But the Economy is Doing Great

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But the Economy is Doing Great

UndercoverBrother
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Joined: 10 Oct 2006, 20:45

14 Dec 2006, 01:19 #1

http://www.usatoday.com/money/economy/h ... htm?csp=26

Mortage delinquencies, foreclosures rose in third quarter; increase likely to continue
Posted 12/13/2006 3:20 PM ET

By Lynn Adler, Reuters


NEW YORK — Late payments and new foreclosures on U.S. homes rose in the third quarter and are likely to grow as a wave of adjustable-rate mortgages reset at higher interest rates, the Mortgage Bankers Association said Wednesday.
Delinquencies rose for all home loans, but most notably for adjustable loans to subprime borrowers who were already stretched before mortgage rates climbed, the industry trade group said in its quarterly National Delinquency Survey.

Still, the share of late payments and foreclosures will stay relatively low as the housing market regains its footing in the middle of next year, the MBA said. What's more, delinquences and foreclosures will have a limited impact on the overall economy, the MBA added.

"Only 7% of all loans out there are subprime adjustable loans. We're talking about a 12% delinquency rate on 7% of all home mortgages and the foreclosure rate is much lower than that," said MBA Chief Economist Doug Duncan.

"So in terms of a macro-economic event, if that's what everyone's concerned about, we don't see that happening."

The mortgage delinquency rate rose to 4.67% in the third quarter, from 4.39% in the previous quarter and 4.44% in the third quarter of last year. The higher rate is roughly at the 20-year average, according to Duncan.

"This is really going to hurt the people that experience these delinquencies and foreclosures more so than the aggregate economy," said Matthew Moore, economic strategist at Banc of America Securities.

Late payments and foreclosures are tame historically thanks to robust income growth and an unemployment rate at a low 4.5%, Moore said. "Aside from your overextended household in certain markets, the consumer is very strong," Moore said.

By loan type, the delinquency rate rose 15 basis points for prime mortgages, to 2.44% from 2.29%, and 86 basis points for subprime, to 12.56% from 11.70%.

New foreclosures on houses rose to 0.46% from 0.43% both in the previous quarter and a year earlier.

The delinquency rate climbed to 0.19% from 0.18% on prime loans and rose to 1.82% from 1.79% for subprime.

The figures are seasonally adjusted.

The MBA predicts that between $1.1 trillion and $1.5 trillion of mortgages face rate resets next year. Up to $700 billion of those loans will be refinanced, while up to $800 billion will adjust at less-affordable rates.

"Chances are that we're seeing the leading edge of that reset wave coming through," Duncan said.

Greater fallout in the subprime arena was widely expected. Many borrowers used extremely low teaser rates to get into homes they would otherwise be unable to afford after home prices surged by double digits annually for five years.

Subprime borrowers "are more likely susceptible to the cumulative increases in rates we've experienced, and the slowing of home price appreciation that has resulted," Duncan said. Still, "it is important to remember that delinquency and foreclosure rates have been quite low the last two years."

The MBA said it saw no evidence of riskier, non-traditional loans like payment-option or interest-only mortgages driving delinquencies and foreclosures higher in the third quarter.

Short-term rates have jumped since the bulk of current adjustable-rate mortgages were created.

The Federal Reserve has raised its federal funds rate from 1% to 5.25% since June 2004, aiming to thwart inflationary pressures.

Holders of mortgages that started with extremely low teaser rates are starting to see the effects of the credit tightening as their mortgages adjust.

"Although labor markets remain strong, the pace of job growth has slowed, as has the home price appreciation rate, which has decreased in response to higher interest rates and rising inventories of unsold homes," Duncan said.

"We expect the housing market to fully regain its footing in the middle of 2007," he added. "In the meantime, we anticipate further increases in delinquency and foreclosure rates in the quarters ahead."

The Fed on Tuesday kept rates unchanged at 5.25% for a fourth straight policy meeting. But the central bank cited its view of "substantial" cooling in the U.S. housing sector.

While short-term rates have jumped, longer rates have stayed relatively low. Average 30-year loans hover around 6%.

The MBA on Wednesday reported mortgage applications in the latest week jumped to the highest level in over a year, boosted in part by borrowers refinancing out of adjustable loans to lock in low long-term rates.

