The "danger years" for homeowners

[LunaC]

Delinquencies peak the third and fourth years of mortgages.

NEW YORK (CNNMoney.com) - Millions of mortgage borrowers are entering their "danger years," when delinquencies peak and owners risk losing their homes.
Although borrowers are often told that the first year is the hardest, delinquencies have historically reached their highest points during the third and fourth years of mortgages, according to Doug Duncan, chief economist for the Mortgage Bankers Association (MBA).

-snip-

The number of Americans affected by the coming danger years could be huge. Half of all mortgage loans are three years old or less, according to the MBA. Nearly $3 trillion in mortgages originated in 2002, $4 trillion in 2003 and $3 trillion again in 2004. Many were refis, but there were also record totals of new purchases as well.

In addition, many of these transactions involved risky loans, such as interest-only ARMs and no-down payment loans.

A recent report from the National Association of Realtors found that the median new home buyer put down just 2 percent in 2005. Forty-three percent put down no money at all. And according to SMR Research, some 25 percent of loans were interest-only, do nothing to reduce the debt on the house.

Adjustable rate loans accounted for nearly half, by dollar volume, of loans issued in 2004 and 2005. Because interest rates have risen and are expected to increase further, those loans will adjust upward and monthly payments will be higher.

More…….
http://money.cnn.com/2006/03/28/real_estate/mortgage_danger_years/index.htm

[Atman]

1. In Hartford, they've reduced the size of newspaper Foreclosure ads...

...to make more room.

It's scary, man. Big shit's a commin'.

[Dem Agog]

42. only for stupid people who take risky mortgages...

Oh who am I kidding? This trailer trash republic is *built* on stupid people who take risky mortgages! They fancy their trashy selves "rich" and then vote republican...

[dubyaD40web]

2. They knew what they were getting into.

I put down 7% on my home with a 30yr fixed rate. The only thing that goes up is property taxes.

[lonestarnot]

3. And that's easily increased with increased bullshit tax valuations

at any given year!

[Iris]

4. Did they? The realty and mortgage banking industry pushed the

homeownership line mighty hard - driving it home as the American Dream. Creating ways to make loans to people they wouldn't have even let in their offices 15 or 20 years ago.

[MadMaddie]

5. Yea...you are right ....I am in the Seattle area and

many of these buyers bought homes that were to big and too costly...some still don't have curtains in their homes because they can barely afford the mortgage payment....I think the fault lies with the banking, and mortage industry and the homeowners are all responsible...

[CrispyQ]

11. Funny about the curtains.

There's a well-to-do neighborhood just down the road from us. Homes in the $400-700k range. They all have tons of windows & many of the windows are covered with sheets or nothing at all.

[MadMaddie]

16. It's the little things.....that you notice...

[bliss_eternal]

28. Wow--I've seen that, too--

we live in an area that apparently many realtors have purchased homes and made them rentals. I've noticed many rentals with no curtains at all--or the sheet thing. The rentals aren't even affordable.

They turn them into rentals after the house sat for several months with no interest. Another telling trend. Two years ago, a house went on the market and got snatched up before the sign was put on the lawn. Now the feeding frenzy is over and houses are sitting with little to no interest...

[gratuitous]

26. Not to mention the zoning laws and the builders

Where are the little houses for the couple just starting out or the couple just ending up? How much less house could many of us realistically live in? But we’re pushed by zoning laws and by builders (not to mention the omnipresent lenders) to buy as big a house and as much house as we can possibly afford. I’m as guilty as the next person, with a four bedroom house for just Mrs. gratuitous and myself, but we could make do quite well with much less.

I’m reminded of the story of a refugee family our church sponsored from Ethiopia or Somalia (I forget which, just offhand). After they’d been in the country for a few years, they were very proud that they finally had a house with a guest bedroom, and showed it off to us: Their family of nine had three (count ‘em!) bedrooms: One for the Mother and Father, one for the kids, and now one for guests. In their culture, all the kids slept together in one room, and they didn’t sleep very well if separated from their siblings. It really was an object lesson in our consumerist culture.

[Iris]

30. Reminds me of a friend of mine with 3 sons.

By the time the 3rd one came along, she asked the older one if he'd like to move into the spare room upstairs (all 3 were sharing downstairs bedroom) and he looked at her with a funny expression and said, "Why?"

[elehhhhna]

34. starter and empty-nester homes are going gangbusters here near Houston

80-90K gets a basic starter and 150 gets you a really nice ranch home in an "over 55" community. Both are moving along well...

[sentelle]

47. I'll agree with you on that.

Seattle is priced out of most people's market at this point. A guy I work with spent 507k for a 1100 sf house in ballard..... highway robbery.

Its ironic with the housing boom out in seattle....
Even on my side of the Sound (Bainbridge Island) its insane.
and my assesment went up $130k last year. geez, just glad we paid cash. (my wife doesn't believe in credit.)

[thecrow]

6. Yeah... my county assessment went up by $100K this year

meaning... well... my taxes are about to kill me.

