So, Why Are We Seeing All These Foreclosures?

[ThomWV]

I really don't get it. I understand unorthodox home loans were made but that does not explain why we are seeing so many foreclosures now and expect so many more in the near future. What is the reason or what are the major reasons for the current problems?

Predatory lending seems to head the popular list but somehow that doesn't sound right. Predatory lending makes sense when you are referring to pay-day lenders and one-stop sales and financing of used cars but not for homes. Nobody buys a home without having a lawyer take a look at the paperwork before closing. It is very difficult to imagine that millions of home buyers were so stupid as to be duped into signing onto loans that they did not understand and that ever fewer of the loans were structured so as to milk the borrower for all he was worth. It is not like the credit card industry where there are actually cases of predation in which credit card companies look for people they can milk for every dime they are worth.

How about divorce. Plain or simple divorce certainly figures into home loan foreclosures. I know this can easily be a which-came-first question where you have to ask if the impending foreclosure lead to the divorce or if the family problems lead to the for closure but in hard times if divorces go up maybe it has an upward effect on home foreclosures. Any comments?

Then there is the general economy and unfulfilled expectations for future income. Lots of financing these days is based on low initial payments followed by larger payments later on. This works well for someone who reasonably expects their income to rise as time goes by so long as it does. It could be the reason that we see so many foreclosures now too. Maybe people who expected that their income would support the higher payments that they knew were coming were wrong. Maybe their pay has not kept up with their expectations and now as the payments go up they simply are not earning enough to make the payments.

How about unexpected health care costs not covered by insurance? I understand that this is the number one reason for bankruptcy, how about its effect on home foreclosure?

What are the other possibilities?

[uppityperson]

1. Job loss, recession has gotten some people I know.

Had a decent mortgage but job went away, very difficult to find new work being 50 and having lots of others competing for same jobs.

[havocmom]

9. That and lots of people finding out medical care is expensive

Many WITH insurance are finding out they aren't protected the way they thought. Many who have been paying for insurance suddenly get tossed out of the system on a technicality when they got to get benefits and the bean counters pour over the paperwork in search of reasons to decline.

One illness or accident can put a homeowner (even those who have managed to NOT be laid off or outsourced) in financial peril and on the road to homelessness.

[Fleshdancer]

2. the peak of subprime loans was in 2005 and 2006.....

Now is the time that the rates are getting jacked up which is why many can no longer afford their home. Since the housing market is weaker, those in trouble can't sell their home fast enough.

[LondonReign2]

3. Greed...and adjustable rate mortgages

Millions of people weren't duped (a few were, certainly), they simply were so greedy that they overbrought. Maxed to the gills, just like their credit cards. Had to have absolutely the largest McMansion they could qualify for, even if they could barely afford the payments. And, no leverage themselves into even bigger houses, they went with cheap adjustable rate mortgages, convincing themselves they'd be able to make the higher payments sometime in th murky future.

If they were duped, it was a case mostly of duping themselves.

[Ganja Ninja]

16. The first time someone explained an ARM to me I thought ...

someone would have to be a fool to agree to one. I think they should be outlawed.

[dbonds]

4. People have been running up credit debt with their cards and other loans.

Then because the price of housing was rising so much, they would turn around, refinance their home and pay off their debts with that money. Now they can't refinance their home for more than it was worth plus they have already spent their equity.

[Warpy]

5. Overbuilt housing to satisfy speculators

is now being dumped on the market by people who are desperate to get whatever they can out of a bad investment. This contributes to a glut of unsold properties, drives values down, and puts many people into an upsidedown mortgage situation with the mortgage balance much higher than the worth of the house. People who find themselves in this situation are also panicking, although if they still have a steady income, sitting tight is the best policy.

Another factor is using plastic to compensate for wages that haven't risen in 7+ years. Every time groceries, medical care, clothing, or any other necessity is put onto that card, it represents high priced debt that has to be serviced. Eventually, servicing the credit card debt plus the mortgage plus trying to keep body and soul and car together so that one can get to a job become too much, and foreclosure happens.

There were a lot of factors leading up to this mess. Right now, it's happening to one family at a time. As it picks up speed next year, all hell will break loose.

[Red Zelda]

10. excellent assessment!

[no_hypocrisy]

6. Usually one of two reasons:

A. You don't have enough money and won't have enough money to pay your new, increased monthly mortgage payments when you have an ARM loan and it increases.

B. You have the money but you don't have enough of it in time to pay your mortgage. If you miss three payments in a row, foreclosure proceedings are brought by the bank or the financial institution holding your mortgage.

[HCE SuiGeneris]

7. Loans were given with only a "minimum" payment due before adjusting.

This minimum payment was less than even the interest due each month. So a loan taken out for 300K would be a loan for 325k by the time it adjusted. As the adjustment kicks in the payment goes from 1K a month to say 1.5K (interest only)a month. If the loan actually had risen to 110%, the mortgage company can make the consumer pay the full monthly payment (principle and interest)of $2700-$3400 a month. It is a matter of people buying more home than they can afford in this scenario.

[HCE SuiGeneris]

11. another scenario...

many loans were given using stated assets and stated income... essentially the loans were acquired by fraud. when these loans adjusted, the false stated incomes could not possibly cover the mortgage payment...

[Lone_Star_Dem]

19. Those stated assets and stated income loans should have been illegal

When I was told about them I kept arguing that it wasn't possible and that you had to verify your income and assets to get a mortgage. Needless to say I was way wrong.

[HCE SuiGeneris]

20. Yes. Oversight is needed to regulate these subversive practices. n/t

[ThomWV]

17. Was this a typical loan and repayment plan?

Is the loan you describe commonplace? If so where were the borrower's lawyers during all of this? Why were they not raising hell and alerting their clients not to sign on to such bad deals?

