Many Mortgage Foreclosures are From Investors
Investors who tried to make a quick buck on the housing market are having an outsized influence on surging mortgage defaults in former boom states such as California and Florida.
The Mortgage Bankers Association released an analysis of mortgage defaults in Florida, Nevada, Arizona and California - states that experienced dramatic price appreciation during this decade’s housing boom.
As of June 30, properties owned by investors in those states accounted for a higher percentage of home loan defaults than the national average.
“Defaults are on the rise in most parts of the country, but it should be recognized that it is not always the case of an owner losing his or her home but is often the case of an investor gambling on a continued increase in home values and losing that gamble,” said Doug Duncan, the MBAA’s chief economist.
Empirically speaking, Nevada mortgage defaults were highest in terms of institutionalized investors. Among defaults on loans given to borrowers with strong credit, 32 percent were by investors. For defaults on loans given to borrowers with weak credit, 24 percent were by investors.
That compares with a national average of 16 percent for less-risky home mortgage loan borrowers and 12 percent for risky borrowers.
Meanwhile, Arizona had the second-highest percentage of mortgage loan investor defaults, followed by the former red-hot markets of Florida and California.
The report comes amid debate about what effect a widespread real estate market slump will have on the economy.
The Commerce Department reported Thursday that the gross domestic product, the broadest measure of economic health, expanded at an annual rate of 4 percent in the April-June quarter, significantly higher than the 3.4 percent rate the government had initially estimated a month ago.
But the growth spurt could be short-lived.
There are concerns that the recent turmoil in financial markets, the result of a spreading bad credit mortgage crisis, could greatly dampen economic activity in the second half of this year.
SOURCE: Forbes