But I only bought this house 6 years ago for around 120K
If I had wanted a $300K house, I woulda looked elsewhere.

[LostinVA]

19. Right back at you!

[wicket]

7. "Forty-three percent put down no money at all"

Oh.my.god. :wow:

[MadMaddie]

8. O down....yea it's going to be a huge forclosuer mess....

[BR_Parkway]

17. Even worse 25% interest only loans, and more than 1/2 adjustable

rates when fixed rates were at historic lows - there is only one direction they are going to go - UP!

[dbackjon]

9. Home-ownership is not for everyone

And the over-pimping of it has driven up home prices nationwide.


And yes, there should not be a deduction for mortgage interest.

[pimpbot]

14. why shouldnt there be a deduction for mortgage interest?

n/t

[harpo]

29. Why should you get a deduction and people without a mortgage..

shouldn't?

[LostinVA]

21. Of course there should be -- why take away the upper lower and

middle classes last real deductible? Hmmmm? Why?

[CAcyclist]

27. I disagree with that last statement

What there shouldn't be is a $250,000/$500,000 capital gains exclusion that people can do every two years. One-time only maybe, but not like it is now. My opinion is that it is this tax instrument that has artificially inflated the housing market and been a big part of the increase in people who flip houses for a living. But once this tax advantage is built into the price of the house, the market will no longer inflate. It'll just keep falling down and wobbling back up to a rough ceiling for a long, long time and no one will see another housing market like this last one again.

[harpo]

32. I agree with you...no more mortgage deduction...quit encouraging borrowing

[Lars39]

10. I had the same reaction when I drove past one of those 0% down signs

near me. Just boggles the mind that anyone would sign on to that.

[LostinVA]

20. No-interest down loans are okay

The big problem are interest-only loans, ARMS,a nd people buying too much house. I qualified for 80k more than what I bought. I didn't NEED a house that much bigger.

[harpo]

12. my neighbor had his house foreclosed on due to home equity loan

I think the key takeaway here is to not borrow.

[TreasonousBastard]

13. I understand the "danger years" because...

that's when you get complacent and start to spend more money on the place.

But, the situation may not be all that dire, after all. Yes, there are people conned into buying more house than they can afford, but how many of these balloons, 120%, interest only, and whatever are going to people who can well afford them and are leveraging themselves for a quick cash flip?

There's a tremendous amount of speculative buying out there in the bull housing market, and the speculators might be the first ones out when the crash hits, with everyone else not doing too badly.

[brmdp3123]

15. I knew that I'd see this posted today

just as soon as I read it on CNN. Typical 'glass is half-empty' 'cloud around every silver lining' kind of thinking.

[VOX]

22. Meaning??? Is the "glass half-empty" thinking on CNN or on DU?

:shrug:

[sendero]

23. If it were half-empty...

... I'd be happy. More like 3/4ths empty.

Mortgage underwriters and the Federal govt have relaxed lending standards way too much. And everyone thinks they are Donald Trump.

Come back in 3 years and tell me I was pessimistic after you see what's about to happen. This isn't rocket science, this little scenario has played itself out since money and markets were invented.

[bliss_eternal]

31. It happened during another republican admin.

if I remember correctly. At least in CA, we had a major bubble burst and many, many people lost their homes.:( It was heartbreaking... Others were finally able to afford a home, due to all the foreclosures that were put on the market.

I read something quite interesting, on a blog of a guy that follows the trend signs. He stated that the last time there was this amount of people (record numbers apparently) getting real estate licenses in CA, it preceeded the last housing bubble bust.

Reading that made me think, there's something to a lot of the talk of a pending bubble burst...

[sendero]

33. Speculation....

.... speculation and more speculation. When the cost of money is almost nothing, and requirements for a loan almost nonexistent, there are just a bunch of folks who cannot resist rolling the dice.

And speculators unfortunately are not just folks who are "investors" hoping to flip a house in a few months and make some $$$, it is regular folks who get sold on the absurd idea that it's ok to buy a house with an ARM when rates are at historic lows, or to buy with no down or to buy with an "interest only you pay me forever" loan - all in the absurd assumption that prices will rise indefinitely.

It's sad, but it's also very predictable and I know I'm a bastard for thinking it but most of these folks have made really stupid decisions and now they get to pay, along with everyone else. It sucks all around.

[bliss_eternal]

35. Yes...

and you're right, it does suck all around.

I read a special issue of Money magazine, on Real estate investing. It was primarily a big, slick ad for people going deeper in debt. The magazine refused to endorse the logic in the inevitable--what goes up, must come down.

They profiled a specific area in CA--San Diego to be exact and I was absolutely stunned by the article. Most notably, a 24 year old young woman with a colleg loan debt and no savings. She bought a $580,000 4 bedroom, two bath home. It's near the airport runway, so planes taking off rattles the windows.