Copyright 2006 Reuters Limited. Click for Restrictions
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Lowertaxeswork
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Lowertaxeswork
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Joined: 21 Jul 2006, 13:37

14 Dec 2006, 04:25 #2

LOL at using this as an indicator the economy sucks
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drixll
Junior Senator
drixll
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Joined: 21 Jul 2006, 11:58

14 Dec 2006, 04:54 #3

kudos to u/b for putting his thread in the right forum.

(L) Florida
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Creeping_Malaise
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Creeping_Malaise

14 Dec 2006, 11:05 #4

um, individuals' poor financial decisions is not an economic indicator. nor is the existence of people who are in bad financial shape. cluephone: no matter how good the economy is doing there will always be people in bad financial shape; no matter how bad the economy is doing there will always be people in good financial shape.
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Creeping_Malaise
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Creeping_Malaise

14 Dec 2006, 11:07 #5

Delinquencies rose for all home loans, but most notably for adjustable loans to subprime borrowers who were already stretched before mortgage rates climbed
translation for people who don't get it: people used gimmick loans to buy homes they couldn't afford, and couldn't make the payments when the rates went up, which everybody knew would happen.
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Joined: 21 Jul 2006, 07:25

14 Dec 2006, 11:24 #6

Creeping_Malaise @ Dec 14 2006, 06:07 AM wrote:
translation for people who don't get it: people used gimmick loans to buy homes they couldn't afford, and couldn't make the payments when the rates went up, which everybody knew would happen.
ARMs aren't gimmick loans. And personal income, outlays, housing vacancies, and home ownership are all economic indicators. Try again.
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Pats&Sox
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Joined: 27 Jul 2006, 03:48

14 Dec 2006, 11:33 #7

Clinton = tech bubble

Bush = housing bubble
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Creeping_Malaise
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Creeping_Malaise

14 Dec 2006, 14:22 #8

no one in particular @ Dec 14 2006, 07:24 AM wrote:
Creeping_Malaise @ Dec 14 2006, 06:07 AM wrote:
translation for people who don't get it: people used gimmick loans to buy homes they couldn't afford, and couldn't make the payments when the rates went up, which everybody knew would happen.
ARMs aren't gimmick loans. And personal income, outlays, housing vacancies, and home ownership are all economic indicators. Try again.
I'm talking about the "1%" loans and such. those are the gimmicks I meant.

no, I know not all the people having trouble are in such loans.

the overall point is that due to low interest rates many people bought places they could not normally afford.

I did the same thing. however, as part of my financial plan I am making sure that I have enough equity to refinance when the time comes and get into a fixed rate mortgage, or be able to handle the higher interest rate. I wonder how many of these people are in interest only loans and are only paying the interest. would be an interesting stat to see.
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Joined: 21 Jul 2006, 07:25

14 Dec 2006, 14:40 #9

the overall point is that due to low interest rates many people bought places they could not normally afford.
Well, there's no doubt about that. And this was an inevitable scenario considering how much the real estate market outpaced salaries (nationwide). Anyone who's currently in an interest-only mortgage deserves the negative ramifications of their financial decisions. But that's not what I'm seeing in this report. These are (mostly) ARMs to subprime borrowers... where payments can rise dramatically after only 1 rate hike... subprime borrowers don't get 1% mortgages. We're talking 8.5-9.5 on a FIRST mortgage, probably sold to the borrowers as a 2/28 with the pie-in-the-sky promise that if they "stay clean" on their payments for 2 years they'd get refinanced into a more traditional 30yr fixed Fannie Mae-type program. That plan never works by the way, but it's the prominent selling device to B and C credit borrowers.

You did the right thing... but you're handcuffed at the whim of the market (banking on artificial equity is a gamble), and even further since you're in a condo (your comps are whatever they are. Good luck.

When is your rate scheduled for adjustment? And how close are you to 80% LTV?
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Creeping_Malaise
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Creeping_Malaise

14 Dec 2006, 15:01 #10

no one in particular @ Dec 14 2006, 10:40 AM wrote:
Well, there's no doubt about that. And this was an inevitable scenario considering how much the real estate market outpaced salaries (nationwide). Anyone who's currently in an interest-only mortgage deserves the negative ramifications of their financial decisions. But that's not what I'm seeing in this report. These are (mostly) ARMs to subprime borrowers... where payments can rise dramatically after only 1 rate hike... subprime borrowers don't get 1% mortgages. We're talking 8.5-9.5 on a FIRST mortgage, probably sold to the borrowers as a 2/28 with the pie-in-the-sky promise that if they "stay clean" on their payments for 2 years they'd get refinanced into a more traditional 30yr fixed Fannie Mae-type program. That plan never works by the way, but it's the prominent selling device to B and C credit borrowers.

