The effect of the credit crunch begins in December

Banks have so many REO's already they can't keep up. Additional NOD's just make for more chaos. Banks are starting to delay the NOD's inorder to give borowers more time. This is only exacerbating the problem since values keep declining. It is sooooo bad I can't possibly communicate it to you all in writing. Again, it is absolutely insanley horrific right now. ALL the borrowers that I have written about in my posts this year are still in their homes. The majority haven't even made a late payment yet, but they will. It is only a matter of time before their mortgage payments reset and begin to crush the life out of them.



South Orange County is going to look like a ghost town. At least 3 out of every 5 people I talk to who live in South OC are self-employed in some fashion. Many of these people are involved in RE or RE construction/remodeling. If I had a dollar for every white, goatee-d, pickup driving contractor in Mission Viejo I'd be a wealthy man. People are coming in asking us to increase their HELOCS because they are running out of money. Even conservative borrowers with equity are struggling as business grinds to a halt. It affects all races. People assume that 1st generation asians or iranians wouldn't be so foolish as to max out their property with neg ams, but this is not the case. They got sucked up into this too. In my experience foreigners are serial purchasers of real estate. They are soooo rate driven and so obsessed with getting the best deal that they'll believe a broker when he/she sells them a 5 year fixed rate @ 1.75%!!! No closing costs!! I want for free!



I am betting that my current employer will be seriously considering bankruptcy by years end.
 
<p>hs_teacher - I was not trying to call you out. I just did not want to misrepresent or mischaracterize what you had written.</p>

<p>That said, if I was using the equity in my home to make my mortgage payments, I would be stressed. Especially if the value of said property was depreciating. But, hey, maybe I am just a worry wart.</p>
 
lm - And if you told your story to a few folks at a backyard barbeque, they would probably think you were exaggerating and being reactionary. The denial stage has not ended.
 
Roo - Yes, the numbers are OC specific.





movingaround - Yes, bk numbers are up as well. Up 73% YOY in the 3rd quarter. Check out the <a href="http://www.abiworld.org/AM/Template.cfm?Section=Filings_by_District1">ABI site here</a>, and search by district. OC is part of the central district, and that district encompasses a large area. I wish, and Lansner wishes too, that there is a source for OC specific numbers.





awgee - The lenders and/or borrowers are definitely dragging the process out. I have seen properties get delayed month after month. Like our buddy on 14 Meadow Wood. Oh... he has a neighbor joining him next Friday at the auction on 33 Summerside. LM pointed out, that the lenders are overwhelmed, and do not have the capacity to handle the volume. They also do not have people with experience in this area either. All those loss mit and default people they let go earlier in the decade, because they were not needed, have moved on and found other careers. I wonder if they are trying to beg some people back? Anyway, as I was digging up some of the numbers from the 90s, I found out that the lenders began to speed up the foreclosure process in 95 and 96. I found a quote from John Karevoll of DataQuick, that basically said in 93/94 it would take 9-12 months to actually go through foreclosure. However, there was some outside pressure to speed up the process, and in 96 the process was taking 5-6 months. It sounds to me like that outside pressure this time would rather delay the process than speed it up. Currently the NOD to foreclosure rate is 47.7%.





Oh... and yeah the numbers, they are just numbers. Now is a great time to buy.





There is a joke in the industry about agents. Somehow, they had trouble calculating the down payment correctly on the purchase contract. Yes, I actually saw 10% down payments calculated incorrectly. But, amazingly they had no trouble calculating their commission down to the last penny.
 
<p>OMG--</p>

<p>As I was finishing my previous post, I got a call from an asian woman who owes 696k on her 1st mortgage with us, and 120k on a heloc with wamu. She is a nurse and her hubby is a manager. They're combined income is 186k a year. Her first mortgage is a neg am. The original balance was 650k. Her loan will recast once the balance reaches 715k. Her prepay just expired and she wants to refi. Surprise, surprise, she wants to keep her payment low, but doesn't want any neg am. WTF?. I told her that isn't possible. Even if we could combine the 2 loans into an 820k interest only @ 7% her interest payment would be $4,783 a month. Her taxes and insurance are $535 a month. </p>

<p>Right now her minimum payment is only $2,416. Her interest rate is 8.315% which gives an IO payment of $4,822.70. She is deferring $2,407 a month right now which means she will hit 715k within 7 months. At that time she will than have to pay $5,397 a month on the first mortgage alone AND she'll still have her HELOC payment of $680 a month!!! An electronic assessment of her properties value yields a range of $790k-895k. She is nearly @ 100% LTV right now as it is. She has zero chance of refinancing. </p>

<p>Even if her house was worth 2 million her DTI would be too high to qualify full-doc and they make over 180k a year!!!</p>

<p>This is the nightmare that is coming, folks. By August this couple is going to have to pay over 6k a month for a depreciating asset on TWO ADJUSTABLE rate loans! This is what I hear every single day. This is NOT an isolated incident. Even if they buckle down and pay their monstrously satanic mortgage payment, they will have no more play money. This will significantly impact consumer spending.</p>

<p>Brace for impact.</p>
 
LM, that ain't pretty. Subprime is going down, but it's taking everyone with it. You would think people understand what money is worth and how it works, but apparently even if you have a good job not everybody understands. Give it more time and you'll see more and more like this. LM, keep writing these stories...they are amazing and terrifying at the same time!
 
