Economists say the end is near. Realtors say we’ve hit rock bottom. The problem is that all these guesses are in fact just that… guesses. The indicative factors say that we are at the end of this nasty recession and I think so too, but there are other hurdles that we need to get over first. As most buyers are looking to take advantage of investing in Florida foreclosures, there are other things to think about as well.
During the infamous real estate boom, investors and homeowners alike bought as many properties as they could and stretched their money as far as possible. Most wanted to turn a dollar into a thousand dollars using OPM, which stands for Other People’s Money. Sure, this is a good concept to use in certain circumstances, but out of this came a nasty loan product. Remember Payment Option ARMs? They were also known as Pick-A-Payments? These loan programs gave the homeowner the option of making the minimum payment, which is much less than a normal PITI payment, and then 3 other options, which are usually interest only or amortized loan payments over 15 and 30 years.
After so many years, these loans “reset” and demand the deferred amount. Most investors and buyers relied on the fact that at this point they could refinance the loan and their principal would take care of the balance, refinancing costs, etc. Well, what do you think happened when the market crashed? People lost most, if not all, of their home equity and were forced into foreclosure once the loan required collateralized payments. Today, only $1 billion per month is requested in these loans. In the third and fourth quarter of 2011, we will see that number jump to $8 BILLION per month. Many more homes will go into foreclosure unless a miracle happens by then and home values go up 100%, which is highly unlikely.
Another option is to have your monthly mortgage payment increase to make up the difference. What do you think will happen when the mortgage payment goes from $1,500 to $2,500 and one or both spouses are laid off or take lower-paying jobs? More foreclosures. In the Florida foreclosure market, these loans were plentiful among high-end houses. This fiasco in 2011 should be called the Gated Community Catastrophe.
Although this will not have the same impact as the subprime mess, it is expected to generate many deals in the high-end market in the future when that time comes.
