The Real Estate Storm: Who is it hurting and why is it here?
Author: Jim Watkins • URL: http://www.dfwmentor.comJanuary 24th, 2008 •
This “Real Estate Storm” as I call it, is getting worse. While there are many aspects involved as to what caused the current real estate mess we are in, this article will take a look at the sub-prime mortgage aspect and I will offer my take on the situation.
From 2002 until early 2007, lenders issued “Foagamir” (Fog-A-Mirror) mortgage applications that had a small silver-reflective square on the applications. The lenders (or loan officers) simply asked the applicant to breathe onto the reflective square and if the surface became foggy, the application was approved (note the sarcastic tone).
In the Dallas area, the apartment communities suffered a lot as a result. Renters flocked to become homeowners and didn’t always take the terms of the mortgage that seriously. I am talking about Interest Only Loans and Adjustable Rate Mortgages. Take the ARM’s for example. I hear cases where payments started out at $1,000 a month and increased to over $1,500 in a few short years.
Those increases have led to thousands of foreclosures, especially for those owners that could barely afford the initial mortgage payments.
The current foreclosure statistics in the Dallas-Fort Worth area are staggering.
All four area Counties set record highs with the number of houses posted for foreclosure. According to Foreclosure Listing Service, a local company that tracks and records these statistics, the number of postings for the four County area is up 31% over February 2007 figures. I dug out a foreclosure list from March of 2002 for Dallas County and the number of postings for that period was 892.
Here are the figures for the current posting period:
2,351 Dallas County
1,775 Tarrant County
623 Collin County
566 Denton County
In early 2007, the sub-prime lending market collapsed. The “Fogamir” lenders did an about-face and now it’s pretty difficult for people with any credit issues to be approved. In my opinion, the lenders overreacted to their own mistakes.
Now lenders are going under almost daily as a result of the foreclosures. What will happen when the lenders own more property than they have money to lend?
My guess is the Government will be all but forced to come in and attempt to clean up the messes made by the lenders. We all know that the lenders are having big problems but, the press doesn’t spend much time focusing on the people who are really feeling the pain.
When a prospective buyer is turned down for a mortgage, there are a lot of people that miss out on making their share since the sale won’t close.
I am talking about Appraisers who would have been needed to supply the appraisal. I am talking about the Loan Officers and Processors (and Underwriters) who would have been given a cut. I am talking about Inspectors, Escrow Agents, Realtors and Title Companies that won’t make a dime after the loan is denied.
I know appraisers who were used to doing four to six appraisals a day but, now are doing well to get four to six a month.
All of those people that help get a house closed, are all suffering… A LOT! I can’t imagine that those people can continue to make a living should the trend continue on as it has.
The current Real Estate Storm is very complex and there are many factors that play a part in it all. The sub-prime melt-down is just one aspect of it all. I personally think that the Government will soon have to step in and attempt to clean up the mess in a big way. Unfortunately, it will take years for the Country to rebuild after the storm passes.
I welcome your opinion on both my viewpoint as well as other aspects that I did not address in this article.
Real Estate Storm, sub-prime mortgage, Foagamir, Interest Only, Loans, Adjustable Rate Mortgages, foreclosures, lending, mortgage
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Joshua Dorkin
Charles Feldman
Ted Karsch.
Troy Schuricht
Anwell Tsai
Richard Warren
Jim Watkins
I think this is the first post I’ve seen that details all of the people on the sidelines who are affected by the “storm”. Thanks for sharing it, Jim.
Luckily I had to move from Plano (a suburb of Dallas and in Collin County) about 3 years ago, so I was able to sell my house for a good profit from when I bought it.
Good thing I didn’t wait any longer.
I agree with this whole heartedly. I started in the mortgage business, and this is pretty much what it was like for banks. I tried talking people out of arms and option arms, because of the possibilities that could take place before their arm adjusted. The mortgage industry is trying to fix the problems that have been caused by what you called the “FOGAMIR”.
I don’t believe the mortgage industry is wholly to blame. Imagine the banks who suddenly had their interest rates cut down to 1%. They had to sell a lot of loans to make their money, or their stock would have plummeted due to lack of profits. I’m not saying they aren’t to blame. I’m just suggesting that the problem has a lot of blame to go around, and is much more complex than most people give credit for.
I was able to save a lot of money by selling my home by owner.
[quote]From 2002 until early 2007, lenders issued “Foagamir” (Fog-A-Mirror) mortgage applications that had a small silver-reflective square on the applications. The lenders (or loan officers) simply asked the applicant to breathe onto the reflective square and if the surface became foggy, the application was approved (note the sarcastic tone).[/quote]
LMAO!! That is SO true!