Big homes have been in the news lately. On one side we have Viktor Yanukovych, the former Ukrainian president, who managed to acquire a mammoth palace clad almost entirely in marble all while earning $50,000 a year. You have to wonder how Mrs. Yanukovych had time to dust such real estate, maybe the in-laws stopped by to help with the luxury cars and the floating restaurant.
In the states we also have a big house problem: The average home size has continued to rise during the past four years, going from 2,362 square feet in 2009 to 2,679 square feet in 2013, according to the National Association of Home Builders.
Real Estate: The Mansion Mess
The NAHB tells us that between 2005 and 2011 new home production went from 1.28 million units to 306,000 units. That sure seems like a situation where the number of people employed in construction has fallen significantly and industry sales have shrunk.
The median income of new-home buyers has steadily climbed from $91,768 in 2005 to $107,607 in 2011, according to the NAHB. It also says that average prices have increased, going from $248,000 in 2009 to $318,000 in 2013. To give us an apples-to-apples comparison in 2005 the average price of a new home was $297,000 according to the Census Bureau.
Anybody see anything strange about all of this?
First, new homes today are gigantic. The typical home in the 1950s had 983 sq. ft. of space. Today’s new homes are roughly three times larger.
Second, it’s not just that today’s suburban castles are gigantic in terms of square footage, they are also colossal in terms of cubic size. The NAHB says that with new homes today “builders are likely to include are first-floor ceilings at least nine-feet high.” Is that smart? What does it cost to heat and cool such a vast volume of space? How many new home buyers are eight feet tall?
Third, while cavernous new homes are the norm today household sizes are shrinking. According to the Census Bureau, the average household had 3.37 people n 1950 — and 2.54 people in 2013. In other words, in 1950 there were 292 square feet of residential living space per person versus 1,055 square feet in 2013.
Fourth, while home sizes are ballooning incomes are not. The Census Bureau says the median household income was $51,017 in 2012. That’s less than half the income enjoyed by new home buyers in 2011 and 9 percent less than the median household income in 1999.
Fifth, many people get the idea that if you want to reduce real estate costs then it makes sense to buy a smaller home.
Conclusion: You can’t keep selling needlessly bigger and bigger McMansions to people who have less and less income. The proof? New home sales in 2013 were one-fourth the size of new home sales in 2005. Or, look at it this way: The NAHB had revenues of $94.4 million in 2008 while in 2011 revenues fell to $55 million.
Future Real Estate
Builders and buyers need to look ahead. Will future buyers want homes with nine-foot ceilings and vast internal acreage? Will today’s monster houses be easy re-sales or will buyers down the road prefer smaller homes with smaller mortgages, smaller property tax bills and smaller utility bills?
The home building industry is betting that bigger is better, or at least more profitable per unit. It’s a bet that benefits builders who erect elephantine homes, but it’s also a bet which is destroying the home building industry and damaging the economy. After all, if an additional 974,000 homes were sold in 2005 when compared with 2013 there must be a reason. Here’s a hint: It’s not that the population has shrunk or that mortgage rates have hit 12 percent; it is, instead, that huge homes mean high prices and goods with big costs are tough to sell in a fragile economy.
More and more building huge homes no longer resonates with most people. Just ask Viktor Yanukovych.
First, institutional investors — entities which purchase at least ten properties per year — accounted for 5.2 percent of all U.S. residential property sales in January, down from 8.2 percent in January 2013. The January share of institutional investor purchases, said RealtyTrac, represented the lowest monthly level since March 2012 — a 22-month low.
Metro areas with big drops in the Wall Street institutional investor share from a year ago, says RealtyTrac, included Cape Coral-Fort Myers Fla. (down 70 percent), Memphis, Tenn., (down 64 percent), Tucson, Ariz., (down 59 percent), Tampa, Fla., (down 48 percent), and Jacksonville, Fla., (down 21 percent).
The company also reports that counter to the national trend, 23 of the 101 metros analyzed in the report posted year-over-year gains in institutional investor share, including Atlanta (up 9 percent), Austin, Texas, (up 162 percent), Denver (up 21 percent), Cincinnati (up 83 percent), Dallas (up 30 percent), and Raleigh, N.C. (up 15 percent).
Metro areas with the highest share of institutional investor purchases included Jacksonville, Fla. (25.5 percent), Atlanta (25.1 percent), Austin, Texas (18.0 percent), Charlotte, N.C. (14.9 percent), and Greenville, S.C. (14.0 percent).
