In the closing days of 2007, one has to marvel at how fast the year has zipped by. And fortunes have changed.
The year began with many residents still believing in the real estate boom. The boom that would never end. Home values would continue to spike up, up, up and home equity s would follow suit. Real estate in Orange County, Florida was a goldmine, many drooled.
And drool they did until the bubble popped.
Fast forward to the fall of 2007 and the general state of malaise is apparent everywhere. Cheap foreclosure signs have replaced the “I Will Buy Your House” signs on roads throughout Orange County.
In 2006, the Orlando Sentinel, eager to reassure readers and its massive base of real estate advertisers, dispelled the warning signs, extolling the virtues of the indestructible real estate boom in Central Florida.
But now, even the Sentinel has come to its senses. The recent flood of page one stories and the foreclosure phenomenon burning through the area like wildfire, reads like a reformed drunkard whose come to his senses
Even the Federal Reserve Chairman, Bernard Bernanke did his part when he chimed in, “Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited.”
At a recent press conference ACORN, the community activist group highlighted the impact of local foreclosures. Lamenting the longterm effects, foreclosures mean declining tax revenues, making it harder to provide good schools, police protection, code enforcement and other se4rvices.
The question for ACORN should be: Did the real estate boom result in better schools, better police protection and more services? I think not.
My, things have changed.
As in most things, there is still a lot of good in all of this. Rentals are plentiful.
Around the Orlando area, rents are dropping like Enron stock just before the meltdown. Some exclusive properties located in Metrowest and the Turkey Lake area are offering up to two months free rent.
What a breath of fresh air. Greed has it limits. Especially when it begins to feed upon itself.
And its a national problem. A foreclosure blog site put it this way:
The Foreclosure Crunch is closely related to the LTV (Loan to Value) Crunch.
In fact, both crunches fuel on each other.
Let’s start with the $3 TRILLION in Adjustable Rate Mortgages that we know are just about ready to change, or recast in the next year. That’s a huge number! And yes, it is a national number but it is going to have an enormous impact of home loans in here in Central Florida.
As an example, let’s say you financed a couple of years ago. The best rate and term your broker found you was 5.625% fixed for 3 years (or 5, 7, or perhaps 10). It was fixed at a time in history where the rates were the lowest. That’s the good part. the bad part is that the loan now is set to adjust to the current rate environment. And rates are higher now than they were then. That means the monthly mortgage payment is going to increase. How much? On a POA (Price On Application) it could be as much as double or triple! Other loans might be a bit more manageable.
Orlando area borrowers may not be able to refinance into anything! When that happens they can either:
Live with it and try to meet their obligations,
List their home for sale,
or fall behind and go into Foreclosure
Many Orlando area residents are already strapped for disposable income. Trying to keep your head above water is a temporary situation at best. If that payment continues to rise what do you think is going to happen?
Our local housing market is somewhat crowded already. How long do you think it will take a homeowner to sell right now? Not a pretty picture is it?
That leaves Foreclosure.
But let’s just say you have an ARM.
You also have a great job, plenty of cash, and overall you are doing just fine.
Maybe you last refinanced or bought with an equity position of around 20%?
This possibly can’t effect you – can it?
Wrong!
Try this…
Go to google maps and pull up your property.
Now draw a circle 1/4 mile around your home.
Now count the number of homes in that circle.
If any of those homes in that circle sell for under market value, go under, REO or sell at auction. your home just lost value as well. If it loses too much your ability to refinance into something manageable may be compromised no matter what YOUR personal financial situation is.
ACORN proposes that lenders work now to get people out of their risky loans by offering fixed-rate, 30 to 40 year mortgages. They are also calling for a”streamlined, standardized approach and method for evaluating and modifying all loans which are delinquent, in foreclosure or carry an adjutable rate.”
The only problem with the ACORN approach is that someone has to pay for it.
Maybe the renters should pay for it. After all, they weren’t seduced by the temptation of the predatory lenders. Or, perhaps they believed in the old adage: if it sounds to good to be true, it probably is.
