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Thursday, July 12, 2007

U.S. Foreclosures Jump 87 Percent as Lending Practices Tighten

" The number of U.S. properties in foreclosure climbed 87 percent last month from a year earlier as home prices fell and lending standards tightened, making it harder for borrowers to sell homes and refinance mortgages. "

In summary, housing prices are falling, rates are rising AND lending standards are tightening. The perfect storm? Not quite. When the majority of ARMs rate resets kick in later in the year, then it will be a perfect storm.

" An estimated 58 percent of properties in the foreclosure process are linked to borrowers with subprime loans, and RealtyTrac expects U.S. foreclosures to reach 1.8 million by year's end, Rick Sharga, a spokesman for the company, said in an interview. "

These mortgages are spun into MBSs (Mortgage Backed Securities) which are then piled into CMOs (Collateralized Mortgage Obligations) where they are sliced and diced beyond recognition into different tranches of varying risk and return. The entire thing is rated investment grade and sold.

" "We're running much further ahead of what we had anticipated in terms of year-over-year,'' Sharga said. "Historically, 40 percent of properties entering default make it as far as auction, with half of those going back to banks and the other half to investors.'' "

Either way, both the banks and investors will sell these properties. They are not in the business of property management after all. For example, Bear Serns is now sitting on unwanted property in Georgia... and elsewhere...

" It's a mess,'' said Kiwanna Ford, 31, who grew up next door to the vacant brick ranch-style house four miles south of the DeKalb County Courthouse. Bear Stearns seized the property three months ago after Ford's neighbor stopped making payments on his mortgage. ``If we wanted to sell our house right now with that next door, it would hurt,'' she said.

Bear Stearns, the second-biggest U.S. underwriter of mortgage-backed securities now reeling from the worst housing decline since the 1930s, never planned to take possession of the three-bedroom house. After selling the property last week, Bear Stearns said it still owns 18 houses in the Decatur area acquired since November. Citigroup Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and JPMorgan Chase & Co. are listed in public records as the owners of at least 35 homes in the suburb, where 19,000 people live seven miles east of downtown Atlanta. "

I guarantee you, that the financial ninjas on Wallstreet did not expect their complex financial formulas to turn into empty houses in the swamp... Surpise!

Source: U.S. Foreclosures Jump 87 Percent as Lending Practices Tighten (
Source: Bear Stearns Meets Possums in Georgia as Foreclosures Increase (
Source: The Forgotten Resets (