Hey, wait a minute! In recent months, the national media has dwelled about the collapse in the subprime mortgage market as well as the rush of foreclosures. However, there is another side to this particular story that should be considered.
The Mortgage Bankers Association recently released its National Delinquency Survey as well as the numbers aren't what you could imagine. True, the rate of loans falling into foreclosure last quarter was the very best within the survey's 54-year history. 8.4% of subprime loans were greater than Three months late or already inside the foreclosure process. That statistic is sobering, however it misses the point. If 8.4% are seriously delinquent or in foreclosure, 91.6% of the sub-prime borrowers are current with their loans and making their home loan repayments by the due date. They are experiencing the great things about proudly owning. Those borrowers ingested the opportunity own (rather than rent) due to availability of sub-prime loans and possess successfully taken advantage of that opportunity. For the children, the "American Dream" has turned into a reality.
Obviously, 8.4% default rates are high, but unanticipated financial problems happen. After all, individuals don't buy homes, get loans, after which intentionally default. Usually something serious occurs disrupt the natural process. Commonly, it is loss in job, divorce, medical catastrophe, or another unanticipated financial emergency that triggers website visitors to default. Keep in mind, though, you won't need to a sub-prime borrower to own financial problems. Prime borrowers also default on his or her loans and lose their homes in foreclosure (we're not immune in this market). Sure, the percentages are higher for sub-prime borrowers, but you are typically in the more vulnerable financial predicament. Of course, the masai have a higher interest and pay a greater home loan payments every month, so cut them some slack. Regardless, the answer is not to cut-off subprime lending, but to embrace these borrowers' unique needs. Particularly now, lenders must offer delinquent homeowners programs to restructure thei r loans and steer clear of foreclosure. Let' take a look at why.
Delving deeper into the MBA survey, find several surprising facts. For instance, the surge in sub-prime foreclosures last quarter was driven by four large states, California, Arizona, Nevada, and Florida. If it were not for your avalanche of foreclosures in those four states, there'd have been an overall drop within the rate of foreclosure filings nationwide. Thirty-four states actually reported a loss of the pace of recent foreclosure foreclosures over the last quarter, and also the remaining states (apart from those four) reported simply a modest increase.
Additionally there is a wide divergence between fixed-rate and adjustable-rate loans. The delinquency rate for prime fixed-rate loans was essentially unchanged in the previous quarter along with the rate for sub-prime set rate loans actually fell! On the other hand, the rate of delinquency for prime adjustable-rate mortgages increased 36% and sub-prime adjustable-rate mortgages increased 227%.
Clearly, adjustable-rate mortgages ("ARMs") include the culprit and present an original problem. There is however nothing wrong with ARMS, provided they are used responsibly. They have benefits you cannot find with fixed-rate loans. They've lower rates and correspondingly lower monthly obligations. They enable borrowers to qualify for loans they will not otherwise receive (of which most successfully pay each month). Plus, it really doesn't make sense to acquire a 30-year set rate loan, when in reality most people sell or refinance their houses every 5-7 years.
Nationwide, California takes the lead with 17% coming from all sub-prime adjustable rate mortgages. Similarly, California has over 19% of the foreclosures for sub-prime ARM loans. Actually, exactly the same four culprits; California, Nevada, Arizona and Florida, have an overabundance of than one-third with the nation's sub-prime ARMs, greater than one-third from the foreclosures going on sub-prime ARMs, and many from the nationwide boost in foreclosures.
Another point to consider is the distinction between owner-occupied and investor (non-owner occupied) borrowers. Most of the delinquencies and foreclosure starts may be attributed straight away to non-owner occupied loans. For the reason that investors are notorious for defaulting on mortgages when the market dips and they begin to see the price of their properties evaporating. Further exacerbating the challenge, investors' share of defaulted loans was 32% in Nevada, 25% in Florida, 26% in Arizona, and 21% in California. Yep, those same four states. Those rates are high compared with a rate of only 13% for your most of the united states. And those percentages will definitely increase as property values still decline.
Yet another thing. The media may be quick responsible mortgage brokers for "forcing" borrowers into sub-prime adjustable-rate loans. I laugh each time I hear that. Whoever has ever been a home loan broker sees that you can not force that loan on borrowers, prime or sub-prime. It won't work prefer that anymore. Homeowners tend to be more sophisticated than in the past. They've got access to the internet, television and also the marketing, and analyze available mortgage programs. They view the difference between fixed-rate and adjustable-rate loans, between amortized and interest-only payments, and between "stated" and full documentation. They shop and explore alternatives. Ultimately, they pick the loan they need, not their mortgage broker. It doesn't matter what the media says, that process works successfully for that great majority of yank homeowners.
All tolled, the sub-prime mortgage crisis is detrimental, and not nearly as bad as the media would have you believe. Should you dig deeper in to the survey, and segregate some problem states, subprime ARMs, and investor loans, you'll find by using the vast majority of American homeowners, default and foreclosure are not issues. At the very least not even.
