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Tidal Wave of Foreclosures and REOs?

Johns Wu Posted in Mortgage Rates by Johns Wu
February 13, 2009 02:45 PM - 22 Comments

An old but important chart to be aware of… The 2008 subprime ARM resets brought the USA into recession, but it will be the tidal-wave of ALT-A + option ARM resets coming soon that will crush the markets.

If you are on the sidelines looking to buy a house, time is on your side. With unemployment (+fear of unemployment) rising and many homeowners underwater on their mortgages, housing prices have a long way to fall before they become affordable again. If you’re like me and you live in California, be aware that the 3 month moratorium on foreclosures (see SB1137) has ended and the markets will be drowning in REOs by summer.

Don’t be suckered in by Obama’s “stimulus” bill which promises a $8000 tax credit to first time home-buyers. You can save $8000 just by waiting out the markets for a couple months.

The government is not going to be able to fix this. Obama’s new futile “solution” is to subsidize mortgage payments for troubled homeowners. Yes—that means average Joe taxpayer who has been saving up his whole life to buy a house will have to pay taxes to prop up the prices of the very houses he’s trying to buy! This is ridiculous policy that could only have been thought up by a communist politician… Obama’s only been in office for a couple weeks, but so far he’s shaping up to be just as bad as Bush…

Good things come to those who wait. Good luck.

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Comments (22)
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  1. Mike M said:
    on February 13th at 03:58 pm

    Funny – this idea is “communist”, but what about the Republican ideas of subsidizing mortgage rates? Or the fact that the tax credit in the stimulus bill was actually pushed for by Republicans?

    Do you think they are “communist” too?

  2. Johns Wu said:
    on February 13th at 04:11 pm

    Subsidizing mortgage rates is NOT communist. It allows new buyers to score good deals and existing homeowners to refinance—everyone wins. But it is bad economics that will create more problems down the line… look at Fannie and Freddie…

    Obama’s proposed solution allows only the irresponsible to benefit at the expense of everyone else—that’s communism and throwing good money at bad.

    I didn’t say the $8k tax credit was communist. I just said it was useless—it’d be a lot more useful if they gave me a $80k tax credit.

  3. Johns Wu said:
    on February 13th at 04:16 pm

    http://latimesblogs.latimes.com/money_co/2009/02/mortgage-subsid.html

    “Let’s see. Neighbor One buys a home for $500,000 with a 20% down, doesn’t lie on his loan application, has a monthly payment he can afford and makes all his payments on time. Neighbor Two, living next door to Neighbor One, buys a home for $500,000 with no down, takes advantage of a teaser rate so he can barely afford the payments, and sees his payment more than double when it resets to market. Neighbor Two gets in trouble and is in foreclosure. Both Neighbor One and Neighbor Two have homes which now are worth $300,000.

    Under the Obama plan, Neighbor Two, who had NO business buying a home in the first place, gets his mortgage “bought down” to $300,000 and is responsible for a corresponding reduction in payment (and interest rate). Neighbor One, on the other hand, is $200k upside down, lost his equity due to the fall in market values, continues making his payments (at the $500k level)and receives NO help for his honesty, hard work, and for fulfilling his obligations.

    There is something wrong with the Obama proposal.”

  4. BloggingBanks said:
    on February 13th at 06:40 pm

    I don’t think that the government should be subsidizing people who took on higher mortgages compared to what they could afford. However if these people really sell now, the market would be even more depressed.

  5. Tom said:
    on February 13th at 08:53 pm

    It makes no sense at all. I’m responsible with my finances and I’m almost willing to just blow all my cash and buy things I can’t afford, the government will save me, right?

    If only the government made these fools who are head over heels in debt take a weekly financial course, maybe this economy would be in better shape.

  6. Bankmode.com said:
    on February 14th at 05:44 am

    BloggingBanks your right, selling would add to the economies current crisis.

  7. Amar said:
    on February 14th at 07:10 am

    Johns Wu, you are a moron. Please inform us of your economist background or any degrees you have in economics or finance.

  8. Renter30 said:
    on February 14th at 07:25 am

    I think the housing market is still way too high. I’ll wait for the REAL affordable price.
    If I am one of those greedy home buyer, I’d definitely WALK AWAY and BUY another new and yet cheaper house.
    Whats the point of that stupid subsidize mortgage payments?
    Let’s walk away and let them drop to reasonable prices!!

