Late payments on US Mortgages rise; (headline cont)

[maxrandb]

29% of borrowers who took out home loans in 2005 owe more than the value of their homes

Bolding is mine.

http://www.finfacts.com/irelandbusinessnews/publish/article_10005893.shtml

I'm posting this here, because it's a day or two old, but I had this article e-mailed to me. I have not seen any of our MSM reporting on this. Did I miss something? Why do I need to get news about the Fed chairman talking about the imminent danger in America's Real Estate Market from a foreign news source???

Apparently, his speech took place in Chicago, so why is the only mention I hear of this in an Irish Financial News article that someone had to e-mail me? Where is the MSM??

from the article:

By Finfacts Team
May 18, 2006, 15:29

US Federal Reserve Chairman Ben Bernanke said today in Chicago, that he is concerned about the rising number of home loan delinquencies in the US. His remarks coincide with a report in today's Wall Street Journal that soaring housing prices and aggressive mortgage lending have saddled American home buyers with ever greater levels of debt, and early signs are now emerging that more people are unable to keep up with their monthly mortgage payments.

The Journal says that recent studies by several Wall Street firms point to rising delinquency rates on home mortgages that were issued last year, a period when lenders were pushing hard to keep business going as interest rates and home prices were rising. The increase in late loan payments comes as more buyers have been forced to stretch financially to afford ever costlier houses in recent years, and many homeowners have increased debt by tapping their home's equity. Analysts say that laxer lending standards on the part of mortgage lenders also resulted in higher debt loads, which some borrowers are now struggling to repay.

---------------------------------------------------------------------------------------------
I don't mean to be a "gloom and doomer", but below is more Real Estate speculation that ought to scare the hell out of some people. Again, the bolding is mine for emphasis.

In 2004, the number of homeowners who purchased or refinanced with a new first mortgage with zero percent equity in their homes climbed to 10.6%. By September 2005, the number of borrowers who took out loans in 2005 with zero percent equity in their homes jumped to 29%. If home prices appreciate 10% this year, then the 29% national figure will drop to 15% of all year 2005 purchases and refinances of first mortgages. However, if home values depreciate 5%, then about 38% of all homeowners across the country who purchased with a loan or who refinanced in 2005 with a new first mortgage will have zero percent equity in their homes.

How is this sustainable????

[enid602]

1. few alternatives

I suspect it's sustainable because (in most cities) a few large corporations (which share credit info) own the vast majority of rentals. Screw up your credit, and you won't be able to rent anything. As such, I would think the banks have these people exactly where they want them.

[sinkingfeeling]

2. Now there's a surprise...what with our 'roaring economy' and all.

[MadHound]

3. Well of course it isn't sustainable.

And we are now seeing the first signs of the housing bubble starting to deflate. What's worse is that in all reality the housing market is one of the major props holding this sham of an economy upright. When it falls completely it's going to take the rest of the US economy down with it.

The reason why we're seeing this abroad rather than in a US paper is because like the rest of the media, over ninety percent of the newspapers in this country are ultimately controlled by five corporations. My thought is that these corporations want the sucker money to continue to flow into the stock market, the housing market and other financial vehicles for as long as possible before the Fall. That way they can sheer as many sheep as possible before everything heads south and we're all screwed.

[Gormy Cuss]

4. It's important to know how many of the upside downers are investors

as opposed to poor schlubs who are in this situation with their primary home. Investors may react quickly and take a loss, where others will want to wait out the situation and stay in place.

If investors back out of a large number of units in a local area the prices will continue to decline and that could exarcerbate the level of homeowners who owe more than the value.

It's not a pretty situation.

quote:
"The numbers are clearly worse," says Gyan Sinha, a senior managing director at Bear Stearns.
The reason: Lenders were "able to generate a lot more volume in the face of rising rates" by loosening lending standards, Mr. Sinha says. "More aggressive lending was clearly taking place," he says.

The mortgage industry has been building this house of cards for several years.

[maxrandb]

6. It could get much worse, depending on the rise/fall of house values

The 38% figure in my post is based on a possible scenario of a 5% drop in home values.

If values were to drop, say, 10%, then 49% of all loans issued in 2005 would have zero equity.

