Sub-prime Loans - Let the Buyer Beware
January 26, 2007
www.AngelReyesBlog.com
Dallas, Texas has the highest number of 30 day delinquent home mortgage loans of the 28 major real estate markets in the United States - higher even than
Detroit, which has been battered by the auto industry's woes. Detroit just can't seem to catch any luck, in spite of being the world headquarters to
General Motors,
Ford, and
Daimler-Chrysler.
That's why I find it so interesting that Dallas' delinquency rates are even
higher than Detroit's. After all, the Detroit real estate market, at least
since the 1960's, has been underperforming the rest of the country.
What gives?
Sub-prime loans exploded across the country the past few years. Approximately $1.2 billion in
adjustable rate mortgages will reset to higher rates this year. Nearly half of that amount is in the form of sub-prime mortgages.
Texas, and for that matter, all of the Southwest, will be affected. Could it be that in spite of robust job growth the Dallas area is home to too many people living beyond their means? I mean, doesn't a job selling peanuts for
Mark Cuban at the
Dallas Mavericks games qualify you for a 4 bedroom, 3 bath house in
Plano?
The
Dallas area reportedly has an astounding 4.05% of mortgage loans that were
30 days or more delinquent in the latest quarter, based on data from
Equifax and
Moody's Economy.com. The US average is 2.51%. Wow, North Texans should hang on; it could be a bumpy road.
The Center for Responsible Lending, a nonprofit advocacy group in
Durham, NC pointed
out that millions of sub-prime mortgages will soon turn bad. Indeed, the
agency is predicting a sub-prime failure rate of 21.4%.
The
Los Angeles Times notes that default notices have jumped 145% in the last three months of 2006.
John Karevoll, chief analyst at
DataQuick Information Systems claims
the numbers aren't alarming. I beg to differ. People are living paycheck
to paycheck and most borrowers receiving default notices used sub-prime loans
to get them into the house of their dreams. "People are living on the edge, and they can't help it with the price of houses," said
Barbara Swist, a
Costa Mesa mortgage broker. Are people in over their heads? Well with some sub-prime adjustable rate mortgages, a mortgage payment that is currently $2,900 is set to go to $4,500. Yikes, that will give most sub-prime borrowers heart attacks and will increase the number of loans that go to foreclosure. So much for the
American dream of home ownership for many borrowers.
©2007
Angel Reyes
Read more articles by Angel Reyes at
AngelReyesBlog.com.
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