemned buildings in her price range (looking for a 2-bedroom $600 a month or less.)

The shortage is not in housing, it's in AFFORDABLE housing. And I don't think it's going to change, no matter how dramatically the mortgage bubble bursts. There are too many greedy folks out there with already-deep pockets who can afford to buy and hold, take things out of the market for awhile, etc. If you are rich enough, you CAN repeal the law of supply and demand (see: gasoline prices, pharmaceutical prices, etc.)

pessimistically,
Bright

[azrak]

18. 2nd and 3rd mortgages

to upgrade your house or pay credit cards or buy cars is just plain crazy! In seattle real estate is still appreciating at about 5% per year. But I have personally known people who borrowed 125% of their house value. What did they expect the mortgage fairy to bail them out? Any GOOD mortgage banker will tell you that you need at leat a 6 month buffer in savings when you buy. I just wonder if these people ever took basic economics. We bought a cheap house in an expensive neighborhood and could borrow 40k on it, but that would be over my dead body.

[JNelson6563]

20. I saw this coming

I wondered what the hell people were thinking in accumulating massive credit card debt etc. and then mortgaging their homes for 125% of the value! The word that came to mind onthat consistently was "insanity".

There have been many tiny blurbs about consumer credit on financial news but they can't wait to change the subject. They think if they can keep the DOW in positive territory the people will believe it's all good. Of course a huge proportion of stocks in this country are held by a small percentage of people, you can guess their net worth. It's no big trick for the rich to gobble up more wealth in times like this when the average Joe is often reduced to taking losses to get out from under crushing debt.

Yep, I have seen a crash of sorts coming for some time. There are other things that can crash in an economy than stock markets. We are seeing it now. Sad.

Thanks for posting UpInArms. I appreciate all the financial stuff you go to the trouble to share with us regularly. Gotta get the info out there.

Julie

[UpInArms]

26. you're welcome -

I have a tremendous interest in how this country actually works and hope that others that know more than I do will share that knowledge, too.

I am watching what feels like Raygun on steroids - if you don't remember the early 80s and the devastation that he managed with the weaker dollar and the re- and de-regulation of real estate, oil and gas and banking, you might read books like Other People's Money and Funny Money and get a feel for those times.

He also shifted the tax burden from the corporations to the individuals and no one seems to have noticed or remembers.

Also recall that under Raygun the tax laws changed and only interest paid on mortgages was eligible for a deduction - prior to that all interest (no matter for what was deductible).

[NNN0LHI]

22. Anyone else notice this?

For the past few years the homes that I see being built are nothing short of mansions. I do not see any newly built low to medium priced homes going up. Just trophy houses. Maybe this is just in my area south of Chicago?

Don

[Boomer]

27. Not just in Chicago...

Same story here in Northern Virginia -- acre upon acre of farmland turned into subdivisions of $300,000+ luxury homes surrounding golf courses. And if you take a close look during construction, you'll see that these "mansions" are built out of staples and particle board. Which means by the time the owners have paid off their 30-year mortgage, they'll be lucky if the house is still standing. One unrepaired leak and half the house will dissolve.

One of the reasons I bought an old house (late 1890s) was because I wanted value for my mortgage debt -- and the bonus was I got a solidly-built structure for a fraction of the cost of a new house, even with the added expense of some plumbing upgrades. I'm comfortable with "just" 2 bathrooms and an old country kitchen (we'll get a dishwasher put in someday). I don't need a hot tub or jacuzzi, somehow I'll manage without a swimming pool or tennis court or atrium. I don't even have -- oh, horrors -- a single walk-in closet.

On the other hand, my 15-year mortgage is only 1/4 of my monthly salary, and I've got enough in savings to tide me through a year of unemployment. I never charge more on my credit cards than I can pay off at the end of the month.

In today's consumer-frenzied debt-laden culture, I feel like an oddity. In my parents' day, this was just plain common-sense.

--Boomer

[lanlady]

30. same in the DC area--

--in Virginia and Maryland suburbs, it's either McMansions or row after row of townhouses. Very little in between, in the medium- or low-range single family category.

[david_vincent]

31. Not long ago Time or Newsweek had a big story on housing trends,

and that was one of the things that was pointed out in the article. It said that in the 50s the average house had 1800 sq. ft. These days, you almost never hear of a new house with less than 2000 sq. ft. - they're usually closer to 3000 sq. ft. if not bigger.

[FlemingsGhost]

23. Bet they weren't expecting that when they bought 'em

Ya know... way back when big, bad Bill Clinton was corrupting us all.

[UpInArms]

25. until 1997 in Texas

a homeowner was not able to get an equity loan or take out a second mortgage on their property - this was to protect the "widows" and "children" from losing their property -

but it also kept the bankers from making a lot of money on homes that were appreciating in value.

I was really sad that Bush was able to take that safeguard away -

[Noordam]

24. Change in Cars in Long Beech

OK I do have one 75 yo Repug friend But he is more a Arnold repug than a Bush repug.

The other night we were talking about the economic and how bad it is. His comment to me:

"You know a year ago you could not find an ad in the newspaper for a new car for less than $20,000, but now I am seeing cars 14-16 thousands. "

[henslee]

28. noordam --- real estate sure is booming in LB..

I can't believe all those lofts downtown.

[Noordam]

29. Sorry I should have said he reads the LA Times

and the ads in there for cars cover the whole La area.