Foreclosure Bailouts? Don't Mail Out Checks Yet
We reported some pretty nasty numbers from the Mortgage Bankers Association yesterday: A 51% rise in new foreclosures nationwide to the highest rate in the history of the MBA survey. And it’s a big bad number like that that is going to add more fuel to the fire in Washington among all those folks who have been bandying about the idea of some kind of government bailout for homeowners in danger of default or foreclosure on their mortgages.
The image behind this movement is of a homeowner who was either duped into a bad loan or caught up in the frenzy of the new loan products that they didn’t really understand, and that is true in many cases. But if you really go digging into the MBA survey and pull out some essential stats buried in their ridiculously dense charts (no offense MBAers but this is a lot for even a real estate nut like me to take in), they paint a slightly different picture that regulators and lawmakers should really take into account.
The bulk of foreclosures are essentially in seven states: The first three, Michigan, Ohio, and Indiana are all due to trouble in the local economies, and they weren’t in great shape even during the housing boom. The other four states, California, Nevada, Arizona and Florida are the states that led the real estate boom, thanks to heavy investor-speculators buying up properties they never intended to inhabit.
Now break it down even further, and you find that the four investor states, which make up 24.8% of all outstanding loans in this country, make up nearly 29% of all foreclosures started in the second quarter of this year!
Take it down another notch to the types of loans. We’re all well-versed now in those adjustable rate mortgages, the often really cheap, no-money-down loans with unbelievable teaser rates: the faves of investors and of aggressive, boom-frenzied lenders. Well, my fab-four states use 42.5% of all the prime ARMs out there in the nation and 34.6% of all the nation’s subprime ARMs, so you see where this is going.
The Mortgage Bankers also took a look at non-owner-occupied homes, which you have to assume are mostly homes owned by investors who are either just holding empty properties or renting them out until they’re ready to flip ‘em. Mortgages on these properties made up 16% of prime defaults as of June 30 of this year nationwide. Now to my fab-four states again: Non-owner-occupied homes made up 32% of prime defaults in Nevada, 26% in Arizona, 25% in Florida and 21% in California…that’s twice the rate of the rest of the nation.
And guess what? If you strip out the four big investor states, my fab-four, the MBA survey on foreclosures would actually show a nationwide drop in the new foreclosure rate. Think about that, Washington, when you feel the need to cry bailout.
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