Florida Home Buyers and Investors Blog

Based on the mortgages produced over the past few years, many were Option-ARM's and ALT-A loans.  These loans were provided to borrowers who had good credit and not able to document income.  Generally these borrowers were business owners or other self employed individuals.

Many of these borrowers also put down at least 10% down, but are currently in a negative equity position.

Why are these loans important to look at going forward?  These loans are going to adjust over the next 6-18 months, and many of these borrowers are no longer employed, underemployed, or just barely making the minimum teaser payment.

These loans offered the borrower the Option of paying less than the minimum interest payment (negative-equity), minimum interest, or full amortized payments.  What do you think most people did?  Yup, pay the least amount.

Now these homes, generally $500,000 + in price are worth 50% of their value, and the loan amount ballooned over the past few years.  Unfortunately, these homes will not qualify for any loan modifications, and will end up as Short-Sales.

So, my prediction is that over the next 6-18 months, the Jumbo Loans, over $600k will start defaulting in greater numbers.

The hit to the financial institutions will be greater than the sub-prime due to the higher values of the properties.  Remember, banks have been taking a 50%+ haircut on $150,000-$300,000 homes.  The damage is much worse with a 50% haircut on a Million dollar home.

The second wave of defaults is on the way.  Knowledge and information are the basis of prosperity. 

As far as Subprime loans.  We are out of the woods, and the lower priced homes are working their way out of the market.  Inventory levels are down, prices are down, and the stimulus incentives from the Administration are beginning to work.

It's a great time to get a good deal on the properties nobody else wants.  Filtering through the muck is a huge task, and for Realtors, the reward (commission) does not nearly cover expenses.  When working with a Realtor, consider them a part of your team and treat them like a partner.  You need people who know the market to guide you.  Success is a team effort.