Meanwhile, while big institutional investors are reducing purchase activity smaller investors are plainly in the marketplace. All-cash sales, said RealtyTrac, accounted for 44.4 percent of all U.S. residential sales in January, the seventh consecutive month where all-cash sales have been above the 35 percent level.
Foreclosures and Short Sales
Second, the RealtyTrac report also shows that distressed property transactions such as short sales and foreclosures — including both sales to third party buyers at the public foreclosure auction and sales of bank-owned properties — accounted for a combined 17.5 percent of all U.S. residential sales in January 2014, down from 18.7 percent a year ago.
“Many have anticipated that the large institutional investors backed by private equity would start winding down their purchases of homes to rent, and the January sales numbers provide early evidence this is happening,” said RealtyTrac Vice President Daren Blomquist. “It’s unlikely that this pullback in purchasing is weather-related given that there were increases in the institutional investor share of purchases in colder-weather markets such as Denver and Cincinnati, even while many warmer-weather markets in Florida and Arizona saw substantial decreases in the share of institutional investors from a year ago.”
Local Market Results
“We have seen the big hedge fund investors entering into particularly the Columbus and Cincinnati markets, trying to buy up portfolios of distressed properties and then turning those properties into rentals, and I think that’s contributing to the lower levels of inventory available on the market.” said Michael Mahon, Executive Vice President at HER Realtors, covering the Columbus, Cincinnati and Dayton markets in Ohio. “We’ve also seen a dramatic decrease in short sales because of the expiration of the Mortgage Forgiveness Debt Relief Act, which provided short sellers protection from being taxed on debt forgiven through a short sale.”
“Buyers are starting to emerge again, and we are seeing multiple offers on REO properties due to low levels of available homes on the market,” said Sheldon Detrick, CEO of Prudential Detrick/Alliance Realty covering the Oklahoma City and Tulsa, Okla., markets. “Increased demand of properties and reduced supply of housing inventory result in price escalation, which explains the continued increase in home prices throughout the market.”
“The Denver metro area did not experience the typical winter slowdown that many markets across the country experienced and we continue to be very busy,” said Chad Ochsner, owner of RE/MAX Alliance covering the Denver, Colo., market. “Our January year-over-year sales counts are up about 7 percent, which is really encouraging. I think it has a lot to do with improved consumer confidence and low interest rates.”
“The Salt Lake Valley market is showing a 5 percent decrease in the number of residential properties sold compared to last year, but the market is still in line with projected home price increases of 5 to 7 percent,” said Steve Roney, CEO of Prudential Utah Real Estate covering the Salt Lake City and Park City, Utah markets. “Housing inventories remain low, but are gradually growing as underwater homeowners regain equity positions in their homes.”
“The Park City resort market tells a different story with a slight increase in the number of properties sold and a slight decrease in median sales prices. Park City housing inventory is at a historic low with significant demand for entry-level housing and ultra-high-end resort properties,” he added.
Subprime mortgages continue to be the riskiest type of mortgage you can get — and yet things are looking better for both subprime borrowers and subprime lenders.
How can that be?
Subprime mortgages are a form of financing designed for those with impaired credit. That’s a polite term for individuals who have low credit scores, often for reasons beyond their control such as a job loss, the death of a spouse, a divorce or medical expenses. In some cases, however, subprime borrowers have low credit scores for a very simple reason: They don’t pay their damn bills.
Notice that credit scores have nothing to do with income. Fast food workers who make payments on time and in full can have better credit scores than the richest family in town. The great secret of good credit is not how much you owe or how much you make it’s simply how you pay back your debts.
Subprime Mortgages and Fewer Foreclosures
The latest figures from the Mortgage Bankers Association show that subprime mortgages have become very much less risky — a concept which must be seen in context.
First, let’s look at how subprime loans have become less risky.
The MBA says that during the fourth quarter of 2013, the latest available numbers, lenders had started foreclosure proceeding with 1.66 percent of all subprime loans. This is a huge reduction from the first quarter of 2009 when lenders started foreclosures with 4.65 percent of all subprime mortgages. Indeed, the MBA reports that delinquency and foreclosure activity hit a six-year low in late 2013.
Why are there fewer subprime foreclosures today? Many new mortgage regulations under Dodd-Frank went into effect during January 2014 but large numbers of lenders – thinking ahead and wanting to avoid excess risk — started making less risky loans years ago. Their reward can be seen in the lower foreclosure start numbers. No less important, many of the lenders who were the leading suppliers of toxic loans are now out-of-business.