<p>Whistles past the graveyard........</p>

<p>My verbatum conversation w/ a manager of my former vendor - 2004.</p>

<p>Manager - "Why don't you buy a house?"</p>

<p>Me - "Because I don't want to spend $5K a month when I can rent for half that?"</p>

<p>Manager - "What are you talking about? My payment on my house in Temecula is $1400 and I didn't put anything down!"</p>

<p>Me - "Yeah, but for how long?"</p>

<p>Manager - "Man, who cares? I've made a $150K off of that house......anyway, RE never goes down."</p>
 
<p><em>They're combined income is 186k a year.</em> ... <em>Even if we could combine the 2 loans into an 820k interest only @ 7% her interest payment would be $4,783 a month. Her taxes and insurance are $535 a month.</em> </p>

<p>Um, what's the problem? $186K = $15,500/month. $4783+$535= $5,318.</p>

<p>$5,318/$15,500 = 34%</p>

<p>okay, that's high, but they should be able to manage it. </p>

<p>They should be able to afford the home they are in, but because of spending habits, they probably can't. </p>

<p> </p>

<p>Actually, they sound like an ideal candidate for 30 year debt slavery under the subprime workout program Paulson arranged.</p>

<p> </p>

<p> </p>
 
<p>Bankruptcies jump 40 percent in 2007</p>

<p>http://money.cnn.com/2008/01/03/news/economy/consumer_bankruptcy/index.htm?postversion=2008010312</p>
 
<p>I agree - they should be able to handle that payment. But it isn't going to be a "rich" lifestyle - at least compared to our "OC" expectations - compared to most of the world - who we easily forget at times - they are doing just fine. </p>
 
Can you imagine what would happen if all the foreclosures sit empty for a year? It will just be a matter of time before the rents will go down, maybe 20 - 35% for empty homes. Right now it costs about twice as much to own than rent. For example a $2000/month rent will cost $4000/month to own.



But what if the rents go down 33% and it costs ~ $1334/month to rent the same house. I think even people who could pay their $4000 mortgage payment will walk away. Why would you pay three times as much to own your own home.



Especially if they think housing will continue to be worth less year after year.
 
In order to qualify you need to take the PITI payment first of all. That would be $5,990. Factor in $535 a month for a car payment which lasts another 30 months and $1195 a month in credit card payments. That's $7,720 a month just for bills reporting on credit. What about car insurance, food, water, gas, electric, etc??
 
<p>That's nothing. To you or I it may seem ridiculously high, but it is not unfortunately. </p>

<p>Underwriting standard is 5% of the balanced owed must be applied as a monthly payment. 23,900 credit card balance requries a payment of $1195. I've seen credit reports with over 100k in cc debt and 4k a month in payments. </p>
 
<p>LM, I hear you. And agree, she's dust. But my point is that at $186K, they SHOULD be able to own a $820K home with current rates. Given previously low 30 year fixed rates, SHOULD have no problem.</p>

<p>Of course, SHOULD and real lifes of real housewives & husbands of OC are two different things.</p>
 
<p>"Should" doesn't apply very often to OC reality. At $186k, $5k/month + 2 cars @ $500/month + no other debt should be feasible. This would leave $4.75k per month for other expenses which seems reasonable...of course if you have 2 kids in college you might have to be careful, but still you got to be able to make it...</p>

<p>Why can't people sometime Stop and Think about what they are doing? It's never a fun thing to do, but you got to take care of yourself...</p>

<p> </p>
 
But if today they can handle it with their combined income, *Why* they are paying the minimum payment of $2,416?





What makes you think that tomorrow they will handle it once that their 1st loan resets due to the balance cap and the the minimum payment option is non longer available?



 
Also I think you need to stand back and look at what their net income is vs their gross income. Even making 186K / yr combined only comes out to 139.5K / yr net after taxes are taking out. Then take into consideration the cost of medical and maybe a possible garnishment on their income and they could be in some trouble. On top of all of that I am assuming they are both driving nice Lexus' or BMWs which are leased and costing them an additional 1000 to 1200 / month.



LM...I have never submitted for a mortgage loan and only know enough about them to get myself into trouble. However, why do underwriters look at Gross Income or Taxable Income vs Net Income or Income after Taxes?
 
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