You did the right thing... but you're handcuffed at the whim of the market (banking on artificial equity is a gamble), and even further since you're in a condo (your comps are whatever they are. Good luck.

When is your rate scheduled for adjustment? And how close are you to 80% LTV?
I'm quite well aware of the risk I took - it was a calculated one. to me the risk/reward was worth it. since the real estate boom also sent rental prices up, buying or leaving the area were the only two viable options I saw. also, there's the fact that where I live was one of the biggest bubbles (beach real estate).

at this point, every penny of debt I have is in this condo, and I've got 30% equity based upon my last appraisal.
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Lowertaxeswork
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Lowertaxeswork
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Joined: 21 Jul 2006, 13:37

14 Dec 2006, 15:02 #11

UndercoverBrother @ Dec 13 2006, 09:19 PM wrote: http://www.usatoday.com/money/economy/h ... htm?csp=26

Mortage delinquencies, foreclosures rose in third quarter; increase likely to continue
Posted 12/13/2006 3:20 PM ET

By Lynn Adler, Reuters


NEW YORK — Late payments and new foreclosures on U.S. homes rose in the third quarter and are likely to grow as a wave of adjustable-rate mortgages reset at higher interest rates, the Mortgage Bankers Association said Wednesday.
Delinquencies rose for all home loans, but most notably for adjustable loans to subprime borrowers who were already stretched before mortgage rates climbed, the industry trade group said in its quarterly National Delinquency Survey.

Still, the share of late payments and foreclosures will stay relatively low as the housing market regains its footing in the middle of next year, the MBA said. What's more, delinquences and foreclosures will have a limited impact on the overall economy, the MBA added.

"Only 7% of all loans out there are subprime adjustable loans. We're talking about a 12% delinquency rate on 7% of all home mortgages and the foreclosure rate is much lower than that," said MBA Chief Economist Doug Duncan.

"So in terms of a macro-economic event, if that's what everyone's concerned about, we don't see that happening."

The mortgage delinquency rate rose to 4.67% in the third quarter, from 4.39% in the previous quarter and 4.44% in the third quarter of last year. The higher rate is roughly at the 20-year average, according to Duncan.

"This is really going to hurt the people that experience these delinquencies and foreclosures more so than the aggregate economy," said Matthew Moore, economic strategist at Banc of America Securities.

Late payments and foreclosures are tame historically thanks to robust income growth and an unemployment rate at a low 4.5%, Moore said. "Aside from your overextended household in certain markets, the consumer is very strong," Moore said.

By loan type, the delinquency rate rose 15 basis points for prime mortgages, to 2.44% from 2.29%, and 86 basis points for subprime, to 12.56% from 11.70%.

New foreclosures on houses rose to 0.46% from 0.43% both in the previous quarter and a year earlier.

The delinquency rate climbed to 0.19% from 0.18% on prime loans and rose to 1.82% from 1.79% for subprime.

The figures are seasonally adjusted.

The MBA predicts that between $1.1 trillion and $1.5 trillion of mortgages face rate resets next year. Up to $700 billion of those loans will be refinanced, while up to $800 billion will adjust at less-affordable rates.

"Chances are that we're seeing the leading edge of that reset wave coming through," Duncan said.

Greater fallout in the subprime arena was widely expected. Many borrowers used extremely low teaser rates to get into homes they would otherwise be unable to afford after home prices surged by double digits annually for five years.

Subprime borrowers "are more likely susceptible to the cumulative increases in rates we've experienced, and the slowing of home price appreciation that has resulted," Duncan said. Still, "it is important to remember that delinquency and foreclosure rates have been quite low the last two years."

The MBA said it saw no evidence of riskier, non-traditional loans like payment-option or interest-only mortgages driving delinquencies and foreclosures higher in the third quarter.

Short-term rates have jumped since the bulk of current adjustable-rate mortgages were created.

The Federal Reserve has raised its federal funds rate from 1% to 5.25% since June 2004, aiming to thwart inflationary pressures.

