Subprime Borrowers to Lose Homes at Record Pace as Rates Rise

[Purveyor]

Source: Bloomberg News

Sept. 19 (Bloomberg) -- As many as half of the 450,000 subprime borrowers whose mortgage payments increase in the next three months may lose their homes because they can't sell, refinance or qualify for help from the U.S. government.

--
The number of borrowers whose mortgage payments jump in the next three months will be the second-highest ever for a quarter, according to Credit Suisse Group, Switzerland's second-biggest bank. Twenty-seven percent have already missed a payment, said First American LoanPerformance, which owns the largest database of U.S. mortgages. That makes them ineligible for the Federal Housing Administration bailout proposed last month by President George W. Bush.

There's no lifeline in sight for subprime borrowers, who face an average increase of 26 percent, or $400 a month, according to CoreLogic. Falling prices and a rising inventory of unsold homes make it difficult or impossible to sell or refinance without losing money and government programs aren't designed to aid the most desperate. That leaves foreclosure as the only alternative, and one that will deepen and prolong the worst housing downturn in at least 16 years.

Vanishing Equity

Robert Murray of Middletown, New Jersey, said he didn't pay enough attention when he took out a five-year adjustable-rate mortgage in 2002. This month, his payments ballooned to $1,800 from $1,300. Because he makes about $90,000 a year at his Newark Liberty International Airport maintenance job and hasn't missed a payment, he said he hoped he might be a good candidate to refinance.

Since the value of his home has declined from the $265,000 he owes on two mortgages, Murray's equity has vanished. If Murray were to apply for an FHA-insured refinance, he'd be out of luck.



Read more: http://www.bloomberg.com/apps/news?pid=20601109&sid=akOEPec30TR4&refer=exclusive

[cliss]

1. Some of these people might actually be better off

by letting their homes go to foreclosure. When the housing payment jumps up to 14% in some cases, it becomes prohibitive. In addition, housing prices are spiraling downward. Both of those factors will force the homeowner to say, "Why am I doing this?"

Even if they could work like crazy to make the payments, it might not be worth it.

This is going to sink the real estate market. Simply because there is no alternative.

[Hestia]

7. You know, I am wondering what to do about this too -

my husband and I were transferred from Dallas in May and put our house on the market, then this credit debacle happens (wonderful timing, wouldn't you say?). The transfer does not covering our moving expenses, sale of the home, nothing. We are on our on re: financially.

We are paying two mortgages too (for only $159k) plus utilities (Texas has the highest electric rate in the country, bar none; agents have been leaving the air on 70, so the last bill was $250 and we ain't even living there!) - electric, gas, water. We are also paying rent, utilities here, plus credit card payments (that were low until we used them to move - ack!!!)

I was talking with our agent late last week and she said the bank should consider themselves lucky that we are paying the mortgage/s. They will NOT work with us on a short sell (where we owe them less than 10k on the short)- they said 159k is a good risk, 8k is NOT. WTFH? They said they would have to garnish both of our checks if we short sold - wouldn't that look just dandy on our credit reports?

This is not an ARM; conventional 30 year on major/15 year interest only on the other. Absolutely no penalty for paying early.

I have never been late on ONE BILL - utility or credit card, mortages - NOTHING. (I've read about universal default and didn't want those rates to kick in.)

I just read an article that houses may sit on the market for over a year.

Would ya'll do this - pay two mortages and rent, two sets of utilities, etc for a year?

We've been trying to rent the place out now, but no bites there either.

Rock meet hard place.

[cliss]

9. The best advice would be:

I would sit down, and go over all of my expenses related to housing. Property tax, mortgage, add in expenses related to necessary upgrades.

Next,I would take the value of my house, and take off 50%. In other words, I would assume my house would only be worth approximately half of what I thought it was worth. A $500,000 house is now worth $250,000.

Question: should I hang onto it? I'm actually advising a friend down in Los Angeles whois about to lose her house. She can't make up her mind. Literally POUR in every last penny she has, and expect for her house to take 1 year to sell. And for what? Only to lose her house in 6 months anyway? Her mortgage ARM went up to 14%.

I'm going to suggest that she's better off walking away. Her precious hard-earned money is better spent on renting for a while.

[slackmaster]

12. That is true

It can be a tough decision.

I am so glad my payments are fixed.

This is going to sink the real estate market.

If history is a guide, prices will slump a bit then remain stagnant for several years until wages and salaries catch up to a point where most people can afford to buy a home.

[soothsayer]

2. didn't these people already start off with nothing? so what do they lose

[frankieT]

3. BRAVO BERNANKE

nice move ! He lowered the rates for his buddies in Wall Street whereas regular folks will get hammered with higher rates 'cause mortgage rate are pegged to long-term rates which are going to the roof (fear of inflation).

[McCamy Taylor]

4. The rich will snatch up all the property and we will all be their tenants for life.

[Locrian]

5. thats the plan my friend

nt

[Freddie Stubbs]

8. Not me. I wasn't stupid enough to get an adjustable rate mortgage

[slackmaster]

14. Same here

They're not getting their filthy paws on mine, at least as long as I can keep working.

