Are you ready for the "Perfect Storm" of foreclosures?
"It is clear that many homeowners, especially those with adjustable rate mortgages, are being pushed closer to the edge as interest rates rise at such a consistent clip," said a ForeclosuresMass.com executive in the announcement. "We may be witnessing a 'perfect storm' scenario where a flat real estate market, higher interest rates, rising energy costs and specialty loans are causing significant difficulty for thousands of Massachusetts property owners."
"Interest only loans and so-called option adjustable rate mortgages with very low initial rates and high negative amortization are financial time bombs," Foreclosures.com President Alexis McGee said in a recent announcement. "When these loans reset to full amortization and market rates, the payment shock to homeowners is severe."
The huge opportunities you have been waiting for in foreclosure investing have arrived. Foolish homeowners who bought with Option ARM and adjustable rate mortgages are feeling the pain of increased interest rates and falling into foreclosure. This creates huge opportunities for the smart foreclosure investor.
Let me explain how it works. About five years ago crafty mortgage lenders came up with special loans to help buyers borrow more money than they could afford using a traditional thirty year mortgage. They did this with specialty loan products called "option arms" or "pick a payment loan." These are loans that give the borrower a choice on how much to pay – anything from interest only to fully amortizing payments.
The lure is that in the first five years the payments are artificially low "interest only" payments. The catch is that after five years the loans are "recast" to become fully amortizing loans. This means that the borrower's loan payment goes through the roof at the end of year five. Can you imaging your mortgage payment increasing 175% in one month!
That's what one mortgage commentator University of Pennsylvania Wharton Professor Jack Guttentag calculated. He predicted that in some scenarios the borrower’s payment would increases up to 175% at the end of the fifth year of the mortgage.
Homeowners cannot afford a 175% increase in their mortgage payment and this is leading to a huge increase in the number of foreclosures. The reason this opportunity is RIGHT HERE AND RIGHT NOW is that option arms started over five years ago and borrowers are now receiving their enormous new mortgage bills. Those loans started recasting at the beginning of 2006.
This is only the beginning. One out of every 1,247 households in America is in foreclosure. That number is up 28% from the same time last year. In some states it is much worse – in Colorado one out of every 436 houses is in foreclosure, in Georgia its one in every 537 houses and in Texas one in every 555 houses is in foreclosure. The numbers are at record highs all across the country –if your state is not listed, don’t feel left out! In Massachussets foreclosures are up 105% from last year, Florida has the highest number of properties actively in foreclosure and California leads the nation in notices of default (the beginning of the foreclosure process), with Los Angeles county alone having 14,000 recorded notices of default!
REO's, fast moving auctions and the "Perfect Storm" of foreclosures are just around the corner! Are you ready?
Awesome Investing!
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