Millions of Empty Houses & Millions of Homeless
Most Americans believe that the “Great Recession” of 2008 and 2009 began in 2006 with the crash of the residential real estate market. The crash began rather slowly in the “hot” real estate markets of Florida, Arizona, Nevada and California, and then snow-balled into a nation-wide catastrophe of plummeting home values and skyrocketing delinquency rates. Everyone has their own idea on exactly who was to blame for the real estate mess; however, most folks believe that greed and the prospect of easy profits played a large role. Unfortunately, not a whole lot has changed in the real estate business since the crash began. Although many of the markets throughout the country have stabilized, and maybe even begun a slight up-tick, the “hot” markets continue to show ever-increasing delinquency rates on mortgages, and a further decline in market value. There may, however, be a slight glimmering of light on the residential real estate horizon. Trans Union reported that the overall delinquency rate in the first quarter of 2010 slipped to 6.77 percent from 6.89 percent, representing the first decline in over four years. Trans Union further speculated that the delinquency rate should continue to show a decline through the end of 2011, and level off at around 5 percent by year end.
For states like California, Florida, Nevada and Arizona, which are currently showing delinquency rates between 11 and 18 percent, it would take a major miracle to bring delinquencies down to even half the levels being experienced elsewhere in the country. The fact is that home values in those markets were so over-inflated, and finance companies were so lax in enforcing normal credit standards, that home-buyers are walking away from their mortgages by the thousand. Even those who are still financially able to make their mortgage payments are questioning the wisdom of continuing to pay for housing that is worth half of what they paid for it. From a strictly “business” viewpoint, many borrowers are, in fact, much better off by telling the finance companies to foreclose, and take back their collateral. Borrowers are quickly finding out that foreclosing lenders cannot come after other assets, such as retirement funds, and that within five years the foreclosure record will be removed from their credit histories. Just as the granting of the mortgage by a financial institution was strictly a business transaction, the walking away from a mortgage by a borrower should also be viewed as strictly a business transaction.
As more and more residential real estate is foreclosed upon, the banks and finance companies will become the ultimate owner of millions of real estate units that should never have been built in the first place. It will most likely be many years before the glut of bank-owned properties are finally sold off to the credit-worthy. In the meantime, many residential property owners will continue to compare the remaining amount of their mortgages to the value of their property, and tell the banks “thanks, but no thanks”; the keys are under the door mat.
I think alot of people who are in underwater situations will be recovering from their loans, with the help of some of the new legislation I keep reading about. hopefully much more of the loan money to the banks will be forced back to the hands of those who paid their mortages, but got really shafted. reading some of the things that the banks did to borrowers makes me shiver. ooo it’s Land Contract for Me Always.
[Translate]
Re,
Sometimes I think that the government programs intended to help home owners really only help the banks. The programs give some relief to the borrowers, but allow the banks to collect payments on mortgages that far exceed the collateral value of the property. The banks made their business decisions based on over-inflated valuation of collateral values; so let them take the collateral back and “eat” the losses. Perhaps it’s time for more borrowers to make “business” decisions?
[Translate]
Being in England, I am pretty much in the dark about how the U.S. foreclosure system works. Your article sheds a little light on the subject, but I am unsure how the system works if the borrower has equity in the property. I asked this question on one of my blogs, but so far no one has provided an answer.
Would you take a look at the article where I raise the question, and perhaps comment with what you understand to be the way the system works?
The article is here What Happens To The Surplus When A Bank Forecloses?
[Translate]
I had heard some talk that a commercial real estate crash was still on the way. Not sure if it never materialized, or if it is still coming. Have you heard anything on that?
[Translate]
This is exactly what we are seeing here in California’s Bay Area. Everyone who has a non recourse loan is just walking away. Even with the crash here, houses that were selling for 1.1 million are now at around 800,000 so it would still be a mega mortgage even if you put 20% down.
Compound that with the jobs in Silicon Valley drying up at an alarming rate and I don’t think that any program can save this market. They need the jobs to come back. Needless to say, the group of us that were relocated from much cheaper areas have all decided to rent no matter how much everyone tries to persuade us that prices have finally hit the bottom.
