Modified Subprime Mortgages Redefault

Fitch Ratings is slated to release a report this week showing that 65 percent to 75 percent of modified subprime mortgages will still fall behind by 60 days or more within one year of the loan change. Although some experts believe that reducing the principal amount owed is the best way to keep distressed borrowers in their homes, Fitch found that…read the full subprime mortgage redefault article.

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GM Received $19.4 Billion in Bailouts Still Bankrupt

My thoughts about the news that GM has announced they are most likely going to file for Chapter 11 bankruptcy on Monday.

Okay, so let me get this straight. The American taxpayers gave GM $19.4 Billion dollars to put this economically inept company on life support for 6 months only to have them file the bankruptcy that they should have at the beginning of the year? Was it really that smart to buy GM time in the hopes that a miraculous restructuring could be negotiated with the bondholders and UAW without filing for bankruptcy? See more of my GM Bailout Money Rant post.

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Foreclosures Rise on Prime Mortgages

map of foreclosure rates

This article entitled “Job Losses Push Safer Mortgages to Foreclosure” appeared in the NY Times on May the 25th, 2009. The authors are Peter Goodman and Jack Healy:

As job losses rise, growing numbers of American homeowners with once solid credit are falling behind on their mortgages, amplifying a wave of foreclosures.

In the latest phase of the nation’s real estate disaster, the locus of trouble has shifted from subprime loans – those extended to home buyers with troubled credit – to the far more numerous prime loans issued to those with decent financial histories. Read the full foreclosures rise on prime mortgages story.

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Nationally, Many Homeowners are "Underwater"

According to a report by First American CoreLogic, at least 7.5 million American homeowners are “underwater borrowers,” meaning they owe more on their mortgages than their homes are currently worth.

This is called negative equity, and the report shows an additional 2.1 million people are on the brink of falling into it. Their homes are worth less than 5% more than the mortgages they’re paying on them.

The report’s 7.5 million estimate is a conservative number. Some organizations, including Moody’s, estimate that as many as 12 million borrowers may be underwater. As a result, real estate auctions are on the rise.

Nevada is home to the highest number of underwater borrowers, with 48% of homeowners having negative equity. Michigan follows with 39 percent. New York is faring best at 4.4%.

While this report does not specifically refer to cities, it is our belief that Nashville falls towards the lower end of the spectrum due to the lack of a run up in the mid 2000’s. It also appears that Nashville does not have as big of a subprime mortgage mess as other, similar cities.

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WSJ Reports Slowing Mortgage Delinquencies

The subprime mortgage market still is getting worse each month, but there are some indications that the massive problem of borrowers falling behind on their loans may be moderating.

Data provided recently to holders of securities backed by subprime mortgages showed that the number of borrowers who were delinquent on their home loans rose at a slower pace in April than in March. It was the third month in a row in which mortgages went bad at a slower rate.

…While it is hard to predict when the subprime market will hit bottom, some analysts think the recent data indicate that some sort of stabilization is under way.

“The trajectory is beginning to flatten out, and this could be a turning point for prices” of mortgage securities, said Glenn Schultz, a senior analyst at Wachovia. As many poorly underwritten subprime loans made between mid-2005 and mid-2007 go bad early in their lives, Mr. Schultz expects the remaining loans to perform more normally.”

[SOURCE: Wall Street Journal]

This news does point towards a slowing foreclosure rate in the future, but foreclosures usually lag 4-6 months behind mortgage payer delinquency. I believe that this summer will see the most foreclosures in Tennessee in recent history and that stabilization will not return to the immediate Nashville area until the beginning of 2009.

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Nashville February Home Prices and Sales Data

Nashville home prices and sales data

There were 1,892 residential closings in February 2008 as opposed to 2,575 in February 2007. Of those 1,892 closings, 1,488 were single family homes, 256 were condos, 121 were land, and 27 were multifamily.

As of the end of February, there were a total of 22,473 properties on the market as opposed to 17,824 in 2007. Of those 22,473 properties, 14,344 were single family homes, 5,375 were land, 2,374 were condos, and 380 were multifamily.

Inventory has increased fairly significantly due to the sub prime financial mess and there are many meaningful choices for buyers. More importantly, there are very few foreclosures, pointing towards a healthy market that has backed off of 2007 highs, the second best year in Nashville real estate history.

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