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realtor Study Reveals Foreclosures Result of Excessive Debt

Posted: 09 Aug 2010 03:30 AM PDT

A recent study by the Pennsylvania Association of realtors reveals that overextended borrowers are only one financial hardship away from foreclosure. 


Irvine Home Address ... 62 RACING WIND Irvine, CA 92614
Resale Home Price ...... $500,000

We sit on the brink of extinction
The world lies in wait
Just a scratch on the surface
Of time that will wash away
We delude ourselves with the notion
That we are here to stay

Napalm Death -- Brink of Destruction 

Far too many borrowers exist on the brink of destruction. They delude themselves with notions that they have their houses for life, and they are there to stay. A small scratch on the surface of the false veneer of prosperity damages them beyond repair, and they face foreclosure.

The Pennsylvania Association of realtors recently conducted a study of those who experienced foreclosure over the last 12 months. It reveals a group of borrowers who were hopelessly overextended an unable to withstand the smallest amount of financial hardship. Of course, that isn't how the realtors spin it....


Few experiencing foreclosures had subprime mortgages, previously regarded as the main culprit in the meltdown of the U.S. housing market

CONTACT: Samantha Elliott Krepps
External Communications Specialist
PA Association of rEALTORS®
(O) 717.561.1303 X 3006
(M) 717.303.9078

LEMOYNE, PA (Aug. 4, 2010) – Job loss and unexpected medical bills are among the top factors contributing to home foreclosures in Pennsylvania, according to a survey commissioned by the Pennsylvania Association of rEALTORS® (PAr).

Five hundred Pennsylvanians who encountered home foreclosure during the last 12 months were surveyed by Florida-based polling firm Strategic Guidance Systems (SGS) between June 22 and 27, 2010. Fifty-seven percent of the sample said their household had experienced a wage-earner’s job loss in the 12 months prior to their foreclosure,

This is the statistic they base most of their conclusion on. If 57% reported a job loss -- not necessarily chronic unemployment -- but some short-term drop in income, that means that 43% did not. Nearly half of those who went through foreclosure did not experience any job related financial distress.

while 47 percent said they had been hit by unexpected medical bills.

Don't people carry health insurance any more? Is it reasonable to think that unexpected medical bills that are not covered by insurance are that onerous? To me that is a sign that these borrowers were right on the edge of insolvency to begin with. 

Thirty-six percent indicated they had other “unexpected bills.”

Doesn't everyone experience unexpected bills? If your car breaks down, that is unexpected. If the unexpected bills in life cause people to go over the brink and lose their houses, they have borrowed too much money.

The statistics they quote do not support their overriding conclusions. The truth is that most people borrowed way too much money under terms that were not stable, and even the slightest drop in their income put them in such a deep hole that they could not recover.

They forgot the most revealing statistic: 96% of foreclosed owners anticipated appreciation they could convert to cash to make payments and finance a lifestyle their wage income could not support.... Actually, I made that up, but it isn't far from the truth.

If you don't accept my argument that borrowers are hopelessly overextended, take a look at the graphic above modified from the JUNE HAMP report. The median back-end debt-to-income ratio of HAMP loan modifications is 79.9%. I find that number truly remarkable. Remember, the debt-to-income ratio is based on gross income. With 20% set aside for taxes, the median borrower has no disposable income whatsoever. And this is the median; that means half of the borrowers were even more indebted.

Subprime mortgages, which many regarded as the main culprit in the meltdown of the U.S. housing market, appear to have played a minor role in Pennsylvania foreclosures. Forty-one percent of survey respondents held prime fixed-rate mortgages and 12 percent had prime adjustable-rate loans. Only 14 percent carried a subprime mortgage.

Subprime is not the problem. Toxic loans cut across all borrower classifications.

“It’s clear that housing market conditions are closely tied to economic conditions, especially employment. Subprime mortgages have never really driven foreclosures in Pennsylvania,” said Austin Jaffe, Ph.D., PAR’s consulting economist and head of the Department of Insurance and Real Estate at the Smeal College of Business at Penn State University.

This academic pinhead is missing the broader problem. Sure, the housing market is closely tied to economic conditions, especially employment. Duh! The fact is the foreclosure problem is overly sensitive to economic problems because borrowers have too much debt. To fail to make that connection is to miss the real reason for the foreclosure problem.

“The study represents a significant number of Pennsylvanians who have personally experienced foreclosure in some way. They’re people from all walks of life, various socio-economic backgrounds and all parts of the Commonwealth,” SGS pollster Joel Searby said.