Holders of mortgages that started with extremely low teaser rates are starting to see the effects of the credit tightening as their mortgages adjust.

"Although labor markets remain strong, the pace of job growth has slowed, as has the home price appreciation rate, which has decreased in response to higher interest rates and rising inventories of unsold homes," Duncan said.

"We expect the housing market to fully regain its footing in the middle of 2007," he added. "In the meantime, we anticipate further increases in delinquency and foreclosure rates in the quarters ahead."

The Fed on Tuesday kept rates unchanged at 5.25% for a fourth straight policy meeting. But the central bank cited its view of "substantial" cooling in the U.S. housing sector.

While short-term rates have jumped, longer rates have stayed relatively low. Average 30-year loans hover around 6%.

The MBA on Wednesday reported mortgage applications in the latest week jumped to the highest level in over a year, boosted in part by borrowers refinancing out of adjustable loans to lock in low long-term rates.

Copyright 2006 Reuters Limited. Click for Restrictions
BTW, its obvious this guy didn't even read his own article.
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Lowertaxeswork
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Lowertaxeswork
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Joined: 21 Jul 2006, 13:37

14 Dec 2006, 15:05 #12

Creeping_Malaise @ Dec 14 2006, 11:01 AM wrote:
no one in particular @ Dec 14 2006, 10:40 AM wrote:
Well, there's no doubt about that.  And this was an inevitable scenario considering how much the real estate market outpaced salaries (nationwide).  Anyone who's currently in an interest-only mortgage deserves the negative ramifications of their financial decisions.  But that's not what I'm seeing in this report.  These are (mostly) ARMs to subprime borrowers... where payments can rise dramatically after only 1 rate hike... subprime borrowers don't get 1% mortgages.  We're talking 8.5-9.5 on a FIRST mortgage, probably sold to the borrowers as a 2/28 with the pie-in-the-sky promise that if they "stay clean" on their payments for 2 years they'd get refinanced into a more traditional 30yr fixed Fannie Mae-type program.  That plan never works by the way, but it's the prominent selling device to B and C credit borrowers.

You did the right thing... but you're handcuffed at the whim of the market (banking on artificial equity is a gamble), and even further since you're in a condo (your comps are whatever they are.  Good luck. 

When is your rate scheduled for adjustment?  And how close are you to 80% LTV?
I'm quite well aware of the risk I took - it was a calculated one. to me the risk/reward was worth it. since the real estate boom also sent rental prices up, buying or leaving the area were the only two viable options I saw. also, there's the fact that where I live was one of the biggest bubbles (beach real estate).

at this point, every penny of debt I have is in this condo, and I've got 30% equity based upon my last appraisal.
West Palm Beach I believe has seen the greatest increase in home values in the country.
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Creeping_Malaise
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Creeping_Malaise

14 Dec 2006, 15:10 #13

oh, to answer your other question NOIP, I've got another 18 months before adjustments kick in.

so I'm just keeping my fingers crossed that a year from now everything is still favorable to me doing a refi.
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Joined: 21 Jul 2006, 07:25

14 Dec 2006, 15:14 #14

you're cool... I'm sure where you live is no different than here... the market may level, but prices (on the whole) have never actually dropped. If you have a current appraisal that puts you at 70% LTV then there's literally no chance of it going south enough to hurt you. Your only operative variable at this point is rate (and keeping your credit clean, obviously).
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Creeping_Malaise
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Creeping_Malaise

14 Dec 2006, 15:18 #15

no one in particular @ Dec 14 2006, 11:14 AM wrote: you're cool... I'm sure where you live is no different than here... the market may level, but prices (on the whole) have never actually dropped. If you have a current appraisal that puts you at 70% LTV then there's literally no chance of it going south enough to hurt you. Your only operative variable at this point is rate (and keeping your credit clean, obviously).
yeah, that's the way I figure it.

some other things are going in my favor as well. first off, I'm on a small island, waterfront. next, they just tore down the three buildings next to mine, and in the other direction two lots down took a building down, plus on the other end of this island (about five blocks away) they tore a couple down. all are going to be brand new condos, including this one:

http://www.aguamarinacondos.com/

that should buoy my value, including the fact that my place is physically only blocks from, and between two areas of, multi-million-dollar homes and condos with and upscale shopping center.
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