Friday, April 18, 2008

Mass Home Foreclosures Coming--Don't get Caught up in this Tide

--Is there a way to Sidestep this Threat, Protect Yourself? Yes, but Fast Action is Required

It is predicted by the so-called "experts" that 1,500,000 sub-prime adjustable rate mortgages will default by the end of 2008. That is more than $2.25 trillion--yes, trillion--in monthly payment resets from 2007 to 2009.

The Mortgage Bankers Association finds that well over 15% of sub-prime ARMs--an all-time high--are now running behind in payments. And, the rate of defaults is speeding up, alarmingly.

The marketing fix usually suggested is to quickly rush to the fore with something new. But, when dog food is "new and improved," who tastes it? In this case fallback positions are sought.

As in all perilous times, fingers of accusation are pointing in all directions. Sub-prime home buyers cry out loudly that they were taken advantage of. Victimhood on parade. Lenders complain bitterly about Congress forcing upon them ridiculously loose anti-red-lining laws, which gave them no choice but to lend to countless unqualified borrowers. While whining, kicking, and screaming is not the socially acceptable way, many lenders pursue this childlike remedy nonetheless. Politicians point fingers at each other. (and form the circular firing squads for orderly executions!) House flippers decry bankruptcy laws ("The Devil made me do it.") Mortgage brokers, who have ignited 70% of these suspect loans, say the fault lies with house flippers and real estate speculators, and paint these as the ones who have laid these land mines for them to negotiate. Notorious for their after-business-hours, cocktail-time ways, many of these brokers are now concluding that sometimes too much to drink is not enough.

If you are obligated to an adjustable rate mortgage, and deeply worry about the sudden jolt of a $500-$1,000 (or more) increase in your house payments, how do you protect yourself? if you are limping along with this ARM, there is only one way: refinance to a fixed rate mortgage. With the fast-shrinking U.S. dollar (in terms of world-wide worth), and with exploding energy and precious metals prices, inflation can only be a dire threat to you. This means your adjustable rate mortgage could "reset" you to an untenable position--maybe, even, right into the Poor House.

No need to stick your head in an Easy Bake oven. But, it is time to stop, reappraise.

Sure, most ARMs carry stiff pre-payment penalties. But, remember, these mortgage carriers have no desire to end up getting stuck with worthless paper. Hence, most will be willing to negotiate a lower figure--if they conclude that there is no other way of preventing default. (Sure, strip mining prevents forest fires, but this is over the top.) Real estate brokers renegotiate these pre-payment penalties all the time, so your chances are good.

In the mining business there is an old truism observed closely by all miners working underground: When the support beam begins to crack move swiftly to the mine entrance.

Would this truism apply to looming home foreclosures, too, do you suppose? Common sense?

The support beam is cracking. Now is the time.


Ione Hesber said...

Jack, you're at it again. I like, when dog food is new and improved who tastes it?

Bern said...

My favorite is The devil made me do it.

Jack Payne said...

O.K., guys, allow me a little "artistic" license, huh? You know, freedom of expression, and all that good stuff.

Gene Kranik said...

My son is caught in one of these mortgage traps. He is getting his monthly payments upped through the roof. He can't afford it, so it looks like I am going to have to bail him out. It's a good thing he has got me. I wonder what so many other young people do when they don't have anybody to bail them out.

Kevin Goodman said...

This is something I know a little something about. I have been buying properties and fixing them up for several years now – both with my own money and in partnership with investors.
If my plate wasn’t so full already I would be taking action and buying – There is a fortune to be made.

I’ll tell you a big real estate scam going on around here is the – buy on contract and owner financed schemes. Yeah these can be legit but we have seen some major swindles in recent years. Including properties being sold three of four times without ever being deeded.

Jack Payne said...

Gene, you wouldn't believe the amount of emails I've been getting in, with stories such as yours. And, the build-up of these is increasing. Heartbreaking. What more can I say? And, yes, so many young families, who have no one to bail them out, are going down, financially.

Kevin, you put your finger on the hair-trigger problem (from amongst the myriad problems). It's largely the owner-financed house deals that are the crux of most con games.

