Foreclosures: 'Worst three months of all time'

[Capt Worley PE]

http://money.cnn.com/2009/10/15/real_estat...sion=2009101507

More at link...

NEW YORK (CNNMoney.com) -- Despite concerted government-led and lender-supported efforts to prevent foreclosures, the number of filings hit a record high in the third quarter, according to a report issued Thursday.
"They were the worst three months of all time," said Rick Sharga, spokesman for RealtyTrac, an online marketer of foreclosed homes.

During that time, 937,840 homes received a foreclosure letter -- whether a default notice, auction notice or bank repossession, the RealtyTrac report said. That means one in every 136 U.S. homes were in foreclosure, which is a 5% increase from the second quarter and a 23% jump over the third quarter of 2008.

I don't see this trend reversing until all the ARMs are past their reset date, probably sometime next year. Many people were buying a lot more house than they could afford, hoping to unload it at a profit before the reset date on their motgage.

 

[RIP - VTEnviro]

Many people were buying a lot more house than they could afford, hoping to unload it at a profit before the reset date on their motgage.

I did a lot of inspection work at several McMansion subdivisions on the fringes of the NYC suburbs fresh out of college in the early part of this decade. There was nothing particularly luxurious or sophisticated about them, other than that they were 4,000 SF and cost $750,000 + HOA fees most of the time.

This was during the housing boom, there was plenty of open land around, plus locally the post 9/11 effect drove a lot of people out of the city, so there were a half dozen of these projects going on in the town at a given time.

If you spent enough time on site, you would eventually get to meet the owners coming and going or asking us what we were up to. It inevitably consisted of a man in middle management somewhere on the other end of a 2-hour one way train ride to NYC, a semi-stay at home mom who might work 15-20 hours a week in retail or as a receptionist, and 2-3 kids. Other pre-requisites were 2 large SUVs in the driveway and a big riding mower.

I could never figure how these people did it until I realized they were probably up to their ears in debt and one unexpected bump in the road would screw them.

I'd like to drive by some of these places at this point and see if they are half vacant.

 

[Capt Worley PE]

I'd like to drive by some of these places at this point and see if they are half vacant.

The housing market around here styed pretty sane except the McMansions and high end condos. A lot of the McMansion subdivisions are half empty with lots of unsold lots. A high end condo was built qith 110 units and sat for two years with just ten units sold. Now that they dropped prices 100K-250K (I'm serious) per unti, they are stating to move some. They've sold eight units in the past two months.

Of course the 'new urbanism' community is sitting with nothing but its section 8 housing filled. Seems no one wants to spend 200K on a 1700 square foot house next to section 8 housing. Whoda thunk it.

 

[Chucktown PE]

I'm trying to buy a foreclosure at auction next week. I did some digging on a guy that lives 5 doors down who was considering bidding against me. Typical bullshit, the guy bought the house for $800,000 back in 06. His wife drives a brand new Lexus SUV (their daughter goes to school with my son), they wear expensive clothes, he has a boat, blah, blah, blah. Turns out he took out a $350k loan last year, then another $100k loan this year, and didn't have $500 to pay his homeowner's dues. He's a senior VP at a bank so he probably makes $150 to $200k a year but his payments on the place are over $7000 a month. He just listed the house last week for $1,070,000. It won't sell for close to that. Needless to say, I don't think I have to worry about him bidding against me.

 

[benbo]

I'm trying to buy a foreclosure at auction next week. I did some digging on a guy that lives 5 doors down who was considering bidding against me. Typical bullshit, the guy bought the house for $800,000 back in 06. His wife drives a brand new Lexus SUV (their daughter goes to school with my son), they wear expensive clothes, he has a boat, blah, blah, blah. Turns out he took out a $350k loan last year, then another $100k loan this year, and didn't have $500 to pay his homeowner's dues. He's a senior VP at a bank so he probably makes $150 to $200k a year but his payments on the place are over $7000 a month. He just listed the house last week for $1,070,000. It won't sell for close to that. Needless to say, I don't think I have to worry about him bidding against me.

I don't understand what you're saying here. The guy is selling his $800K house for 1.07 M, or the house you are trying to buy was listed for 1.07M?

Unless he put down over 400,000 I don't think any guy making 150-200K should be buying an 800K house. If his payments are 7k, obviously he didn't put a huge amount down. I don't even see how he could qualify for these loans unless they are from his own bank.

 

[Chucktown PE]

I don't understand what you're saying here. The guy is selling his $800K house for 1.07 M, or the house you are trying to buy was listed for 1.07M?
Unless he put down over 400,000 I don't think any guy making 150-200K should be buying an 800K house. If his payments are 7k, obviously he didn't put a huge amount down. I don't even see how he could qualify for these loans unless they are from his own bank.

