Archive for the 'Arizona Repo Homes' Category

A substantial rise in the number of repossessed homes in Tucson is expected as thousands of option adjustable-rate mortgages will reset to higher rates next year and in the following years.

Over 15,000 ARMs in Tucson will reset starting next year and almost 77 percent of these ARMs are held by borrowers with favorable credit records.

ARMs were in high demand during the boom years because they enabled people to buy larger and higher-priced houses. Lenders told borrowers they can make very low monthly payments during the first 3 or 5 years of the loan and then refinance to lower rates when the loans reset to higher rates after the 3- or 5-year teaser period.

There are also almost 3,000 homeowners in Tucson who took out Alt-A loans, which are much riskier loans compared to regular ARMs. Alt-A loans were given to borrowers who had little financial documentation and whose loan-value ratios were very high.

Tucson property analyst John Strobeck said he is concerned about the effects of the scheduled resetting of 5-year Alt-A mortgages in 2010.

Marshall Vest, economist of the University of Arizona, is however optimistic. He said he hopes that those who took out risky mortgage loans have already taken advantage of the low mortgage rates and have already refinanced.

The option ARM has been labeled the riskiest type of home loan because a borrower is given the option to choose how he is going to pay his loan initially. The four options offered are 15-year fixed-rate, 30-year fixed-rate, interest-only payment or minimum payment.

The fourth option – minimum payment – is the most attractive option to buyers who have less cash because it requires them only small monthly payments. The danger, according to Prime Capital President Mark Ross, comes from the addition of unpaid monthly interests to the overall loan amount.

Option ARMs typically reset after 5 or 10 years or when the total loan balance reaches 110 or 125 percent of the initial loan amount. Economists say that option ARMs can be helpful to initially cash-strapped borrowers in a normal housing market because they can always refinance or sell their homes, but in a depressed market, the outcome is oftentimes always foreclosure.

Based on Tucson foreclosure data, option ARM borrowers have been defaulting even before the resetting of their loans. As of the first months of this year, almost 40 percent of option ARM borrowers were already delinquent by more than 2 months.

According to housing analysts, homeowners who took out option ARMs should refinance now before their loans reset to higher rates.

Trustee’s sale auctions are becoming popular among investors and homebuyers who want to find bargain properties on Arizona’s repo homes listings. Since last year, attendance at trustee’s auctions increased five times.

The weekly auctions held outside the Maricopa County Superior Court Complex have become alternative venues for investors and homebuyers who want to avoid the intense competition for bank owned repo homes listings.

The bidders’ turnout at trustee’s auctions is low compared with those at bank-owned home sales. William Hampton, a trustee’s sale auctioneer estimated a typical daily attendance of bidders to be between 15 and 40. Hampton said that majority of bidders are professionals who represent multiple buyers.

But the attendance this year is a big improvement from last year’s events which average five buyers, according to Hampton. He claimed that business has grown because of the increase in the number of repo homes listings.

Usually, auctioneers worked for different independent contractors hired by trustees. In Arizona, a neutral third party or trustee is involved in every mortgage contract. These trustees are responsible for selling foreclosure houses at auctions. Those that handle trustee work are loan servicing companies, title companies and law firms.

The opening price in every auction is issued by lenders and third-party buyers compete for the opening bid. According to auctioneers, lending institutions use several methods to establish the opening bid but most often choose the lowest of the amount owed on houses or their estimated market value.

On the case of JPMorgan Chase, the bank usually offers a bid for the outstanding mortgage balance and fees and most of the time, its bid is usually higher than the amount a third party considers to pay. Tom Kelly of JPMorgan said that the bank is usually the winning bidder, unless someone offers a bid higher than the mortgage owed to the bank.

For the past several months, about 200 to 250 distressed properties have been sold at the courthouse auction daily.

Data from Information Market showed an increase in the number of houses bought by third parties, from last year’s 5 percent to 12 percent this year. One reason for the increase in third party purchases is the competition at auctions for bank-owned repo homes listings where both homebuyers and investors bid for same properties.