Buyer’s Choice Realty blog

Current statistics of homeowners show four types. Those that borrowed at subprime make up 9% of owners. Those who borrowed at prime make up 50%. FHA/VA mortgagees make up 6%, while the remaining 35% of owners own their homes free and clear. So what, right? The flip side of this picture is more telling. Foreclosure statistics show that owners who were approved for subprime loans - they may have paid no money down, did not have income verified, or did not have a sufficient credit score to qualify for a normal, prime loan, among other reasons - comprise 53% of current foreclosures. Prime borrowers make up 33% of this category, while FHA/VA borrowers account for 14% of foreclosures at the moment. Take a minute to let this sink in - one tenth of all homeowners are subprime owners, but they make up more than half of all foreclosures.

The first subprime loans were made in 2000, and none have been made since August of 2007. Roughly 1/5 of all borrowers who have subprime loans are currently late (in default) on their mortgage payments, as opposed to approximately 3% of prime borrowers. The fact that there are no subprime loans being originated right now is a good start, but we will be feeling the effects of this crisis for years. I will examine in my next post who really should be blamed and will try to provide some ways we can fix this problem. For the record, we at Buyer’s Choice Realty encourage all our clients to meet with a lawyer and their lender so they may endeavor to understand the terms of their loan and verify that they can meet their payments.

The Mortgage Banker’s Association (here’s a link to the Mass. chapter) announced today that the percentage of homeowners receiving foreclosure notices has reached a record high of 0.65%, up from 0.58% in the first quarter. You can find one of the many articles about the MBA’s release here. What’s more astounding than these disturbing numbers is the fact that the delinquency rate, those who are behind on mortgage payments but have not yet started the foreclosure process, is at its highest rate in 5 years - 5.12% of all loans are currently delinquent. This is a huge amount of money that has not been paid, and it is just one of the numerous causes of new lending restrictions.

The chief economist for the MBA, Doug Duncan, states that the huge job losses in midwest states like Ohio, Indiana, and Michigan from auto industry and other manufacturing job cutbacks. In fact, according to Duncan, the problem shows itself the most in Ohio, where the number of mortgages that are in foreclosure or are more than 90 days late is more than twice the national average.

What else accounts for this growing problem? Warm weather states. Florida and California have seen flocks of prospectors buy up property and develop areas during the housing boom. Now that the boom has gone bust, those same prospecting investors are out of cash and are unable to keep up on mortgage payments. Nevada and Arizona also have seen these same problems in recent months.

Most experts predict that foreclosures and defaults will continue to increase in the short term. More explanation on further reasons for this later.