Written By: Joan Ewing, Op-Ed Writer
Hello – I hope everyone had a very nice holiday and let us all look forward to the New Year with a positive attitude that it will be a GOOD YEAR!!!! Let’s all Toast to 2009!
Before, we can look forward to the New Year; I think we need to look back one more time – then LET IT GO. Let’s all review one more time what some experts believe happened in the housing industry and why it is such a mess today – not that it will be fixed today or tomorrow; however, in order to correct a problem, the cause of a problem must be known and understood. One last time, let’s discuss the housing problems of 2008 and it will never be another blog topic of mine.
What really destroyed the mortgage market last year, did not start last year but perhaps as far back as 2002, which was the beginning of the problem. The years of 2002, 2003, 2004, 2005, and the first half of 2006 WOW they were the good years. Everybody was making money, everybody was loving life, everyone in the mortgage industry had a job – life was good.
Buyers were purchasing homes by just stating their income. Housing prices were soaring and the sellers were getting much more than their asking price for their home, buyers were standing in line for properties, with automatic price increases in the Contract of Sale. Verbal only verifications, no pay stubs, no W2’s, no tax returns. WOW – anyone could really achieve the American Dream of homeownership!!
However, since the first half of 2007, or perhaps a little further back, to present - the market has changed - crashed. Buyers are no longer in a bidding war for a house; instead houses are staying on the market at least 4-6 months, many homes much longer, if there is even a buyer who is interested in your home. It is now a buyer’s market and some sellers are saying – Just somebody, please buy my house, I can no longer afford the mortgage payments, I do not want my house to go to foreclosure. Some sellers have approached their lender and the lender has agreed to a short sale, which means the lender has agreed to take less money than the current payoff.
Which mortgage products are the biggest culprits of this mess? In addition to Stated Income/Stated Assets, the Sub-prime market, another popular mortgage that is contributing is the 2/28 Program.
According to statistics the most delinquent mortgages in trouble today are those in the 2/28 program. Is anyone really surprised? Back in 2002 everyone was working, the housing prices skyrocketed, the stock market was soaring, lots of money was being made. NO one (except me) ever thought that the market would take a downturn and there would be a market adjustment, which is really taking place now. The 2/28 Program was soaring. It helped borrowers get in their property and everyone knew their salary was going to increase – so the loan product was no problem. Oh how opinions have changed!
The 2/28 mortgages that were taken out in 2002 - 15% took an average of 84 months to get into trouble. However, interestingly, the 2/28 mortgages that closed in years 2005, 2006 and 2007 – 25% are in default with an average payment life of 24-36 months, causing a clash of the 2/28’s all going into default at basically the same time.
As a result of all loan products crashing at the same time – there are a glut of properties on the market now. Some homeowners need to sell, some need a forbearance program and others will sadly go to foreclosure. So – all things being equal, we now have another problem in addition to glut of sales on the market and that is declining prices. The domino effect is in full force!! At the present, in certain areas of the country 42% of homes have negative equity. If the homeowner is able to work with their mortgage company – perhaps a loan modification can be worked out, where the lender will lower the monthly payments and adjust the mortgage balance, for a percentage of the proceeds when the property is sold.
There is much work that needs to be done in the mortgage industry; however, I believe now that everyone understands what a fragile entity real estate is – when hiccups begin they need to be stopped immediately – not keep being fed with risky programs.
As we move into 2009 – let’s all think positively!!!! Believe the real estate market will turn around – there is no doubt it will. BELIEVE – Now let’s move on and not dwell over the horrible housing stories of 2008 –
I would like to wish each and every reader of this blog -- A VERY HAPPY NEW YEAR to you and your family. Keep processing – More Later.
About The Author
Joan Ewing - As an op-ed writer and active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base.