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Mortgage Defaults rise in California
Story from the Central Valley Business Times
Foreclosure activity in California in the second quarter jumped by 67 percent over the year-earlier period, according to figures released Monday by Foreclosures.com, a Central Valley-based real estate investment advisory firm and publisher of foreclosure property information. "Year over year at the end of the second quarter of 2006, foreclosure activity in California has increased more than 67 percent," says Alexis McGee, president of Fair Oaks-based ForeclosureS.com. The once hot housing markets in Las Vegas and Phoenix are cooling off rapidly and defaults there are on the rise as well, she says. "Both Las Vegas and Phoenix were impacted by speculators," says Ms. McGee, and more than 25 percent of new home sales in both markets were going to out of state investors who had no intention of ever occupying the homes they purchased. Now those who came late to the party find themselves squeezed by rising interest rates and resulting negative cash flows, she says. “The speculators are definitely on the run, and walking away from properties they cannot afford to hold and cannot sell at a profit," says Ms. McGee. In Colorado, foreclosure activity has put Denver well up in the top 10 of metro areas with the highest foreclosure rates, according to Foreclosures.com’s figures. “Almost 5,300 homes in Colorado have already been lost in foreclosure and, as of August 11, over 11,300 were in the pre-foreclosure process," says Ms. McGee. She cites recent reports by economists that showed that Colorado was lagging behind the rest of the nation in economic recovery from the 2001-2002 recession. "A more severe situation, however, is in California," she says. "A primary reason is the overwhelming use of so-called creative mortgage products people were sold in order to buy ever more expensive homes." More than $1 trillion of these exotic mortgages were due to reset in the next 18 months, she says, "and payment shock to such homeowners would be severe if not financially fatal." 20 comments from 12 users
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posted by
SRobley
on Sep 11, 2006 at 07:01 PM
"What's it looking like?" It looks to me like it will be ripe for picking over the next couple of years. I'm ready to make a killing off of it, myself. ;-) posted by
randomfactor
on Sep 11, 2006 at 08:09 PM
You ain't seen nothing yet. People who think they're immune generally don't realize they sell soap and soup to people who will lose their shirts.
posted by
NancyII
on Sep 11, 2006 at 08:20 PM
I was at a restaurant a while back and the waiter turned out to be a young man who had been my bus boy many years ago. I was looking at property in that area and mentioned it to him. He said that he would be moving back to that neighborhood soon...then added that he has jumped into a house he really couldd't afford.I'm afraid that's a tune we're going to be hearing more and more. I don't care how they play the song, you can't make payments on a house based on what you MAY earn in the future. You also have to pay that fiddler when those balloon payments come due, or when the interest rates rises on that fantastic ARM you got. I hated to see it then and I hate to see it now. The only ones who will end up making the big fast bucks are the speculators who got in and got out. I said over and over while this was going on that interest rates will fluctuate.. ...but when people paid over inflated prices for those houses..that's what they will always be. If I had my druthers..on a long term basis..I'd have taken a higher interest rate and a house that's ACTUAL value is fair. Down the road I could refinance....paying 350K for a 150K house means that's what I'll always would have paid for it. I don't know if all that made sense but at least I know what I meant..lol. As much as I hate to see people lose their homes, it will be to my advantage that I waited. And I'll continue to wait while I watch the market. posted by
anonymous
on Sep 11, 2006 at 08:40 PM
Just another reason to get out of California.
posted by
bakonative
on Sep 11, 2006 at 08:48 PM
It will be bad. Due to housing prices in California, the need for "creative" mortgage products, such as neg am Pay Options, ARMS, and to a degree interest only loans, will ultimately harm those who thought they could make it. After all, it's the American Dream to own a home, right? posted by
TomW
on Sep 12, 2006 at 12:58 AM
You go to some places in upstate New York you can get a beautiful 4 bedroom with land for 300,000, the same as a condo in the Bay Area or LA or a decent house in Bako. I went to an auction a few weeks ago and saw 250 acres of forest in California go for 200,000. It's all location.
posted by
NancyII
on Sep 12, 2006 at 07:22 AM
From time to time papers like Parade show houses in KY, TX, Virginia etc and the prices for houses there are amazing. 100K - 150K for a 2 story 3-4 BR house with some land isn't uncommon at all. The problems is, if you're still working it's hard to make a decent living in those places. Property is cheaper to buy but rent isn't..nor are groceries and other commodities cheaper. The ideal thing is to retire to one of those states...and a lot do. OK and AR are have a lot of California retirees.When I lived in TN milk and beef was higher than here and I paid the same for an apartment was was comparable to the one I had here. I've considered Bullhead City but am still on the fence about that. I wouldn't mind moving but don't want to get too far away from family. posted by
Charlie
on Sep 12, 2006 at 07:28 AM
I owned a home (and I mean really owned it as in no mortgage) and had 90k invested. Sold it at the top of the market for 300k. Put the entire 300k in a new construction home for 400k. So If I fell on hard times I could sell this place for 200k and walk away with my original out of pocket 90k. What really hurts its the taxes. Went from $500 a year to over $4000 and get nothing more for the money, which wasn't much to begin with.
