Will Subprime Foreclosures Spread?

[Retire Soon]

An article appeared in our hometown newspaper today that was originally published in the Washington Post. The heading was, "Wall Street is Wondering: Will foreclosures Spread?

As of today, here are the states with the highest percentage of subprime loans that are now in foreclosure, according to the Washington Post:

Ohio 11%
Michigan 9.5%
Indiana 9.3%
Iowa 8.9%
Mississippi 7.3 %

Some other states that that were higher than 7%, but the exact percentage was not given were: Kentucky, Minnesota, Wisconsin, and Louisana. The average percentage of subprime loans that are now in foreclosure across the whole U.S. is 4.5%.

Is this only the tip of the iceberg and could this problem eventually worsen the downturn in the housing market and cause a recession?

[FinanceDude]

Originally Posted by Retire Soon

An article appeared in our hometown newspaper today that was originally published in the Washington Post. The heading was, "Wall Street is Wondering: Will foreclosures Spread?

As of today, here are the states with the highest percentage of subprime loans that are now in foreclosure, according to the Washington Post:

Ohio 11%
Michigan 9.5%
Indiana 9.3%
Iowa 8.9%
Mississippi 7.3 %

Some other states that that were higher than 7%, but the exact percentage was not given were: Kentucky, Minnesota, Wisconsin, and Louisana. The average percentage of subprime loans that are now in foreclosure across the whole U.S. is 4.5%.

Is this only the tip of the iceberg and could this problem eventually worsen the downturn in the housing market and cause a recession?

I don't think so. While a problem, I don't see how one area of the economy could have enough impact to throw the whole thing in a tailspin.

It's not like the S&L crisis threw the whole country in a tailspin...........

However, the FOLKS that are carrying all these notes are looking at some pretty ugly numbers to shareholders when they start taking charge-offs on their loans portfolios...............

[eridanus]

Half of all California mortgages in February 2006 were ARMs. The Jan/Feb foreclosures will start showing up this summer, as people start slipping behind and banks get impatient.

[tryan]

I am surprised MA is not listed (>7%).

As far as a "tail spin" ... my guess is it'll take Fannie, Freddy and Sallie to tank to really open the flood gates. Do these guys have any sub-prime exposure??

[wabmester]

Originally Posted by tryan

As far as a "tail spin" ... my guess is it'll take Fannie, Freddy and Sallie to tank to really open the flood gates. Do these guys have any sub-prime exposure??

I think "prime" used to mean conforming to GSE underwriting, so you'd think the answer was no. Times have changed.

great article

[haha]

Originally Posted by wab

great article

Agree, excellent aticle. This guy Tanta has brains. Do you know who he is?

Ha

[wabmester]

Originally Posted by HaHa

Agree, excellent aticle. This guy Tanta has brains. Do you know who he is?

link

INIGO: Who are you?!

MAN IN BLACK: No one of consequence.

INIGO: I must know.

MAN IN BLACK: Get used to disappointment.

[Running_Man]

The subprime market is bad, bad bad for the economy. If you think it is being overblown think of who believes the economy is in for serious problems : Allan Greenspan and Jim Rodgers, who today came out and said that the subprime will be the biggest disaster to ever hit the US.

GM has already taken in 1 Billion to assist in carrying their subprime loans. The rules of valuation are such that writedowns that should be taken aren't being taken. WHich is one of the sources of the problem on these in the first place. In many cases they are carried at full market value until they default, when time comes to foreclose on the underlying asset the house has fallen in value and creates huge losses, which are not reserved for.

Which is why valuing banks on book value is a very hazardous idea in my opinion.

[justin]

Originally Posted by HaHa

Do you know who he is?

Do you know who she is?

[retire@40]

Originally Posted by tryan

I am surprised MA is not listed (>7%).

http://www.boston.com/business/perso...o_risky_loans/

Overdue mortgages linked to risky loans
Foreclosure filings soar from subprime lending
By Kimberly Blanton, Globe Staff | March 5, 2007

An explosion in overdue mortgages tailored to home buyers with less-than-sterling credit has driven foreclosure filings to record highs in Massachusetts.

