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Percentage of mortgages in default
In light of the current financial crisis, I thought it would be interesting to share something my mom mentioned. She is a mortgage banker, and has, in her 20+ years experience, has funded 1-2 subprime loans - only to buyers with exceptional FICO scores. In other words, she's a "good guy." But it has gotten to the point that she doesn't even tell people what she does for a living because so many are quick to blame lenders generally for this crisis.
In any event, she mentioned a fascinating statistic - fewer than 3 percent of home loans are in foreclosure. And while this is historically very high, that is still 97% of loans that are solvent. In fact, 94% are completely up to date (a few percent are behind a payment but not in foreclosure).
"At the end of second quarter 2008, foreclosure and mortgage delinquency rates topped 6.4 percent of all loans across the country, according to the Mortgage Bankers Association. The delinquency rate includes loans that are at least one payment past due but not those in the process of foreclosure. The percentage of loans already in the foreclosure process was 2.75 percent nationally. "
I expect many of you already knew this, but I was surprised. Given what you see in the MSM, I would have expected a MUCH higher delinquency rate.
I am a runner, knitter, scientist, DE-IVF veteran, and stage III colon cancer survivor.
Re: Percentage of mortgages in default
Zoe, I totally understand that the housing crisis is about much more than just foreclosure rates - and I do think that those rates will probably go up. Hell, I experienced it first hand in a way - DH and I had to write a check when we sold our house. After 4 years in a home that appraised for 10% more than purchased it for, $15K or more in improvements, in a solid university market... we paid money to sell the house (after 8 months on the market).
We were LUCKY to be able to come up with that cash.
So my point is not that there IS no housing crisis, but that there is also a lack of understand as to what that really means. And again, maybe everyone else already knew this - I did not.
I am a runner, knitter, scientist, DE-IVF veteran, and stage III colon cancer survivor.
Me too. And of course it is all inter-related: news of foreclosures scares buyers out of the market and drives prices down. Low prices lead to negative equity, which lead to foreclosures when sellers can't sell.
At the risk of sounding like Phil Gramm (eek!!!!), the psychology of the housing market is hugely problematic. When we were on the market, a colleague was getting ready to buy her first home and bemoaned the fact that housing prices hadn't fallen enough - she was drawing on skyrocketing (and now plummeting) housing prices in CA, not in CT (where we lived) - which never experienced that increase. Prices had gone up over 5 years maybe 15-20 percent. But along with a lot of other buyers that came to our house, so many buyers currently expect rock bottom pricing. It's incredibly tough in markets that never boomed.
Anyway, I never thought I'd be so happy to be a renter again!
I am a runner, knitter, scientist, DE-IVF veteran, and stage III colon cancer survivor.
To walk away from your home because it is no longer worth what you paid for it - IMO is just immoral. You have an obligation to pay for what you borrowed.
Now , if life circumstances prevent you from doing so - that is what bankruptcy is all about. But because you no longer will make money on your home sale is not a reason to default. There are ways to bridge that gap that YOU still pay for.
ditto
If you get sick, lose your job, change in marital status then you work with the mortgage company or consider bankruptcy.
Just because a home loses value is no reason to let it go to foreclosure. I know it sucks to be paying on something that isn't worth what you paid but I agree it is immoral to just walk away. It is a chance we all take when we buy our houses. We hope they will go up in value or at least hold their own but there are no guarantees. It is that simple.
It is similar to when you buy a stock. It may go up or it may go down. But if you sell at a loss it is your loss to eat. Since when did owning a home become a guaranteed investment?