The Realities of Foreclosure Today
You and so many Americans are asking these questions:
Why is there a foreclosure problem?
Why are homes being taken over by the banks?
Why are people suddenly not able to afford their mortgage payments?
The problem really goes back a few years when banks had an abundance of money to lend and decided to lend that money at low teaser rates to people who were of questionable financial risk.
These teaser rates were the now famous ARMs (Adjustable Rate Mortgages). This ARM offered a very low interest rate for a few years and then increased to a rate usually above the prevailing rate. The bank lost a little on the front side but made it up as well as a lot more on the backside.
Many homebuyers took the risk because they had seen the home prices steadily increasing and wanted to get their piece of the pie. These homeowners had one of two plans. The first was to ride the teaser rate till it was due to expire and then refinance their loan. This would protect them from the higher rates as well as put money in their pocket from the increased equity in the house. Many homeowners refinanced and cleared $25,000 to $100,000 to use as they wish.
The second plan for many homebuyers was to simply buy the home at any interest rate, fix it up or not, and then sell it at a profit. There was a time when you could buy and immediately resell and clear $60,000 with NO fix up cost. You can see that the ARM meant nothing to these two types of homebuyers.
A gentleman in Orange County California refinanced three times in one year and cleared decent cash each time. The house of cards finally fell apart when the market tumbled and he was faced with the expiration of the teaser interest rate. His house payment increased from $3500 per month to $6000 per month. He lost his house.
Who has the highest foreclosure filing totals?
Nevada can boast the highest number of foreclosure filing for its population. The number equates to 1 foreclosure for every 75 homes. That’s 3.5 times the national average.
California has the highest number of total filings. In context, California has 10 percent of the nation’s population but has 18 percent of the nations foreclosures.
The nation’s top 10 highest foreclosure rate states are: Nevada, California, Florida, Texas, Colorado, Georgia, Michigan, Arizona, Ohio, and New Jersey.
The honor for the worst foreclosure rate within the country’s 100 largest metropolitan areas goes to Detroit. This “winner” had one foreclosure filing for every 51 households. That gives Detroit a foreclosure rate exceeding five times the national average.
What happens to those homes after foreclosure?
When these homes do go into foreclosure many are sold at action. In the most depressed housing markets as few as 1 in 100 homes up for auction are actually sold. That’s 99 out of the 100 homes up for auction at discounted prices never receive a bid equal to the starting bid set by the lender. Contrary to most myths, you can’t buy a $300,000 home for $100. All lenders reserve the right to bid and that means they will bid the opening bid if no one else does.
In many depressed markets the lenders are NOT offering sweet deals to move houses. Its not unusual for a neighborhood to have 3 of 4 homes foreclosed on and those homes sit empty for 2 or 3 years. They reject offer after offer waiting for the market to move back up.
True, some lenders move houses quickly at discounted prices but these are the few, not the many.
Another reason that many homes go up for auction and receive no bids is the fact that before potential buyers are allowed to bid, they must present a cashier’s check for the full amount they plan to bid. Few people outside of investors can pony up the full purchase price for a home. But, if you have $300,000 sitting in a CD account and feel like buying a house this week, you’ll probably get it.
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