Whenever I think of foreclosure, Casey Serin always comes into mind. His blog, I Am Facing Foreclosure, which he shut down a few weeks ago, is now back online. The reason, he has to honor the contract with a publishing company of his book, “The Foreclosure Code,” that states he has to have his blog live while working on the book.

I’m sure that a lot of greedy real estate speculators are in the same boat as he is: facing foreclosures. These speculators are partially at fault on why the real estate prices skyrocketed during the 2001-2006 period! That’s why I don’t feel sorry for them for overextending themselves thinking that they can make a killing in real estate. The homes have become unaffordable to a lot of people as nowadays you have to make an annual salary of at least $100,000 for you to afford the median price of a home (around $550,000) in California.

What I feel sorry about are those people who used to not own a home but were lured to buying one by their real estate agents or loan officer. I’ve seen a lot of ads in an Asian newspaper stating that “Prices will keep going up and this is the best time to buy a home” or “Mortgage are at an all-time low and you can afford a house at $1,000 per month on a 1% introductory rates.” All those teaser rates made quite a few people believe that they can afford a home. But for how long? A lot of people, especially people with low fico score, have overextended themselves by acquiring these sub-prime loans. For those people who bought their homes with an adjustable rates in 2004 or 2005, those rates are about to reset and it is estimated that the monthly payment would go up by as much as $800 (or more) on a 3% rate increase for a$380,000 home. There have been some talk of a federal bail-out to the sub-prime industry but I never like this idea because people should be held accountable for their mistakes and not the government.

Although refinancing is one option, here is a potential problem for someone who wants to refinance:

Many bought with very small down payments of about 5 percent or less. In a market like San Diego, single-family houses fell 6.3 percent in value between September 2005 and March 2007, according to statistics from the Case Shiller home price index. And prices are likely to decline further through the year. So anyone who bought in San Diego in 2005 with 5 percent down will actually owe more on the house than than its’ worth.

Lenders are not too eager to refinance under conditions like that, so owners can get stuck paying the higher, reset mortgage payments. And interest rates have been on the rise, making those payments even worse. Since many home-buyers overextended themselves to buy the home, they may find it impossible to keep up with higher payments, which could rise by $800 or so per month based on a 3 percent reset on a $380,000 loan. Increased scrutiny from regulators has also resulted stricter underwriting standards, which can make it more difficult for high-risk borrowers to get loans of any kind .

Thus, most people will face foreclosure if they are unable to make the dramatic increase in payments or refinance their mortgage because of a decrease in value of their homes.

Source: CNN Money

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