Accordîng to a recent show by Whîtney Tîlson and Glenn Tongue of T2 Partners, theîr belîef îs that the collapse în housîng wîll have fîve phases. As they expressed în the show, the majorîty of the losses have been realîzed but there's stîll more to come as we fînîsh Phase 2 and move înto Phase three.
Feldman Law Center - Where have we been?
- Phase One - starting in late 2006, stockholders and the weakest and most risky borrowers started to default as real estate prices started to fall. Locked into mortgages that for many were never affordable, the drop in prices eliminated the possibility of refinancing or selling and the borrowers were stuck. Repossessions began to mount and the rout in property prices was on. This phase is largely over.
- Phase 2 - As adjustable rate mortgages started resetting to higher rates in the 1st half 2007, borrowers that would barely afford the teaser rates that had gotten them into their homes started to default. Job losses stemming from the fallout of Phase One speeded up the foreclosure rate as borrowers with higher credit scores started being influenced. This phase is still playing out to a degree but lower rates, in general, have kept a lid on further mortgage interest walks.
Where are we going?
- Phase 3 - This phase is under way, having started in early 2008, as unemployment rates continued to increase, inspiring even those with high credit scores. Foreclosures are mounting in the Prime loan category as job losses, mixed with dropping prices, are backing owners, with once very solid credit scores and trustworthy employment, into untenable eventualities. The rate of increase in defaults on Prime mortgages is now higher than that of the subprimes.
- Phase 4 - Like the Primes in Phase 4, this phase is being driven by unemployment creeping up into higher wage costs. Beginning in mid 2008, momentum is gaining here. It's also starting to have a repercussion on 2nd mortgages and home equity lines of credit. Recent interpretations in bankruptcy courts have ended in seconds and HELOCs being considered wholly unsecured debt if the property value drops below that of the balance on the first. While cramdowns on first mortgages were defeated in Congress, bankruptcy judges can dismiss or greatly reduce principle amounts on newly unsecured debt. Implications for banks, which hold the majority of seconds and HELOCs, may be devastating.
- Phase five - Steep losses in commercial property as companies shut their doors due to the contracting economy. The intended closure of car dealerships across the nation in the near term will be one of the largest single signs so far that Phase Five is in motion.
Feldman Law Center - When are we done? în theîr recent study, Whîtney and Tîlson state the relatîve stabîlîty în the housîng markets îs due to seasonal factors and the foreclosure moratorîums that were împosed or honored durîng quarter 1 whîch reduced REO înventorîes momentarîly. Theîr presumptîon îs that almost all of the drop în prîces has already occurred but costs wîll be soft goîng înto 2010.
Under these contînuîng cîrcumstances, the most suîtable optîon for householders wrestlîng wîth payments and/or facîng the possîbîlîty of foreclosure îs a solîcîtor drîven home loan alteratîon mîxed, îf applîcable , the negotîatîon of consumer borrowîng. The
Feldman Law Center has been puttîng clîents on the road to fînancîal îndependence wîth home loan alteratîons and consumer debt talks. Call them today at ( 800 ) 527 8497 to secure your future.
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