Delinquencies on home-equity loans hit record

According to this Los Angeles Times article, Delinquencies on home-equity loans hit record, the number of delinquent home equity loans reached 3.52% in the 1st quarter of 2009. The article cites mounting job losses as the primary culprit. The article also mentions that credit card delinquencies reached a record of 6.06% during the same period.

Per my previous posts, it is "only going to get worse". If you cannot afford your home loan payments (mortgage(s) and/or home equity loan(s)), your best option is to request a loan modification in order get your monthly payments reduced. If that does not work and/or your home is worth less than the debt than a short sale is your next best solution. Simply defaulting is not a good answer. If you need assistance in stopping foreclosure proceedings feel free to contact HaltingForeclosures.com.

Lenders More Open to Short Sales

According to this New York Times article, Lenders More Open to Short Sales, mortgage lenders are trying to make the short sale approval process faster and easier. Short sales are real estate sales where the sale price of the property is less than the mortgage balance(s). According to the article, short sales became more difficult to get approved as the credit crisis deepened since the 2nd mortgage holders were typically unwilling to accept a large enough loss to make the sale go through. Now, it appears, that the 2nd lenders are willing to accept 5 to 10 cents on the dollar in order to satisfy their debt. According to a representative of Bank of America, they are willing to accept 5% for their 2nd mortgages and they expect 2nd mortgage holders to accept the same when Bank of America is the 1st mortgage holder. The Treasury Department has announced that it will increase incentives to mortgage lenders to work out short sales, but declined to comment on the details of those incentives.

All this means that short sales will become more common. However, this is not really new news since they were going to increase anyway due to the declining real estate values and worsening unemployment, which will increase the number of mortgage delinquencies.

More Evidence Banks are Holding Back Foreclosures

According to this Foreclosures.com blog article, More on Stress Tests, due to 10 of 19 big banks needing to raise funds as a result of the "stress tests" the big banks, and other banks, will start selling shares and begin to dump their increasing pool of foreclosures very soon. Foreclosures (non-performing assets/real estate owned/REO's) have been piling up since 70% are not showing up in MLS's as being for sale. That means there is a large pool of foreclosed homes coming on the market soon. I discussed this "hidden foreclosure" problem in a previous blog post. Clearly, this dump of foreclosed homes is going to hurt the real estate market. I see no reason to believe that foreclosures will decline any time soon as the jobless rate hits 10% by the end of the year combined with the fact that too many homeowners have no savings to get them through a period of unemployment (see my previous blog post on this topic).

Too Many Homeowers Have No Savings

According to a Wells Fargo survey mentioned in this Nashville Business Journal article, Survey: 25% of homeowners have no savings, 25% of homeowners have no savings to cover their living expenses if they were to lose their jobs. The article mentions the significant stress that this is causing and the drastic measures people are taking to reduce their expenses.

In my opinion this is going to cause more foreclosures and short sales, particularly in areas where the median home prices are still too high relative to the median incomes (think FL, CA, NV and AR). The foreclosure and short sale problems will only get worse as the economy weakens and unemployment increases.

Given that Middle Tennessee (in particular Murfreesboro TN, Smyrna TN and La Vergne TN in Rutherford County) has higher than average foreclosures and short sales I think it is reasonable to conclude that people here also have less than required savings. This financial stress will continue to hurt the Middle TN housing market.

When "Good News" Is Really Bad News

According to this RISMedia article, Single-Family Starts and Permits Edge Higher in April, the number of new home starts increased by 2.8% to a seasonally adjusted rate of 368,000 units and the the number of permits for future construction also increased. The article mentions that low mortgage rates, low prices, the federal $8,000 tax credit and additional state specific tax credits were partially responsible for the boost.

I will tell you right now that this is the terrible news. Overbuilding spurred by easy to get loans was a major contributor to the current real estate mess. We do not need more new homes being built, especially if they are fuled by artifically low rates, which will eventually increase significantly, and tax credits. Only rookie buyers or truly marginal buyers would make the decision to buy a home based on a measy $8,000 to $15,000 in tax credits, especially given the fact that taxes are going to increase in order to pay for the "stimulus plan". Therefore, these buyers will have less money than they think after their tax credit is factored in. I predict that these buyers will have a high foreclosure rate and the overall foreclosure rate will contnue to be high. All of this will continue to depress prices in the very areas that were most affected by the real estate decline.