Foreclosures are rising in many parts of the country, fueled by a slowdown in home sales, slumping real-estate prices and rising payments on adjustable-rate mortgages. Homeowners who have lost a job or faced another economic crisis are finding it hard to refinance or take out home-equity lines of credit to bail themselves out, analysts say.

The Detroit, Fort Lauderdale, Fla., and Denver areas posted the nation’s three highest foreclosure rates for the third quarter of 2006, replacing Indianapolis, Atlanta and Dallas, which had been the top three markets for the two previous quarters. The Indianapolis area was the only one of the three to see the high rate of foreclosure rates dip, edging down 2%. (more…)

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A banana republic is also characterized by a ruling class that curtails people’s personal freedoms and is moving towards a heavy-handed military dictatorship under the excuse of fighting guerrilla (or terrorist) opposition groups or enemies. Moreover, the fact that the ruling class or the elite comes from different political parties isn’t a relevant factor in classifying a country as a banana republic; what is relevant is the determination of the elite, irrespective of which party its members belong to, to shift wealth from the majority of the people (the masses) to themselves, usually through simply printing money and incurring chronic budget deficits, and frequently also through senseless warfare.

The third good news is that although there are ominous signs of the US drifting towards the status of a banana republic, the polarization of wealth isn’t due only to appreciating asset values, inheritances, and the disproportionate growth of the financial sector compared to the rest of the economy. The five richest Americans all made their money themselves, and while money managers, real estate moguls (including hotel and casino owners), and leverage buyout artists are very predominant on the Forbes list of the 400 richest people in America, there are also a large number of “new economy” entrepreneurs on the list, such as the founders of Yahoo, eBay, Amazon, and Google. (more…)

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It doesn’t make financial sense to pay for points to buy down the cost of a mortgage only to refinance the mortgage before reaping the advantage of the buy down. Apparently, however, that’s what virtually all home buyers do when they elect to include points to lower their interest rate with plans to save money over time, according to “Do Borrowers Make Rational Choices on Points and Refinancing?” a special mortgage study by Abdullah Yavas, an Elliott Professor of Business Administration at Penn State’s Smeal College of Business and Freddie Mac analyst Yan Chang.

Only a tiny fraction, 1.4 percent, of borrowers who bought points held their loans long enough to make them pay off. Of those who didn’t buy points, only 1.5 percent would have been better off purchasing them, according to the study an examination of 3,785 mortgages originated between 1996 and 2003. Each “point” is 1 percent of the value of the mortgage. That is, if your mortgage is $200,000, one point is $2,000. Some points are called origination points — charged for originating or writing your mortgage. (more…)

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Activity drops more than 14 percent as 30-year fixed-rate mortgage climbs to 6.12 percent, industry trade group’s weekly index says. Mortgage applications fell as interest rates rose across the board, an industry trade group reported Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended Dec. 22 fell 14.2 percent to 555.8, from 647.6 a week earlier.

The 30-year fixed-rate mortgage rose to 6.12 from 6.10 percent last week. The group’s seasonally adjusted refinance index fell 18.5 percent to 1604.6 from 1968.8 the previous week, and the purchase index decreased 10.6 percent to 390.2 from 436.5 one week earlier. The refinance share of mortgage activity decreased to 48.8 percent of total applications from 50.8 percent the previous week. Fixed 15-year mortgage rates increased to 5.84 from 5.82 percent. Rates on one-year adjustable-rate mortgages (ARMs) increased to 5.87 from 5.82 percent. (more…)

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Randy and Jennifer Rimstad of Minnetonka, Minn., refinanced their mortgage in 2004 to replace a 50-year-old furnace and pay for their youngest daughter’s wedding. In May, their interest rate jumped to 8.55% from 5.55%, pushing their monthly payment from $1,654.81 to $2,295.68, and the Rimstads buckled under an adjustable rate mortgage they say they didn’t understand and could ill afford. Then came the collection nightmare that tacked on another $700 or so in monthly payments.

Millions of other families in the U.S. could soon find themselves in the same dire straits. Some $1.2 trillion in adjustable mortgages will shift to higher rates in 2006 and 2007, more than half of which are to borrowers with less-than-perfect credit, or subprime borrowers, like the Rimstads. These loans already are defaulting at unprecedented rates. Lenders are in large part responsible because they sold risky and unsuitable mortgages to unsophisticated borrowers. In some cases, of course, careless borrowers shoulder some of the blame. But some say there’s another force at work: aggressive servicing tactics. (more…)

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As a weak housing market nudges the foreclosure rate higher, next year is looking promising for investors in distressed real estate. So far, the U.S. housing slump hasn’t produced a bonanza for such investors, but lenders stuck with foreclosed property are becoming more inclined to slash prices or sell properties through auctions, industry experts say. “We’re all going to have to be more creative in the next 12 to 24 months” in selling foreclosed homes, says Chad Neel, president and chief operating officer of Fidelity National Asset Management Solutions, a unit of Fidelity National Information Services Inc., Jacksonville, Fla. Mr. Neel’s company helps lenders manage and sell foreclosed homes.

In the first half of 2006, REO properties accounted for 3.1% of all U.S. home sales, up from 2.4% two years earlier, according to a study by First American Real Estate Solutions, a unit of First American Corp., Santa Ana, Calif. The study found that those homes sold at a median discount of 14% to their estimated value in the first half, compared with 12.5% two years before. The discounts reflect the gap between the actual sale price for the homes and the value estimated by a computer model, which takes into account sales of comparable homes nearby and price trends. It has taken a while for foreclosures to mount. The housing boom of recent years reduced foreclosure rates because most people who fell behind on their loans could refinance or quickly sell their homes for at least enough to pay off the loans. (more…)

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