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Blog Entry 5 of 12 What's Going On In This Crazy Real Estate Market

NOTHING EVER STAYS THE SAME..So Goes The REAL ESTATE MARKET. As a Certified General Real Estate Appraiser and Real Estate Broker, I have lived in this commuity for 43 years and worked in Real Estate for the past 38 of them. Having worked with banks, mortgage companies,CPA's, Lawyers, Buyers, Sellers and Investors who hire me as a FEE Appraiser to value the property and as a Broker to negotiate the Real Estate transaction. Call me if you have appraisal or real estate questions. 805-582-1150 or email judyaronsonrealtor@yahoo.com.or visit www.CaresUnlimited.com.

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"Teaser Rates"- Cause of Short Sales & Foreclosure

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Contributed by: Judy Aronson on 9/14/2007

Millions of homeowners around the nation are now getting the news in the mail: The interest rate on their home loans is going up, possibly to double-digit levels.
The hardest hit are expected to be people who have less-than-stellar credit and cannot afford to make the new payments. An increase of several hundred dollars a month will force them either to get relief or to default. The prospect of significant and growing losses has already rocked Wall Street and shaken up the broader mortgage markets. And, concerned about the human suffering, policymakers are already searching for ways to help people out.
"The meltdown in the subprime market is the biggest threat to the housing market and the broader economy," says Mark Zandi, chief economist at Moody's Economy. com. "It is at the vortex of the problem."
Over the next several months, banks will be changing the "teaser rates" that homeowners received two years ago.
The peak for resetting loans will be in October, when the rates on some $50 billion worth of mortgages are likely to rise by 2 percentage points or more. This could mean a rise of several hundred dollars a month for many borrowers.
For example, on a $210,000 loan balance (the average subprime amount in 2006), the additional 2.5 percentage point increase on the interest rate adds about $4,560 a year, or about $380 a month, estimates James Kragenbring, senior investment officer at Advantus Capital Management in St. Paul, Minn.
That means the median household would have to devote an extra 9.5 percent of income just to pay the extra interest.
Interest costs rise faster than pay
It probably won't come from a pay raise, if recent trends continue. Last year, median household income rose 0.7 percent to $48,201, the US Census Bureau reported Tuesday.
As the interest rates have climbed, the percentage of delinquencies is on the rise. Of the loans made in 2001, nearly 30 percent are now at least 60 days past due. Loans made last year now have nearly a 15 percent delinquency rate, a faster growth rate than any other year (see chart at left). Mr. Kragenbring says the most recent loans in 2007 are not performing much better.
The rising level of delinquencies is leading to a sharp rise in foreclosures. Many lenders are working on ways to structure repayment plans so the borrowers are not back in foreclosure in two years."
The defaults are now taking place much faster than a few years ago as these "Teaser Rates" come up for expiration in the fall.
Refinancing is not a significant option for many borrowers. "What I hear is that there is very little activity in the subprime market, especially where questions of credit quality have grown in rapid proportions," said David Seiders, chief economist for the National Association of Home Builders, in a press conference on Tuesday.
Kragenbring says the volume of subprime loans now being made is tiny compared with last year. And lenders are finding it tough to find buyers for the new loans in the secondary market. "To me, that makes the subprime market virtually nonexistent," he says.
Subprime lenders First Franklin, owned by Merrill Lynch, and EquiFirst, owned by Barclays, maintain they are still making loans. However, they refused to comment about where they were receiving funding for the loans. On Tuesday, EquiFirst announced an unspecified number of job cuts.
If the market for subprime debt returns, Kragenbring expects three major changes. First, loans will be for a fixed interest rate, not the adjustable version. "It will help match the time people live in the house and the borrowers will pay less fees," he says. Second, lenders will require much better documentation of income. Third, borrowers will be borrowing a smaller percentage of the value of their homes.
If you are experiencing any of these problems email me @ judyaronsonrealtor@yahoo.com and let me see if I can guide you in the right direction for assistance. or give me a call 805-582-1150.

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