A second reason for fewer foreclosure starts concerns the marketplace in general. As RealtyTrac, the nation’s leading source for comprehensive housing data and listings, explains, “January marked the 40th consecutive month where U.S. foreclosure activity declined on an annual basis.” In fact, foreclosure activity in 2013 was down 18 percent from the year before.
One reason for fewer foreclosures is that the inventory of toxic loans originated between 2000 and 2008 continues to decline. A second reason is that the less-risk standards established under Wall Street reform are paying off.
Subprime Mortgages Remain Risky
That said, subprime loans remain more risky than other forms of financing. Again, using figures from the Mortgage Bankers Association, we can easily see why lenders are extremely cautious when making subprime mortgages, even with higher mortgage rates. The foreclosure start rates for various forms of financing looked like this during the fourth quarter of 2013:
- Subprime mortgages: 1.66 percent
- Prime mortgages: .34 percent
- FHA mortgages: .75 percent
- VA mortgages: .47 percent
- All mortgages: .54 percent
What these figures show is that even in better times subprime borrowers are nearly five times more likely to face foreclosure than prime borrowers, a pattern which has been fairly consistent for the past five years. The good news is that foreclosure levels in general are falling and that helps borrowers, lenders and mortgage investors.
Writing about mortgages and tiny houses, futurist Thomas Frey explains that “one of the biggest boat anchors for our lives tends to be our home and the gigantic home mortgage that comes with it. We sacrifice much for the sake of paying our mortgage.” (See: Why the Tiny Home Movement May Not Be So Tiny)
Frey’s commentary is exceptional, something which needs to be widely read. That said, I suspect the real problem he’s describing is not a joyous pilgrimage to homes with fewer than 200 square feet but rather an attempt to cope with a shrinking economy.
Mortgages and Economics
Frey says we should think of the trend toward tiny houses “as an obvious backlash to the banking, mortgage, and credit card industry. It’s also a backlash to glutinous consumption, poor job opportunities, and young people feeling betrayed by older generations.”
“The big thing this trend offers is freedom,” he argues, “and that’s not easy to quantify. It’s not just an efficient lifestyle, but a culture, a door-opener, a character-builder, and untethered nobility all rolled into one.”
Let me offer a different view: There is no backlash. Instead, we live in a contracting economy, one where there are fewer jobs, where the balance between workers and owners has largely been lost, and where the jobs that remain too often lead to static careers with little opportunity for advancement or personal satisfaction.
People are not choosing tiny homes because they love the joy of a 150-square-foot manor; instead they’re forced into smaller housing because the astonishing range of economic options available in the US after World War II are drying up. The new goal is not “freedom” it is instead survival in an economy which increasingly offers fewer opportunities. Little wonder that jobs — or the lack thereof — are now regarded as the biggest “problem” in America according to Gallup.
For instance, we are now debating whether to raise the minimum wage to $10.10 an hour. This means — if passed — that a full-time employee could make $21,000 a year (40 hours per week x 52 = 2080 hours per year. 2,080 hours x $10.10 = $21,008). A family of two might earn $42,000 a year.
How many households with at least two people can live well on $42,000 a year? And what if there are children in the household?
According to the Census Bureau the median household income in 2012 was $51,017. That’s up a whooping $17 from 2011. More importantly, the wages earned in 2012 are typically 9 percent lower than the same household earned in 1999. Is it any wonder that homeownership levels peaked in 2005? Or that student debt tops $1 trillion?
The reason more and more people now “want” tiny houses is not because such living spaces are wondrously desirable or somehow represent a cosmic notion of freedom, but because the American economy no longer produces the jobs, financial stability or opportunities for advancement enjoyed by our parents and grandparents.
Mortgages and Home Size
Frey says home size no longer bears any relationship to need, an issue identified in this space years ago. “In 1900,” he says, “the average house in the U.S. was a mere 700 sq. ft. with an average of 4.6 people living inside. A hundred years later, the average home had mushroomed to 2,500 sq. ft. with only 2.5 residents.”
In other words, one reason mortgages are so large is that big debt is necessary to finance big homes. One solution to this problem — societal norms be damned — is to buy a smaller, more affordable house. Frey points to tiny houses as an option. I don’t see that as a choice for most people but I remember that the home in which I was raised had three bedrooms and 1.5 baths, a home in which space was just not a problem.
