Tuesday, May 12, 2009

Patience in the House Hunt

Why exactly do we have to be patient in our search for a home? We're waiting for a bunch more foreclosed homes to hit the market in our price range, and we're pretty confident they'll come soon. Stay with me here.

It's an unfortunate truth that the real estate market doesn't function solely on the number of houses available and sold. Ultimately it doesn't matter that a higher number of houses were sold last month than the month before. But the market also relies on the ability of homeowners to pay their mortgage.

Here's the thing: until unemployment numbers consistently go down we're not out of this recession, and people will continue to lose their houses.

Yes, fewer people were laid off last month, but overall there were still jobs lost, and the number of people unemployed still went up. Which means average people are still losing jobs, cutting expenses, can't afford to buy luxuries, and (surprise) can't afford to pay their mortgages, ultimately resulting in foreclosure.

A month ago (or so) the major news sites were exploding with the information about the number of foreclosure filings increasing dramatically "all of a sudden." Well, duh, remember back during the holidays, there was big news about a 3-month moritorium on foreclosures by Fannie Mae and Freddie Mac? Well, the 3-months is over. Foreclosure filings are picking up again, and the number will continue to rise for a while yet.

Here's an insider's scoop. I mentioned once before that splorp! worked for a big mortgage lender. The company was a major part of the predatory lending problem, and they were bought up by a big bank not long ago, so just recently dropped the mortgage company's name completely. I'm sure you can figure it out. For over a year he was a loan servicer, and his job was to answer peoples' questions about their loans, take payments over the phone, and solve problems.

Anyway, while he was doing this, he noticed a pattern: a whole bunch (tens of thousands) of these pay-option ARM mortgages (aka reverse amortization loans) were scheduled to re-set in April 2009, (where the interest rate will go up from its advertised low, low 1% rate to the average market rate) AND they featured pre-payment penalties that make it costly to re-finance before that.

Gee, April came and went, and we didn't hear about a massive number of re-financed mortgages (some, but not a lot). What we did hear about was a large increase in the number of NOD (Notice of Default) filings - this is usually the first letter from the bank to the homeowner stating their payment is late, and they have 90 days to catch up.

The clock is officially ticking. Three months from now, we'll see if our prediction comes true.

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