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Thursday, March 6, 2008

Foreclosures hit all-time high

The sky is falling! It’s the Apocalypse! Oh, whoa is me! The foreclosure rate hit an all-time high in January of 2.04% of all mortgages the worst in the 36 years that foreclosure records have been kept. And there appears to be no end in sight. One reason it may take so long is that there seems to be no end in sight for falling home prices, even though yesterday I blogged that the end is near - different experts and different outlooks. Today the headline was about the worst evr foreclousre rate, which is a hard fact and not an opinion.

"Declining prices are clearly the driving factor behind foreclosures, but the reasons and magnitude of the declines differ from state to state," said Doug Duncan, the Mortgage Bankers Association's Chief Economist said in a recent prepared statement.

The foreclosure rates for prime and subprime adjustable rate mortgages both more than doubled compared with a year ago, from 0.41% for prime ARMs to 1.06% and from 2.70% for subprime ARMs to 5.29%.

But it was subprime ARMs that contributed most heavily to the nation's soaring foreclosure rates. Many of these loans come with low introductory rates that reset higher, often to unaffordable levels, in two or three years. Although they represent only 7% of all outstanding mortgage loans, they accounted for 42% of foreclosure starts during the quarter.

Delinquencies stood at 5.82% of outstanding mortgages, up from 5.59% during the three months ended September 30, 2007, according to the MBA. In the last quarter of 2006, the rate was 4.95%.

So is this it? Are pigs about to fly? Should we all grab our ankles and kiss whatever we can reach goodbye? Somehow, I don’t think so. Let’s see if a minor twist (I hesitate to call it a spin, because the politicians have forever tainted that word) can put this in a new perspective. Let’s try a different opening headline. Instead of a screaming 36-point, front page headline of “Foreclosed homes hit worst level ever at 2.04% of all mortgages.” Lets see how this plays out – “97.96% of all home mortgage holders doing OK and able to pay.” I guess it just doesn’t grab the headline writer the same way. It’s sort of like the Headlines on Crime statistics that scream “262 People Killed in Metro Area Last Year.” It just has more pizzazz than”3,672,344 people not killed in Metro Area Last Year.”

We’ve become a society where the only thing that makes the news is bad news. Somebody killed somebody. Somebody robbed somebody. Somebody’s house burned down. Even worse, we now have a news media that trips over itself to go film the reaction to the tragedies of life, by thrusting microphones into the faces of grieving people and asking them how that make them feel. If the networks could figure out how to go along on the murders and robberies and other crimes they would and would turn it into a reality show.

So, is the real estate news bad? It sure is, but it is not apocalyptic and it is temporary and real estate will come out on the other side of all of this as still being one of the best investments that a person can make. What we are seeing now is the result of a lot of people making bad decisions or getting caught up in bad timing. Many reached for too much and let themselves be talked into stupid mortgage loans and now they are paying the price. Many others got caught up in the wrenching economic changes that Michigan is undergoing and got laid off at a time when finding new employment is very tough.

All of this will pass. Will we return to the good ole days? Let’s hope not. That’s what got is in this mess to begin with. Let’s all just hope for stability, for things to level off and allow everybody to catch their breath. I think that is on the horizon and so do a lot of pundits and economists. Then we can all sing a rousing chorus of “the sun’ll come out tomorrow.” Of course the media will still be grasping at the negative with headlines like “Sun abandon’s U.S. – darkness descends upon the land.”

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