Why the Worst is Yet to Come.

[DeadManCrawling]

For the poster, FLorida:

Sorry I missed your question on the first read.

Pinellas, like most of the Bay Area, has record foreclosures in progress. There is no way to say how long it will be.

I have friends in Pinellas who are awaiting foreclosure, and have been for 18 months. No payments. Also, no response from the lender.

I know of other cases that have been finished in 6 months.

It really is impossible to say. I suspect that if you are terribly upside down, and the bank has little prospect of selling for a reasonable price (in their eyes), it will be a long wait. More likely they will hound you toward a modification that favors them over the long term. Be wary of such offers and really think about what is in the fine print. Does it really help your family to be in an interest-only loan that reverts to its original, stinking self, in ten years, or has a payoff requirement if you are somehow able to sell before then?

The bank is not your friend, and any offers they make at this stage are highly suspect.

Best,

-dmc

[FLBK7]

I echo LimDisc. I'm afraid that DMC is right on just about every count. This is very scary indeed.

[goneunder]

There is no recovery just hope for some sort of stabilization. A contracter buddy of mine started maintaining forclosures for banks, he pretty much mows grass, checks doors and windows most are just drive by checks. His list in SoCal is 2,700 homes!!! That is freaking astounding to me, he has a crew of 15-20 and I get $10 a house to drive by and spot any issues that need attention.

My lender offered us a mod right off the bat. We bought in 2005, the peak, with a $3300 a month payment. Work was good and it was not a problem, but as construction came to a screeeching halt here in CA we were tempted to just walk. We did an experiment and were late on our 2nd (80/20 loan) a couple times and boom they sent a letter asking if we wanted a loan mod. They indicated that we had one of those "toxic" loans that everyone was hateing on so they needed to clear it from their books.

We ended up chopping $1,200 off our pmnt and that included impounds. They didnt do us any favors it's 3% interest only for 5 years then reverts back to the original "Toxic" loan. So we are pretty much paying rent now as we would not be able to rent our same house for that, all fix ups are on hold because in five years we fully expect to walk. The bank swears up and down that they are here to help and wont abandon us and will keep us in our home. I want to believe them but am ready to walk in five.

How many "successful" loan mods are like me, creating another slump in 5 then 10 years. If your gonna mod my loan give me a permenant fixed rate or let it go now, thats the only way there will be any sort of recovery.

[JEM]

But JEM why would you be? If you left your home, you would pay rent somewhere. If this is a working situation for you, eventually, you will own the home. Even if you cannot make a profit in selling it in the future (a house should NEVER be considered an investment for profit) there is something to be said about home ownership. I mean, like NO MORTGAGE ownership. 'Hub

That totally makes sense! I mean, I don't know if I want to stay here FOREVER. We're still young, jobs change, life changes. And no, I don't care if we make a big profit. I guess I"d worry about being really underwater if we HAD to sell. But, S.A. seems pretty stable (compared to many other areas of the country anyway), so I guess our gut telling us to stay in the house is probably the right one.

I've priced rents--for a 3 bdrm apartment--we'd save *maybe* $100 -$150 month, for a house, we'd be looking at close to the same as our mortgage.

[momisery]

While I can not totaly dismiss your concerns there are a few other things going on right now. Where I work, and I happen to be in the department that caters to the unusually wealthy, these people are investing in housing right now. They seem to feel this market is ripe for picking, and they are harvesting it. I have one guy that just bought up 8 houses in the lake area around Reno NV for pennies on the dollar. It could well be just like the great depression. In WI it was typical back then for someone with money to buy up farms by just paying the taxes owed. Many times he would allow the owners to stay on and share the crops/livestock. Most times the old owners left because they wanted a new start and they were just tired of the whole thing. Our nation has been thru a lot of ups and downs, and I believe the bail out helped a bit, but I my self am not convinced that it is the total fix. We need jobs, good paying ones and that will fix it, and only that. We need investments in our nation, and our businesses not tax breaks for companies that export our jobs. The huge tax break Bush gave to business did not create jobs at all, that is a fact. They need to set some rules on these hand outs so that the result is what they want, but they never seem to learn that.

As for me and mine, we are hanging on and grateful to have a job. I am worried about unemployment running out for hub and then what since he is almost 60, who will hire him without a turn around? So, what is our option and the option for many people in this situation? Do we divorce so he can get government help since I can't pay for him, or do we beg at the street corner? The future is grim, but less grim when you have nothing much to lose as Janis Joplin pointed out.. Freedom is another word for Nothing left to lose...

