Prime Mortgage Holders Are Avoiding Foreclosure, But Losing Home Value

Posted on November 15th, 2007 by saman

While the number of nationwide foreclosures continues to rise, the majority of problems seem to be confined to homeowners with sub prime adjustable rate mortgages (ARMs) and little equity. However homeowners who have prime fixed-rate mortgages are mostly managing to steer clear of defaults and foreclosure by keeping current on payments and avoiding delinquencies. Statistics show that more than 97% of fixed-rate loans are current and those that are past due thirty days or more account for just 2.6% of all loans in the U.S.

It is interesting to note that delinquency problems only affect people who have outstanding loans, and more than thirty-three percent oh homeowners own their homes free-and-clear of indebtedness. Of the sub prime group with those ARMs that reset to higher interest rates after two to three years, more than 14% are now 30 days or more behind on their payments. That amounts to a percentage that is five times higher than in the fixed-rate segment. Even so, more than 85% of the sub prime borrowers have still managed to keep their payments current. In some states, notably Nevada, California, Ohio, Arizona, Florida and Massachusetts, the numbers for sub prime delinquencies are much higher and these states influence the overall figures.

All the foreclosures have affected entire communities and cost many people who worked in the industry to lose their jobs as many lenders cut back and even filed bankruptcy. And everyone is suffering from the fallout from the nationwide crisis becauise it has driven down the value of homes between 5 and 20%, depending where you are. Moreover, financial industry and government agencies have predicted the problem will get worse long before it gets any better.

Latest figures show that in the third quarter of this year, the national foreclosure rate was the highest it has been since 1953, nearly fifty-eight years ago, when they started keeping statistics. These grim figures are highly influenced by key states where most of the sub prime borrowers were investors in houses and condominiums hoping to take advantage of the booming price increases of 2004-2006 that preceded the foreclosure mess. In the state of Nevada, investor loans accounted for more than 32% of the serious delinquencies and foreclosures. The investor percentage were 26% in Arizona; 21% in California and 25%in Florida, while the nationwide figure for investor foreclosures was just 13%.

Many of the investors, now besieged by resetting ARMs that as much as double monthly mortgage payments, have been simply throwing in the towel and ‘walking away’ from their delinquencies and permitting the forclosures to take place as scheduled.

Right now, most industry people in the know agree with government statistics that predict the current crisis will continue well into 2008 or early 2009, and may even get worse. So far, losses across the board have been pegged at more than $223 billion nationwide.