Mortgages Over $1 Million Now Defaulting at TWICE the National Average
Like Iâ€™ve been saying for over a year nowâ€¦ the water is rising.Â Do you feel it?Â Itâ€™s tickling your tootsies, no matter who you are.Â If youâ€™ve been watching the foreclosure crisis from afar, donâ€™t worryâ€¦ itâ€™s a motion picture thatâ€™s coming soon to a theater near you.
Those words hold true whether youâ€™re living in a three bedroom, two baths in Stockton, or a 7,500 square foot palace overlooking the ocean in Newport Beach.Â In fact, Bloomberg reported yesterday that mortgages over $1 million are now defaulting at twice the national average.Â And if that doesnâ€™t concern youâ€¦ well, I just donâ€™t know what to say.Â You should be afraidâ€¦ very afraid.
You see why, right?Â Two main reasons:
1. Picture this: You live on a block with $2 million homes that have decreased in value by 40%.Â One is foreclosed upon and sells as an REO for $900,000.Â Uh oh.Â Next house is a strategic default.Â The owner drops it like itâ€™s hot.Â No financing is available at those amounts.Â Another one bites the dust.Â Before you know it youâ€™ve got a neighborhood of half a million dollar homes.
2. Now picture the bankâ€™s losses on a $3 million home, compared with the losses on a $250,000 home.Â Enough said?Â Thought so.Â (Bye, bye Wells Fargoâ€¦ but thank you for playing.)
Folks, I donâ€™t care what the National Association of Cheerleadersâ€¦ I mean Realtors, is saying this week.Â This thing is just getting started.Â So, all you Richie Rich types that have been coyly watching from the sidelinesâ€¦ come on inâ€¦ the waterâ€™s fine!
According to Bloomberg, â€śPayments on about 12 percent of mortgages exceeding $1 million were 90 days or more overdue in September, compared with 6.3 percent on loans less than $250,000 and 7.4 percent on all U.S. mortgages, according to data from First American Core Logic, a Santa Ana, California-based research firm. The rate for mortgages above $1 million was 4.7 percent a year earlier.â€ť
Itâ€™s worth mentioning that, while the $8,000 first-time buyer program helped to push sales higher this year, and even though President Obama extended that program to include â€śreplacement buyers,â€ť which means everyone elseâ€¦ the program only applies to homes under $800,000.
But, if youâ€™re underwater in a more expensive property, thereâ€™s no refinance market, and no buyer incentivesâ€¦ youâ€™re on your own.
Again as quoted by Bloomberg:
â€śThe reason the low end stopped falling is because the government stepped in with affordable loans,â€ť said Scott Simon, managing director at Pacific Investment Management Co., a Newport Beach-based investment firm that runs the worldâ€™s largest bond fund. â€śThere is no political will to bail out a million-dollar house.â€ť
Of course not.Â Those people bought jet skis and flat screens and Hummersâ€¦ how irresponsible of them.
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