Home Foreclosure Bailout

I have spent a lot of time in other forums and blogs writing about the foreclosure crisis that everyone in the real estate industry is currently suffering from. I am beginning to truly believe that most American’s simply do not fully understand how severe the foreclosure crisis really is. Even long time colleagues of mine that have been in the industry for decades are under the impression there is a massive government bailout on the horizon.

The truth is there will be no bailout for the real estate and mortgage industries.

As opposed to listening to politicians and the news let us attempt to use some simple common sense. In order to bail out the homeowner that is in or about to go into foreclosure a bank or other financial institution would have to refinance their home with monthly payments the borrower could afford. Now keep in mind that due to prolonging this crisis home values have plummeted in many major markets. So what we are looking at is a lender refinancing a $300k home loan that is now worth $200k. No lender would do this unless the borrower could come up with at least the $100k difference. That being said, why would a borrower put that much money in a home currently worth $200k? And that is assuming the borrower would have the $100k on hand.

So the banks will NOT refinance and if they would the distressed borrower would not. It really is that simple.

Foreclosure Rate Increases

On this past Friday RealtyTrac posted alarming figures for the 2nd quarter of 2008 showing that almost three quarters of a million home owners received foreclosure notices in that period. The report claims that 1 in every 171 household in America is under some stage of foreclosure and “a nearly 14 percent increase from the previous quarter and a 121 percent increase from the second quarter of 2007”. The report goes on to rank states and major metro areas for foreclosures with Nevada coming in at #1 with foreclosure filings going out to one in every 43 Nevada households during the second quarter of 2008.

Looking Ahead

Looking ahead I see more of the same. There are still a significant number of ARMs that are yet to mature that will price sub-prime borrowers out of their homes. Foreclosure rates are proportionate to the ARM maturing rate so we are still a long way from seeing an end to this crisis or the bottom of this real estate slump. In coming months you will see more banks go under that are heavily vested in real estate loans. Unfortunately it will not be just the banks that made sub-prime loans. With properties devaluated you will see many borrowers forced to walk away from their real property.

Summary

By continuously attempting to artificially prop up lenders and borrowers that engaged in sub-prime loans our government is prolonging the inevitable and damaging property values of those not involved in the sub-prime lending debacle. In order to begin a true recovery we MUST hit bottom.

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About the Author:

K.M “Mack” McMillan comes from a family of REALTORS® and was a Broker himself for 14+ years. Mack built one of the 1st real estate websites in 1994 which helped his family run Agency become the most successful Brokerage in south central Missouri.

As the original founder of the UltimateIDX in 2000, Mack continues to serve the real estate community and maintains an advisory role in UltimateIDX.

Comments

  1. Grant Healy  February 7, 2009

    Very interesting article, as are some of your other posts. I have bookmarked your great site for future visits.

    reply
  2. M. C.  February 27, 2009

    All said and well said in the summary of the article.

    reply
  3. [email protected] garden set  September 26, 2009

    Great article and your so right about hitting the bottom, has to get worst before it gets better.
    .-= [email protected] garden set´s last blog ..What is the name of this post-apocalyptic novel? =-.

    reply
  4. [email protected] cleaner  October 3, 2009

    Interesting article, although I’m not sure if we already have hit the bottom.
    .-= [email protected] cleaner´s last blog ..Steam Cleaner Facts =-.

    reply
  5. [email protected]://www.windowlocks.jamesonline.co.uk  October 22, 2009

    Interesting article. Great site as well. – keep up the good work!

    reply
  6. jason  October 25, 2009

    just from my research – I see about 2 to 3 more years of foreclosures – great article

    reply
  7. [email protected] Diego Real Estate  October 30, 2009

    Did you get a chance to scan through the latest news. It seems Las Vegas Foreclosure rates are the highest in entire USA, followed by CA and FL.

    reply
  8. Grant Crisis  November 19, 2009

    in some areas the foreclosure rate has dropped, in some areas it is still rising. its horrible too because it can create more crime in those areas. with abandoned houses there are more places to ‘hide’ crimes.

    reply
  9. YSpace  December 16, 2009

    Hey. This is a cool site, keep up the great work! I will be bookmarking the site so that I can keep track of your progress. Happy a great Christmas.:D

    reply
  10. [email protected] Foreclosure Tampa  December 17, 2009

    I also have spent a lot of time in other forums and blogs and found the same: That there will be no bailout for the real estate and mortgage industries.

    reply
  11. trading system  January 15, 2010

    The only direction to go now is up! There is always a bottom, and once that has been hit, it must go up from there!

    reply
  12. [email protected] Rate Mortgage  February 11, 2010

    There are only a few people that the foreclosure bailout is really helping. There are billions of dollars going out to buy the homes from the banks which will put the banks in a better position to give new home loans for people with good credit. The plan primarily helps the banks to get the homes off of their books, the people who obtained FHA loans to buy their homes, and people who are willing to ruin their credit and file bankruptcy.
    .-= [email protected] Rate Mortgage´s last blog ..Why It Is Appropriate to Refinance to Fixed-Rate Mortgage if You have an ARM Loan? =-.

    reply
  13. Henderson NV Homes  March 10, 2010

    I think I’ll have to agree with sc on this one. I’m not quite sure if we’ve actually hit the bottom yet, it’s really hard to say. But I can say Las Vegas and Henderson sold the most homes in the country last year, I think this has a lot to do with the high number of foreclosures.

    reply
  14. Santa Rosa Real Estate  April 14, 2010

    Very interesting article, keep on doing your work!

    Best regards

    Santa Rosa Realtors
    .-= Santa Rosa Real Estate´s last undefined ..If you register your site for free at =-.

    reply
  15. garden gift  April 22, 2010

    I’m inclined to agree that we must hit bottom first. As long as the government continues to support the lenders the market is just getting worse. We need to get to a position where the only way is up.

    reply
  16. [email protected] homes for sale  July 16, 2010

    Lenders are really losing a lot of money since our market deflated in 2007. The government, even though it isn’t doing a perfect job, is trying to fix the issues. And as far as adjustable rate mortgages go, I think they should just do away with them completely. They are like candy. Hard to resist, but very bad for you in the end.

    reply

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  1. prime properties  May 7, 2009