I think personally I'll be OK. We have quite a bit of equity in our home, and we recently just took out a small Equity Line of Credit loan to make some improvements to the house. Plus, being active duty military, I have a fairly secure and steady income. We financed with an ARM that allows us to pay a good portion of the principal, and can't be raised until 5 years from now. Only problem is that it can go up at that 5 year point by 5%. That could literally double our current mortgage payment. I think we'd re-finance before that, but

- what about the folks that are counting on their home equity to pay for their childrens education?
- what about the folks that are counting on their home equity to allow them to retire?
- what about the folks that have interest only loans that pay down zero principal?
- what about folks that may need to relocate due to job loss?
- what about folks that might have a medical catastrophe?

Was reading that the saving's rate for American's was actually now negative. It's like we've all bought into the fundy talk about the coming "rapture".

Oh, and that's not to mention the new 50 year mortgages that the banks are rolling out this summer.

I'm not an economist, but for the longest time I've felt that the housing market was keeping this economy afloat.

For you financial experts....How ugly can it get?

[MissB]

10. As an aside,

I heard a radio spot for 50 year mortgages this morning while running some errands. The advertiser used all the same "gotchas": use the money to pay for home improvements, a vacation, whatever you want. Yeah. Right.

I'd like to think that my home will hold value. We owe less than 1/3rd of the current market rate of similar houses in this particular neighborhood. This neighborhood is attractive to people for certain reasons that aren't going to change in the next 20 years.

It isn't my only retirement vehicle, though. And it isn't how I plan to fund my kids' college education.

[Julius Civitatus]

5. Pop goes the bubble!

This is going to be horrible

[cliss]

7. Let's look at that highlighted statement:

38% of all homeowners across the county will have 0% equity in their homes.

That's 0. Nothing. Nada. If they need to take out a home equity loan, there's nothing there to take from. If they need to sell their house, they will have to dig out the 7% to pay the realtor.

I was curious about this: how many homes are there in the US? I couldn't locate that number, but I tried a back-door approach.

The US has a population of 288 million. If 38% of all homeowners have 0 equity, that translates to 190 MILLION PEOPLE. Or, I should say, 190 make-believe homeowners.

NO WONDER they didn't publish this article on American soil. It's catastrophic, absolutely dire. No further comment needed.

[maxrandb]

8. It's bad, but not quite that bad

It's actually 38% of all homeowners who took out a new loan, or re-financed in 2005. That's still a large number, but not 190 million. At least that's the way I read it.

The bottom line is that lenders have made some aggressive loans to keep this housing bubble from popping. You are so right. If you have an interest only loan, and your payment balloons to twice what it is now, you're screwed. If you have an ARM that pays almost zero, or negative against the principal, you're screwed. If you've taken out a large home equity loan, you're screwed.

I don't think it's time to start putting money in the mattresses, but it may be time to start getting out of debt.

If you have to sell you house, and you have no equity, you have to dig into your savings to pay the Real Estate agents. Add in additional closing costs, etc, an you're in a "pickle".

If big money investors and speculators start bailing out, housing prices will fall, interest rates will climb, and money you counted on having won't be there.

We've all said for a long time that "you're going to eventually have to pay the bill", well that time may be coming.

It's the result of 30 years of "Voodoo Economics".

[cliss]

9. Aye, you're right.

I also used flawed logic: I was going on the assumption that out of 288 million, 38% are homeowners. But that would make it 1 person per house, which is not correct.

I think average families have 2.5 people (?). so that pulls down the number quite a bit....whew....

[Joe for Clark]

11. I saw this earlier.

For sure there is not much info in the media. You gotta really look.

There was an article in the LA Times week before last. Pretty good.

Is this sustainable?? About as much as Tupip bulbs were in the 1600s.

You know the problem is in the inventory levels. It is growing geometrically. Too many sellers. I believe NAR is saying the buying to date is 40% spec - I think it was a lot higher.

Be careful,

Joe

[Joe for Clark]

12. Tulip bulbs -

I can't type for shit. Sorry.

Joe

[puerco-bellies]

13. The danger might not be not from homeowners going under.

A lot of financial entities will be holding worthless paper in the event of a dramatic devaluation in the housing market. The great depression was not triggered by the market crash of '29, but from the failure of a few financial institutions, with a domino effect on other banks.

[Joe for Clark]

14. Its not 1929.

There were a lot more than a few "financial institution failures" in 1929, in any event.

The problem here is one of speculation on a very wide scale. I've never seen anything like it.

This is really bad. Nothing the FDIC was ever established to deal with.

There is no historical precident for this, not for us.

Joe