More About Late Mortgage Payments
After yesterday's announcement by Countrywide home loans, more information is coming about how late payments have hit a historical high. According to
MSNBC.com news:
The Mortgage Bankers Association, in its quarterly snapshot of the mortgage market released Tuesday, reported that the percentage of payments that were 30 or more days past due for all loans tracked jumped to 4.95 percent in the October-to-December quarter.That marked a sharp rise from the third-quarter’s delinquency rate of 4.67 percent and was the worst showing since the spring of 2003, when the late-payment rate climbed to 4.97 percent.
It appears that much of the cause is due to subprime loans - or that second loan needed to make it to a 100% loan (typically an 80-20 loan split between two lenders). One problem experienced by a friend of mine is that that second loan was an adjustable rate mortgage. After her two-year guarantee was up at a lower rate, the second mortgage jumped by over $200 p/month. When you're on a bare-bones (or bare-pantry in this case) budget already, that $200 becomes nearly impossible to pay. So people pay that first, more expensive mortgage and let the second slide for several weeks (until next payday) or month(s).
In my bigger economic picture (and let me stress that I'm NOT an economist), I worry that we are heading into a recession. Some more articles:
Subprime lendings next act
Weak housing market weighs on job growth
Will subprime mess ripple through economy?
Treasury: Subprime issues manageable
Freddie Mac refuses some subprime loans
More homes, fewer buyers
Subprime apocalypse? or not
New foreclosures at record high
So you see the lending industry is reeling, at least for subprime lenders.
Labels: lenders, mortgages
Subprime Loans + Naypayers = Foreclosure
I know this post will go all over the place, but bear with me. Let's start with some numbers. I searched for homes listed by Progressive Real Estate, the company that handles the HUD foreclosures. In our region, there are currently:
46 homes listed on the market in foreclosure.
94 homes pending on the market in foreclosure.
725 homes closed last year as the result of foreclosure.
701 homes closed in 2005 as the result of foreclosure.
That means 1,426 people and families lost their homes in the last two years in this area - and these are only the homes that are insured by the Federal Housing and Urban Development (HUD) Commission - not other bank foreclosures. There are probably 1,426 different reasons these folks lost their places to live: illness and subsequent medical bills, lost jobs, relocation and home didn't sell so couldn't afford two mortgages, death, bad money manager, etc. But key is the inability to pay and I'd venture to guess that many can't afford to pay because they are paying a much higher interest rate than people with good credit scores. They pay higher interest because that are at-risk borrowers.
When you become a licensed real estate agent in Tennessee, you must follow very strict regulations by the Tennessee Real Estate Commission, governed by state law. Agents have to keep the clients' interests above their own (by law). This means if it's better for the buyer to NOT BUY, then that's what we need to suggest and therefore not push the buyer into a situation where foreclosure may be down the road.
Therein lies a key difference between real estate agents and lenders. We are regulated... STRICTLY regulated. Lenders do have some oversight, but their regulation isn't written as law with constant oversight. Instead, they get the following (
via MSNBC article on 3/3/07):
Federal bank regulators, worried about a surge in defaults on high-risk home mortgages, on Friday called on lenders to exercise caution in making subprime loans and strictly evaluate borrowers’ ability to repay them.
The proposed guidance issued by the Federal Reserve and the other four federal agencies that regulate banks, thrifts and credit unions, comes in an increasingly troubled market for subprime mortgage loans. Home-mortgage delinquencies and foreclosures are spiking, especially for people who took out subprime mortgages — higher-interest loans for those with blemished credit records or low incomes who are considered higher risk — during the sizzling housing boom that waned in the second half of 2005.
Now I think these guidelines are absolutely necessary and I'm very happy to see them. My suggestion, though, is for bigger government (radical, I know).
I think the focus on consumer protection also needs to include the money people, not just the Realtors who show homes and write contracts, but also on the people who have the ability to break a family financially by shoving through a loan that they can't afford to pay.
I do want everyone to be able to purchase a home, but not at the risk of ruining their credit in the future. I know before I bought my first home, I grieved every time I drove by any house - small, medium or large. I so desperately wanted my own home. But my husband and I waited until we could afford it and have gradually moved up so that we have plenty of room for us, our daughters, his Mom, two cats, and two dogs. And our credit is still good because we waited six years until we could afford it.
At the risk of being labeled a crazy Realtor,
I urge first-time home buyers to wait until they can afford it, wait until they have great credit. (And here's where my own personal commercial starts) (sorry!) Be strong. Wait. And when you're ready, call! And I will introduce you to lenders who are honest, trustworthy, and who also look out for your best interests.
Labels: lenders
