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Foreclosures Are No Longer a Subprime Crisis

Date:August 22, 2008 | Author:Amy Bohutinsky | Category:Real Estate Analytics

In our recent Q2 Homeowner Confidence Survey of more than 1,300 homeowners, we asked a number of questions to find out how homeowners feel about the value of their home and the market around them. As I’ve mentioned before, we received some telling answers.

One question we asked was:

Do you think homeowners who are currently facing foreclosure because they took out an adjustable rate mortgage or other loan that they can no longer afford should receive government assistance in order to be able to stay in their home?

Nearly half (48%) of homeowners said no. Meanwhile 28% support government intervention, and 24% “don’t know.”

But what about homeowners who didn’t take out a “creative,” or risky mortgage? Are there really many homeowners out there with good credit, a solid down payment, and all the right intentions who are at risk to default on their loans? Zillow’s Q2 Real Estate Market Reports point to dozens of U.S. markets where the stage is certainly set by fast-growing rates of negative equity.

Take the Miami-Ft. Lauderdale MSA, for example. The median down payment in 2006 was 10%, or $30,873 based on the median home value of $308,731 when that market peaked in Q1 2006. Since the peak, Miami home values have fallen 26.8% , meaning the average buyer that year has not only lost his down payment, but is now underwater on his mortgage by nearly $52,000. Should this homeowner now lose a job, or fall behind in payments, he’s in dire straits.

Some other areas where this is happening…

* Fort Myers, FL: Median down payment was 10% in 2006; home values have fallen 40.8% since
* Reno, NV: Median down payment was 15% in 2005; home values have fallen 30.6% since
* Las Vegas, NV: Median down payment was 10% in 2006; home values have fallen 34.4% since
* Santa Barbara, CA: Median down payment was 10% in 2005; home values have fallen 28% since

Our data shows one in seven U.S. homeowners is now underwater on a mortgage. For people who bought in 2006, when most markets peaked, it’s nearly one in two — 45%. Thus it’s no surprise that the rate of foreclosures is rising. And it’s a safe bet to say this crisis for homeowners is not going away anytime soon.

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Responses (9)

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Mortgage Samson 1:23 PM - Aug 22,2008

One in seven homeowners are underwater. That’s a tough predicament to be in…

…if you’re the bank.
Foreclosure 5:18 PM - Aug 26,2008

In California , it’s acutally better just to have your home foreclosed on right now, most neighborhood i driveby have mortgages 100-350k over mortgages owned.
AnotherStatistic 8:09 AM - Aug 27,2008

Early on, I was one of those who did not have much sympathy for the sub-prime and other loose lending victims, but have undergone what a rather large percentage of our nations problems can be linked to. We put 15% down, we have conventional fixed rate loan, but what I don’t have is my old job that was outsourced overseas, like many of my friends/associates. I’ve lost almost $30K a year in salary, on top of that I sold real estate part time on the side for an extra $40 – 50k a year, and now I am only making about $20K. My home has been on the market for months at the break even price, with no lookers, as the market here says I owe more on my home than what its worth. This month my trek into the statistic box begins, as I can no longer make my payments. This isn’t just a mortgate industry problem. It’s bigger than that, so don’t just assume those entering into foreclosure are all idiots and suckers, many are impacted in one way or another, by the declining job market in the US.
judy kimball 12:38 PM - Aug 27,2008

Although now a Realtor, I was politically active for about 10 yrs and fought agains so-called “free trade” which is it NOT. Our politicians sold America’s citizens aka: wage earners with full time jobs and employer paid health insurance right down the river when they signed NAFTA and the new GATT. All the people who weren’t interested in politics are reaping what their lazy uninformed brains didn’t care about during the Clinton era. Unfortunately they still don’t do the math about how & why they’re losing their jobs to lower paid people off-shore. WE STILL CAN GET OUT OF NAFTA & our COMPANIES BACK TO AMERICA but politians won’t do it no matter what our deficit is now (we were in the “black” prior to NAFTA & 6 months later we were a deficit country and have been spiraling downward since then. USA taxpayers paid the expenses of tearing down factories here AND moving and building them off-shore. Meanwhile people just love Bill Clinton and whine how the government should help them now. George H W Bush and George W Bush also love “free trade”. This is what we get when we’re too stupid to pay attention to politics.
By the way…read a couple of books about NAFTA by Ross Perot (i.e. Save our Jobs) –THEY ARE RIGHT ON TARGET ABOUT WHAT WAS COMING IF WE DIDN’T STOP IT.
Judy Kimball, Vancouver WA
bankrobberyisillegal 11:58 AM - Oct 2,2008

The Mortgage Forgiveness Debt Relief Act of 2007 removed the last incentive for borrowers to remain in “their” homes. This law must be rewritten and retitled the Patriotic Mortgage Repayment Act of 2008.

The Patriotic Mortgage Repayment Act of 2008 – If a borrower defaults on a mortgage and the market value of the collateral is insufficient to repay the money borrowed, the Treasury will recover 105% of the residual borrowed but unpaid amount using IRS collection methods and interest schedules. Such a law would prevent the general population from bailing out the speculators that purchased more house than they could reasonably afford. These wannabee flippers took grandma’s money out of the bank, now the bank has collapsed the the FDIC is having to pay off grandmas. The least these deadbeats should do is repay 100% of grandmas’ money to the treasury plus 5% as a handling fee.

It should be trivial for the borrower to meet his obligation. After the foreclosure sale recovers 60% of the original loan, the payments on the remaining 40% loss should be well within the budget of even the biggest speculative wannabe flipper real estate genius that bought at the top of the market using grandma’s money.
Loan Modification Help 7:25 AM - Dec 29,2008

I had written about the ALT-A foreclosure wave over a year ago and it looks like it is here full force. Fight your lender by provonmg their are violations on your mortgage.
Home Mortgage Forum 7:27 AM - Dec 29,2008

Do you think homeowners who are currently facing foreclosure because they took out an adjustable rate mortgage or other loan that they can no longer afford should receive government assistance in order to be able to stay in their home?

YES!!!!!
Get Loan 6:18 AM - Jan 10,2011

Early on I was one of those who do not have much sympathy for the subprime loans and other non-victims, but know what a fairly large percentage of our nations problems can be connected. We represent 15% down, we have conventional fixed-rate loan, but I do not have is my old work that was outsourced overseas, like many of my friends / coworkers. I have lost almost $ 30K per year in salary, on top of that I sold real estate part-time on the side for an additional $ 40 – 50k a year, and now I’m just so about $ 20K. My house is on the market for months at the break-even price was, without spectators, as the market here says I owe more on my home than what its worth. This month, my journey begins in the statistics field, as I do not make my payments. This is not just a problem mort gate industry. It is bigger than you expect not just assume that input into foreclosure are all idiots and suckers, and many are affected in some way or other by the declining job market in the U.S..