[InkAddict]

18. Not to worry; be happy...there's always a market

for guns. Lucky you; unlucky for a whole lot of others across the nation, but especially in the Midwest. The trick (are you all watching) seems to be making jobs, career industries, and homes, and votes vanish into thin air, here in Buckeye-land. Isn't Diebold the Magnificent great??? Wow, how'd he do that???

[slackmaster]

24. That was pretty rude, snarky, and defamatory

My Federal Firearms License does not authorize me to engage in a business.

I may end up selling my collection off if I become strapped for cash some day, but I cannot legally engage in a for-profit business selling weapons.

[InkAddict]

25. My goodness, some people are defensive

No one implied that you could run a business...In fact, I truly see you as lucky, since perhaps you'll sail through this latest debacle/re-distribution o-kay. You've completely jumped to a conclusion that is just wrong.

I hope everyone that wants to and can keeps working! But in the hard-hit areas, that wasn't and isn't the case. ;(

[slackmaster]

26. My financial position is a function of my age, hard work, and a few good decisions

Luck has nothing to do with it. I'm just shy of 50, wanted to buy a house most of my life but was not able to until my job situation coincided with a low point in housing prices in late 1994. I have a low-interest fixed 15-year loan with 11 years remaining, My loan-to-value ratio is in the 20s. That is the result of decades of hard work and perseverance.

Thanks for the clarification. Your comment about there always being a market for guns seemed to imply that I make money off them. For the record, I have never sold one and have no intention to ever do so.

[JeanGrey]

28. My house is paid for.

My husband and I are both in our early 50's and disabled. First house was 39,9 in 78, sold for 74,9. Next house was a distress sale worth 145 (the other bad time for housing, the 80's when a lot of people took ridiculous mortgages) 95,9 with half down. That last loan was ten years and we moved in 2002 because of health to a ranch with a full basement and separate garage - we got 180 out of the second house and paid 130 for this one. So as long as I keep my taxes up I'll always have a roof over my head thank god.

Our medical insurance premiums are sky high but at least I have it. Our house is seven years old so it should last until we're ready for the nursing home.................

[killbotfactory]

20. Some people had that foisted upon them at the last minute.

They were originally told that it would be fixed rate, went through all the paperwork, already put thousands of non-refundable dollars into it, and then were told it was really an ARM loan. They were forced into either walking away and losing a few thousand dollars, or getting an ARM and hoping to refinance before the rate goes up.

[Yupster]

21. I can't imagine myself ever getting an ARM either

Don't people realize that adjustable means it could go up?

[tammywammy]

22. Me either

30 year conventional for me. :)

[donkeyotay]

6. It's the neo Trickle Down on You economics

$200 BILLION bail out, er... liquidity injection... for the bankers, shakers, movers and campaign contributers, and nothing for you. It'll trickle down and a few months from now they'll be spouting off about the moral superiority of the rich and how the poor are poor because they're lazy and don't want to compete with the Chinese and need to tighten our belts.

[Acadia Blue]

10. I actually think they knew this would happen. Like the S and L thing

everytime the PIGs are in, some poor sap loses everything and the rich pigs walk away with taxpayer cash.

[AnneD]

11. Ding ding ding ding...

and we have a winner. I have been saying for several years now that this is exactly what happened here in Houston during the S&L scandal. Folks stayed in their houses as long as they could, held on to their cash and left when the sheriff pulled up, handing over the keys. Boy, did they-the banks come out on the short end and it served them right.

If the banks won't work with you on a short sale-screw them. Go in there and talk to the the boss-not the underling and lay your cards on the table. If they don't work with you, you may not have a choice. Banks use to work with you on a transfer. And how about your company-since they are the root cause-they have some responsibility. I would be putting on some pressure here.

[Tiberius]

23. Welcome to the new America

Privatize the profits, socialize the risk. Income inequality nearing robber baron days.

[slackmaster]

13. 1991 all over again, isn't it?

:argh:

[hadrons]

15. Don't these people get hit with a huge tax bill if they get foreclosed???

[NYC]

16. It's possible they get hit with forgiveness of debt

(taxable income) if the bank sells the house for less than the mortgage owed, and does not collect the difference from the former homeowner.

[Jersey Ginny]

17. 90,000 a year maintenance job? I want that job

What kind of education do you need for that? OK, it is off topic, but 90K for maintenance?

[1932]

19. I'm guessing he's an airplane mechanic.

[WilmywoodNCparalegal]

27. To be honest,

in some parts of the country, if you want to buy a house you are going to overextend yourself, whether you like it or not. In CA or NY or even urban parts of NC real estate is expensive, even now. If you want to be a homeowner and you are a normal average working class person, you are either going to be a slave to a crazy ARM or pay someone else's mortgage by renting. It's a choice many people make.