“Whats causing all the foreclosures in San Diego?”
***ANSWER:
People ask me this all the time. The answer has many related parts. The causes include:
1. Subprime-
Too many people with bad credit (aka subprime or non-prime) were granted home loans. Surprise: people with a poor history of paying their bills didnt pay their mortgage. Whod have thunk it?
2. Pay Option-
Also called the exploding arm, this home loan starts at a low rate for 2-3 years, then resets at a much higher rate. And the bulk of these are resetting 06-08. BTW, this IS a great loan for some people, but its a disaster for others.
3. No Doc(umentation) / No Verification-
Also called a liars loan. 3 easy steps: 1) Make up an imaginary income high enough to qualify for the loan you want. 2) Get the loan. 3) Default when you remember you dont make that imaginary income and now you cant make your payment
4. Zero Down-
Zero down means a higher loan, no money personally invested, and impossible to refinance later into a loan you can afford.
5. Intentional Mortgage Fraud For Profit-
What do you get when you have a scheming lender, appraiser, buyer, & seller? Often its a sale and loan for dramatically more than the property value. Everyone splits the extra money and nobody makes the payment.
6. Higher Rates-
Rising rates means adjustable loans go up higher and people cant make their payment.
7. Decreased Value-
Your payment is up and your value is down. Youre upside down, you cant refinance, and you probably didnt put anything down in the first place. What do many people do? They walk away.
8. Difficult Short Sales-
As in #7 above, youre upside down. But you DONT want to walk away. So you try a short sale in which your agent negotiates with your bank for them to take less and allow a sale. But no one told you buyers would shun your home, the bank would be slow and uncooperative and unrealistic (by expecting you to get over market value when buyers are shunning your home), and your agent would give up. My unscientific, unresearched guess is that only 1/4 of short sales are successful.
9. No Financing For Your Buyer
Lenders got burned from all the crazy loans (see #1-4 above). So they swing the pendulum too far the other way and tighten up. But guess what your would-be buyer needed to buy your home?: one of those crazy loans. No loan = no buyer. Its called closing the barn door after the horse escapes
and closing it on the horses neck when she tries to come back.
This whole scenario produces many winners and losers:
The losers are obviously people who lose their home or cant buy a home.
But the winners are those who can still buy a home, often for 10-20% below September 2005 prices. Youll find bargains like these predominantly in the under-$800,000 range, and especially in certain neighborhoods in San Diego.
San Diego Foreclosure-Hotlist
