Mortgage Rate News

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Technically, the recession may be over, but that doesn’t mean that individual financial problems are just going away. That’s not really how it works when it comes to personal finances. Instead, things are looking kind of desperate for some folks. The cumulative effects of a weak labor market and tighter credit (not to mention the things credit issuers have been doing that mean hardship for consumers) will be hard to shake off, and the latest data about bankruptcy filings bears this out.

Indeed, the American Bankruptcy Institute offers this report on the number of bankruptcy filings in October:

The 135,913 consumer bankruptcy filings in October represented a 27.9 percent increase over last October’s monthly total of 106,266, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC). The October 2009 consumer filings represented an 8.9 percent increase from the September 2009 total of 124,790. Chapter 13 filings constituted 28.5 percent of all consumer cases in October, a slight increase from the September rate.

“The nearly 9 percent increase in consumer bankruptcy filings in October, together with a 7 percent jump reported in business cases, demonstrates the sustained stress on the U.S. economy,” said ABI Executive Director Samuel J. Gerdano. ABI forecasts that total bankruptcies this year will exceed 1.4 million, the highest number since 2005.

This is a new high, and likely represents the hard times that people have fallen upon. Traditionally, most bankruptcies are caused by medical bills and expenses. However, I’m wondering if this most recent rash of bankruptcies is more the product of job loss and an inability to keep up with everything due to economic conditions. And, of course, in some cases it might be a strategic decision to start all over, much like a strategic default.

Of course, the increase in bankruptcies should also serve as an important reminder to the rest of us: It is vital to prepare our personal finances ahead of time. Emergency funds, paying off debt and proper insurance can help. Although, in some cases, there are situations so devastating, or so long-term, that no amount of preparation can avert a financial catastrophe.

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There are concerns that things may not be improving as much as hoped for the housing market. Sure, home prices seem to be stabilizing and the first time home buyer tax credit resulted in the sale of hundreds of thousands of homes. But another real estate collapse may be on the way — and we aren’t even recovered from this one. Here is what CNN Money points out about what could announce the run up to another housing market collapse:

“There is a lack of new debt,” says Michael Haas, a real estate attorney at Jones Day. “There is a hesitancy to extend credit when there is a real possibility that the real estate may be worth less than it was a few years ago.”

Now, in a situation eerily similar to the subprime crisis, the result is likely to be a wave of foreclosures and loan defaults that could, in turn, trigger a collapse in the market of the structured bonds backed by commercial real estate and construction debt.

There could be some indicators that another real estate collapse — and the accompanying mortgage crisis — could be imminent. Here are some signs to be on the watch for:

1. Big Projects: Look out for what is happening with big commercial and residential projects that are starting to default. These projects may have gotten financing during the last bubble, but they may be struggling now. And if big projects default, that means that securities based on these loans will plunge.
2. Special Servicers: These are mortgage lender firms and special servicers that take over loans that are heading for trouble in an effort to salvage the situation. When more loans are heading to special servicers, that means that it is likely that things are troubled in the mortgage market in general. That could be a sign that more defaults are coming.
3. Regional Banks: So far, many local and regional banks have been fairly well shielded from the effects of the subprime mortgage crisis. Many of them did not take on risky loans and other debt. However, as the economy continues to remain sluggish, the regional projects financed by local banks may begin to falter, and that could cause another, more severe credit squeeze.

We’re not out of the woods yet, and it is important to be on the look out for signs that things may head into another wave of foreclosures. Although, if things do start improving markedly, none of these problems may surface.

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There seems to be a bit of confusion with regard to what is happening with foreclosures. Indeed, it is commonplace to read about how foreclosures are both increasing and decreasing. Mainly because “foreclosure” is being used to report homes in various stages of foreclosure. Real Estate Pro Articles points this out about foreclosure coverage:

However, it is also the case that the number of foreclosure filings fell in both August and September of this year even though REOs actually rose in September by over ten thousand properties.

The numbers are fairly straight forward in this issue and the fact remains that there are a great many families who’ve tragically lost their homes. It is unfortunate that it is so hard to get a clear idea of what trends we’re actually seeing at this point because there are so many numbers and trends being reported all under the umbrella term of “foreclosure” without any real explanation of what aspect of the foreclosure procedure is being reported on.

In the end, it is important to look at foreclosure filings, which represent the very first stage of foreclosure, and the number of foreclosures that actually go through to completion. These are two different things, since the foreclosure can be stopped after the filing takes place, with the help of loan modification and through other means.

Another trend to look at is the fact that foreclosures are moving up the “food chain” in the housing market. With unemployment on the rise, many prime borrowers are suddenly finding themselves in the unexpected position of no longer being able to make mortgage payments. This is also causing problems, since for loan modification or refinancing to work in order to stave off foreclosure, some sort of income is needed to ensure that payments will be made.

It’s a tricky situation right now, and many are anxious to get a clear picture of what’s going on. However, in this particular situation, it is difficult to find a great deal of consistency and clarity.