posted by
NancyII
on Sep 12, 2006 at 08:09 AM
That's another area people didn't take into consideration when buying over priced homes. The taxes skyrocketed. My guess is insurance went up too since the amount covered increased enormously. That adds on the the monthly payement. It isn't just the mortgagae one has to come up with every month. Did they ask what the WHOLE amount would be?A friend got his house for a steal and remodeled over the years. It's worth (in todays market) almost 3 times what he paid for it . He said his tax man advised him not to refinance because his taxes would go up and with the cost of the loan he wouldn't gain anything over the long haul. Maxing out the current market price on ones house with a refi is a bad move because when the market takes a downturn one may be upside down for a long time. Common sense.....think it through. posted by
MyLefteFoot
on Sep 12, 2006 at 08:19 AM
Nancy
My friend at work (widowed) has refinanced her house a couple of times to make improvements. BIG MISTAKE. Her health is now compromised and it's looking iffy whether she can last until her retirement kicks in. She is looking at Oklahoma (her home state) as a place to retire. The little bit of equity she still has in her house will be a BIG down payment on a house in Oklahoma. Her pension and Soc Security will be more than enough to live nicely if she makes the move. I think OK, Kentucky, Missouri, etc. will become retirement states for the poor. posted by
dusty1215
on Sep 12, 2006 at 02:24 PM
The whole problem with the increase in mortgage defaults is the ripple effect it will have. The banks will be unable to unload the homes for what is owed on them in many cases. Banks or mortagage companies that jumped on the bandwagon will find themselves in financial trouble along with the people that lost the homes. That won't help the economy.
posted by
MyLefteFoot
on Sep 12, 2006 at 02:30 PM
Don't worry Dusty. All of the fiscally responsible people who didn't over refinance several times or buy too much home, will bail the banks out with higher bank fees, escrow junk fees etc.
posted by
dgrealish
on Sep 12, 2006 at 02:51 PM
I'm not one to say "I told you so". Unless I begged, pleaded, bargained and then screamed at the top of my lungs, "Don't buy that overpriced house with that ridiculous interest only for two years mortgage!". The same builder my son bought his house from was offering homes at a $90,000 discount until August 31. It was in a different development, but they had already sold homes there at the higher price. People who bought before instantly lost $90K in equity! It's an instant buyers market. No more waiting lists or bidding wars. Get out your check books folks, the tides reversed!
posted by
tonyh
on Sep 12, 2006 at 05:47 PM
You're exactly right dgrealish,Cash is King! As far as the econemy goes, things will keep on keepin' on. EVERYBODY won't get hurt here. Higher bank fees, escrow junk fees, etc. won't bail anyone out. The people who were financially smart enough to stay out of trouble won't do business with banks that try that stuff. What we'll probably see is banks acquireing other banks and consolidating. Banking is also a free enterprize market. Some people will LOSE and others will clean up.............................Which will you be? posted by
NancyII
on Sep 12, 2006 at 07:12 PM
I was told by as reliable a source as any that by Feb you're going to see a big drop in existing home prices. If people want to move them now, they'll have to drop those prices. I'm holding off til after the first of the year to see what happens. If something comes up that's a great deal I'll look into it. Until then I'll continue to rent...and may continue to do that anyway. No upkeep that way and I'm free to use my retirement for goodies instead of new roofs or a/c's. Dusty..you're right about the ripple effect. Sometimes I don't think people realize how widespread that is. During the boom everyone made money fast so money spread. Now that isn't going to be the case. Last spring I had 4 different people who were going to come and give me an estimate on a good yard cleanup. None showed up. Someone suggested that maybe the mow and blow people were so busy with all the new construction that they weren't interested in a one time shot. Wonder how hard it will be to get someone next spring? posted by
tonyh
on Sep 12, 2006 at 07:23 PM
Nancy,When I was a kid, the "Good Yard Clean Up" was what neighborhood kids did for a few bucks. As a kid, I made more money raking leaves and weeding flower beds than you'd believe. When we'd rake leaves, we'd also cut Mistletoe out of the trees to sell in bundles (with a little ribbon) for the Holidays (10 cents a bundle). Several years in a row, I was able to sell about 100 bundles of it. Back then, THAT was a lot of money for a kid. posted by
NancyII
on Sep 12, 2006 at 07:27 PM
Tony...I know what you mean. I doubt now you'd find many kids who had the time, or would make the time to do that. With all the sports and x boxes I think we've lost most of our young entrepreneurs.
posted by
dgrealish
on Sep 12, 2006 at 08:45 PM
Hey, my grandkids sell mistletoe every year. But now the going price is a buck a bag. (With Ribbon)
posted by
mattloch
on Sep 13, 2006 at 09:38 AM
Tony, banking is not a "free enterprise market". Try telling that to the American taxpayer that bailed out the S&Ls in the '80s. I'm just worried that we're in store for another wave of those. Nothing the bankers would like better than to have taxpayers pay for their screwups.
posted by
randomfactor
on Sep 13, 2006 at 09:44 AM
Mattloch, if you're at all a science-fiction fan (which seems to go with Bob) you might enjoy reading "For Us, the Living," SF master Robert A. Heinlein's first novel, which was just published. Yeah, it's awful. But it contains the seeds of every subsequent novel he ever wrote.. He had some *VERY* interesting things to say about the banking industry, and pointed us towards a possible solution for the US economy, the Social Security and Medicare problems, and even the domestic spying fracas. (One prescient plot element was the destruction of large parts of New York City in an attack in 2000, not to mention the rise of a united Europe, something like the Internet with [nod to Ted Stevens] *REAL* tubes....)
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