Frey says we are seeing “a new breed of tiny homes that are comfortable, efficient, often portable, and most important, mortgage free. They represent freedom, freedom from debt, freedom from conspicuous consumption, and freedom to live a life of passion.”
Of course, another option is to rent. Savvy people who rent are trading tax breaks for the ability to move with ease and avoid declining home values, should they come. Home prices, it should be said, are now 8.9 percent lower at this moment then they were in 2007.
While I don’t believe that homes which are smaller than a house-trailer make sense for most people, especially those with children, tiny homes at least conform to Miller’s First Law of Real Estate: Never buy a house you don’t want to clean.
Nobody likes paying for private mortgage insurance but unfortunately it’s a necessary evil if you’re financing more than 80% of the value of your home. The good news is that you may be able to take advantage of a little known trick that could save you some extra money on your total mortgage payment.
What’s this trick? It’s called lender paid mortgage insurance, or LPMI.
BPMI Vs. LPMI
The traditional form of mortgage insurance that most people are used to is borrower paid mortgage insurance, or BPMI, which is tacked onto the private mortgage insurance payment. LPMI, on the other hand, is paid for by the lender in exchange for a slightly higher interest rate.
To see why LPMI can be a good option, let’s take a look at a scenario very similar to a refinance I once did for a client. My client’s loan amount was around $400,000 on a house that was worth around $425,000, which put him at 94% loan-to-value (LTV) – solid PMI territory.
My client planned to keep the home only for a few years and his goal was just to save as much money as possible on his payment. I was already reducing his payment by around $400/month even with BPMI, but LPMI offered him a chance to save even more money.
Check out the chart, which shows how the numbers crunched out for the BPMI and LPMI loan options. Yes, the rate for the LPMI option is 0.25% higher, but the overall payment is lower because there’s no longer a premium tacked onto the mortgage payment. Going with the LPMI saved my client another $138/month, which made his total payment savings versus his current loan nearly $540/month. I’d say that’s a pretty good deal, and my client agreed!
When LPMI Makes Sense
LPMI isn’t necessarily a good fit for every scenario, so the following are a few things to keep in mind when evaluating a mortgage option with LPMI:
- LPMI only makes sense for short term applications. LPMI usually only makes sense if you’re planning to keep the loan just a few years because of the higher rate. If you keep the loan long term, you may end up paying too much in interest costs over the life of the loan and negating the added payment savings generated by the LPMI.
- You can’t get rid of LPMI at 80% LTV. LPMI is baked into the rate, so you can only get rid of it by refinancing. If you’re going to have the loan long enough to pay down to 80% LTV, it’s better to go with BPMI so you have the opportunity to drop your mortgage insurance.
- LPMI is only available for conventional financing. FHA mortgage insurance is always borrower paid (sorry!).
Not all lenders offer LPMI, so if you’re thinking it might be a good option, be sure to ask any lender you’re working with up front if they can offer it. If they can’t, you might want to find another lender who can.
Subprime mortgages are coming back, slowly but surely. But while subprime loans remain an expensive form of financing there’s an argument to be made that today’s subprime mortgages are objectively better than the toxic loan products which were too common between 2000 and 2008.
While it may come as a surprise, subprime loans are allowed under Dodd-Frank. In fact, they can be defined as qualified mortgages, loans designed to encourage low-risk lending under Wall Street reform.
If you’re a lender you want to make qualified mortgages or what are called QMs. Such loans give lenders virtual immunity from borrower lawsuits and have other lender benefits as well. However, to get the goodies available with qualified mortgage status lenders must also meet a number of basic standards and it’s those standards which make today’s subprime loans far-less objectionable.
Interest Rates and Subprime Mortgages
One of the most important standards for qualified mortgages concerns interest rates. The rules say that when lenders meet all qualified mortgage requirements and interest rates are not more than 1.5 percent above the average prime offer rate (APOR) for a first lien (and 3.5 percent for a second lien) they automatically obtain certain benefits, including powerful protections against borrower lawsuits. Loans which meet all the qualified mortgage standards are said to be within the safe harbor created by Dodd-Frank.
But, first liens can STILL be qualified mortgages even if interest rates are more than 1.5 percent above the APOR.
