Florida Mortgage Rates Rise on Adjustable Loans, Spell Trouble
Turmoil in the housing market is swirling around an increase in troubled Florida mortgage loans and a new threat, rising interest rates.
Around the nation, late home-mortgage payments and adjustable-rate loans going into foreclosure hit all-time highs in the first three months of this year.
The problem is acute in this Florida housing market, which had the second-largest increase for new foreclosures through the end of March, according to the Mortgage Bankers Association. “That’s a leading indicator that problems are rising,” said Doug Duncan, the organization’s chief economist.
At the same time, potential home buyers have lost tens of thousands of dollars of purchasing power because interest rates on new mortgages spiked this week. When interest rates go up, home loans become more expensive and some buyers drop out, while others cut back on the price they can afford to pay for a home.
Another negative: Huge inventories of homes are for sale in South Florida. The number of houses and condos on the market is so large that it would take almost three years to sell them all in Palm Beach and 31 months in Broward, if the pace of recent sales continues. Real estate agents in the two counties said Thursday that 73,311 homes and condos are listed for sale in their multiple listing service, compared with 83,000 in April.
“The speculators are gone, they left,” said Chappy Adams, president of Illustrated Properties in Palm Beach County. “Not only did they stop buying but they pretty much put their properties on the market all at the same time.”
The Mortgage Bankers Association reported that nationwide the percentage of payments that were 30 or more days past due for “subprime” adjustable-rate home mortgages jumped to 15.75 percent in the January-to-March quarter.
That was a sizable increase from the previous quarter’s delinquency rate of 14.44 percent and was the highest on record, Duncan said.
The organization said most of the increase in loans entering the foreclosure process nationwide came from Nevada, Florida, California, and Arizona. If the figures for those states were taken out of the nationwide survey, the percentage of loans going into foreclosure would have declined.
The most obvious trouble is in the bad credit Florida mortgage market, where 11.61 percent of all subprime loans in Florida are past due and 2.15 percent of subprime loans entered foreclosure during the first three months of the year. Another 6.29 percent are considered seriously delinquent, because payments are more than 90 days past due.
Also on Thursday, the Federal Reserve indicated it might be ready to crack down on mortgage lending abuses. The Fed is considering such actions as limiting the availably of so-called “liar loans,” which require no proof of the borrower’s income, and preventing lenders from slapping prepayment penalties on borrowers.
For all Florida mortgages, the delinquency rate actually dipped to 4.84 percent in the first quarter, an improvement from the fourth quarter’s rate of 4.95 percent, which had marked a 31/2 year high. However, the percentage of all mortgages starting the foreclosure process in the first quarter rose to a record high of 0.58 percent. That surpassed the previous high of 0.54 percent in the final quarter of 2006.
The association’s survey covers a total of almost 44 million loans nationwide.
Also on Thursday, Freddie Mac reported that interest rates on 30-year, fixed-rate Florida mortgages jumped to 6.74 percent, up from 6.53 percent last week. That was the largest one-week jump in more than three years.
For borrowers, the difference is significant. At 6.74 percent, the principal and interest payment on a $300,000 home loan for 30 years would be $1,944 a month. One month ago, the same loan at the average at that time of 6.21 percent interest would cost only $1,839 a month.
Interest rates went up sharply since last week to the highest point in five years. Investors were selling Treasury bonds, because fears were growing about inflation and about whether foreign buyers of U.S. bonds might be looking for better rates in other markets. When Treasury or other bond prices fall, the yields or rates rise.
Those higher rates will also make it more difficult for troubled borrowers to Florida refinance their mortgages. Some analysts estimate that almost 2 million adjustable-rate mortgages will reset to higher rates this year and next.
“If there are a lot of people out there who do have the ability to refinance, the time to do it is now,” said Jim Dean of Trust House, an investment advisory firm in Fort Lauderdale.
“With taxes and insurance and now rising interest rates, this all continues to put pressure on our market,” said Richard Barkett, chief executive officer of the Realtor Association of Greater Fort Lauderdale.
SOURCE: The Sun-Sentinel