[Translate]
Tina, From The Wall Street Journal(I think this says it all)…………. From the WSJ….”How much should we worry about a new leg down in the housing market? If the number of foreclosed homes piling up at banks is any indication, there… See More’s ample reason for concern. As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20 per cent from a year earlier….
“Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30 per cent from a year earlier. Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload. That’s nearly nine years. Of course, banks could pick up the pace of sales, but the added supply of distressed homes would weigh heavily on prices — and thus boost their losses.”
The banks are taking up to two years to forclose, this is delibertly keeping 4.8 million houses out of the official figures. Two years ago the projection was that 7 to 8 million houses were going to be lost to foreclosure. We are at six now and no where through the “liar loans” and then comes the no down payment loans. There is a new expression with unemployment at present levels, “all mortgages are sub-prime now”. The bottom is predicted to be in the vicinity of 2014, a long way off. Read the writing on the wall, you haven’t seen anything yet.
[Translate]
David,
When a bank forecloses on a property, it is simply taking possession of the collateral, which was pledged against payment of the mortgage note. In many of the formerly “hot” real estate markets in the U.S., the equity that a borrower has in the mortgaged property is way, way less than the outstanding balance on the mortgage note. When this happens, many borrowers would rather lose their equity in the property, since it will cost less than paying off the mortgage.
[Translate]
KAK,
The business decisions that the mortgage lenders made prior to 2007 were based on a “gamble” that underlying collateral values of mortgaged properties would continue to increase. This turned out to be a poor decision. The lenders knew full well that an ever-increasing number of borrowers were uncreditworthy, but they created the mortgages anyway. The inventory of foreclosed properties now held by the lenders are, in a large part, comprised of units that should never have been built in the first place.
I agree that we have not seen the bottom yet.
[Translate]
Things have stabilized somewhat in the Northeast, more specifically my town and the surrounding towns. But we have much of our money in our house, so the whole thing is rather unsettling.
And on a related topic. The bailouts have to stop too. What a mess!
[Translate]
I live in a small town, and have some friends who recently lost their home to the bank. The husband lost his long-time job with Wal-Mart, and they were trying to make arrangement with the bank. Needless to say, they were foreclosed, and they house was quickly listed on the market, and the new owners are paying considerably less than my friends had to pay. After years of paying on their mortgage, they were forced to not only have to find a home to rent in the area so their children could stay in the school disctrict, but they lost all of the equity they had built up over the years. It’s such a shame to see that people just aren’t as important as money in the business world.
[Translate]
Sorry for all the typos in my last comment. It’s been a long day!!
[Translate]
I doubt that the housing market crash was what caused anything… Years ago people began to want more and more and more….from ..a 21 bathroom home to a 3 bathroom home…1 television to 2…1 car to 2 or even 3 in some cases. A computer in every room…vacations twice a year…ect…ect..
These are just a few of the signs in my time.
I believe that we all played a part in this system failure the minute we decided that borrowing was an easier way to gain material objects.
One time our homes were our retirements and now they have become an open drain to our life time of savings….either way we are not going to get around this one easily.
We put our faith in the banks and the Government to take care of business and steer us in the right direction….yet another mistake on our part.
I continue to hear the phrase ‘ back to basics’… I believe we must begin the swim upstream in order to change and regain…the change being our wants and our thoughts on what is actually needed to live so our children can avoid this same sort of dire straits.
WE must change in order to regain~
[Translate]
D, clearly you have been brought back to a sense of reality, faith in yourself and your friends, not government. Government can be brought back around again but it is going to take more people with your attitude, going to take a while I think. People will blame everyone else. You realize you made a mistake in going with the trends and are making no excuses. You are smart enough to accept the new reality, same as the old reality. “change and regain”..you do have the picture….Good luck. D talk to people and do not hesitate to slap them in the head…it is important.
[Translate]
oops…that should have been a 1 bathroom….mot 21…jeesh~
[Translate]
Leave your response!
Join Us!
Subscribe to this site's RSS feed.
Categories
Worth Watching
And you said…
Blogroll
Close preview
Close preview
Close preview
Close preview
Close preview
Tweet Some
Tag Cloud
Extreme Reading!
Our Archives
Who's Online
Most Commented
Subscribe to Our RSS feed.