Foreclosures increase 87% as prices fall
http://www.bloomberg.com/apps/news?pid=20601103&sid=aGBN_ct.a0jk&refer=us
"An estimated 58 percent of properties in the foreclosure process are linked to borrowers with subprime loans, and RealtyTrac expects U.S. foreclosures to reach 1.8 million by year's end, Rick Sharga, a spokesman for the company, said in an interview."
What shocks me about this is that 42% of foreclosures are NOT related to subprime loans.
But wait, I thought that only subprime would be the problem? And that Seattle hardly has any subprime borrowers, so we're all, like, safe n' stuff?
I'm sure Seattle is way behind in the foreclosure curve, simply because prices were/are/whatever still going up, so people can refi, get a HELOC, and delay the inevitable just that little bit longer. But we'll get there...
"Foreclosures are soaring amid a glut of properties and as interest rates close to an 11-month high make it more difficult for borrowers to refinance."
This is total crap and just repeating what the NAR wants you to believe. If someone is refinancing from some Alt-A, ARM, neg-am, or whatever on some teaser rate, it doesn't matter if they're refinancing to a 6.25% loan, or a 6.75% loan. Both are unaffordable, because the borrower could not afford the house in the first place using any kind of old-fashioned pay-back-the-fricking-principal mortgage.
In addition, I think it's likely that there are a lot of prime borrowers that will miss a payment, then think "crap, I'd better refinance". Then, that borrow is no longer prime, they're sub-prime. The interest rate will now be 8% from their teaser/ARM 4%. Bingo!
"An estimated 58 percent of properties in the foreclosure process are linked to borrowers with subprime loans, and RealtyTrac expects U.S. foreclosures to reach 1.8 million by year's end, Rick Sharga, a spokesman for the company, said in an interview."
What shocks me about this is that 42% of foreclosures are NOT related to subprime loans.
But wait, I thought that only subprime would be the problem? And that Seattle hardly has any subprime borrowers, so we're all, like, safe n' stuff?
I'm sure Seattle is way behind in the foreclosure curve, simply because prices were/are/whatever still going up, so people can refi, get a HELOC, and delay the inevitable just that little bit longer. But we'll get there...
"Foreclosures are soaring amid a glut of properties and as interest rates close to an 11-month high make it more difficult for borrowers to refinance."
This is total crap and just repeating what the NAR wants you to believe. If someone is refinancing from some Alt-A, ARM, neg-am, or whatever on some teaser rate, it doesn't matter if they're refinancing to a 6.25% loan, or a 6.75% loan. Both are unaffordable, because the borrower could not afford the house in the first place using any kind of old-fashioned pay-back-the-fricking-principal mortgage.
In addition, I think it's likely that there are a lot of prime borrowers that will miss a payment, then think "crap, I'd better refinance". Then, that borrow is no longer prime, they're sub-prime. The interest rate will now be 8% from their teaser/ARM 4%. Bingo!
Comments
This shouldn't shock you. Anyone can have medical problems, loose a job, or get a divorce. Any of these things could cause someone who previously was in excellent financial shape to fall off a cliff so to speak. Finally, there are a lot more 'prime' mortgages than subprime.
Just guessing, but I would expect about 10% (or less) of all mortgages are subprime, so if they make up over half the forclosures, it means subprime are over 10x more likely to foreclose.
It shocks me because we're still pretty early in the ARM resets and it seems that this number is pretty high, even if you consider that about 10-20% of mortgages are sub-prime. The mantra out there has been that the problem is contained to sub-prime exclusively, which is hopefully a story that will change over the coming months and years.
This is just another example of abusing statistics. Here's an awful analogy. We know oceans altitude is 'sea level', but the average altitude of all fresh water is say (making up a number) 100 feet higher. Therefore, we can conclude that global warming 'contagion' is already spreading to fresh water, having the effect of rising fresh water levels across the world!
To prove that subprime woes are contagion and that they are spreading, you would need to compare the number of prime foreclosures today to the recent historical average.
You do, however, make a good point.
Just for the record, I am with the group who believes contagion will spread. And in some markets, it probably is spreading to prime loans already. In LA, every 3rd radio commercial is for either how to get out of a house you can't afford, or how to make profit on foreclosed houses.
foreclosure.com shows foreclosures for SnoKing continuing to rise, and preforeclosures continuing to drop. We're at 84% FC:PFC ratio today
I show peak PFC count was 1,814 on 6/1, today it sits at 1,506 - down 17%
FCs in the same period went from 890 to 1,279 - up 43%
There's certainly some possibility that prime and subprime foreclosures are not related. That said, one of the reasons prime mortgages have a lower rate of foreclosure is that most previously prime borrowers have had the option of refinancing into a subprime loan if they have payment problems.
I'm sure most still have this option, but with the decline in subprime lending fewer previously prime borrowers have access to a subprime re-fi this year than they did 2006.
So....
Subprime: 20% of volume, 58% of FC
All other: 80% of volume, 42% of FC
What is interesting to me, is the implications for other than "prime". Typical default rates on prime (45% of money) are in the range of 0.25% to 0.50% of issuances. I don't think this has changed much even in today's market (lower-LTV, doc'd, good credit) , so by inference - the other ~35% of loans (Alt-A and Jumbo) must be getting worse.
all those numbers aren't apples to apples, so I can't easily back into it. dang