  9. Room 809 said:
    on February 14th at 09:01 pm

    Is mortgage a problem for this guys? BORN RICH.

    http://room809.blogspot.com/2008/06/rich.html

  10. SI Reasoning said:
    on February 14th at 11:51 pm

    I have a very interesting idea that might be done fairly quickly. What if there was an across the board evaluation of reasons that people defaulted on their mortgages. Those who bought above their means could be involved in a house swap event. This could involve every bank holding foreclosable and foreclosed houses and can be available even with those who have already been foreclosed on. The process is simple enough, after a proper evaluation (of both the homes and the owners), each house is given a price and each buyer is given a recommended price range and a ceiling. Then those participating in the program have a month to evaluate properties in their range, and then at the end of the month they can make a bid on a house. Once accepted by the bank, they inherit the original mortgage on the house in their price range and when someone bids and is accepted on their prior home, their credit record is cleared and all legal issues associated with the foreclosure are wiped clean.

    This could have the affect of tremendously flipping a good percentage of houses and taking them out of foreclosure with the banks now having highly qualified borrowers and the ability to wipe our bad mortgages off of the books, creating potential solvency on paper.

  11. Straight talk said:
    on February 15th at 05:17 am

    Look…I come to this website to find out about good deals, advice and tips on where to put my money. This post and the subsequent talk really are quite annoying. If I want partisan crap talk I can log onto Fox or CNN. So can we keep the articles objective and focus people? Seriously…

  12. BloggingBanks said:
    on February 15th at 09:33 am

    BankMode,

    It seems to me that the housing market will fall further lower. Interest on Fed funds is very low, the problem is that somehow despite all the TARP money banks are not lending and interest to borrowers haven’t declined as much..

  13. SAVER-RIP said:
    on February 15th at 02:25 pm

    Name Calling? Time to get serious about the “sinking ship”. I once saw a story about how the passengers of the Titanic could have all survived by “rigging” and improvising floatation devices, using the contents of the ship during the time they were being told not to panic. Unfortunately, too many of the doomed were never convinced that the great ship was really going to be under water. They never got the picture and as we all know most of them died. We need some ideas from people who have been through similiar economic times. Such as folks from other countries maybe? Let’s here what they have done and if there are ways to survive this and maybe even to prosper. Just like the passengers of the Titanic, let’s get serious because this ship IS goint to sink, but we that know it should be able to figure out ways to survive and even thrive until the disaster is but a memory. I want to place my hope in the ingenuity of the people who are survivors, not the losers playing the violins on the deck because the captain said so. Remember the movie, the captain!

  14. Hong Kong Plumber said:
    on February 16th at 12:46 am

    We had a similar housing/economic crisis in 1997. But we didn’t bailout any bank nor Big 3, and let the market correct itself. We are doing ok so far.

  15. dealster81 said:
    on February 17th at 12:54 am

    Time to sit back and enjoy the fall of house prices in CA and then buy up some property!

  16. Pollniac said:
    on February 17th at 06:26 am

    Apparently California and Kansas have no money to send out tax returns this year. You could end up getting an IOU. This could be a sign of the times and other states may jump on the band wagon.

    Vote our poll on what you think of that by clicking my user name Polniac here. Make your mark now!

  17. Jobless said:
    on February 17th at 10:16 am

    Good for You! dealster81
    You still have the money to buy up SOME property.
    Hope they won’t fall another 30% again.
    Good Luck.

  18. Pete said:
    on February 17th at 04:07 pm

    That’s right Straight talk, if you want partisan, you need look no further Obama’s “stimulus.”

    This is a blog where people, including the author, are free to express their opinions. If you don’t like it, move on.

  19. Mike M said:
    on February 19th at 09:16 pm

    I love how people make judgements on the plan before it’s released, based on false information…

    And how they attack a bad idea by stating it could only come from a communist while supporting equally bad ideas from their own party.

    Has the entire Dem/Rep debate come down to who can come up with the worse idea? Neither set of proposals was good, and both had socialistic components.

    And I despise when people refer to everything as “socialist”, but these ideas from both parties truly were.

  20. Johns Wu said:
    on February 20th at 03:50 am

    Mike,
    There are no “parties” anymore. Regardless of whether a Dem or Rep is prez, the ones running the show will always be appointed from the CFR and Trilateral Commission.

  21. NewGrad said:
    on February 20th at 06:31 am

    I can’t get a job, and I need someone to pay my student loan, my rent, gas, food, and etc.
    Am I gonna get the bailout money soon?

  22. pp said:
    on March 6th at 02:33 pm

    Parties are just a human invention. If you read the history there is no perfect political system. So people who argue this party is better than the other one are very naive people and the government is taking advantage of this fact.

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