For example, John Robbins, Chairman of the Mortgage Bankers Association, told reporters at the National Press Club on May 22, 2007 that 35 percent of all homes are mortgage-free. He added that “among homeowners, 5.1% of them are subprime borrowers with adjustable rate mortgages.”

“We are seeing a foreclosure rate of 10.8% annualized among subprime ARMS,” Robbins explained. “So what percentage of homeowners are we talking about? Ten percent of five point 1 percent of all homeowners.

“And of that half of one percent of the whole, fully half of THOSE will find some solution that avoids a foreclosure sale.

“In other words, one quarter of one percent will ultimately face foreclosure.

“As we can clearly see, this is not a macro-economic event. No seismic financial occurrence is about to overwhelm the U.S. economy.”

Robbins concluded that the subprime foreclosure rate had to be seen in context.

“Out of 75 million homeowners and 50 million mortgage holders, it’s not an eyebrow raising number, when looked at over that period of years,” said Robbins. “It’s within what we as a society deem as an acceptable risk for the rewards and opportunities of homeownership.”

The official line is that if the number of foreclosures goes up that’s not really worrisome because even a bigger number of distressed properties would still represent just a small fraction of all homes. Such logic avoids the reality of the marketplace.

Buyers don’t care how homes are financed. It makes no difference to them whether an owner finances with a fixed-rate loan, an adjustable product or if the property is mortgage free. What counts is price and terms, and owners facing foreclosure are not likely to hold out for either premium prices or stiff terms.

Consider what happens in a new subdivision with 1,000 condo units where the builder begins offering a few at a $50,000 discount to clear out inventory. Can anyone in the subdivision sell units for more? Have not the value of all units fallen — including those owned free and clear of any mortgage debt? Do not low-ball prices show up when comparables are checked?

Most owners in the subdivision will continue to meet their monthly mortgage payments and not sell, thus the fact that large numbers of homes have been devalued will not show up in foreclosure statistics. While this may please lenders and regulators, owners — especially those who had hoped to sell or refinance — may not be too thrilled.

To believe that an increasing number of foreclosures will not have a marketplace impact is neither logical nor believable. Just ask the people in the subdivisions and condo projects where developers have recently cut prices on just a few units. Or folks who live down the street from a home which has been foreclosed.

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Published originally in part by Realty Times on May 2, 2006 and posted with permission.

Foreclosures — No Worries, No Vision is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Speaking at the National Press Club, John Robbins, Chairman of the Mortgage Bankers Association, told reporters that the mortgage lending system has generally worked well and that we should not “smash this subtle, intricate and ingenious system as we fix problems in the subprime market.”

Robbins said a large proportion of all homes — 35 percent — are mortgage-free. He also said that “among homeowners, 5.1% of them are subprime borrowers with adjustable rate mortgages.”

“We are seeing a foreclosure rate of 10.8% annualized among subprime ARMS,” Robbins explained. “So what percentage of homeowners are we talking about? Ten percent of five point 1 percent of all homeowners.

“And of that half of one percent of the whole, fully half of THOSE will find some solution that avoids a foreclosure sale.

“In other words, one quarter of one percent will ultimately face foreclosure.

“As we can clearly see, this is not a macro-economic event. No seismic financial occurrence is about to overwhelm the U.S. economy.”

Robbins pointed out that the subprime foreclosure rate must be seen in context.

“Out of 75 million homeowners and 50 million mortgage holders, it’s not an eyebrow raising number, when looked at over that period of years,” said Robbins. “It’s within what we as a society deem as an acceptable risk for the rewards and opportunities of homeownership.”

Let’s agree that the numbers, percentages and proportions used by Robbins are all factually correct. Does that mean foreclosure worries are overblown?

If .25 percent of 50 million loans will ultimately result in foreclosure, that means we’re talking about 125,000 properties.

In the context of the national housing stock, that’s not a big number. But are we making the right comparison?

The fact that there are 75 million homes, including 50 million with mortgages, is not central to current market values because most homes are not available for purchase at any given time. The latest figures from the National Association of Realtors suggest that for the entire year 6 million existing homes will be sold — a figure which includes single-family homes, townhouses, condominiums and co-ops.

Let’s see, if we had 125,000 subprime ARM foreclosures this year that would be 2 percent of the entire resale marketplace.

The catch, of course, is that foreclosures are not limited to subprime ARM loan products. People with other forms of subprime loans are also foreclosed. There are foreclosures with “Alt-A” loans such as the option ARMs and interest-only mortgages used by individuals with better credit. And, of course, people with great credit can also have hard times, the reason there are defaults even with prime mortgages. As Mr. Robbins points out, “personal life events — sickness, job loss — and local economic conditions are still the main drivers of delinquencies, regardless of loan types.”

At the end of 2006, as an example, MBA reported that the percentage of loans in the foreclosure process was 1.19 percent of all outstanding mortgages, an increase of 14 basis points from the third quarter of 2006. If there are 50 million loans, that means 595,000 owners are facing foreclosure in a marketplace where 6 million homes are being sold. That’s about one out of every ten homes which will be sold this year.

Not all owners facing foreclosure will actually lose their homes on the courthouse steps. MBA says that “three out of every four loans that enter the foreclosure process do not wind up as a foreclosure sale, either through the homeowner curing the delinquency, a workout between the lender and borrower, a refinance or a voluntary sale of the home.”

While it’s certainly good news that most foreclosure actions do not reach their final stage, that does not mean the foreclosure process is benign or without consequences.

Foreclosures and rising mortgage costs cause large numbers of homes to enter the marketplace on a distressed basis. Such properties include homes being offered at auction as well as an unknown number of homes marketed by owners hoping to avoid the foreclosure process and preserve their equity and credit. In either case, additional supply is added to local inventories, meaning that all local home values can be impacted.

“Even if you aren’t in trouble with your loan,” writes Steve Brown of the Dallas Morning News, “there’s a threat to your home when houses in the neighborhood are foreclosed. Don’t be surprised if property values fall.”

“We have an economy with strong levels of employment, low interest rates and yet home prices in many areas are falling,” says Jim Saccacio, Chairman and CEO at RealtyTrac.com, the nation’s largest foreclosure resource. “With general economic conditions so good one would expect more housing demand and generally higher prices. Instead in many regions we’re seeing less demand for existing homes and a decline in new home construction because more and more owners are facing foreclosure or have actually been foreclosed. The result is excess inventory that’s forcing down prices in many communities.”

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Published originally by RealtyTrac.com during May 2007 and posted with permission.

Subprime Crisis: Serious or Not? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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