Mar. 12, 2010 (FreeRateUpdate.com) – The prudent among home owners with a mortgage are locking in the lowest mortgage rates since RCA black and white TVs were the rage in the Sears Roebuck catalog. We continue to see significant refinance risks for the “wait till later” crowd. The group that is always waiting for things to get something cheaper in the proverbial future or were the kids who turned in their book report a day late. Procrastination and waiting for better jumbo mortgage rates is a very dangerous ride.
Put your seat belt on and sit back while I give you the tour of the national mortgage landscape and the forces that will continue to force home prices down in most markets.
First on our tour is FHA.
Did you know that FHA(taxpayer backed) lending represented 30% of purchases in 2009? Let’s see how those loans have been doing:
Shocking, less than a year after signing the papers, 15% of the 2008 loans are 60 days or more late. If this was a bank they would have been out of business two years ago. But, FHA isn’t a bank, it’s backed by the explicit promise of the US taxpayer.
The second bump in the road is the near term future of property values.
Think lots of foreclosures have already sold in your area, and it will be stable from here on out?
I wish I had better news for you but the next wave of homes hitting the market will be a Tsunami. The new strategy (NYT Link) coming out of Wall St/Washington is to use short sales to sell the homes currently occupied by folks who can’t refinance, get a loan modification or sell in a traditional manner because they are upside down. Remember the estimates are that roughly a third of homes with a mortgage are worth less than the balance owed. The expectation is that hundreds of thousands of home owners will take the free taxpayer money to move out early before their foreclosure clock ticks down forcing a visit from the local sherrif.
The third looming pothole on our road to recovery is the hundreds of billions in mortgage loans set to reset either to fully amortized or a floating rate from an interest only or negative amortization payment.
Chart from Credit Suisse Research.
This is going to be a bumpy ride. This works out to 100-200k homeowners a month in 2010. This increases to 300-400k homeowners a month in 2012 experiencing a reset on their adjustable rate mortgage. The option ARMs are the most toxic as these homeowners have been paying less than the interest only payment and will be forced to pay principal. These loans are concentrated in AZ, CA, NV, FL and a few other former bubble markets. Option ARMs are defaulting at the highest rate of any loan product.
The national landscape and the actions of millions of others matters to the prudent homeowner who are on time with their mortgage and waiting to refinance their jumbo loan when they are back from the big summer vacation or things settle down at the office.
The biggest factor now in jumbo mortgage lending with the epic defaults facing government agencies and banks is EQUITY. An 800 FICO and a stable income matter but a bank doesn’t want the risk on the books of a home owner with no equity. The current walk-away rate of someone with no equity is over 20% when someone owes 10% more than their home is worth.
Don’t wait till mortgage rates begin to move up or some special date on your to-do list. Your equity, good credit and solid income will allow you to lock in a great jumbo mortgage rate and ride out this foreclosure tsunami washing over our great nation. Explore your refinance options now and be a prudent informed homeowner. As always, have a prosperous day.