Second Wave of Foreclosures

Real Estate Agent with Realty Team / JMA Properties LLC

There is a second wave of foreclosures coming.  The one we have just gone through with all the "financial meltdown" was just the first of up to three waves of foreclosures.  The first one was the subprime mess, with lenders lending to people with subpar credit, that "surprise" did not or could not ultimately pay for the loans they signed up for.

The second wave is coming and will start hitting soon... these are the Alt-A loans.  I am not a financing guru by any means, but I watch the news and am aware of what several top sources are discussing.  According to wikipedia, these Alt-A loans are the loans which affect people somewhere between A+ credit and subprime.  Several of these were the stated income loans, known in the mortgage industry as "liars loans" and enough people took advantage of them to make them a problem. 

Option loans, the "pick a payment" type of loan will also be a part of the second wave of foreclosures.  When the borrower chooses to pay less than the owed amount, negative amortization occurs (increasing the principal owed).  When this happens again and again, and the buyer bought the home for $508,000 and now it's worth $320,000 (as the home across the street from me is), then they probably would choose to let it go to foreclosure.

There are more foreclosures coming.  How bad will it get?  What will the effects be?  I honestly do not know. 

I am concerned.  People who have held on in the last couple of years and seen their home values plummet, will probably see the values go down a little more before they go back up.  It is key to remember that those "losses" will only be realized if they sell in a down market.

The next wave of foreclosures is said to affect the "gated communities" of America.  We have seen all types of neighborhood's values drop across America.  How will the upper end stuff affect the economy?  I do think that those home values will have been effected by the overall crisis. 

Unless President Barack Obama requires a moratorium for foreclosures and requires banks modify loans, we are in for a bumpy ride.


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Comments (110)

Harrison Painter
GoGladiator Media - Carmel, IN
New Media Consultant

My sword is sharpened, shield is up, and I am ready for battle.

We have officially crossed the Rubicon, but this time we are going to change history!

- Harrison Painter

May 27, 2009 07:22 AM
Kim Dean - McKinney, TX
Simply Texas Real Estate - Broker/Owner

I agree that agents need to prepare for this. It's scary to think about what the future may hold. I'm trying to look at the glass half full for now though. Dallas/Ft. Worth is doing well compared to the rest of the country.

May 27, 2009 07:36 AM
Anna "Banana" Kruchten
HomeSmart Real Estate - Phoenix, AZ

You know folks I do believe it's all going to work itself out in time.  We have been swamped with foreclosures for sometime and bring some more on........buyers are hungry and sick of waiting. We have multiple offers flying around.

The trouble is not in changing thought but rather in keeping thoughts changed!

I went thru the late 80's and we all made it thru that period of time. This too will pass.

May 27, 2009 10:27 AM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Marjie, I completely agree. The 2nd half of this year is goiong to get ugly. It will be many years before we see the end of this large amouont of foreclosures. Short Sales are alos here to stay for the next decade or so. Folks best hone up on these skills if they don't have them.  

May 27, 2009 10:35 AM
Tom Burris
NMLS# 335055 - Baton Rouge, LA
Texas/Louisiana Mortgage Pro - 13 YRS Experience

Add the new wave of foreclosures to the credit card meltdown.... = uhhhhhgly


May 27, 2009 11:46 AM
Brad Correll
Dream Homes Realty - Yorba Linda, CA

I don't believe the moratoriums on foreclosures are helping..just prolonging the inevitable. The faster we cycle through these foreclosures the sooner we'll get to a healthier market. I do believe however that the banks need to work with buyers to keep them in their homes if they are on the cusp of being able to afford it. Whether that requires lower interest payments or longer mortgage terms, or both....we need to get to a point where these borderline homeowners can sustain paying a reasonable mortgage payment and not have to go into foreclosure.

May 27, 2009 12:19 PM
Karen Monsour
Coldwell Banker Fort Lauderdale Beach - Fort Lauderdale, FL
REALTOR, SSRS - Sells FL Waterfront, Short Sale Expert!

It's just a shame that our "government" cannot understand that if the housing crises was fixed, if people who were given mortgages that they could afford could keep the same criteria for their loans, and if people who were paying their mortgages could refinance...perhaps the correction wouldn't be so tough on everyone.

I'm told by some people that they've ballooned to 10 -12%....while current rates are between 5.5-6%.  It doesn't take a brain surgeon to see where if the banks worked with these people and this was a new loan, they would be offering 5.5 - 6 %...rather than to carry a foreclosure, end up as an REO, why doesn't the government mandate cooperation with their customers?

It's very sad when I get phone calls from folks who are looking to rent 4-5 bedroom homes so that Mom & Dad, son/wife/2children, and brother/sister of first son and her husband are all looking to rent one home.

