Foreclosures Hit Homeowners in Good Credit

(AP)  A rising proportion of fixed-rate home loans made to people with good credit are sinking into foreclosure, adding to concerns about the strength of the economic recovery.

Driven by rising unemployment, such loans accounted for nearly 33 percent of new foreclosures last quarter. That compares with just 21 percent a year ago, when high-risk subprime loans made during the housing boom were the main reason for default.

At the same time, the proportion of homeowners with a mortgage who were either behind on their payments or in foreclosure .

The Mortgage Bankers Association's report Thursday suggests the housing market and broader recovery could be thwarted by the continuing surge in home loan defaults, especially as the unemployment rate keeps rising. Lost jobs, rather than the shady loans made during the housing boom, are now the main reason homeowners fall behind on their mortgages.

After three years of plunging prices, the housing market started to rebound this summer. While optimists hope the worst is over, pessimists say there are simply too many foreclosed properties that have yet to be dumped on the market and expect further price declines.

About 4 million homeowners were either in foreclosure or at least three months behind on their mortgage payments as of September, according to the mortgage bankers group. Even if a quarter of those borrowers are able to stay in their homes, "there's a lot of potential inventory coming into the market next year," said Jay Brinkmann, chief economist with the Mortgage Bankers Association.

Those foreclosures will push home prices downward, especially in the hardest-hit California and Florida cities, places that are also coping with soaring unemployment, he said.

The record-high foreclosure numbers are being driven by borrowers with traditional fixed-rate mortgages, rather than the high-risk subprime loans with adjustable rates that triggered the mortgage crisis.

Subprime loans with adjustable rates have fallen to 16 percent of new foreclosures from 35 percent a year earlier.

Loans backed by the Federal Housing Administration also show increasing signs of trouble. More than 18 percent of FHA borrowers are at least one payment behind or in foreclosure.

Among states, the worst of the trouble is still concentrated in California, Nevada, Arizona and Florida, which accounted for 44 percent of new foreclosures in the country. Nearly 13 percent of all loans in Florida were in foreclosure, the highest in the U.S., followed by Nevada at more than 9 percent.

[us_1776]

And this is what I've been writing about for almost a year!!!

The big banks are 100% responsible for the housing crisis, the mortgage crisis, and the economic collapse.

The big banks were in fierce competition with one another and it was eat or be eaten. The banks somehow got the idea that if they funded big real estate developers they would have a lot of real estate upon which they could write a lot of lucrative mortgages. So the more real estate, the more mortgages.

And mortgages was the name of the big game. All those initial payments are pure interest to the bank. A huge growth cash-flow. And so they funded more and more real estate development and to make sure that they could keep all this going they came up with all these volume incentive programs for brokers that almost guaranteed fraud. So even though they knew that a lot of the paper that they were writing was bad - they wrote it anyhow. Until all of the sudden they had funded so much real estate that it began to overwhelm demand and then prices started to fall and the more they fell the worse the mortgages looked and then sales began to falter and then this rippled through the economy and jobs began to disappear and then the bankers got the bright idea to bundle these worsening mortgages into investment bundles and put them into the stock market which was bought up by all kinds of institutional buyers such as state pension funds and others and it wasn't long before this whole house of cards began to implode with increasing speed. And in the process many millions of middle-class homeowning Americans got swept up into all this because they lost their job and began depleting their savings until finally they ended up in foreclosure. And not just new buyers, I'm talking about people who had owned their homes for many many years. And so what has happened is that the middle-class is being setback about 20 years in our country.

So since the big banks played such a huge role in all this I do not think that it is fair at all that they should foreclose on anybody. There should be an across the board 2-year moratorium on foreclosures if the people can show that they were able to afford the home before this whole collapse happened. That way we give them enough time to find work and once again start making mortgage payments.

[ajvw]

You have conveniently neglected that the government created Fannie Mae and Freddie Mac to buy an unlimited amount of bad mortgages which encouraged the banks to write any and all. Furthermore, the government reduced the standards on which a mortgage could be written to where I was offered a mortgage without having to provide any documentation on my income. Do you really think the banks did these things on their own?

[wilbursandersjr]

by us_1776 November 19, 2009 2:41 PM EST wrote: "And this is what I've been writing about for almost a year!!! The big banks are 100% responsible for the housing crisis, the mortgage crisis, and the economic collapse."

It could not possibly be the fault of the greedy and covetous American Public that bought the homes that were WAY WAY WAY out of their price range. While the Bankers are partly to blame, greedy consumers keeping up with the Jones/Smith/evrybody are to blame as well. No guns were to their heads when they accepted these loans.

And by the way, don't give me the "They did not understand the loans they were taking out" bunk. That is all the more reason to not accept the loan. Ignorance (which is questionable) is not an excuse to put all the blame on the banks.