[AngelinaCatHub]

I had forgotten about the "unlimited guarantee" the government now affords Fannie and Freddie. That action will doom our children and grandchildren to a lifetime of indentured servitude as they struggle under the weight of debt they did not even create.

Soylent Green anyone? 'Hub

[DeadManCrawling]

As a couple folks point out, there ARE people who probably should keep their homes. For good reason, particularly commute distances and equity, for those lucky enough to have any.

But if you are that person, I can see how difficult it would be to ride the storm out while your neighborhood emptied and became a ghost town, if that is indeed what is happening. Some frugal and thrifty areas of the country have no idea how bad it has gotten in the big states for foreclosures. By big, I mean those with the biggest unfolding disasters.

We were driving to the hardware store the other day and took a route we had never been on before. Truly, it was easier to count the properties that were NOT for sale than the masses of real estate signs. I would estimate that fully 70% of properties on that 7-10 mile stretch of road are for sale right now.

If you, the above posters and others, DO have equity and can afford to stay in your home, you probably should. Otherwise you end up paying rent somewhere, maybe not as nice, with no guarantee THAT house or neighborhood is a better bet. As far as what happens in 5-10 years, I just think no one knows. Impossible to predict how far the crisis will widen and what other areas may be hit. Tough decisions. Impossible decisions, really, unless someone here has a working crystal ball.

I had forgotten about the "unlimited guarantee" the government now affords Fannie and Freddie. That action will doom our children and grandchildren to a lifetime of indentured servitude as they struggle under the weight of debt they did not even create.

And the Federal Reserve HAS been quietly buying mortgage-backed securities for the past 18 months or so. You can read about it on an economists only site. www.voxeu.org

That site is only for credentialed economists and presents opinions, thoughts, and peer-reviewed statistical analyses of the world economy. Some of the papers are eye-opening to say the least. One of them addresses the Fed buying up the mortgage instruments and suggests the long-term effect on taxes and risk-loss aversion will be catastrophic. Sometime in the next 4-5 years, this paper says, we will experience worse economic meltdowns than even I am willing to forecast. And I am DAMN grim in my mind. Let's hope it doesn't get that far out of hand.

Best,

-dmc

[coolmom04]

And that's where we're at. And after reading this, I'm second guessing wanting to stay.

We're not under water---I don't see San Antonio homes falling *drastically* in price. They've remained fairly stable. But they were never over priced to begin with.

I do see the neighborhood having a lot of For Sale or For Rent signs, and that bothers me. But overall--we like our home. The payment is reasonable and it's nearby hubby's job. So a fairly short commute.

But yet, I'm torn.

Yeah, you and I sound like we're in the same boat regarding the housing situation. Except for us, we moved further away from my husband's job so that we could actually afford a larger home for the same money. A few other things were factored in as well. If my husband were to switch shifts, there is no WAY we would stay here as the traffic would increase his commute time from 30 minutes to an hour one way! Secondly, we thought that the area/neighborhood would be a good investment (with good resell value) and we would be able to move in 5-7 years and buy a larger home when our children are entering their teenage years, but we may end up having to walk away from the home at that time if we aren't able to sell.. AFTER having already filed BK? That would seriously suck!

I briefly mentioned the idea of walking away from the home. My husband turned white as a ghost. He is NOT at all interested, but I can't help but wonder if that would be the smartest decision.

ETA: We knew this home was just a step towards getting the bigger, better house that would ultimately be our home for many many years to come.

[AngelinaCatHub]

And that's where we're at. And after reading this, I'm second guessing wanting to stay.

We're not under water---I don't see San Antonio homes falling *drastically* in price. They've remained fairly stable. But they were never over priced to begin with.

I do see the neighborhood having a lot of For Sale or For Rent signs, and that bothers me. But overall--we like our home. The payment is reasonable and it's nearby hubby's job. So a fairly short commute.

But yet, I'm torn.

But JEM why would you be? If you left your home, you would pay rent somewhere. If this is a working situation for you, eventually, you will own the home. Even if you cannot make a profit in selling it in the future (a house should NEVER be considered an investment for profit) there is something to be said about home ownership. I mean, like NO MORTGAGE ownership. 'Hub

[JEM]

I would bet on it. Yes.