Government Programs, Lenders Not Helpful

Many of those surveyed also did not know about the state and federal programs available to those undergoing the foreclosure process:

  • 67 percent of respondents “never heard of” the federal Home Affordable Foreclosure Alternative Program (“HAFA”)
  • 57 percent never heard of the federal Making Home Affordable program
  • 61 percent were unfamiliar with the Homeowner Equity Recovery Operation program of the PA Housing Finance Agency.

I find those numbers surprising. The various Bailouts and False Hopes have been well publicized. If more than half of those who are in trouble have not heard of these programs, they must not watch the news or use Google to search for help.

Ninety-one percent of those surveyed said they attempted to contact their lender about a solution to their pending foreclosure but 48 percent said their lenders were “not at all” willing to work with them.

Most of those 48% were probably unwilling to give up their entitlements in order to qualify for a loan modification. If borrowers are not willing to cut back on their lifestyles, lenders are not willing to cut them any slack.

The 30 percent who worked with their lenders said it made no difference. Nineteen percent said it “made things worse.”

The 30% who said it made no difference probably didn't qualify because they were already under the 31% DTI limit and didn't need a loan modification. These people applied to see if they could get some free money, and they were told no. The 19% who said it made things worse are the ones who lost hope and gave up when the loan modification didn't come through.

Most of the survey respondents were between the ages of 40 and 59. At the time of foreclosure, 71 percent had lived in their home for more than five years. Forty-one percent of the sample personally experienced foreclosure; 57 percent narrowly avoided or are currently in foreclosure.

The fact that 71% had lived in their homes more than 5 years shows this is not a problem limited only to peak buyers. I imagine they would also find that nearly 100% either bought at the peak or refinanced with cash out at the peak to put themselves into a situation where they faced foreclosure.

The survey has a margin of error of +4/-4 percent.

The association commissioned the study to understand the impact foreclosures have on individual Pennsylvanians, said Don Roth, PAR president.

The study was funded by a grant from the National Association of rEALTORS®.

In other words, the study is loaded with bias and dubious conclusions and will likely be used to lobby legislators for something that will benefit the NAr.

Foreclosure Process Shows Mortgage Lending Isn’t The Only Problem

By Ilyce Glink -- Aug 4, 2010 

Are mortgage lenders to blame for record high foreclosures?

Yes. They are. Greedy and foolish borrowers are their accomplices.

Some might say yes, but a new survey conducted by SGS on behalf of the Pennsylvania Association of Realtors found that the economy, not faulting lending practices, is the main cause of foreclosure in the state.

Yes, that is what they concluded. It is also complete nonsense.

Fifty-seven percent of the Pennsylvania homeowners surveyed said a wage-earner in the home lost their job within in 12 months prior to their slip into foreclosure. Additionally, 47 percent said they were hit with unexpected medical bills.

SGS Executive Vice President Joel Searby said that “most domestic factors [that led to foreclosure] we found were job loss, unexpected bills and change in personal relationships. It was never just job loss. It was always job loss plus something else.”

He refers to the phenomenon as the“plus one factor.”

But maybe the idea of the “plus one factor” will put homeowners’ minds at ease. Foreclosure doesn’t sneak up on you because of the loan you choose or because you lost your job. The “plus one factor” posits that job loss and at least one other factor, one most likely related to the economy, are what send you into the foreclosure process.

So this is supposed to put people's minds at ease? This study tells people they are hanging by a thread, and the slightest financial hardship will break this thread and they will lose their homes. That shouldn't give people comfort, it should scare the hell out of them.

According to the survey, bad mortgage lending isn’t to blame for foreclosures in Pennsylvania. Of those surveyed, 41 percent had prime fixed loans, and only 8 percent had adjustable rate mortgages (ARM).

So what kind of loan did the other 51% have?

Searby says the main takeaway from the survey is that people must understand “it’s not just about the individual type of loan you enter into but the overall strength of the economy.” ...

This is stupid. If the loan type a borrower takes out puts them on the brink of disaster, they they have a toxic time bomb waiting to blow up. Is Mr. Searby suggesting people can take out any loan they like as long as economic conditions are booming? We all saw how that turned out.

Similar surveys were also conducted in Nevada and Florida and yielded - surprise, surprise! - similar results. Apparently the “plus one factor” is at work nationwide.

OMG, these people are so stupid. I would expect the same results in Nevada, Florida, California and Arizona, not because the "plus on factor" but because toxic loans and overextended borrowers are the norm in those states.

The NAr and all its affiliate organizations are morally bankrupt liars who only care about duping hapless buyers into overpriced homes. It's shameful.

