This is part Three in a Four part series of articles detailing the changing mortgage market.
The Foreclosure Crunch
The Foreclosure Crunch is closely related to the LTV Crunch.
In fact, both crunches fuel on each other.
I would suggest you first read the LTV Crunch before you dive into this easy concept.
Now where to start?
Hmmmmmm .....
Let's start with the 3 TRILLION in Adjustable Rate Mortgages that we know are just about ready to change, or recast in the next year. That's a huge number! And yes, it is a national number but it is going to have an enormous impact of home loans in here in Contra Costa. I mentioned we know these loans are set to change but what does that mean?
As an example, let's say you financed a couple of years ago. The best rate and term your broker found you was 5.625% fixed for 3 years (or 5, 7, or perhaps 10). It was fixed at a time in history where the rates were the lowest. That's the good part. the bad part is that the loan now is set to adjust to the current rate environment. And rates are higher now than they were then. That means the monthly mortgage payment is going to go up. How much? On a POA it could be as much as double or triple! Other loans might be a bit more manageable.
Like explained in the LTV Crunch, and the Credit Crunch, these borrowers may not be able to refinance into anything! When that happens they can either:
- Live with it and try to meet their obligations,
- List their home for sale,
- or fall behind and go into Foreclosure
I can tell you that many of the people I have dealt with are already strapped for disposable income. Trying to keep your head above water is a temporary situation at best. If that payment continues to rise what do you think is going to happen?
Our local housing market is somewhat crowded already. How long do you think it will take a homeowner to sell right now? Not a pretty picture is it?
That leaves
Foreclosure.
But let's just say you have an ARM.
You also have a great job, plenty of cash, and overall you are doing just fine.
Maybe you last refinanced or bought with an equity position of around 20%?
This possibly can't effect you - can it?
Wrong!Try this...
- Go to google maps and pull up your property.
- Now draw a circle 1/4 mile around your home.
- Now count the number of homes in that circle.
If
any of those homes in that circle sell for under market value, go under, REO or sell at auction. your home just lost value as well. If it loses too much your ability to refinance into something manageable may be compromised no matter what YOUR personal financial situation is.
How about those people on the fringe of your circle? Their values are related to those 1/4 mile further away, and so on, and so on.
So really, a foreclosure many many miles away could domino into your home!
Bummer, eh?
"
Yeah Mike, but I live in an upscale neighborhood. We don't have those kind of people around here."
Wrong again.
I did a little research locally.
I went to the County Records.
I asked for a list of homeowners who...
- Live in a single family home (no condos)
- In the Lafayette, Orinda, Moraga, Walnut Creek, Alamo, Danville, Pleasant Hill and Concord area.
- Who have an Adjustable Rate Mortgage at least 3 years old with A Paper lenders.
- I also limited the search to the first 1,500 names.
Surprise!
My list started in upscale Lafayette (just because that's what I listed first) and never left!
WOW!
So if you think your neighborhood is safe, if you think you are safe, consider yourself now informed.
It's not all bad news though.
I've said it before and I'll say it again,
"If homeowners are proactive now, they can navigate a soft landing. If they are not, they could find themselves in situations outside their control that could lead to personal financial disasters like bankruptcy and foreclosure."
If you do not know what kind of a mortgage you have, if there is any chance at all, I urge you to seek out a professional review ASAP. Only a True Mortgage Professional will be able to give you an objective opinion on where you stand
.
;)
;)
