Did you happen to catch “60 Minutes” on Sunday? 

I watched the segment about foreclosures and realized that we are (at best) only half way through the nightmare!  Over the next two to five years the next round of disaster loans will be the Alt-As and the Option ARMS.  One speaker predicted that half the Option ARMS will go into default.

Figures bandied about on “60 Minutes” included the statistic that 8 million American homes will eventually go into default.  With the Alt-A and Option ARMS about to kick in about 10% of the housing stock in the U.S. is in some stage of default.

Things are bad all over.  I was talking with one of my tenants the other day and she just lost her job.  She has about 3 months of income available to pay the mortgage on the home she has in Illinois that she was never able to sell when she moved to accept a new job 18 months ago.  If she doesn’t land another job right away that home will be in default.

Many of us who are landlords are experiencing high default and heavy turnover on our rentals.  This is going to start washing out as higher defaults on commercial property.  The “60 Minute” report also predicted that commercial real estate will be hit with higher defaults next.

My mother has an Option ARM loan on a property in Detroit.  It has been readjusting for the past year. Now, the good news is the interest rate has gone down from 8.5% to 6% in a year.  However, she has never seen any reduction in her payments, despite the letter stating that the amount is coming down.  The payment that they said should be her new full mortgage and interest payment still comes out as the option 1 (less than interest only on the statements each month).  What they seem to be doing is adding an exhorbitant amount to the escrow each month to represent the difference between the advertised rate and what we are paying. They only catch up on that problem once per year when my mother gets a nice fat check from the mortgage company.  They AREN’T adding it to principal, that is for sure.  Seems to me this has to be deceptive, if not downright illegal.  I plan to take this up with the Michigan Attorney General’s Office.  In case you’re wondering, this is an EMC loan.  I get NO WHERE with them when I talk with them. Needless to say, I do not think much of EMC as a mortgage company.

“60 Minutes” said that there are even crazier loans coming down the pike.  Just when we thought that the industry was getting regulated, it appears that the industry invents a new way to get more and more people into financial trouble.

Liz Nichols

According to Yahoo News Real Estate the top foreclosure cities in the country are currently:

1.  Merced, California

2.  Modesto, California

3.  Stockton, California

4.  Riverside, California

5.  Detroit, Michigan

6.  Fort Lauderdale, Florida

7.  Cape Coral, Florida

8.  Vallejo, California

9.  Las Vegas, Nevada

10. Sacramento, California

Even though foreclosure filings are down in the Los Angeles area, the fact that 6 of the top 10 foreclosure cities in the country are in California, does not bode well for a turnaround any time soon in that state. The rapid escalation of prices in Fort Lauderdale, Cape Coral and Las Vegas during the mid-2000s explains their prominence on the list right now. 

The devastation that high foreclosure rates have on a community are very apparent every time I visit Cape Coral where every block has a house or two in foreclosure. Some neighborhoods have had to put up with half built abandoned buildings that serve as eyesores.  Prices of land have fallen by about 90%. Prices of homes have fallen by half or more.  There were signs earlier in the year that prices had fallen to the point were people were willing to buy again. Still, there is a common believe that even in this devastated market prices have not fallen as far as they must in order to attract people back to the community.

In my native Iowa there were 4,203 foreclosures posted in September 2008 for an annual total of 35,773. There were 56 foreclosure homes sold in Iowa in September for an annual total of 796.  The year to date average foreclosure sale price was $79,553.  Iowa has just started to see layoffs.  The floods last summer also affected businesses and people lost jobs and homes because of that.  My guess is a lot of the existing Foreclosures in Iowa are in communities that saw a lot of flood damage like Cedar Rapids, Palo and some neighborhoods in Des Moines. Many were too disheartened to try to clean up and salvage their homes and they picked up and left. Still, compared to the cities listed above, the cities in Iowa seem pretty insolated from the worst of the foreclosure news.

Liz Nichols