A record 10% of U.S. home owners are now delinquent on their mortgage payments or entering foreclosure. Never before in U.S. history have so many home owners been unable to repay their mortgages.
What makes the figure more shocking still is that it’s dated as of September 30, 2008. In other words, the huge drop in the stock market during October 2008 — and its effects on Americans — hasn’t even showed up in the statistics yet.
Furthermore, Jay Brinkmann, chief economist for the Mortgage Bankers Association, says you can’t get an accurate picture of what’s really happening unless you look at what’s called the “roll rate.”
Brinkmann said a clearer picture emerges when you compare the number of newly delinquent loans in one quarter with the number of loans entering the foreclosure process the following quarter.
That foreclosure “roll rate” was about 10% to 12% nationally in the 1990s and ran from 12% to 15% for most of this decade, Brinkmann said. The percentage is now 30% nationally but has reached 79% in California and 65% in Florida, he said.
“This is nothing like anything we’ve ever seen before,” Brinkmann said. “We were shocked when we saw the California roll rates.”
Obviously, the highest jobless rate in 34 years is being blamed for the record number of defaults — that combined with Adjustable Rate Mortgages that continue to inflate monthly mortgage payments.
But another factor that hasn’t received as much attention is falling home prices.
In Arizona, home prices have fallen around 30-40%, depending on the area. Some of my relatives who live there are now $100,000 upside down on their mortgage because of the drop in home prices.
Since they want to sell their house, they looked into whether or not their bank would approve them for a short sale. Unfortunately, they discovered the bank won’t consider it until you stop making payments and approach foreclosure.
My relatives’ realtor told them as much and suggested they simply stop making payments. And so that’s what they’re doing.
They plan to live in their current home for 3-6 months without making any mortgage payments. They will save up some money so they can move. When the bank finally approves them for a short sale — or gives them the boot — they’ll go get a rental somewhere else.
Since it would be impossible for them to bring $100,000+ to the closing table… just to SELL their house… they feel this is the only way out. (And I would have to agree.)
My relatives aren’t the only ones who feel this way. A friend of mine says a couple on his street haven’t made a mortgage payment in nearly half a year — and have yet to be kicked out!
So while the economic news might be grim, there is a silver lining. That is, banks are literally being forced into giving home owners a break. I expect this trend will only accelerate in the months ahead.