American Dream Sours as Housing Market Collapses (Telegraph UK, via CommonDreams)

[marmar]

Published on Sunday, May 6, 2007 by Telegraph/UK
American Dream Sours as Housing Market Collapses
by Philip Sherwell

DENVER, Colo. - For Cathy Busby, May 1 marked a personal “Mayday!” as she was sucked into the housing crisis sweeping the United States.

On Tuesday, she went into arrears on her mortgage after her monthly repayments soared by 40 per cent. The 47-year-old hospital administrator will lose the three-bedroom home in the Denver suburb of Montebello that she bought 11 years ago, unless she can reach a deal with her lender.

“I raised my sons here and I planted these aspens and landscaped this garden. It’s a terrible thought that I could lose it all,” she said on the first day that she failed to pay her interest-only -mortgage.

Miss Busby is far from alone: the American dream of home ownership is turning sour for many. Up to two million people with so-called subprime, or high risk, -mortgages have already had their homes repossessed, or will default on their loans in the coming months, according to industry estimates.

Such houses are generally sold at auction, for less than the full market price. Home owners’ losses will total an estimated $164 billion (£82 billion), according to the Centre for Responsible Lending, an independent research group.

Borrowers and lenders are losers alike: last month a major mortgage lender, New Century Financial, went bust. In February, HSBC issued the first profit warning in its 142-year history as a result of losses incurred by its American wing on subprime loans.
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The crisis will also play a role in the race for the White House as Democrats call for a federal bail-out plan while Republicans say that would be a waste of taxpayers’ money. ....(more)

The complete piece is at: http://www.commondreams.org/archive/2007/05/06/1006/

[MadMaddie]

1. This is only the beginning...because this adminstration has not

enforced any regulation and auditing of the home financing industry ...instead allowing the industry to check itself....Americans are going to pay heavily for lack of oversite...

[Warpy]

2. A hospital administrator with an 11 year old

interest only loan? I only heard about those stupid things being issued 5 years ago. Something smells funny, like other debt being paid off by a refinancing with a very shaky loan.

I just wonder what she thought she was going to do as those balloon payments kicked in. It's obvious she didn't intend to keep the house for 3 years and sell at an obscene profit.

If this proceeds like the S&L crisis did, the lenders will be bailed out at our expense. While we are paying for this bailout, a lot of us will lose everything we worked for.

Kinda makes you think somebody planned it that way, doesn't it?

[SharonAnn]

4. Perhaps she refinanced?

[Snarkoleptic]

3. ARM resets

Many adjustable rate non-prime mortgages are set-up with a 2-3 year fixed rate which then 'resets' on month 25 (month 37 on the 3 year). Based on the index rate run-up over the past few years, it will be common for people to see their rates increase by 2% (IE from 7% to 9%). Many of these loans were underwritten with debt ratios as high as 55% (based on gross income). Individuals who had a 55% debt ratio based on a 7% rate are going to struggle to pay when their rate goes to 9%.
According to Credit Suisse, somewhere between $18-$35 billion in non-prime ARMS will reset each MONTH for the next 18 months.
The peak months will be October and November of this year and after November 2008 there will be a precipitous decline in ARM resets.
Take a look...it's not a pretty sight.
http://www.autodogmatic.com/forum/viewtopic.php?t=280&highlight=resets
The really tough issues here are-
1) Many of these loans were high loan to values (some with 580 credit scores got 100% financing) and home values are declining in many markets.
2) Lenders have been forced to tighten underwriting guidelines. Many people will be unable to refinance out of the newly reset ARM.
3) Item #2 above will further depress the housing market as foreclosures surge upward.

Who's cashing in? Wall Street is making a killing.
Firms like Morgan Stanley, Goldman Sachs, Lehman Brothers, Deutsche Bank, Citigroup, etc are picking up mortgage companies for pennies on the dollar and posting huge profits (at least in these acquisitions).