The Collected Works of Author and Blogger Larry Roberts

Archive for July, 2012

In a recent post, I noted that FHA mortgage delinquencies skyrocketed more than 25%. Since most FHA borrowers only put 3.5% down, when factoring in a 6% commission, 2% closing costs, and a declining market, nearly all FHA borrowers over the last five years are effectively underwater. When these borrowers sell or quit paying, the losses will be huge because the capital recovery will be far less than the original loan balance. With a 9.4% serious delinquency rate, the FHA is facing 713,104 future foreclosures. This rate has been rising steadily, and many more delinquencies are coming because many borrowers will want to move before prices regain peak values. Many borrowers may opt for a strategic short sale or strategic default,…[READ MORE]

Shadow inventory is composed of delinquent mortgage holders who still occupy the houses they are not paying for. Many in shadow inventory have been living payment free for years, and many will continue living for free for several more. So why did banks do this? Ordinarily, banks would foreclose quickly to get their capital back to loan it profitably to someone else. What was their benefit in allowing so many to squat for so long? In mid 2008, house prices were crashing hard, particularly in subprime dominated markets which were the first to implode when their toxic mortgages required higher payments. Lenders quickly realized prices were crashing because they were flooding the MLS with inventory, and the available buyer pool…[READ MORE]

When I checked yesterday, the rate on a 30-year mortgage was 3.55%. That is the lowest reading I have ever seen, and we should be seeing news reports about new record low mortgage interest rates. These new low rates are making my reports on affordability show housing is a screaming buy in many cities even here in Orange County. However, super low interest rates have a problem. What happens when interest rates go up? Will rising interest rates cause house prices to crash? I don't think interest rates will rise fast enough to cause house prices to crash again. The federal reserve needs to bail out its member banks by pushing house prices back up to the peak to…[READ MORE]

realtors never want to see a deal die because the buyer can't get financing. Lawrence Yun, chief economist for the NAr, recently lamented about "unnecessarily tight credit standards" and "frictions related to obtaining mortgages." In a realtor's world view, there are no unqualified buyers. Back during the height of the housing bubble, the lending community agreed with them, and billions of dollars worth of loans were underwritten to people who had no hope of paying back the money absent continuing rapid appreciation. realtors should be careful what they ask for because getting their way with the lending community is what caused the devastation we are dealing with now. The reason lending standards are tight, and will continue to tighten, is…[READ MORE]

Why do short sales take so long? Basically, banks don't want to take a loss, and short sales cause them to lose money -- a lot of money. Short sales come in two basic varieties; properties with second mortgages and properties without. If a property does not have a second mortgage, short sales are generally quicker and easier to approve. The first mortgage is often covered by mortgage insurance, and as a percentage of the total loan amount, any losses are generally small. If a property has a second mortgage -- and millions do -- then the situation becomes much more complicated. In lien priority, when a property sells in a short sale, the first mortgage holder gets paid in…[READ MORE]

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