Monday, November 24, 2008

Foreclosures Up for Prime Borrowers

In fact they are not just up - but at the highest levels recorded, easily toppling the highs in 1985. With the huge decline in home values even borrowers that purchased properties well in their budget and used conservative, conventional 30-year mortgages are feeling the impact.

Unemployment wages are no where close to levels needed to pay mortgages. This is especially true for states like New Jersey and California. When a prime borrowers loses their job they have few choices to keep the homes. Until the lenders aggressively negotiate with this group problems will continue to rise. In this article from The Los Angeles Times titled Foreclosures, delinquencies skyrocketing among 'prime' borrowers discusses the numbers and implications of foreclosures onto prime borrowers.

Nationwide, 3.07% of prime mortgages were in foreclosure or at least 60 days late in the second quarter of this year, the latest period for which the Mortgage Bankers Assn. has figures, easily topping the previous record of 1.97% set in 1985.

One reason, he said, is that home lenders became so complacent during the housing boom that they did little to qualify borrowers besides having computers check a few facts.

" 'Prime' lost a lot of meaning in the insanity of the last few years," said [Christopher Thornberg, founder of consulting firm Beacon Economics in Los Angeles], who was one of the first experts to foresee the housing downturn.

To be sure, the damage has been greatest in subprime mortgages, the high-risk loans tapped heavily during the go-go years by borrowers with the worst credit, the heaviest debt loads or the lowest down payments (and sometimes all three of those).

"The only practical help in sight is to get as many of these potential foreclosures modified as possible, so they come off the market," [Stephen C. Levy, director of the Center for the Continuing Study of the California Economy, a private research firm in Palo Alto] said.
Stephen Levy and a group of others are pushing lenders to modify mortgages to decrease the potential fall-out. If the numbers that enter foreclosure end in foreclosure the down-turn will be devastating. The impact of the possible numbers of foreclosures will prolong the down-turn. Lenders have to decide modify and feel the pain or follow through to foreclosure and potentially be wiped out.

One positive sign is that JP Morgan Chase and others are trying are working to modify loans, hopefully this will become more widespread. A good business decision that is in the interest of the lenders, borrowers and the nation.

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