This is the one of the bigger problems facing recovery right now.  In order to get recovery going, we need a healthy mortgage market as well a solution to the foreclosure crisis.  As this graph shows us, things are not looking real good for the mortgage markets.  The chart on the left shows how applications for refinancing have fallen off of a cliff because of the chart on the right.  The chart on the right shows how interest rates have climbed.  Just this last week the average 30 year rate jumped from 5% to 5.79%.  That is a large increase. 

 

In addition, this Wall Street Journal article talks about how the President’s plan, the Home Affordable Refinance Plan, is not working nearly as well as hoped.  It might be because so many people that need the help don’t qualify because they owe so much more than their home is worth. 

 

Consider this study: This report looks at how many mortgages are “under water” or are in trouble.  Typically, “under water” is a term referring to a mortgage where the mortgage exceeds the value of the home.  

 

Various Types of Mortgages – Percent “under water”

 

73% of Option Adjustable Rate Mortgages

50% of Sub-prime Mortgages

45% of Alt-A Mortgages

25% of Prime Mortgages

 

There are hundreds of billions of dollars of these mortgages that will be coming up on the period where the adjustable mortgage rate changes.  That means the interest rate and the payment goes up.  Because of the higher interest rates, lack of equity and poor credit, refinancing will not even be an option for many people. 

 

I don’t think we are out of the woods at all with this credit crisis.  When do you know it is over?  When the foreclosure problem starts to improve.

 

RealityTrac reported that foreclosures were up 18% this past May, which was the third straight month that we have exceeded 300,000 filings.  Those are horrible numbers.

Tags: Bob Brooks, Deceptive Money, equity, Foreclosure, Home Affordable Refinance Plan, interest rates, mortgage market, Mortgages, Prudent Money, refinanciang, Wall Street Journal