“The Dodd-Frank Act,” says the Consumer Financial Protection Bureau, “does not prohibit high-cost mortgages from receiving qualified mortgage status. While the statute imposes a points and fees limit on qualified mortgages (3 percent, generally) that effectively prohibits loans that trigger the high-cost mortgage points and fee threshold from receiving qualified mortgage status, it does not impose an annual percentage rate limit on qualified mortgages. Therefore, nothing in the statute prohibits a creditor from making a loan with a very high interest rate such that the loan is a high-cost mortgage while still meeting the criteria for a qualified mortgage.”
Richard J Andreano, a Washington-based partner with the law firm of Ballard Spahr and a mortgage regulation authority, explains that when the interest rate is more than 1.5 percent above the APOR for a first lien but otherwise meets all qualified mortgage requirements the lender is protected under the concept of rebuttable presumption. This means it’s assumed that the loan is a qualified mortgage unless the borrower can prove that somehow the underwriting process was defective. For instance, imagine a situation where a borrower got a loan but was left house poor and could not meet overall living expenses because the lender grossly failed to properly underwrite the loan.
Subprime mortgages – once the bad boys of real estate lending – are coming back. Figures from the Federal Reserve Bank of St. Louis show that between 2007 and the start of 2013 subprime mortgages fell off the radar for most banks but now they have begun to make a significant comeback.
What happened to subprime mortgages and why have they begun to come back into the lending picture?
Subprime mortgages are a form of financing which is supposed to be a form of financing made available only to those with woeful credit, individuals who had bankruptcies and foreclosures in their credit reports, who routinely failed to pay back their debts, or who had a history of late payments.
Subprime Mortgages Impact Millions of Homeowners
The result of subprime mortgage overselling was that millions of borrowers were effectively overcharged for mortgage financing. Such homeowners were needlessly exposed to the type of lending which was most likely to wind up in foreclosure because of higher costs, substantial prepayment penalties and harsh terms and conditions.
Once the housing market began to go into decline in 2006 mainstream lenders began to back away from subprime lending as quickly as they could. By late 2008 and 2009 subprime loans were about as common as unicorn toes. In fact, subprime mortgages were so unappealing to most lenders that from 2009 to 2012 it appears that the Federal Reserve Bank of St. Louis did not even poll banks about their subprime mortgage preferences.
In 2012 the St. Louis Fed once again raised the question and found almost no banker interest in subprime mortgages. The picture began to change in 2013, and by the middle of the year roughly a quarter of the nation’s banks were showing a renewed interest in subprime lending.
Subprime Mortgages Make A Comeback
Why have subprime loans begun to show up once again as a lender offering?
The answer likely has to do with several trends.
First, the housing market has begun to improve in most markets and therefore mortgage loans have inherently less risk. For example, in the third quarter of 2013 the National Association of Realtors reported that existing home prices rose in 144 Metropolitan statistical areas out of 163 that they reviewed.
Second, today’s subprime mortgages are likely to be very different than the toxic loans offered between 2000 and 2006. For example, borrowers are going to be required to fully document loan applications and hefty down payments will be required, perhaps 20 to 30 percent down.
Third, the foreclosure crisis not only left more than seven million people without homes it also demolished lender profits and shareholder values. The banks who remain have no desire to repeat the fiasco and as a result have established tougher qualification standards.
Subprime mortgages are typically loans with tough terms and high rates. So does this mean all subprime loans are examples of predatory financing?
In the usual case the answer is no. Subprime mortgages are a form of financing which should be used only for borrowers with woeful credit, individuals with a history of failing to repay bills. Such borrowers — by definition — represent more risk to lenders and for that reason alone should face higher interest rates.
Unfortunately, with subprime mortgages many borrowers have failed to shop around and thus have been saddled with interest rates and tough loan terms which do not reflect their financial status. For example, the Wall Street Journal has reported that 55 percent of all subprime borrowers in 2005 actually qualified for FHA, VA and conventional financing. The Journal also reported that 61 percent of all 2006 subprime borrowers also paid more than they should for real estate financing, that they qualified for lower-cost FHA, VA and conventional loans. (See: Subprime Debacle Traps Even Very Credit-Worthy, December 3, 2007).
But if higher rates and subprime mortgages do not define a predatory loan then what does?
Subprime Mortgages Defined
Miller’s definition of a predatory loan is this: First, a loan which does not fully reflect the borrower’s credit history; that is, a mortgage where the borrower pays materially more than he or she should for financing. Second, a loan which is engineered to fail, financing offered by predatory lenders in the loan to own business. Third, a loan or lending practice which by any reasonable standard should be illegal under federal and state laws. Importantly, predatory lending is NOT a crime under federal law.
