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.

17 Comments

  1. Pingback: prime properties
  2. Avatar for Grant Crisis

    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.

  3. Avatar for YSpace

    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

  4. Avatar for Bowler@Fixed Rate Mortgage

    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? =-.

  5. Avatar for Henderson NV Homes
    Henderson NV Homes says:

    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.

  6. Avatar for Santa Rosa Real Estate
    Santa Rosa Real Estate says:

    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 =-.

  7. Avatar for garden gift
    garden gift says:

    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.

  8. Avatar for Susan@Palmdale homes for sale

    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.

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