Where, I say, where are all these people who are being evicted from their homes going to live?

And, I agree with Brad above.

However, I'm going to try and stay positive about this so called next new wave and hope someone wakes up in Washington and mandates the banks work with people as Brad says.

Then again, what is more scary is the fact that North Korea is  (testing) detonating nuclear bombs, geeze, if they drop those here, we will just be a little fallout, drifting in the wind.   I can get through the housing debacle.  I have no control of the North Koreans...

May 27, 2009 01:38 PM
Mark MacKenzie
Phoenix, AZ

I was reading today that the jumbo loans are looking a little shifty right now too.  There just seems to be one obstacles after another with the housing market.

May 27, 2009 01:45 PM
Bill Bledsoe
Henry S. Miller, Investment Division - Dallas, TX

It really is an unbelievable mess the lenders have gotten us all into, and they're the ones who are getting off the hook easy. LEASING is starting to look like the very smart move at this critical juncture....

May 27, 2009 02:01 PM
Michael-Edward Cruz
Pacific Sotheby's International Realty - Newport Coast, CA
Michael-Edward Cruz - Newport Coast & Bay Front

Here is what I want to know....maybe someone knows, because I don't

You work on a short sale for a year (CW) you get an offer at market value that agrees with the

 BPO..then the bank says, they want a promissory note or they will "close the file".

They don't get the note so they foreclose! and then they turn around and sell it for 575K!

I may sound bitter but im not, just trying to make sense of it all.

How much money was lost there?

Does anyone know?

May 27, 2009 03:49 PM
Michael-Edward Cruz
Pacific Sotheby's International Realty - Newport Coast, CA
Michael-Edward Cruz - Newport Coast & Bay Front

Sorry my offer was for 620k (BPO PRICE)

May 27, 2009 03:50 PM
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Can you delete #88 a blatant ad.

If I had to pick a short sale OR a REO . . . I'd go with REO any day of the week.  It's the banks property, at least there not fighting over who has first position on the mortgage, and who will reduces wait, etc.

May 27, 2009 05:56 PM
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Can you delete #88 a blatant ad.

If I had to pick a short sale OR a REO . . . I'd go with REO any day of the week.  It's the banks property, at least there not fighting over who has first position on the mortgage, and who will reduces wait, etc.

May 27, 2009 05:56 PM
Brien Berard
Remax Professionals Laurel MD - Laurel, MD
Maryland Real Estate Agents - Laurel Real Estate

What is surprising to me, in one area home values have dropped and keep dropping, yet a 20 minute drive and there is fierce competition for homes.  I don't understand it.

May 28, 2009 12:05 AM
Jesse Skolkin
Independent New York State Certified Real Estate Appraiser - Fresh Meadows, NY

Don't forget about the "No Money Down" or "100% financing" mortgages.  People who have no vested financial interest in properties that they are currently living in and have 20-40% negative equity have no reason to stay - they can consider the mortgage payments they have made for the last few years rent and move on.  In many cases, their credit rating is already in poor condition due to late payments, etc., so another hit to their FICO means very little.

May 28, 2009 12:29 AM
Mark MacKenzie
Phoenix, AZ

Cruz:  I have seen these types of unreasonable decisions by banks time and time again.  Banks continue to foreclose on homes only to end up listing and selling them for less that what they could have made prior to the foreclosure.

May 28, 2009 01:09 AM
Elizabeth Moody
JMA Properties LLC - Portland, OR

Marjie, You hit the nail on the head! Eloquently stated. Unfortunately it will only get worse before it gets better. There were some horrible decisions made and unfortunately the same people are using the same decision making planes to make it worse.

But people DO need a home, and their jobs and lives dictate we have to muck through it to get them homes. Thanks for the insightful heads up.. We see it.

May 28, 2009 05:48 AM
Kim Knapp

I'm still waiting for the rest of the first wave of foreclosures to be "For Sale" Until working Americans own all these homes the melt down will not be over.

Kim Knapp

Follow me on Twitter

May 28, 2009 07:35 AM
Tim Monciref - Austin, TX
Over 2,000 homes sold…..

We have all talked about it, but how will the market react?  I think or hope much better than previously.  We will either have a double dip or the market will handle it positively.  It is impossible to predict as one cannot predict human behavior over millions of people.  Interesting times ahead.  Be so very cautious........

May 28, 2009 08:26 AM

shorts take so long because of a hope a higher offer would come in ...ineptness of the agents , 50yr  low rates and banking staff... or... conspiracy of the new world order to own all means of wealth and create only a few owners and the masses as renters?? just rich and poor middle class.

May 28, 2009 11:58 AM