[HCE SuiGeneris]

21. This is a negatively amortizing loan. Many were given over the last few years.

Only certain states (eg. NY,) require lawyers. Most do not and pressure from unscrupulous brokers and sales agents pushed hard to sign new clients.

[Mojorabbit]

8. I didn't know what I was doing

when hubby and I bought our first house and we are well educated people. My dad led us through the process. It isn't like it is something taught in school.

[flvegan]

12. Resetting rates on ARMs, skyrocketing property taxes and insurance

job loss, "cost of everything" (gas, food, etc) rising. Some of it is folks living outside their means. When I bought my home, my broker told me that I should be looking at homes for $300k because I "could afford it". I knew better and settled on one for just over half of that.

[The2ndWheel]

13. The diminshing returns of increased complexity

[SoCalDem]

14. De-regulated financial market..generational ponzi schemes

This sort of thing happens every time there is a glut of "easy money" sitting around.. the only thing that these predators use their hoity-toity educations for , is to periodically skin less savvy people out of their life savings..

See also:

savings & loan scam... (a Bush and a McCain involved)

Dotcom implosion..easy money for an "industry" that most people knew little or nothing about

Enron/Worldcom/Adelphia/Tyco et al
Sub-prime loans

The other shoe will drop soon.. the so-called "credit crunch" is going to rev up soon. The same people who NEEDED the subprime loans are ALSO up to their necks in credit card debt..COUNT ON IT..

[leftofthedial]

15. the middle class is broken

the oligarchs have won the class war

job loss, medical costs, costs for food and fuel, increased state and local tax loads, unregulated and predatory corporations running amok

[NashVegas]

18. S-P-E-C-U-L-A-T-I-O-N

When interest rates went down to barely nil, the first wave of housing investors did very well by home-flipping.

They kept and it, and another group joined them. And another group, and another. Even as rates rose.

Finally it came to the point where there weren't enough people who could or would hop on and prop up the other investors.

And the bubble popped, and a lot of people were caught holding the bag.

[Rex]

22. Junk bonds, turning well known stock from huge companies

into worthless crap that gets downgraded. Insufficient funds to maintain the federal infrastructure. Inventing new ways to make money by putting the mass market into debt for longterm loss on the domestic market. Making stupid business decisions and then forcing consumers to bail out these decisions. Closing down plants and eliminating pensions. Waisting billions A DAY (with no return to the public) in Iraq and other warzones.

The list is endless.

[HCE SuiGeneris]

24. For your viewing pleasure -- SIV's explained

http://www.youtube.com/watch?v=SJ_qK4g6ntM

[Rex]

29. Hahahahaha!!! Oh thank you!

That was priceless. :)

[HCE SuiGeneris]

31. I have forwarded this to many people. Tons of fun with Brit humour!

:hi:

[demigoddess]

23. everybody wants a really nice home these days, and realtors figure what you

can afford by expecting your income to increase, but in this day that is not a good idea. Buy only what you can afford now. Preferably on one income. We saw a lot of people have trouble buying in the seventies when interest rates were so high, but they usually bought what they could afford. If we bought the palaces we see today we would have been in real trouble.

[One_Life_To_Give]

25. Sub_Prime market

These are not people with 800+ credit scores, mortgage payments under 25% of gross and total debt payments under 34% of gross. Who probably always take their own lawyer to any real estate/finance transaction.

This is about loans being offered to people with less than perfect credit and/or problems meeting traditional income guidelines. And in some cases people took advantage of their ignorance in these matters. Maybe the loans never should have been made. How many people who would be denied under stricter requirements are able to pull it off versus how many are failing?

[Tierra_y_Libertad]

26. Many buyers believed that house prices would continue to go up and they could make an easy profit.

Or, it was the P.T. Barnum effect. "I've got a great deal for you...sucker."

[taught_me_patience]

27. You haven't seen unbridled greed of the housing industry

I worked for one of the largest subprime lenders in 2004. The greed of the BUYERS was beyond disgusting. People were stretching themselves thin with the biggest loans they could afford because real estate was the "path to riches". The two main reasons are:

buyer greed and over-leverage
housing prices simply extended beyond "fundamental" income support

[shance]

30. the rich keep jacking the prices of oil, living expenses while they outsource jobs

Its a certified war on the middle lower classes by those at the very top.

[EnviroBat]

28. My first house.

My personal formula for success:

1) Steady work with good income, (skipped the college degree...)
2) Very little credit card debt.
3) Fair credit at best, (has kept me out of trouble for a few years now)
4) FIXED-RATE mortgage. 6.87% for 30 years, (credit rating = mortgage rate, can fix this with refi in 2 years).
5) Bought house well below what bank had approved.
6) Mortgage payment does not exceed 28% of NET income.

7)Slam at least 10% of your NET income into a savings account each time you get paid. Do this immediately, consider it the "pay yourself first" principal.

8) Stop allowing lending institutions, mortgage, car-loan, anything to base your qualifications on GROSS income. Live within the reality of what actually gets deposited in to your account, or NET each month. Trust me you'll be much better off when playing this sick Monopoly game that the "haves" are rolling the dice on.

9) Stop buying shit. Gotta get one of those new, slick GPS units? Well gee! I guess so cause the commercial said so... Buy a fucking map. Last toy I bought? A Harley Davidson. The last of my indulgences, which is building a nice credit score each month...

10) Budget for each week of the month. I know that I have X amount for each week to pay for incidentals like gas and food, and beer. I make a challenge out of of trying to come under budget each week by 20% If I'm successful, well then I've got some extra to jam into savings.