Terry said...

A con man in Florida figured a way to spin a deed up to six times for big profits on each spin...these dealings must have been illegal because he got caught.

machinehuman said...

Jack Payne, you're a fine writer. It's amazing how you can turn mortgage into an interesting reading. Seriously, I admire your writing skills.
Best Regards!

Jack Payne said...

Thanks, M.H. I keep plugin' away.

Gene, the champs of esoteric real estate deals do business in 2states in this good old Union of ours: Florida and Arizona. The RE people in these 2 states could teach--even--California real estate people a thing or two. Their level of sophistication is advanced. And mysterious, in many ways.

Testler said...

We have a situation like Gene's in our family. Sometimes I feel like the walls of the system are closing in. Anyway, thanks for the tips, Jack. We are going to shop for a fixed rate mortgage as fast as we can.

Dee said...

Right on the nose Jack.

No need to put your head in the Easy Bake Oven indeed.

In fact some of those predatory lenders, credulous, overreaching borrowers and blood sucking brokers should get a whack on their heads.

In the meantime for the sake of your economy and those truly exploited borrowers; mortgagees and brokers should actually encourage your suggestion and reduce if not have a moratorium on pre-payment penalities.

Mary A said...

I like stick your head in an Easy Bake oven too, Dee. With a dire theme like this you have to find some humor.

Claire Cooper said...

Here's another vote for Easy Bake Oven. For some reason that hit my funny bone.

Jack Payne said...

Moratorium on pre-payment penalties? Good idea, Dee.

Also, your observation on my Easy Bake oven line seems to also have enticed Mary and Claire. Don't really know what I said with that--it was a rather zany comment. Anyhow, Ah aims to please.

Jack Payne said...

Gosh, Testler, while I don't know precisely what your mortgage problem is, it sounds like you are doing the right thing.

Good luck.

Lorry said...

I have a neighbor who I dearly love...we have coffe every day...who is in this same boat, she is about to have her payments raised out of sight. She cries every day, and it breaks my heart. I wish I could do something for her, but all I can do is sympathize.

Dolcett said...

I'm timed out on these stories. I've heard a few the past year and they seem to be getting more frequent and worse. They are so sad.

Rainforest Robin said...

Jack your writing isn't just informative it makes me laugh because you have a wonderful wit. I loved many lines here but particularly this one: "In the mining business there is an old truism observed closely by all miners working underground: When the support beam begins to crack move swiftly to the mine entrance."

Tony Tovar said...

Yeah, if this doesn't scream "help" I'm not sure what does. After the depression of the 30's there was an Association that was formed by the Gov't to try and help buy mortgages from creditors and offer lower rates. With some of the bills in place to try and help out the economy in helping some of these folks out, I feel we may just be avoiding the needed slap on the hand the US economy needs. However, I do agree that the Fed should do all it can in its power to fight against recession like most Keynesian's believe! However, some of us aren't exactly witnessing or experiencing what so many have deemed a recession. Oil Prices are going up but I do think that is greatly due to the Housing Market mess as well as the Fed and Gov't Expansionary policy. This going to dilute the dollar and hence rise prices in the goods and services markets. Commodities will continue to rise and the price of Oil, well...lets just say my 119 prediction could be blown out of the water. I do agree that something must be done about this and if measure have been taken, then there needs to be a whole lot more going into a solution than there is currently.

Thanks for your comment, I look forward to reading your articles and have added you to my google reader.

Tony Tovar

Jack Payne said...

Robin, I'm glad you enjoy my little witticism-type comments that I'm prone to add when I'm writing my posts. I am sometimes criticized for this, so I am glad to hear from those who appreciate them (got a bunch of those too).

Tony, it's evident that you have a good grasp of what's going on. But, one thing I can't quite see the connection on is oil prices and the housing mess. The only point where we might not agree. But, overall, you seem to have a good feel for the current economic crisis.

sharyn said...

how do people get this kind of loan and not realize what's coming at them later? It's a shame it's killing the ecomony as much as gas is. did you quote me churchill not too long ago?