Sorry, maybe that wasn't very clear. The guy that may be bidding against me on a foreclosure that I'm trying to buy owns a house down the street from the foreclosure I'm trying to buy. I looked at his mortgages on the county website and it appears that he has 4 mortgages totaling $1,250,000 on his house that he's trying to sell for $1,070,000. Bit I agree, his debt to income ratio is whacked the F*@# out. One of the loans (for $350k) is with his bank.

 

[wilheldp_PE]

I don't even see how he could qualify for these loans unless they are from his own bank.

During the height of the home buying frenzy, you didn't have to prove your income. You could write down any ridiculous number as your income, and sign the piece of paper, and you could get approved for any loan you wanted. It doesn't surprise me that he could get approved for these loans. What surprises me is that a VP of a bank wouldn't know any better than to get that far over his head in debt.

 

[Chucktown PE]

As Dave Ramsey says, you can't borrow your way out of debt. Seems so simple but damned if very few people understand that.

 

[Kephart P.E.]

I am sorry so many people are struggling right now, but in a way I makes me feel relieved.

Relieved because I could never understand where all this "wealth" was coming from. Why where there were so many furniture stores and New Car Dealerships. I mean it used to be if you wanted to buy a Ford/Chevy here in Portland you have several duplicate dealerships all over the place. Who was buying all these cars and trucks and with what money? And all the furniture places, heck I have actually bought 1 thing in my life from a furniture store and had to pay thru the teeth for it, how could there be enough business for 3-4 all in one area.

I remember back in 2003 by girlfriend asking me why I was taking so long to buy a new truck (Tacoma) when she knew plenty of her friends that made less money than I did and drove way more expensive cars. I told her at the time, I put myself thru college and have loans to pay and was saving for a house.

The real answer was they didn't have the money either.

 

[Chucktown PE]

I am sorry so many people are struggling right now, but in a way I makes me feel relieved.
Relieved because I could never understand where all this "wealth" was coming from. Why where there were so many furniture stores and New Car Dealerships. I mean it used to be if you wanted to buy a Ford/Chevy here in Portland you have several duplicate dealerships all over the place. Who was buying all these cars and trucks and with what money? And all the furniture places, heck I have actually bought 1 thing in my life from a furniture store and had to pay thru the teeth for it, how could there be enough business for 3-4 all in one area.

I remember back in 2003 by girlfriend asking me why I was taking so long to buy a new truck (Tacoma) when she knew plenty of her friends that made less money than I did and drove way more expensive cars. I told her at the time, I put myself thru college and have loans to pay and was saving for a house.

The real answer was they didn't have the money either.

Totally agree with you. It makes me feel relieved as well. To be honest I was beginning to feel like a chump.

Looking around at all these people driving brand new cars and living in $500,000 houses, I was wondering where all the money was coming from. About a year ago I remember asking a realtor where poor people lived down here because I was beginning to feel poor. I am so glad I didn't buy a house then.

I was talking to my Dad about this a while ago and I remember him saying, "There is a problem when I'm in the top 1% of income earners in the country and 75% of the population is spending more money than me." My parents are very frugal, my Dad is still driving his 1996 Chevy Tahoe with 220k miles on it, my Mom shops at Target (like my wife) and they have zero debt.

Like you said, the house of cards is falling down. Now it's time for the people who lived their lives responsibly to get really good deals on stuff from the broke people.

 

[SkyWarp]

An admin assistant at my job said she didn't want to wait to have nice things when she was old, so she bought a new car that cost more than her yearly salary. Later she bought a house and I can remember doing the math and seeing that her gross monthly income wasn't enough to cover the mortgage. Someone may have co-signed, but foreclosure was swift.

 

[MGX]

Wow, I've had the exact same ideas.

I should suppose that most people who post here have critical thinking and analysis skills and would avoid financial traps such as the off the charts wacko mortgages and other such machinations. A co worker paid off her truck which was still in good shape and ready for 5 or more years of service and not less than one week after it was hers she bought one twice as nice and about 1.5X the mass. That no longer surprises me, what does surprise me is people thinking about money more today and not doing such crazy things with it.

 

[FLBuff PE]

An admin assistant at my job said she didn't want to wait to have nice things when she was old, so she bought a new car that cost more than her yearly salary. Later she bought a house and I can remember doing the math and seeing that her gross monthly income wasn't enough to cover the mortgage. Someone may have co-signed, but foreclosure was swift.

And there's the problem. A sense of entitlement coupled with impatience is a dangerous combination.

