You and your significant other pinch pennies until you are able to set aside enough money to make the down payment then you search and search until you find the right house, your house, and the house you have been dreaming about. What makes it a dream house is simply personal choice - what you consider a shack, could very be what your neighbor considers a castle.

We were fortunate when we bought our home as it had everything the three of us wanted. My husband wanted to be close to the lake so he could spend his free time fishing, our son wanted a garage big enough for all his grown-up toys and I wanted fir trees. The fact a house was included in the deal was simply frosting on the cake, since I would have been happy living in a tent in my fir tree infested yard.

It did not take us long to find our house and we could not wait until closing when we would finally become home owners, or should I say interested parties since we did not actually own anything except the two sets of keys in our hand.

69 percent of Americans know the feeling as that is the percentage of us that now own homes in this country which seems to be the major problem we are now facing with the housing market.

Historically, home ownership in this county has hovered around 65% until 2006 when it rose to 69%. The additional 4% represents approximately 4 ½ million more families that became home owners during the Bush administration.

There are many reasons why we experienced such a major housing boom in this country, but the most significant reason is the lowered short-term interest rates set by the Federal Reserve when Alan Greenspan was still Chairman. The lowered interest rates were in effect through the middle of 2004 in an effort to spur GDP growth after the 2001 recession. 30-year fixed mortgages averaging 7.6% from 1995 through 2000 dropped to 5.8% in 2003 and remained under 6% through the 4th quarter of 2005.

Lower interest rates made it possible for millions of people to become homeowners that had previously rented. Subprime mortgages were extended to millions of borrowers with low credit ratings, those that could only afford low down payments, and to those who were not able to sufficiently document income.

By the end of 2006 there were 7 1/2 million borrowers with first-lien subprime mortgages. The value of these mortgages is estimated at $1.2 trillion dollars, and represents 13% of all outstanding mortgages.

Many of the loans were in the form of Adjustable Rate Mortgages ARMs. ARMs generally have a much lower interest rate for the first several years of the loan and then increase over time.

Of the 7 ½ million borrowers that have subprime mortgages, 85% of the mortgages are paid on time, which means 1.2 million borrowers are late on their payments. Over the next two years many of these ARMs will reset at higher interest rates.

On December 6, 2007 President Bush provided an update on what his administration is doing to help borrowers as follows: (1) FHASecure, a refinancing plan for homeowners with good credit that cannot afford current payments. This program is expected to assist more than 300,000 families by the end of 2008. (2) Secretary of the Treasury, Henry Paulson, and HUD Secretary, Alfonso Jackson put together HOPE NOW a private sector alliance that has set up a toll-free hotline, 1-888-995-HOPE for homeowners to call 24-hours a day, and HOPE NOW has sent out hundreds of thousands of letters to borrowers that are falling behind in their payments. (3) Several regulator actions are being put in place to make the mortgage industry more transparent, reliable, and fair.

The administration plan was intended to provide assistance to 1.2 million homeowners that were not late on their payments, but the numbers indicate only 300,000 families will be provided help by the end of 2008, which may be why the administration is requesting additional assistance from Congress. There seems to be little that is being done by this administration to provide assistance to the 1.2 million homeowners that are already behind in payments as the Whitehouse plan applies only to homeowners with up-to-date mortgage payments.

December 6th was a busy day for the housing market as the latest delinquency report from Mortgage Bankers Association was also released on that date and the news was not good indicating a historically high delinquency rate on all residential mortgages for the third quarter of 2007.

The Congressional Budget Office and Mortgage Bankers Association prepared a chart indicating the change in foreclosure rate by state from the 2nd quarter of 2006 to the 2nd quarter of 2007. Four states, California, Nevada, Arizona and Florida went from a foreclosure rate of 0.3% to a foreclosure rate of 0.6%. These four states have a disproportionate number of foreclosures compared to the rest of the country.

Why?

Part of the reason may be due to foreclosure laws in these four states. California has judicial foreclosures, but they are not common. Non-judicial foreclosures handled by a trustee are more prevalent in this state.

Nevada and Arizona have both judicial and non-judicial foreclosures, with trustee foreclosures more common in both states.

Florida does not have provisions for non-judicial foreclosures and all foreclosures are handled by the courts, but what is interesting in Florida is the fact there is no state law requiring the lender to notify the borrower prior to initiating foreclosure proceedings.

Does it just happen these four states have a disproportionate number of foreclosures compared to the rest of the country or has there been a concerted effort in these states to sell subprime mortgages for the sole purpose of picking up the foreclosed properties for pennies on the dollar and reselling at a later date for extraordinary profits?

In every financial transaction there is a winner and a loser, unfortunately the additional 4% that were able to purchase homes during this administration are going to end up being the real losers.

Sources:

RealtyTrac foreclosure laws

Mortgage Bankers Association, December 6, 2007 Release

Whitehouse - December 6, 2007, Helping American Families Keep Their Homes

CBO Director, Peter R. Orszag statement before the Joint Economic Committee, U.S. Congress.

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