Points to consider…
Because of the financing that has been possible, so many people bought the bigger house, and people across all income brackets are having financial hardships as a result.
For those on the frontlines of the growing U.S.mortgage crisis, these are the early signs that the explosion of subprime loans made to mostly poorer borrowers is reaching higher ground. The damage is hitting homes financed through “jumbo loans” for more than $400,000 and so-called non-conforming or Alt-A loans that are a notch above subprime and a step below prime. But it is not always due to just credit, and is often due to income documentation or source of down payment as well.
Americans already are facing foreclosure at a record pace, according to the Mortgage Bankers Association. Lenders started foreclosure actions against more than one in every 200 U.S.mortgage borrowers in the last quarter of 2006. That is not just sub-prime.
About 2.2 million foreclosures due to bad mortgage loans may cost U.S.homeowners $164 billion, mostly from lost home equity, according to the Center for Responsible Lending, a Durham, North Carolina-based research group.
In the last three months, the percentage of foreclosures for U.S.homes valued at more than $750,000 has climbed to 2.5 percent, the highest since early 2005, when RealtyTrac, a online marketplace for foreclosed properties, began tracking data. The overall rate of foreclosures also is on pace to increase by a third this year.
Everyone's looking at subprime. The places they aren't looking (yet) are the interest-only and adjustable rate mortgages and optional-teaser rates and low money-down loans. That is going to affect prime mortgages as well
As an example, Californiahas had an estimated 3,384 foreclosures of higher-scale homes since December, and is leading the nation, followed by Florida and New York, according to RealtyTrac. Many other major metropolitan markets follow very close behind.
The growing numbers of foreclosures outside the subprime market is just the start. To define the problem, as a subprime problem is short-sighted, is it really seeing the tip of the iceberg as the iceberg?
I believe so.
Compounding the risk is the nature of homebuyers of higher-end homes. About 40 percent of homes bought last year were second homes or investment properties. Speculative buyers may be more at risk.
Standard & Poor's said Thursday that foreclosure rates are likely to surpass levels last seen during the 2001 recession.
Much of America has been living lavishly on their equity. That giant ATM everyone has been living in has just shut down. Consumers are in debt and we've been living beyond our means for some time.
The latest foreclosure data also may spell trouble for Wall Street, where pools of bonds may be susceptible to nonperforming loans that underpin debt vehicles known as collateralized debt obligations.
Just as more expensive homes are beginning to fall through the cracks, the fear is higher-rated bonds within CDO structures may be vulnerable… again due to the mortgage problems surrounding mortgage-backed securities.
The declining performance of subprime loans have resulted in CDOs losing about $20 billion in market value, according to investment bank Lehman Brothers.
UBS Securities said in a report last month that rising delinquencies may cause losses within some subprime mortgage bonds rated as high as the "A" category.
This might not have happened if not for these new type of interest-only and exotic loans. The loans also have helped millions of Americans purchase new homes that probably bought too much house.
The banks took a chance on the future, and the homeowners took a chance so there's enough blame to go around. The banks and lenders have largely set themselves and the borrowers up for a downfall.
Adding to the grief, mortgage scams and con artists trying to take advantage of distressed homeowners abound, boosting foreclosure rates, county workers said.
Has the lending community created a “nightmare” out of the American Dream?
Note: Thank you to ABC News, Reuters, Mortgage Bankers Association for much of the information found in this post.
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