Foreclosures Hitting Higher Priced Homes

October 12, 2009 No Comments »

luxury homes

We’ve known for a while that this mortgage crisis spans well beyond subprime, it’s just that those mortgages were hit first.

Similarly, lower priced homes made up a big chunk of the foreclosures in the country back when, with properties in the bottom one-third of home values accounting for roughly 55 percent in 2006, according to Zillow.

At that time, home values in the middle one-third accounted for 29 percent of foreclosures, and homes in the top one-third made up the remaining 15 percent.

The real estate service compared those numbers to figures as of June 2009, and found that 30 percent of foreclosures were tied to home values in the top tier.

Meanwhile, bottom tier home price foreclosures slipped to 35 percent, while mid-tier foreclosures accounted for 35 percent.

So the top tier homes now account for about double the proportion of foreclosures as they once did three years ago, but why?

Well, Zillow pinned it on higher delinquency rates tied to prime loans, Alt-A loans, and option arms, while pointing to declining cure rates, where delinquent borrowers get back on track.

There’s also a strong relationship between increased negative equity and decreased probability of resolving a delinquency (home price depreciation leads to default).

In other words, it doesn’t matter if you’re subprime or grade A.  If you owe a lot more on your mortgage than the home is worth, nothing will stop that foreclosure, not even a well crafted loan modification.

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