Here are several examples of predatory loans:
In this case the lender finances a property with an excessive number of points. In one recent case a borrower paid 15 point to obtain a mortgage. Also called “fee packing.” Note that under Wall Street Reform lenders may only charge points and fees equal to not more than 3 percent of the loan amount for qualified mortgages with an initial balance of $100,000 or more.
In this situation a property is repeatedly refinanced. The lender tells the borrowers they can save big money, say an interest rate which is lower by 1/8th, but each time the property is refinanced the lender gets thousands of dollars in points and fees. The lender will go back to the borrower every four to six weeks to refinance as long as the borrower will go along with such deals. With loan flipping the borrower does not obtain a material tangible benefit each time the property is refinanced.
Secret Balloon Note Features
Balloon notes are not defined as a qualified mortgage under Dodd-Frank, however one needs to be careful with balloon notes because they can be — or not be — a legitimate form of financing.
A balloon note works like this: a $100,000 mortgage at 4.5 percent interest with monthly payments based on a $30-year schedule and a five-year term. The result? Monthly payments for principal and interest of $507 for five years — and then the loan is over and the borrower must pay $91,158.
I have had balloon loans and they were not predatory because (1) I knew I had a balloon note, (2) I knew how much was due and (3) I knew when it was due. However, the very same loans would be predatory if the borrower did not know these three facts.
Interest increases in the event of default
With these loans the borrower gets financing at 4.5%. Six months later a payment is 20 minutes late and thus in default. The interest rate instantly rises to 7 percent. If the borrower is late again the interest rate rises further.
Interest rate increases upon default at a level not commensurate with risk mitigation
Direct payments to contractors
With this arrangement a borrower hires a contract to make repairs. Conveniently, the contractors gets the repairs financed through a “lender.” The lender pays a contractor directly. The loans are then sold into the secondary market. The borrower now owes the debt but has no leverage to assure that repairs are completed, done correctly, or meet expected quality standards because the contractor has already been paid.
Is there an alternative to subprime mortgages and predatory loans? Yes. Don’t borrow. Instead pay down bills, make a budget, stick to the budget and bulk up savings. Your credit profile will evolve and you will be able to finance with better loans and lower costs.
If you’re thinking none of the above you’re on the right track. The real answer, the answer that’s on the money, is Maryland.
Huh? Maryland? Whoever heard of the Maryland Rockefellers? And if Maryland is so rich how come it’s third in foreclosures?
But, actually, it’s true. Maryland is our richest state. And yes, it does have a foreclosure problem.
Richest State With Millionaires
A new study by Phoenix Marketing International says Maryland has more millionaires per capita than another other state. When we look at households with at least $1 million in investable capital we find that 7.7 percent of Maryland households qualify. That compares well with New York (5.79%), California (6.04%), Ohio (4.412%) and Louisiana (4.49%). In last place is Mississippi at 3.63 percent.
Why Maryland? Well, Maryland sits on one of the largest bays in the world. It has beaches, farms and mountains. It has the City of Baltimore, historic Annapolis, rural areas near the famous Antietam battlefield, farms in the eastern and southern parts of the state and vast forests in the west. It includes Andrews Air Force Base, Ft. Meade, and the Aberdeen Test Center. It’s the world’s largest biological and medical research center and includes the National Institutes of Health, the Federal Drug Administration and the Bethesda Naval Medical Center. It is also — arguably — the world’s largest computing center — think of the National Security Agency in Laurel.
Richest State By Household Wealth
With a typical household income of $71,221 Marylanders are doing better than everyone else. In comparison, California ranks 11th ($58,328 per household), Texas is 24th ($50,740) and Mississippi is 50th ($37,095).
Where do Marylanders get so much money? First, they have a very low unemployment rate, just 6.4 percent in November. Second, the economic base is very strong, with many jobs in health, law, computing and government. Third, income is relatively well-distributed — only 9.9 percent of all Maryland households are at or below the poverty level.
Richest State and Foreclosures
If Maryland is doing so well why does it have so many foreclosures? According to RealtyTrac, Maryland ranks first in the nation for foreclosures starts, up 194 percent in December 2013 when compared with a year earlier.
Huh? If the Maryland economy is so great why are there so many foreclosures?
