Before we move on to Freddy Mac and Fannie Mae's take on the toxic loan market, here now a local story on the effects of these "buy now, pay later" mortgags. From Rene Stutzman at the Orlando Sentinel.
'Three years after Central Florida's housing market turned red hot -- prompting families and investors to buy, buy, buy -- thousands of people are in danger of losing their homes because they can't make their monthly payments.
The number of mortgage foreclosures is soaring this year. Foreclosures had been increasing -- first steadily, then sharply -- for months during the past year.
But in January, lenders filed 1,787 foreclosure suits in Central Florida, more than twice the number compared with a year earlier, according to research by the Orlando Sentinel.
And early results for February are even worse: In the first two weeks of the month, the number of suits climbed 63 percent compared with all of February 2006.
"Clearly, we are in a cooling of what once was a red-hot housing market," said Sean Snaith, a professor of economics and director of the Institute for Economic Competitiveness at the University of Central Florida.'
"Cooling?" Yes, I suppose you could call it that. But "cooling" in this state sounds way too nice, like "I was so happy to be cooling down, after walking across the Florida Mall parking lot." Sorry, it just doesn't fit the circumstances.
How about a more accurate phrase, such as "beginning of a free-fall", "first stages of a total melt-down", or "start of a long ride to normalcy in supply and demand"?
'The pace of foreclosures is what sets Central Florida apart -- although the same thing is happening across the state and, more modestly, across the nation.
And the worst may be yet to come, according to some experts.
That's because there are so many adjustable-rate mortgages on the verge of pushing up monthly payments.
What's going on?
Many homeowners simply took on more debt than they could manage.'
That, my fellow Romans, is the key to our situation. Too much easy credit created a house of cards in this state. Far too many overpriced homes owned by people who simply cannot make the payments.
Like a spoiled rich kid who finds out that he's no longer in the will, the culture shock of our return to actual house valuations is going to be a long, painful, and traumatic process. The denial is real and entrenched - one doesn't recover from these things easily.
'Until recently, homeowners could often sell their way out of problems. Home prices were rising, and the market was full of buyers, especially speculators.
But prices have stagnated. Homes in Orange and Seminole counties now sit unsold an average of 90 days -- three times what it took to sell a residence a year and a half ago. And many speculators who helped buoy the market have disappeared.
That means local homeowners are stuck.
"You feel so trapped," said Jennifer McCall, 30, who bought a $220,000 house near Winter Park in May, then quickly fell behind on her payments and was sued by her mortgage company in January. "It's frightening," she said. "You have a family you're trying to take care of and a mortgage that's eating you alive."
She and her husband, Jason, had never owned a home before and didn't have much in savings, but they found a mortgage company willing to use creative financing, McCall said.
"That's a huge mistake," she said.
They wound up with a first and second mortgage and monthly house payments of $1,986, she said.'
$2K a month for a $220K house? My gosh, that is really, truly a sad statement on the state of our state. And you know what? This is just one example. Multiple this couple's situaton by the tens of thousands, and then you'll get the big picture of our impending crisis.
And, I'd like to point out that I lost all respect for that guy from UCF when he made the following statement. (note, I am a graduate from that fine institution, BSEE '91)
'Although foreclosures are on the rise in Central Florida, they are not at unprecedented levels, and the local real-estate market is not about to collapse, said Snaith, the UCF economist.
Home prices remain far higher than before the run-up, he pointed out.'
Wow - no $hit, Sherlock. The key is the trends - take a look at these, and you'll be likely to see that prices are heading towards those that existed before the run-up.