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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (100913)	8/17/2009 5:26:41 AM
From: Elroy Jetson	4 Recommendations Respond to of 116555

The wave of foreclosure cab be held off through a variety of means, but the wave is inevitable, but likely delayed. The effect on real estate prices will be profound. The bomb is ticking, but I don't know when it goes off. I've shared the experience of a friend with a Fannie Mae loan modification. Bought a home for $425k in Palm Springs, with a 20% down conforming mortgage with his credit union in 2006. The loan was sold to Fannie Mae. The home is now worth $200k. With property tax, Home Owners Dues to the PUD for this single family home, the mortgage payment was $3,400. Fannie Mae has offered to reduce the mortgage rate to 2%, for a total monthly payment of $1,500 a month - less than rent for five years. Briefly unemployed and now earning $130k annually as of last week, he decided to accept the modification. The loan is still $340k - $140k more than the value of the home. For $1,500 a month he owns "a five year option" to continue owning his home, or dumping it into foreclosure at any time during this period if prices continue to slide. If they drop another, say $80k, why not pay $120k cash for an identical home free and clear than owe $340k on a $120k home? Barring a miracle, this home will fall into foreclosure some time during the next five year - when is hard o predict, but I bet bulk of them will hit within a similar period - when is hard to predict at this point. A massive wave of foreclosures waiting to happen, dumping real estate values? YES! But when exactly - hard to say! .