Somewhere in America, a foreclosure is being filed every 13 Seconds. Many of the economist, politicians seem to be ignoring this fact. The lending world has become far more difficult as lenders still insist on tightening up on credit. As values continue to fall, many homeowners have mortgages that are greater than that of the value of their home. So Far, no relief has been created for this consumer that is underwater and typically they are just one month away from from falling behind.Donald Trump makes it seem like bankruptcy and forclosure are just part of doing business, for someone that is so well diversified, he can come out alive over and over and over again.
For the rest of the population, the problem is getting worse! The next wave is on the horizon, more fall-out from the Sub-Prime mortgages which are about to expire and the higher unemployment rate that continues to rise.
The problem with Sub-Prime loans are the adjustment caps and the index they work off of. In today's market of low rates and indexes, Fannie and Freddie Adjustable Rates will adjust to the low 3's right now. A Subprime, because of how it works, will go up and will be in the range of 7.00% to 9.00%. Most consumers that entered into these loans, could not afford a traditional mortgage and of course they HAD to have the house and did not care what could happen after the 3 or 5 years of the fixed portion of the interest rate. The market was booming and everyone was going to be making more money in the future and there home would be worth double or triple...right? Give someone a mortgage at a rate they can barely afford, slowly wipe out everything they have over this 3 or 5 year period, then increase the rate by 3 to 4 points and see what happens. I blame the sleazy loan officer, but I also blame the consumer. When you see what you mortgage payment is going to be, how can you honestly say we can afford this?
We will get random calls from consumers shopping for someone to help them and I have actually told a client that even if I plug in an interest rate of 0.00%, that's right... 0, they still do not qualify for the mortgage payment! They are stunned and even after 3 or 4 years paying on there mortgage, it is like this is the first time they have heard this before.
I myself have an ARM, it is a 6 month adjustable. Yup, it will adjust every 6 months based on a margin of 2.25% plus the index, oh yeah, and it is interest only! My mortgage will adjust this holiday season...my current index is at .49%...add that to 2.25 margin and my new rate will be 2.75% for 6 months. I also know the risk and my rate has been as high as 6.25% at one point over the last 4 1/2 years. I plan for it and these low times will out weigh the high times. My average rate will be in the low 5's over a 10 year period. I am also self employed and have been commission only for over 15 years. It's a way of life and we plan for it and we can adjust accordingly. I will have lean months in the mortgage industry and in those times I take advantage of the low payments, the good months, I pay extra...a lot of extra. The only reason to EVER enter into an ARM with an Interest Only option is if you are Commission only or Self Employed and you know for a fact you are not going to be in your home for more than 8 plus years. It is a perfect loan for me and I understand the risks of this loan.
So here comes the next wave of consumers that cannot pay on the mortgage, the value of the home has dropped too much to even consider refinancing. Not sure why, but the banks that hold these notes will not renegotiate the terms of these bad mortgages. If the bank would renegotiate, it would place the consumer and the bank in a better financial situation. Everyone Wins!
With the latest report of 9.8% unemployment, up from 9.5%, another .3% of the population will run out of money in the coming months and will cause another wave of Foreclosures, Bankruptcy and many other financial problems. The 9.8% is a national average which is misleading. Parts of the country are booming and unemployment rates can be as low as 4.3% in North Dakota and 15.2% in Michigan. You don't hear these stats on the news. Click on this link to see the breakdown by State: Unemployment By State. As unemployment rises, we have to take into consideration the trickle down affect. Our family is a good example, we are not sure of the future so we have now cut back on many of the luxuries we were accustomed to. This could be a simple as not going to dinner as much, or skipping Dunkin Donuts. No matter how you look at this, it is keeping cash in my pocket but taking it out of the hands of so many others. Not only do I hurt the restaurant owner, bartender, waiter, but now I am hurting the Food Distributor who delivers the food. Since 2005, chain restaurant sales are down a little over 10% nationwide. (and not just because of me)
I myself have an ARM, it is a 6 month adjustable. Yup, it will adjust every 6 months based on a margin of 2.25% plus the index, oh yeah, and it is interest only! My mortgage will adjust this holiday season...my current index is at .49%...add that to 2.25 margin and my new rate will be 2.75% for 6 months. I also know the risk and my rate has been as high as 6.25% at one point over the last 4 1/2 years. I plan for it and these low times will out weigh the high times. My average rate will be in the low 5's over a 10 year period. I am also self employed and have been commission only for over 15 years. It's a way of life and we plan for it and we can adjust accordingly. I will have lean months in the mortgage industry and in those times I take advantage of the low payments, the good months, I pay extra...a lot of extra. The only reason to EVER enter into an ARM with an Interest Only option is if you are Commission only or Self Employed and you know for a fact you are not going to be in your home for more than 8 plus years. It is a perfect loan for me and I understand the risks of this loan.
So here comes the next wave of consumers that cannot pay on the mortgage, the value of the home has dropped too much to even consider refinancing. Not sure why, but the banks that hold these notes will not renegotiate the terms of these bad mortgages. If the bank would renegotiate, it would place the consumer and the bank in a better financial situation. Everyone Wins!
With the latest report of 9.8% unemployment, up from 9.5%, another .3% of the population will run out of money in the coming months and will cause another wave of Foreclosures, Bankruptcy and many other financial problems. The 9.8% is a national average which is misleading. Parts of the country are booming and unemployment rates can be as low as 4.3% in North Dakota and 15.2% in Michigan. You don't hear these stats on the news. Click on this link to see the breakdown by State: Unemployment By State. As unemployment rises, we have to take into consideration the trickle down affect. Our family is a good example, we are not sure of the future so we have now cut back on many of the luxuries we were accustomed to. This could be a simple as not going to dinner as much, or skipping Dunkin Donuts. No matter how you look at this, it is keeping cash in my pocket but taking it out of the hands of so many others. Not only do I hurt the restaurant owner, bartender, waiter, but now I am hurting the Food Distributor who delivers the food. Since 2005, chain restaurant sales are down a little over 10% nationwide. (and not just because of me)
So, the next time you are going to buy that car or order that $32 Hamburger think of this. If you lost your job today, could you pay your bills for the next 12 months?
Bill Nickerson has been in the mortgage industry since 1991 and provides residential mortgages throughout New England.
