feeling the culture

Foreclosure’s, is the worst behind us?

Many of these properties have been lost due to the creative financing that helped purchase them in the first place. Between the years 2007 and 2014 adjustable rate mortgages and a host of other toxic mortgages began replacing the traditional 30-year fixed mortgages. Unbeknown to the world, it was the beginning of a vicious downward spiral that’s only just begun.

The Future of Real Estate

Many of the remaining mortgages that were creatively financed are expected to become delinquent between the years 2010 and 2020, pushing a huge mass of new foreclosures into the market. Think the end is near, think again, these loans have only just begun to go belly up in the past 3 years, which means were only about 25% of the way through the rough, leaving the future of our real estate market with great potential to get worse before it ever gets better.

The Problem with ARM’s

Adjustable rate mortgages started out with a low teaser rate that adjusted too a much higher interest rate at a pre-determined future date. This increase in interest rates also increased the monthly mortgage payment to levels that were unaffordable to most people, forcing many of them to lose their homes to foreclosure.

The Layout of Adjustable Rate Mortgages (ARM’s)

There is no way to tell exactly when these loans will go bad, however the ARM’s can almost be mathematically estimated. The teaser rates on ARM’s only last a few years before adjusting upwards, and are set to expire in 1, 3, 5, 7 or 10 years from the original loan date. That means 17 waves of ARM’s are going to reset their interest rates and payments in the next ten years, 14 of which will be resetting from 2010-2014 alone!

Check out this chart below to see what ARM’s are coming due to adjust on their unlucky homeowners over the next ten years.

 

In the year 2010, 4 waves of ARM’s will reset at higher rates, they are the:

3 years arms from 2007

5 years arms from 2005

7-year arms from 2003

10-year arms from 2000

In the year 2011, 3 more waves of ARM’s will be resetting, they are the:

5-year arms from 2006

7-year arms from 2004

10-year arms from 2001

In the year 2012, 3 more waves of ARM’s will be resetting, they are the:

5-year arms from 2007

7-year arms from 2005

10-year arms from 2002

In the year 2013, 2 more waves of ARM’s will be resetting, they are the:

7-year arms from 2006

10-year arms from 2003

In the year 2014, 2 more waves of ARM’s will be resetting, they are the:

7-year arms from 2007

10-year arms from 2004

In the years 2015, 16, & 17, 3 more waves of ARM’s will be resetting, they are the:

10-year arms from 2005

10-year arms from 2006

10-year arms from 2007

Many homeowners will struggle with their higher mortgage payments for up to three years sometimes before they fall behind and enter into foreclosure. That is going to drag this problem out well into the year 2020, after which the market may finally settle down and return to normal.

The Good News

Needless to say, there’s a storm coming. It’s not all bad news though, it will be great to see the currently ridiculous prices of real estate come back down to earth so people could actually afford to buy a house for there families and still have money left over to live on and save money for their futures.

The Bad News

This doesn’t take into consideration all the other types of creative financing that may add to the mix along with the ARM’s such as pay option mortgages, interest only mortgages, reverse mortgages, no doc mortgages, etc. Aside from just bad mortgages there are many other problems facing the real estate market over the next few years like rising unemployment, rising mortgage rates, and government interference or lack there of.