Is this how the real estate bubble starts anew? With interest rates at historically low rates, Fifth Third Bank (5/3 Bank) is joining the growing list of mortgage lenders that are featuring low down payment mortgages. Except, Fifth Third Bank is now offering – for qualified borrowers – a mortgage with zero down payment! Continue reading
Written by Roy Oppenheim for the South Florida Law Blog.
As 2014 continues to move along, one disturbing trend on the horizon is the re-emergence of Wall Street’s presence into the residential housing market. This time however it’s a horse of a different color and it could mean trouble.
During the last economic cycle, Wall Street provided easy money to anyone with a pulse, then bundled up these mortgages, and called the sacks of garbage Grade A securities as they were sold off to unsuspecting investors around the world as well as here at home.
Now eight years later we are seeing a variation on an old theme amid froth and bubble. This time instead of serving the investors with a monthly stream of income based on purported mortgage payments, Wall Street is providing investors with a security backed by the rental income of single-family homes.
Once the foundation of the real estate market, first-time middle-class home buyers are finding themselves pushed out of the housing market.
Not only are those of the middle class unable to obtain financing from banks, but they also must compete for their dream home with all-cash buyers, foreign investors, and hedge funds that have been gobbling up the limited supply of homes making their way onto the market — all thanks to the banks.
Without equity from the sale of an existing home, first-time homebuyers must dip into their savings for a down payment and with the economy in a free fall for the last few years that savings has dwindled.
According to the National Association of Realtors, first-time buyers have represented around 40 percent of home sales during the last three decades, but in the last year, that fell to just 30 percent.
American dream dashed
Even after years of declining home prices and record-low mortgage rates, middle class households are finding it increasingly difficult to live the American dream.
Where once the middle class helped to drive the economy and lead the country out of difficult financial times, the decline in home values, and subsequent crash of the real estate market, has made it virtually impossible for the middle class to take the lead this time around; even as the economy starts to improve.
Oh yeah, and let’s not forget the fact that many people lost their jobs and with it the income to be able to afford a home.
Home equity lost
The Federal Reserve estimates that $7 trillion in home equity was lost from American households between 2006 and 2011 due to the housing crisis. In 2012, a total of $192.6 billion in wealth was lost due to foreclosures across the United States.
Many have already forgotten that it was the banks that got us into this predicament. They are the ones that saddled borrowers with deceptive mortgages they couldn’t afford. And, when these homeowners no longer could pay, it was the banks that engaged in fraudulent activities (robo-signing) to take back the homes that they never should have financed in the first place.
A recent article in the Wall Street Journal notes that many of the products such as no-money down mortgages that led to the housing bubble and subsequent burst no longer are available, making it impossible for first-time homebuyers to obtain financing.
Lending tightens The same lenders who once lured first-time home buyers with their too-good-to-pass-up financing have become significantly more circumspect about to whom they will lend. Let’s face it, without financing, most first-time buyers aren’t going to be able to enter the market.
The first time home buyer has always been the most important buyer in the market, because they are the ones that start the dominoes falling for larger purchases. Without them, exiting homeowners can’t sell and move into more expensive homes and pump more money into the housing recovery.
What’s the takeaway? We are experiencing the marginalization of the middle class. Without first-time home buyers, not only will the housing market recovery remain sluggish, but the entire economy will be unable to fully recover and make it to the next level.
From The Trenches
Real estate attorney and foreclosure defense attorney, Roy Oppenheim left Wall Street for Main Street, founding Oppenheim Law along with his wife Ellen in 1989 in Fort Lauderdale, Florida, and is vice president of Weston Title and creator of the South Florida Law Blog, named the best business and technology blog by the South Florida Sun-Sentinel. Follow Roy on Twitter at @OpLaw or like Oppenheim Law on Facebook .
Foreclosure activity in April fell to its lowest level in 74 months, but action is ramping up in some states, says a national foreclosure tracker.
In April, one of every 905 U.S. housing units received a foreclosure filing, market watcher RealtyTrac says. That was the lowest level since February 2007 — near the beginning of the nation’s foreclosure crisis — and down 23% from a year ago.
But foreclosure activity is increasing in some states where legal procedures and new laws to protect homeowners had slowed down foreclosures.
For example, in 26 states where foreclosures mostly go through the courts, scheduled foreclosure auctions in April were up 31% from a year ago to a 30-month high, RealtyTrac says. The auction is where the bank most often reclaims a foreclosed home.
The increase in scheduled auctions indicates that mortgage servicers are “serious about actually foreclosing,” says RealtyTrac Vice President Daren Blomquist.
Two states where courts approve foreclosures are Florida and New Jersey. In Florida, one of the states hardest hit by foreclosures, scheduled foreclosure auctions were up 55% in April vs. a year ago. In New Jersey, they increased 91%.
In both states, foreclosures slowed dramatically several years ago after allegations surfaced that many cases were moving through the courts without proper documentation.