Get this, she took out a mortgage for 100% of the price of the home. Closing costs were paid by a $10,000 gift from her parents. At the time of the article, she was paying the majority of the mortgage by renting out three of the four bedrooms. Because a house across the street from her sold for $740,000 she figured her place was already worth $200,000 more than she paid for it. :eyes:

Her plan at the time of the interview was to borrow more asap, to invest in a condo.:wow:

The article goes on to detail people that intially lucked into making a huge profit on their first homes, only to trade up, sell and make more. Then many had a hard time buying into homes bigger than they could afford. The gradual progression from being lucky to being greedy struck me. The article ended with a couple with an empty open house, for a home they were listing for 1.3 million. The week prior, there were 40 people at the open house. They eventually got an offer of 1.2. Others in the neighborhood were concerned that they shouldn't take less than 1.25 million as it would affect them all--as most living on that block, did so as propectors and for the investment. :shrug:

[sendero]

37. Fear and greed..

.... drive all the financial markets.

Yes, the mortgage lenders have been putting the hard sell on for the last few years, but nobody can make you buy something that is going to be a really bad deal.

It's mostly greed, the lure of a quick profit, that has brought this debacle on. That and the Fed pumping cash into the economy trying to keep consumers buying something, anything, without cutting their taxes.

Someone who works where my wife works actually lost $2000 in one of those email "Nigerian scams". PT Barnum was indeed correct.

[bliss_eternal]

38. I gues that is why the real estate seminars

are doing so well--making the teachers richer. Everyone wants to believe they can get rich quick and get something for nothing (the lure of investing in real estate w/no money down).

It's sad because the people that attend the seminars don't seem to realize that after paying for the seminar, the books, tapes and all the other "aids" the teachers tell them they need to be successful, they are out hundreds or thousands of dollars. Hardly something for nothing, is it?

:hi:

[sendero]

39. Not to mention all of the..

... "no money down" Real Estate gurus who claim you can get rich buying income properties with no cash.

Probably in the history of America there have been a year here and there where the conditions would actually permit such a thing to be workable.

Certainly not in the last decade, that's for sure :)

[bliss_eternal]

43. I didn't realize it,

but many of those seminars cost in the range of $3,000!!! During our conversation, I did some googling and found a few. Think of all someone could do with that kind of money.

I guess it never occurs to those attending such seminars, that those teaching probably didn't attend such a course to get to where they are... :eyes:

[RagAss]

45. No sympathy here for the greedy....

I live for their misery......fuck 'em.

[Horse with no Name]

40. It happened in Texas to the Mobile Home industry in the early 80's

when the oil boom was going strong in the late 70's and early 80's, out in West Texas people were living in their cars because you couldn't find housing anywhere. Enter the mobile home industry.
They relaxed the standards of mobile home financing (basically this is where A-1 Mobile Homes made their killing). The owner of A-1 was a man named John Bushman from Odessa. He also owned a savings and loan called Olney S&L.
He started financing his own mobile homes through his S&L. Some of the other lenders (Security Pacific, Greentree, etc) relaxed their standards to keep up.
They were letting people sign on the bottom line and walk away with keys to their new homes.
When the oil industry went bust, the people didn't have any investment in these homes and just packed up and left them sitting. There were thousands and thousands of abandoned homes in Texas.
The repo rate was astronomical. It was one of the reasons Texas S&L's went bust.
After this debacle, the mobile home industry started being regulated by the Secretary of State.

[bliss_eternal]

41. Wow--sounds like a huge mess...

I feel for those that lost their homes. :(

I didn't pay attention to real estate or the trends when it happened here (CA). From what I've read and heard, it was terrible. People in solid middle class areas lost their homes, many didn't recover.

[LostinVA]

18. 30-year fixed, 5.5%, baby.... house payment lower than rent

[joeunderdog]

44. We pay $1450 for rent. Housing prices dropped 10% last year.

Up in the Northeast, we saved $40-50K easily off the price of our house. Can't make that up in a few K in tax breaks. This year, the market will drop even more, and we will be paid for our patience. In the meantime, what we might lose in interest rate hikes, we will save in putting down a bigger down payment and depreciation of purchase price in the neihborhood of $100k. A house in our neighborhood dropped exactly that much in price from listing to agreement this year. Others will follow in this fantasy housing bubble up here.

[debbierlus]

24. I am so glad I have a fixed rate mortgage!

I paid a 5% down-payment when I bought, not huge, but enough to make a difference.

And, the home is a two family (currently being used only as a single family), so if times really suck, we can at least rent an apartment and not lose the house.

[tjwash]

25. I put 20 percent down on my houses, and got fixed rate loans.

I saw this exact same bullshit go down in the early 90's and knew better than to let some predatory loan scumbag that gets a bonus for each ARM they sell talk me into a ticking time time bomb.

I learned years ago to stay away from mortgage brokers, and go straight to the bank. That's all the mortgage brokers do after they get you to sign on the dotted is sell it to the bank anyway.

[soothsayer]

36. China owns most mortgages now

Fannie Mae and Freddie Mac consolidate them and sell them off en masse to offshore folks, China mainly these days.

[spooked]

46. ARE YOU SERIOUS?? I had no idea

Wow...we are in BIG trouble!