Tucson When A Bad Omen Isn’t So Bad
April 30, 2008
Post Tags: Arizona-Daily-Star , Bad-Omen , Foreclosures-Tucson , Giant-Man-Eating-Hybiscus
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I don’t usually write about foreclosures or rates of foreclosure. But I want to address the article that topped the business section of this mornings “Arizona Daily Star“. For those who haven’t read my post in the past at Tucson Real Estate in The News or for those needing a refresher lets look at some of the tools we use for digging into the content of an article.
What is the Topic?
- Residential Real Estate
- Commercial Real Estate
- Single Family Residential etc.
The topic of Foreclosures
Is this Local or National.
“NEW YORK — In a bad omen for sellers and lenders this spring home-selling season, the erosion of house values is accelerating and foreclosure filings are doubling, new data showed Tuesday.”
Is it State or Local.
“AZ 3rd-highest in foreclosures”
Is there a local angle.
“Tucson ranked 54th, with one filing for every 224 households. The area’s 1,864 filings were up 14.5 percent from the prior quarter and 90 percent from first-quarter 2007.”
Now lets look at the overall details of the article
Rates of Foreclosures and the number of foreclosures continues to climb. Arizona is the third highest on the list with 27,404
Phoenix has 23,135 of the 27,404 in the state. Tucson has 1,884 leaving the rest of the state with 2,385.
Next it begins to mix the data in an apples to oranges approach to statistics. It compares the number of households to the number of foreclosures. This is not a valid comparison. Why? Because households are not foreclosed upon, neither are homes. They aren’t? I thought they were.
Loans, specifically in this instance Mortgage loans are foreclosed upon.
In the old days they were the same thing. You bought a house with a mortgage loan, when the loan was foreclosed upon it was the same as foreclosing on the house. But things changed a few years back. Why?
Because in the past if you didn’t have 20% down for the purchase of the home you had to purchase “Private Mortgage Insurance” (PMI). If you defaulted on your mortgage then the investor who holds the mortgage would be paid. You were purchasing this insurance for the investor not you. PMI does nothing to prevent you from loosing your home.
Along came the “Second Mortgage”. If you didn’t have 20% down and didn’t want to pay PMI you could get a second mortgage to cover the 20% you didn’t have. (That’s right many people didn’t have anything to put down let alone 20%)
With two mortgages you avoided having to have PMI. The second mortgage always cost more and had a higher rate of interest. However, now you had TWO loans on ONE house. Remember the loans are what are foreclosed upon not the house.
But that’s not all in some states Home Owners Associations can foreclose on a property if the home owner is behind of payments. Two of the states that have this provision for HOA foreclosures are California and Nevada.
Guess what California and Nevada are number 1 and number 2 in foreclosure rates. In those states a single property can have THREE foreclosures at the same time.
None of this information is provided in the article. It is made to appear as one foreclosure = one house.
Now we have filled in another piece of this puzzle and “Bad Omen”.
Since the majority, I would say 99% of the homes in foreclosure had 1st and 2nd mortgages the actual number of homes being foreclosed upon in Tucson would be 942. But wait there is more (as they say in the commercials).
Not all of these homes are in foreclosure because if a home owner has missed a payment or has been late with a payment they will be sent a “Notice of Foreclosure Proceedings” on EACH LOAN. You guessed it. These numbers are not based on actual foreclosures, but on foreclosure notices.
I can’t say how many of these are in that category, but I would venture a guess of 1/3 to 1/2.
Feeling better yet? Is there a “Bad Omen” yes, but it isn’t for the home sellers. They are not competing with foreclosure properties for the sale of their home. Statistically that number is so low it isn’t even a blip. The Bad Omen is for those that made these terrible loans in the first place. They hold both loans. Their numbers are these numbers.
Finally, when looking back historically at home foreclosure rates the reporting is still comparing apples to oranges, since it is house for house reporting, it is single mortgage properties of the past compared to multiple mortgage properties of the recent past (yes, in some cases there were THREE mortgages, go figure).
When it comes to the reporting of bad news there are always ways to magnify reporting.
What you really need to be worried about are the Giant Man Eating Hybiscus invading Tucson.
May 1st, 2008 at 11:51 pm
You are correct about the inaccuracy in reporting the number of foreclosures. I also believe that until the elections are over you will not hear any positive news on the economy. In fact the liberal media wants you to think you are going to starve to death if you don’t stockpile food now. You don’t see them reporting anything positive like the low mortgage rates that are encouraging more buyers to jump in the market now to take advantage of low housing prices and low interest rates. I think the next few months will be the best time to purchase a home for years to come. My prediction is after the election is over the next president will immediately take on the recession, which will cause inflation to start and interest rates will climb. Don’t expect mortgage rates to remain so low. Now is the time to buy, while the majority of the public watch the nightly news and are afraid to make a move. By the time they realize 2008 was the best year to buy it will be too late. You never know where the bottom of the real estate market is until it has past.
May 2nd, 2008 at 10:07 am
Perhaps I misread your article but it seems as though you are saying that if a person has PMI then their house will not be taken away in event of an foreclosure? I just called my mortage company….they beg to differ. If we failed to make 3 payments (not a worry at the moment fortunately) they would begin foreclosure. They said PMI pays off the investor but does not secure the house for the borrower.
May 2nd, 2008 at 10:14 am
LuAnn,
Yes, you mis-read, which means I should have made it clearer. I stated that PMI only covers the investor not the borrower.
“If you defaulted on your mortgage then the investor who holds the mortgage would be paid. You were purchasing this insurance for the investor.”
As you state they still loose their home.
Too many people think the PMI is covering them, it isn’t. It only covers the guy you borrowed the money from.
Thanks for your comment it clarifies this even better.
Once again PMI only covers the investor, not the borrower.
May 2nd, 2008 at 5:51 pm
I live in California and if we have a small earthquake the conservative media always shows the interior of a liquor store because there is more apparent damage, the broken bottles all over the floor. The 99.9999% of the people that did not have any damage goes unreported. They do not make good headlines or video. The worse you can make out the situation to be the better ratings you get, the more people that will read your paper. With this story they say housing pricing is falling so it must be falling for all properties right? And we all own liquor stores that were damaged during the last shaker.
May 2nd, 2008 at 5:54 pm
Jim,
That’s a great example of the media making an epidemic out of a pimple.
And during an election year that pimple could me the ruin of the country or extinction for all man/woman kind.
Have a great weekend. Take some pictures, skip the broken liquor bottles.