Going, Going, Gone!

There's been a lot of news about real estate recently and most of it isn't good.  A report today shows that foreclosures in September are down a bit from the record levels in August, but still just about double the rate for last year.  For the ninth month in a row, Nevada reported the highest foreclosure rate with one foreclosure filing for every 185 households.  Florida was second with one foreclosure filing for every 248 households while California was third with one for every 253 households.  Michigan, Arizona, Georgia, Ohio, Colorado, Texas and Indiana rounded out the top ten.

In Maryland, 2,821 foreclosure actions were filed, a rate of one for every three hundred and ninety three households.  I took a look at pending disclosures in Maryland and the vast majority appear to be on the Western Shore, primarily in the Washington/Baltimore corridor.  On the Shore, it's difficult to avoid seeing the foreclosure notices being published in the local newspapers, but there don't seem to be huge numbers of pending foreclosures in most counties. 

I found 47 properties in Worcester county, primarily in the Ocean City/Ocean Pines area.  In Wicomico county, I found 84, primarily in the Delmar/Salisbury area.  The sharp rise in foreclosures comes as home sales continue to drop.  The number of Americans signing contracts to buy existing homes dropped again in August as the National Association of Realtors' seasonally adjusted index of pending sales for existing homes reached it's lowest level ever since it was begun in 2001.

Homeowners who have adjustable rate mortgages are caught between falling real estate prices and a slump in sales on the one hand and the upward adjustment of their mortgage rates on the other hand.  Credit Suisse reported recently that some $50 billion worth of adjustable rate mortgages will reset for the first time this month, compared to $30 billion a few months ago.  And the numbers are still increasing.  Some $110 billion are expected to reset in March of next year.

While once homeowners faced with a sharp upward adjustment of their adjustable rate mortgage could simply refinance to a new mortgage with a new, low teaser rate, that's impossible for many today as real estate prices in many areas, including the Shore, have declined and wiped out their equity. 

So, my guess is that we're going to see a lot more foreclosures in the next several months and these distress sales will continue to hold down house prices.  For the Shore, it's a double whammy.  Not only are local residents losing their homes as they're unable to keep up with higher mortgage payments, but the second home market, which was financed largely by buyers using their growing equity in their primary homes, has dried up.  The last time I looked there were some 1,300 condominiums on the market in Ocean City and they were selling at about 50 per month. 

So, it looks like it's going to get worse and lots of people will be in financial trouble; what are our political leaders doing about it?  Not much, as far as I can tell. The House of Representatives passed a bill which would channel some $900 million into a new affordable-housing fund, but it's not clear how that would help those who are having difficulty paying their mortgages and, in any case, the President has said he will veto it. 

President Bush has announced a new alliance of mortgage companies and counseling groups that would try to help homeowners switch out of their expensive subprime mortgages before they fall behind in their payments.  The mortgage companies, however are the same ones that got the homeowners into trouble in the first place by offering low teaser rates and zero-down mortgages, and the 'alliance' doesn't seem to have any program at all.

One of the biggest problems is that most subprime loans have been packaged into complex securities and sold to investors around the world, so there is no one who has the ability to make a change in mortgage terms to help an individual homeowner.  This is supported by a survey by Moody's Investors' Service last month which showed that mortgage companies modified only 1% of all mortgages with expiring teaser rates last year.

So, don't expect any help and don't expect things to get better soon.  If you're having trouble with your mortgage, don't wait, consult a credit counselor now.  Here are some links which might prove helpful.

US Trustee Program Here the Justice Department provides a list of approved credit counselors by State.

Homeownership Preservation Foundation aims to help homeowners avoid foreclosure and can provide immediate counseling.

HUD housing counselor directory The Department of Housing and Urban Development maintains a list of housing counseling agencies throughout the country.

There are plenty of others.  Don't wait.