Here is the oxymoron though; if you have a new house that was reasonable when you purchased it, that you can afford, and you like, the idea of a house is shelter and hopefully a Home (two different things), there is nothing wrong with keeping your home. Here are the problems though with our new economy: Folks used to think a house or if you may, real estate et al was an investment. Many folks in Florida came from a life owned then paid for house up North, while in their working years. They sold at a much higher price than when they purchased and lived all their working lives until retirement. Then to Florida where many purchased housing that used to be much cheaper than Norther homes. This "nest egg" will no longer be available. Many folks will be and have been 'burned'. 'Hub

And that's where we're at. And after reading this, I'm second guessing wanting to stay.

We're not under water---I don't see San Antonio homes falling *drastically* in price. They've remained fairly stable. But they were never over priced to begin with.

I do see the neighborhood having a lot of For Sale or For Rent signs, and that bothers me. But overall--we like our home. The payment is reasonable and it's nearby hubby's job. So a fairly short commute.

But yet, I'm torn.

[AngelinaCatHub]

This may be way off point here, but with the way things are going, is it stupid to stay in a home that is in a new development and it's obvious the prices of the homes are going down due to lack of sales... which means the quality of the neighborhood is also going downhill... which means the resell value of the home 6-10 years down the road could be nonexistent?

I would bet on it. Yes.

Here is the oxymoron though; if you have a new house that was reasonable when you purchased it, that you can afford, and you like, the idea of a house is shelter and hopefully a Home (two different things), there is nothing wrong with keeping your home. Here are the problems though with our new economy: Folks used to think a house or if you may, real estate et al was an investment. Many folks in Florida came from a life owned then paid for house up North, while in their working years. They sold at a much higher price than when they purchased and lived all their working lives until retirement. Then to Florida where many purchased housing that used to be much cheaper than Norther homes. This "nest egg" will no longer be available. Many folks will be and have been 'burned'. 'Hub

[coolmom04]

This may be way off point here, but with the way things are going, is it stupid to stay in a home that is in a new development and it's obvious the prices of the homes are going down due to lack of sales... which means the quality of the neighborhood is also going downhill... which means the resell value of the home 6-10 years down the road could be nonexistent?

[AngelinaCatHub]

Great article DMC:

The most accurate and informative is the "shadow inventory". If a glut (as if it isn't already) of houses come on the market, they may have to pay people to take them off their hands. They too can lose those houses for local property taxes. The City just may give them away then to section 8 housers, and our trek to Third World level will go forth.

Mrs. and I have taken a new hobby up when we take a ride to town. It's called, "count the new for sale signs". Never have I seen more signs in such local area. (Beats counting the crosses on the Interstate.)

We drove into a new housing development about a month ago. Streets all laid out nicely, underground utilities, fire hydrants, but few houses. The dozen or so there were not decked out with carpet or tile (an item selected upon sale) and those that were had not been lived in and one was but empty. Out of a dozen of houses and room for hundreds, ONE was occupied. HHMmm Gets you to think that bk was a damn good business decision after all. 'Hub

[backtoschool]

I totally agree with your post DMC. I want to add a few comments though.

1. The federal government has decided recently to give unlimited backing to Freddie and Fannie. That will keep a market for mortgage backed securities, which will keep a market for mortgages, which will allow for interest only refi's like the ones you discussed in your posts. Underwater homes will stay underwater but will not foreclose. With Freddie and Fannie bondholders pretty much being guaranteed their money with interest, mortgage rates will be kept artificially low. With mortgage rates artificially low, housing prices will be artificially high, as houses are needed to be sold to fuel the bonds which are guaranteed profit for the bondholders at this point. (this is the EXACT recipe for the bubble that caused this mess, but now it is being backed by the federal government indefinitely)

2. I think that the government will also, quietly absorb some of the shadow inventory that the banks have, or will change accounting rules or some other trick, so that the banks do not have to release that shadow inventory onto the housing market or declare it outright on their books. I also think that the there will be quiet incentives given to bulldoze a lot of the properties, etc....

Basically the choice the government is making is to try to modify our way out of this, which has the effect of lengthening the crisis. We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.

[Mi Bankruptcy]

I agree on the Wells fargo thing. They have offered me the same interest only payments. However, I am in a fixed rate and my home is not underwater. My wife always why I argued with the broker when we bought your home that I wanted the higher fixed rate rather than the adj. mortg. Now she knows why.

If anything, my home is break even RIGHT NOW. However, I have noticed properties that have been on sale forever are starting to be sold and prices are slowly going up in my area. I live in Mid Michigan. So.. I cant really tell.

Your article did raise my eyebrow about the shadow housing. Seems very plausible.