What Happens When More Homeowners Figure This Out?
Say you purchased your home in 2005 for $400,000 and it is now worth $250,000? Not such a stretch especially if you live in California, Arizona, Nevada or Florida.
Now imagine you have either lost your job, or in the case of many residents in my market, had your wages cut 15-25% by the State of California. To add insult to injury, that great loan being touted at the time you purchased your home is set to adjust up in 2011 at year five.
You can no longer afford your home...what to do?
Overwhelmed by the number of defaulted properties, banks have stretched out the time between the beginning of mortgage delinquency and formal foreclosure to an incredible average of 469 days -- more than 15 months. The homeowner now has several choices:
- Sell the home short sale which may preserve his credit somewhat over a foreclosure. The average short sale takes about 4-5 months and then the homeowner will be out and on his way. He may struggle to find a rental with his tarnished credit. Hopefully he thought ahead and saved money for the 4-5 months he was waiting for the short sale to be processed.
- The homeowner could do a deed in lieu of foreclosure. This could get him out of the home quickly and have the whole fracus behind him.
- The homeowner could stay in the home for 15 months--maybe longer--pocketing cash each month without a house payment or having to pay rent.
According to this article: In Reality, Housing Is Not Even Close to Stabilizing, the cure rate on home loans that are past due 30 days is 30%, and past due 60+ the cure rate is zero. This hasn't always been the case, but in this brave new economy, zero is the new 30%. Also, an incredible 14% of the nearly 54 million first liens in the country are now either delinquent or in default.
Why? Have you tried to do a loan mod? The folks I know who have tried are in loan mod hell and have been there for more than a year with no end in sight.
Have you heard the short sale horror stories? I just read a blog on AR that said Wells Fargo will cancel out the short sale if it goes even one day past the close date and will not grant any extensions.
Homeowners don't feel the love, any warmth and certainly no fuzziness from their lender. For these reasons and more, it would seem most folks are opting for option 3.
For an excellent understanding of the foreclosure dilemma and why we can expect almost 7 million foreclosures over the next few years, check out the article mentioned above. To believe that prices are firming now is to completely ignore the shadow inventory mentioned in this article. Ignore it at your own risk.
Thank you for stopping by. Your comments on this post are welcomed and appreciated.
No one sold more homes in Del Norte County in 2009, 2010 and 2011--*in units sold and volume--than Fran Gatti. Put Fran to work for you!
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