These mortgages, known as subprime loans, charge higher interest rates to compensate the lender for the risks associated with customers who have low credit scores or large credit card or other debts.

Subprime mortgages were lauded for helping more Americans than ever buy homes during the housing boom earlier in the decade. But four years after their popularity took off, the loans are backfiring. More homeowners are no longer able to afford their payments, which typically rise sharply two years into the loan. In 2006, lenders filed 19,487 foreclosure notices against Massachusetts homeowners, surpassing the record high of 17,000 filings in 1991, during the state's severe recession.

[haha]

Originally Posted by justin

Do you know who she is?

Yeah, after I read the response to reporters I see that she is a woman. She has mastered an art that I have always aspired to-polite sounding sarcasm.

Ha

[Sam]

Originally Posted by Retire Soon

Ohio 11%
Michigan 9.5%
Indiana 9.3%
Iowa 8.9%
Mississippi 7.3 %

I'm totally surprised by this list. I was expecting to see, Cali, Mass, NJ, Florida to be at the top of the list. What gives?

[uncledrz]

Originally Posted by wab

I think "prime" used to mean conforming to GSE underwriting, so you'd think the answer was no. Times have changed.

great article

Wab
Thanks. Part of the reason this board is so interesting is that collectively we have many area of expertise and many different sources of information.
I don't know that I am particularly concerned that there will be loss (we are, after all, capitalists and risk is inherent in the system--it leads to self correction), but it is interesting to see how this market developed.
Tio z

[semtex]

I think it will. Because job market may cool down fast. In fact, it is cooling down now.

Here is the story: currently my wife drives to work and she hates NJ traffic. So she is thinking about to work in the city. After she mentioned this to her recruiter, that guy sent her positon descriptions every week. It was around Jan. Now finally she hammered out her resume. Two weeks passed, she didnot get an interview yet. One of my friends at Morgan Stanley said his dept stopped recruiting and laied off 5% work force.

[wabmester]

Originally Posted by Sam

I'm totally surprised by this list. I was expecting to see, Cali, Mass, NJ, Florida to be at the top of the list. What gives?

Those coastal states have high concentrations of subprime mortgages, but they also have solid economies and most people are still hanging onto some housing cap gains. Give it time.

[al_bundy]

it's not like subprime people only buy from other subprime people. a lot of good credit people stretched themselves from 2004 to the present and will have to sell or see their mortgage payments jump to unaffordable levels.

the only people saying it won't spread are those who have an interest in seeing the value of the mortgage debt stay up until they can get rid of it. just like the dot bombs a few years ago

[newguy88]

The people who purchased my house for 513,000 last summer in NJ took out a 387,000 dollar first mortgage and a 41,000 second.

Lets see, 2,300 dollars a month on the first mortgage at 6.25%

Then another 250 dollars a month on their second so we are at 2,550 a month P&I

Now their real estate taxes on the place will be 2.50 a 100, so they will be assessed at something like 450K so another 1,000 dollars a month.

Total 3,550 dollars a month JUST TO LIVE IN A HOUSE!

Wow, How do people sleep with that kind of debt. They made average money.About 105,000 a year combined.

I think that is tight.

[cute fuzzy bunny]

Wabberator: good chart for ya

[Retire Soon]

tryan said: "I am surprised MA is not listed (>7%)."

MA was in the group that had a subprime foreclosure rate of between 4-6%. States in the Gulf Region and in the industrial heartland, where the automakers are, were among the hardest hit.

These states were in the 1 to 3% category were: WA, OR, CA, AK, HI, MT, ID, NV, UT, AZ WY, NM, MT, FL, and VA. Washington DC was also in this category. All other states had 4% or higher rates.

The Mortgage Bankers Association said foreclosures on all homes have reached the highest level in nearly four decades.