 

[Capt Worley PE]

Like you said, the house of cards is falling down. Now it's time for the people who lived their lives responsibly to get really good deals on stuff from the broke people.

That's a nice thought and all, but what is happening is that all the people who behaved responsibly are now paying to rejigger the loans of the irrepsonsible and we can't benefit from the low interest loans thru the gov.

 

[Guest]

I bought my first house in 2001 - at the time it was $85k and it was a reasonable purchase based on a single-income at the time. Later, as my ex and I considered a different house, I began to wonder how the average person (family) was affording $175k+ houses (market norm) since I knew my ex and I were not in a position to cover that cost with our existing debts. In fact, at one point, my ex had inquired into a house that was being sold for $378k and the sad thing was that we pre-qualified for it with a huge debt structure! I refused to purchase anyhing in that price range and she ended up hating me for it ... but that's really another story!

It will be interesting to see how many people come to grips with the lack of 'added income' that was derived from refi's and cashouts from improved home equity since I see those markets drying up significantly! It seems that as our country's economy has become more consumerist driven - the expectations for what one can 'afford' has not changed. I wonder what will happen when that bubble bursts.

As Dave Ramsey says, you can't borrow your way out of debt. Seems so simple but damned if very few people understand that.

I must disagree with your statement on it's face since borrowing money is a staple of how individuals, businesses, and even our government manages assets and liabilities. All debt is not created equal, so the means to manage the risk around that debt cannot be approached in the same way as well. Case in point, the management of my debts and my risk tolerance will be far different from yours because, we are in fact, very different people with different social/financial perspectives.

I believe that significant reform in the form of how lines of credit are approved and how sub-prime (or higher risk credit) is approved is necessary. The problem doesn't sit with one person or entity - it is the entire system. That includes consumers as well as lenders and all the people in between. I am not sure how you fix the problem since I see this as being more of a social/sustainability issue rather than a regulated issue since you can't regulate values.

Anyways, how did your foreclosure work out?

JR

 

[Polysloman]

That's a nice thought and all, but what is happening is that all the people who behaved responsibly are now paying to rejigger the loans of the irrepsonsible and we can't benefit from the low interest loans thru the gov.

As long as the bank participation in the programs is VOLUNTARY foreclosure will continue world wide. B of A owes 45B of TARP funds. To date the bank offered less than 8% mod to folks that are eligible. All of the laws and programs by the our gov. are toothless at best. As we all know: The only thing that will decrease the pain is long term Jobs. That's all we need. We would better off if the gov use the stimulus for a nation wide job creation program.

I'm thankful for the 99 cents sardines at the store; it the my mercury level I'm worried about.

 

[Chucktown PE]

I must disagree with your statement on it's face since borrowing money is a staple of how individuals, businesses, and even our government manages assets and liabilities. All debt is not created equal, so the means to manage the risk around that debt cannot be approached in the same way as well. Case in point, the management of my debts and my risk tolerance will be far different from yours because, we are in fact, very different people with different social/financial perspectives.

I don't see how you can disagree with this. There is no way to borrow your way out of debt. It's a mathematical impossibility. If you keep borrowing money you will never get out of debt. It's very simple.

 

[benbo]

I don't see how you can disagree with this. There is no way to borrow your way out of debt. It's a mathematical impossibility. If you keep borrowing money you will never get out of debt. It's very simple.

I'm not sure I understand what you say here.

It's a simplistic bromide that only holds true if you are continually borrowing, and never investing.

Many people have made fortunes on borrowed money. I would wajer that most people with brilliant ideas who couldn't get financing financed their dreams on borrowed money.

A simple notion would be a zero % interest credit card with no transaction fee. I could make money on that easily if I wanted to bother.

 

[Chucktown PE]

It's very simple, you can't borrow your way out of debt. I'm talking about the people that take out home equity lines to pay off credit cards, only to run up more credit card debt. While they percieve that they are improving their situation, they're really far worse off.

I'm not talking about the intelligent business owner that uses debt to grow his/her business, paying the debt off as the business becomes profitable.

 

[benbo]

It's very simple, you can't borrow your way out of debt. I'm talking about the people that take out home equity lines to pay off credit cards, only to run up more credit card debt. While they percieve that they are improving their situation, they're really far worse off.
I'm not talking about the intelligent business owner that uses debt to grow his/her business, paying the debt off as the business becomes profitable.

ok, because I think that's what jr was trying to say up above, and you seemed to disagree with him.

My parents, and I think many people like them, became wealthy taking on debt called a mortgage.

And by the way, it isn't necessarily always advisable to pay off debt if you can get a larger return on the money than the interest you have to pay on it. It's simple math.