The answer works like this:
To foreclosure in Maryland — a judicial foreclosure state — one has to have the mortgage note to have standing in a court case. But what if the note did not mention the loan owner seeking the foreclosure, and what if the note had been bought and sold in a string of electronic transactions? Could the lender still seek a foreclosure?
Such questions began to arise at the end of 2010. It was only in March 2013 with a decision in a key case — Deutsche Bank National Trust Co., Trustee v. Brock — that the issue was finally settled. Represented by the law firm of Ballard Spahr, the lenders won. They could foreclose.
Meanwhile, with the case outstanding as it wound its way through the court system, foreclosures in Maryland slowed and in many cases stopped. But with the decision made, lenders began to re-open foreclosure efforts which had been on hold. The result was a torrent of 2013 foreclosure actions in the nation’s wealthiest state, not because of a sudden increase in unemployment or because the local economy stalled, rather the reason for Maryland’s foreclosure surge was that the wheels of justice once again began to grind ahead.
Foreclosure activity is falling through the floor — at least relatively speaking. The latest figures from www.realtytrac.com show that 2013 foreclosures fell 26 percent when compared with 2012. The bad news? The wealth gap continues: Nearly 1.4 million properties faced foreclosure notices, a still-huge number given that there are roughly 50 million mortgaged homes in the US.
“Millions of homeowners are still living in the shadow of the massive foreclosure crisis that the country experienced over the past eight years since the housing price bubble burst — both in the form of homes lost to directly to foreclosure as well as home equity lost as a result of a flood of discounted distressed sales,” said Daren Blomquist, vice president at RealtyTrac.
“But the shadow cast by the foreclosure crisis is shrinking as fewer distressed properties enter foreclosure and properties already in foreclosure are poised to exit in greater numbers in 2014 given the greater numbers of scheduled foreclosure auctions in 2013 in judicial states — which account for the bulk of U.S. foreclosure inventory.
“The push to schedule these auctions is certainly coming at an opportune time for the foreclosing lenders,” Blomquist added. “There is unprecedented demand from institutional investors willing to pay with cash to buy at the foreclosure auction, helping to raise the value of properties with a foreclosure filing in 2013 by an average of 10 percent nationwide.”
|Year||Foreclosure Filings||Annual Change|
|2013||1,361,795||down 25.85 percent|
|2012||2,304,941||down 14.59 percent|
|2011||2,698,967||down 29.45 percent|
|2010||3,825,637||down 3.33 percent|
|2009||3,957,643||up 25.33 percent|
|2008||3,157,806||up 43.32 percent|
|2007||2,203,295||up 74.99 percent|
|2006||1,259,118||up 42.20 percent|
Chart Copyright 2014 OurBroker.com
In looking at 2013, RealtyTrac found:
- States with the highest foreclosure rates in 2013 were Florida (3.01 percent of all housing units with a foreclosure filing), Nevada (2.16 percent), Illinois (1.89 percent), Maryland (1.57 percent), and Ohio (1.53 percent).
- Total foreclosure activity in 2013 increased in 10 states in 2013 compared to 2012, including Maryland (up 117 percent), New Jersey (up 44 percent), New York (up 34 percent), Connecticut (up 20 percent), Washington (up 13 percent), and Pennsylvania (up 13 percent).
- Scheduled judicial foreclosure auctions (NFS) increased 13 percent in 2013 compared to 2012 to the highest level since 2010. NFS were the only foreclosure document type among the five tracked by RealtyTrac to post an increase nationwide in 2013 compared to 2012.
- States with big increases in scheduled judicial foreclosure auctions included Maryland (up 107 percent), New Jersey (64 percent), Connecticut (up 55 percent), Florida (up 53 percent), Pennsylvania (up 24 percent), and New York (up 15 percent).
- The average estimated value of a property receiving a foreclosure filing in 2013 was $191,693 at the time of the foreclosure filing, up 1 percent from the average value in 2012, and the average estimated market value of properties that received foreclosure filings in 2013 has increased 10 percent since the foreclosure notice was filed.
- The average time to complete a foreclosure nationwide in the fourth quarter increased 3 percent from the previous quarter to a record-high 564 days. States with the longest time to foreclose were New York (1,029 days), New Jersey (999 days) and Florida (944 days).
- Including the 2013 numbers, over the past eight years 10.9 million U.S. properties have started the foreclosure process and 5.6 million have been repossessed by lenders through foreclosure.