Saturday, September 24, 2005

WashPost: 'A Ray of Sunshine Through the Debt'

The Washington Post sheds some sunshine on the debt problem saying:
Given all that gloom and doom, you would think that homeowners' financial challenges would be visible in their payment performances on their mortgages. With such household debts, you would think that growing numbers of borrowers might be falling behind, paying their mortgage lenders late and maybe even sliding toward foreclosure.

But the reverse is true: Late payments on home mortgages were actually lower in mid-2005 than they were at the same time the year before -- 4.3 percent of all homeowners were at least slightly behind on their payments this year vs. 4.6 percent last year. Foreclosure rates are low and continue to fall. In mid-2005, 1 percent of all outstanding mortgages were in foreclosure, compared with 1.2 percent in mid-2004.

That seems solid. However, perhaps the reason that foreclosures are at a lower rate this year then last is because there are now more markets with strong price appreciation. The people in the high price appreciation areas are more likely to sell if they fall behind on payments. "The next-lowest late-payment rate was in California (1 percent), followed by Virginia (1.3 percent). Everybody knows about California home costs and affordability problems. Plus, its 25.2 percent average appreciation rate last year ranked it fourth in the country. Virginia real estate is less expensive than in California and Hawaii but still well above the national average. And its 20.9 percent appreciation rate last year ranked it the eighth-fastest-inflating state."

Where are foreclosure rates the highest? Nationwide, the rate was 1 percent at mid-year. But several states are experiencing foreclosures at two to three times that rate. Ohio had the highest incidence -- 3.3 percent of all loans outstanding were in or beginning the foreclosure process. Next were Indiana (2.8 percent), Kentucky (1.9 percent) and Mississippi (1.7 percent).

Also, "foreclosure rates in general are lower in 2005 than they have been in previous decades in part because Fannie Mae, Freddie Mac, the Federal Housing Administration and most major lenders all now use sophisticated "loss mitigation" techniques to keep even the most seriously delinquent borrowers in their homes. The techniques include restructuring loan terms, deferring late balances to the end of the loan and sometimes even lowering interest rates."

Debt repayment is being delayed. For many Americans, it is a thin veneer of wealth. Underneath, is a cheaply constructed particle board lifestyle that was manufactured in China.

5 comments:

  1. It follows, logically, that just as California is "protected" because owners can sell their way out of foreclosure, owners in Ohio cannot. No offense to anyone who lives there, but I can't think of any reason to migrate to Ohio, short of a job transfer that is vital to my own well-being. Ditto Indiana and probably Kentucky. At least Mississippi has mild winters.

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  2. It actually costs a lender a lot of money to foreclose on a loan. There are processing fees, foreclosing and eviction attorneys' fees, not to mention lost interest and principal payments.

    Once you miss a few payments and the foreclosure process begins, it's going to cost you a lot of money to keep the house. Most lenders require the total amount owed on the note, plus processing and attorneys' fees, or fair market value, whichever is greater.

    They key is 'whichever is greater'. Most debtors cannot afford that. This is why repossessed homes are almost always sold at or near fair market value--the lender needs to recover its losses. It is an illusion to think that you can buy a repossessed home for below fair market value. You can, but only on the courthouse steps (first Tuesday of every month), and then only with considerable risk (no walk through, no inspection, no title insurance, etc.). And it's not like the lender isn't going to bid on the property.

    What the good people of California should be worried about is the new bankruptcy law. If you took out a second mortgage or home equity loan, and default on it, the lender can now come after you for everything you've got. It's not so easy to 'walk away' anymore.

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  3. At least a couple of the "mortgage products" our banker told us about before we refinanced required that the payments be automatically deducted from your account... which should mean that the house payment will be made until the account runs out of money (I don't know all the details, though). That might account for some of decrease in the number of late payments. I wonder if there's a corresponding increase in the number of late payments on credit cards, auto loans, etc.

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  4. Forclosures in Massachusetts are up 30 % this year!!

    http://www.southcoasttoday.com/daily/09-05/09-11-05/a01sr072.htm

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