Racing toward foreclosure

Based on the behavior of some of the borrowers I profile, some people really believed house prices would go up forever, banks would just keep adding to their loan balance year after year, and when they finally wanted to sell, someone else would pay off their debts. I can't fully grasp the thinking, but it is the only explanation for why someone would more than double their mortgage in just a few years.

  • Today's featured property was purchased on 2/15/2000 for $282,000 by a single woman who borrowed $253,518 and put $28,482 down.
  • A husband was added to title in 2001, and the newlyweds refinanced the first mortgage for $264,000. Perhaps the extra $10,000 helped pay off they honeymoon. It appears to have wet their appetite for more HELOC money.
  • On 10/31/2002 they refinanced with a $352,000 first mortgage.
  • On 8/17/2004 they refinanced the first mortgage for $365,000.
  • On 9/19/2005 they obtained a HELOC for $125,000.
  • On 3/3/2006 they obtained a larger HELOC for $269,100.
  • On 11/05/2007 they got a $222,000 loan that appears to be a stand-alone second.
  • Total property debt is $587,000, hence the short sale.
  • Total mortgage equity withdrawal is $333,482. The more than doubled their mortgage.
  • The defaulted late last year, so they have only missed about 9 or 10 months worth of payments so far. Their auction is scheduled for 9/13/2010.

Foreclosure Record
Recording Date: 06/21/2010
Document Type: Notice of Sale

Foreclosure Record
Recording Date: 03/19/2010
Document Type: Notice of Default

Do you think they will sell it before the foreclosure? I am guessing no. The second mortgage lien is quite large, and negotiations with the seconds kill most short sales. I suspect they will need to be blown out in a foreclosure. 


Irvine Home Address ... 62 RACING WIND Irvine, CA 92614

Resale Home Price ... $500,000

Home Purchase Price … $282,000
Home Purchase Date .... 2/15/2000

Net Gain (Loss) .......... $188,000
Percent Change .......... 66.7%
Annual Appreciation … 5.3%

Cost of Ownership
$500,000 .......... Asking Price
$17,500 .......... 3.5% Down FHA Financing
4.57% ............... Mortgage Interest Rate
$482,500 .......... 30-Year Mortgage
$98,522 .......... Income Requirement

$2,465 .......... Monthly Mortgage Payment

$433 .......... Property Tax
$0 .......... Special Taxes and Levies (Mello Roos)
$42 .......... Homeowners Insurance
$135 .......... Homeowners Association Fees
$3,075 .......... Monthly Cash Outlays

-$397 .......... Tax Savings (% of Interest and Property Tax)
-$627 .......... Equity Hidden in Payment
$30 .......... Lost Income to Down Payment (net of taxes)
$63 .......... Maintenance and Replacement Reserves
$2,142 .......... Monthly Cost of Ownership

Cash Acquisition Demands
$5,000 .......... Furnishing and Move In @1%
$5,000 .......... Closing Costs @1%
$4,825 ............ Interest Points @1% of Loan
$17,500 .......... Down Payment
$32,325 .......... Total Cash Costs
$32,800 ............ Emergency Cash Reserves
$65,125 .......... Total Savings Needed

Property Details for 62 RACING WIND Irvine, CA 92614
Beds: 3
Baths: 2 full 1 part baths
Home size: 1,571 sq ft
($318 / sq ft)
Lot Size: 2,814 sq ft
Year Built: 1980
Days on Market: 48
Listing Updated: 40352
MLS Number: S622256
Property Type: Single Family, Residential
Community: Woodbridge
Tract: Ch
According to the listing agent, this listing may be a pre-foreclosure or short sale.

This property is in backup or contingent offer status.

Beautiful single family cottage home located in great South Lake location. The huge kitchen features an abundance of upgraded cabinets and upgraded lighting with a breakfast bar and casual eating area opening to the family room. Formal dining room is light and bright - perfect for entertaining. The separate living room featuring a fireplace could also be perfect for your den or library. The upstairs has 3 large bedrooms including an oversized master bedroom. In addition to the three bedrooms, there's an additional office space and loft area. Technically a 3 bedroom, but lives like a 4 bedroom. This home features tons of storage space, both inside the home and in the garage. The yard is low maintenance. Enjoy nearby pool, tennis court, school, shopping and dining. Welcome home to your cottage in Woodbridge!

These properties with low HOAs and no Mello Roos benefit the most from lower interest rates. When most of the cost of ownership is the payment, the lower interest rates really make some of these houses much more affordable. This property is probably at or below rental parity.

real estate home sales


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