FORECLOSURES - this word is in the news everyday on every news channel, real estate website, newspapers, etc. Yes- it IS a large problem. Approximately 9% of the current mortgage clients are delinquent to some extent with their mortgage payment. Foreclosure filings on a month to month basis, as well as the overall 2007 and 2008 numbers, are quite high- and that naturally affects neighboring home values.
Everyone knows all that, and I hope that the new federal Plan- with details coming on March 4th- will start to help stem the foreclosure tide throughout the country. As a mortgage officer, I would love for a homeowner to be able to refinance to a lower rate/ lower payment even if they are between 80%- 105% of the CURRENT property value (with no PMI requirements from Fannie/ Freddie). I don't know about the details, but even if this helps 10%-20% of the people that cannot currently REFI, that is a very good thing- for them and for the economy in general.
Part of Obama's plan is something that gets a lot of press- but actually is not that much of a nationwide problem: people with resetting ARMs- with allegedly higher payments.
Back 2 years ago many experts in housing and the economy were broadcasting that the housing market was in for a HUGE debacle in 2008- 2010 due to people with 3 year and 5 year ARMs getting to their adjustable rate portion of their mortgage term. At that time, their comments were correct and made sense by the numbers. However, today's reality has been a welcome development.
Most hybrid ARMs (now and at the height of the housing market) are based on either the 1 Year Treasury bill, or a LIBOR index rate (3 month, 6 month, 1 year, etc). Currently, both of these indexes are much lower than they were 2-3 years ago, and much lower than their historical averages.
The 1-year T-bill is at 0.64%. Adding a 2.75% (bank) spread to that = 3.39% mortgage rate.
The 6 Month LIBOR is at 1.78%. Adding the same spread would make a mortgage rate of 4.53%.
In BOTH cases above, the borrowers current (reset) mortgage rate would be LESS THAN or equal to whatever they were paying during their initial fixed rate period. So, for many borrowers- there has been no payment "shock" that people were warning about. In some cases, borrowers monthly mortgage payments have actually been reduced somewhat.
The moral of this story is that, while things are tough and foreclosures are a problem, we are very lucky that indexes are so low right now- or else the situation would be twice as bad. Let's hope that the housing market corrects itself before these index rates climb back to their normal levels.