The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: SouthFloridaGuy who wrote (5259)	9/12/2002 8:42:37 PM
From: Elroy Jetson	Read Replies (3) of 306849

What is the meaning of record high foreclosure rates? philaup.org As the footnote to this chart points out, the foreclosure rate would be much higher but for lenders trying new methods of overlooking defaults - like tacking the missing payments onto the end of the loan thus making the loans current with a wave of their hands. fdic.gov This FDIC report on home loans is fairly comprehensive. Increases in foreclosures and defaults is an indication that credit is not as readily available now as it was recently. This can be due to: (1) a loss of confidence among lenders (a credit crunch); (2) rising unemployment; (3) declining real estate values; (4) previous debauched underwriting practices. As Lizzie Tudor points out, the default and foreclosure rates last spiked in early 1999, shortly after the Asia Crisis led to the collapse of the "Long Term Capital" hedge fund. We can tick off the first three of these conditions leading to foreclosures during that period of time. In my opinion today's high foreclosure rate is due to the fourth condition. I can't think of any other period other than the past two years when home loans for 125% of value were so widely available, if at all. These debauched underwriting practices leave little margin for error. The possible specter of the other conditions may be making lenders more restrictive now than previously. Thus when a homeowner gets into trouble there is no alternative to foreclosure. Few speculators would want to purchase a home from an owner on trouble using the famous "no money down method as seen on TV" when the home has negative equity. This is especially true when Wells Fargo and Fannie Mae are happy to make almost any buyer loans for 115% of appraised value. Why buy someone else's problem when you can easily create your very own. I think the current foreclosure rate is likely the highest since the 1930's. The MBA has only kept these statistics since 1972 and there is little reason to assume the period from 1945 until 1971 contained any unusually high foreclosure rates. But that's just my hunch. I find little reason to assume that this will end pleasantly.

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