Logjam in delayed foreclosures to hit U.S. real estate values in 2009

Today's Financial News

The root cause for most foreclosures boils down to choices, not circumstance. Government delaying tactics may delay the inevitable… but they stand a snowball’s chance in hell to remedy the bad financial decisions that lead to the situation.

by J. Christoph Amberger

In 2008, U.S. foreclosures rose 81% over the previous year. And thanks to the various “philantropic” efforts of state and local governments—such as extending the “grace period” before a bank could file papers on a
delinquent borrower—theres’ a logjam of foreclosures waiting to burst in early 2009.

A lot of these foreclosures are hardship cases: Illness, death, injury, and unemployment making it difficult for people to keep up with mortgage payments.

Bad things happening to good people.

Many others are not quite the heart-tugging stories you’d expect. Some are peculations gone sour. Others are cases of mathematic illiteracy… greed… stupidity… or pure, good-old-fashioned entitlement mentality.

I find it difficult to commiserate with the family with the half-million-dollar McMansion, the three leased luxury cars, and a plasma TV in every room, who “unexpectedly” finds the bills piling up. I wonder “what were they thinking” when I hear of single parents with five-figure incomes foreclosing on $600,000-dollar homes they were “tricked” into buying with unaffordable ARMs and fraudulent net worth and income statements.

And I’m not surprised to read that Federal aid and refinancing extended to many throughout 2008 was unsuccessful.

Some people may be able to calculate football scores, vacation bargains, the thickness of Arctic sea ice in the year 2050, or the decline of the dollar vs. the yuan by 2012.

But they don’t understand the basic math of wealth building and management. (Look no further than the proposed new head of the U.S. Treasury: His job would be to determine monetary policy, but he apparently thought it wasn’t up to him to figure out (let alone pay!) his personal income tax obligations!)

And that’s exactly where the limits of being able to help begin:

You see, it is not like personal finance is a secret science. Books and tapes on the subject could fill entire libraries. There were months when you’d flip through your cable channels and all you saw was Suze Orman. And all of them pretty much carry the same message:
* You build wealth increment by increment.

* You can’t build interest-earning residual if you spend your principal.

* And you can’t build wealth when you take on debt that you cannot reasonably expect to pay back.

It’s simple. It’s obvious. It’s everywhere.
But it’s not easy, mind you. Nor is it sexy, exciting, and enjoyable: That extra principal-only mortgage payment you make is the equivalent of a week’s vacation in the Bahamas. One bi-weekly contribution to your 401(k) equals three minimum payments on credit card statements. And the money
spent on a good accountant would pay for two grand nights out on the town… and enough aspirin to take care of the hangover.

Which is why many people decide they’re simply not rich enough to get rich.
In the end, it’s a matter of choice, not circumstance.

How can you remedy a situation that was built on a series of wrong but deliberate decisions?

There are plenty of ways to delay the inevitable. But there’s no simple fix: You don’t repair a faulty foundation by replacing the guest room curtains with cheaper ones.

In the end, you might just have to tear the whole place down and start over.

It’s rarely possible to refinance defaulting home-owners into liquidity… at least not without drastic re-calculation of asset values. And that means sticking homeowners with paying off upside-down mortgages forever.

Or force them to take them (and their bank) to take the loss now.

Overall, I’m looking at rising foreclosure rates as an indicator that the free market is still working… despite the government’s best efforts to interfere.

An over-supply of cheap, foreclosed properties translates into low cost of entry-level homes for the Echo Boom generation three, four years from now.

And into a solid opportunity for qualified investors to build wealth the old-fashioned way: To buy depressed assets cheap when there’s no demand… and selling them high again when demand picks up.


Source

For those who are being a hardship borrowers they have a grace-period which can help them to seek money.