California Mortgage Trends | California Current

So far, many of the mortgage problems that we’ve been facing have been related to weak lending and toxic mortgages. Unfortunately, one of the issues emerging as the new catalyst for housing troubles is the rising unemployment rates.

Last week, the U.S. Labor Department released its monthly report showing “the worst monthly job losses in a generation“. One of the serious concerns is that these unemployment rates could trigger the next foreclosure wave to occur.

California Unemployment Rates - 8.2 Percent in October
In California, we’re facing two serious issues. First of all, the statewide unemployment rate rose to 8.2 percent last month, compared to last year’s 5.4 percent. Secondly, California continues to have serious budget issues which threaten the future outlook of many state employees.

Inside the report, the jobless rates for college-educated individuals rose from 2.2 percent to 3.1 percent. In addition, the jobless rate for individuals with technical backgrounds also rose from 3.3 percent to 5.5 percent. In a SacBee column, the chief economist for the Mortgage Bankers Association correctly noted that these are the folks most likely to own a home.

Home Buying Tip for Bargain Hunters
For those of you considering a home in this market, I’m sure that most of you have shifted to some degree of the bargain-hunting mode. One of the serious concerns for these bargain hunters has been timing the market and finding the best deals on the surplus of discounted homes. With these current unemployment rates and future expectations, it’s a worthwhile consideration to examine the unemployment trends surrounding your home’s area.

As more and more of these Prime and Alt-A mortgage holders face problems, it’s not just the low-income housing neighborhoods that will face more foreclosures. As for timing the market, be wary of any neighborhoods that seemed to have leveled off. With the recession expected to get worse, it wouldn’t be surprising if there was a momentary pause as we shift from troubled toxic mortgages to more serious issues involving the problems of unemployment.

On a side note, keep in mind that today’s mortgage lenders will be looking for job stability. In addition to stricter mortgage guidelines, prospective homeowners need to ensure their employment history remains in tact. In general, most mortgage lenders like to see you with your current employer for at least 2 years; and the same goes for your income. If you’ve changed jobs within the last two years or have had inconsistent income, reinforcing your other mortgage qualifications would be a good move. Compensating factors such as the size of your down payment or the amount of assets you hold could help convince your mortgage lender that you are credit worthy.

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As we’re nearing the end of the year, there are a few mortgage trends that we should all keep a close eye on. By analyzing some of these trends, current homeowners and potential homebuyers alike may have a better understanding of their local housing markets.

Here are three trends worth considering:

1. Housing Plunge - Predicting That “Bottom”
The L.A. Times had an interesting column earlier this month, and they brought up a disappointing, but realistic possibility. In the column, they pointed out that the majority of our mortgage problems stemmed from toxic mortgages going bad and other non performing loans. Here in California, home loans were especially toxic since higher median home prices and inflated stated incomes went hand in hand. But, looking back at history, the major cause of housing slumps has typically been “higher interest rates, rising unemployment, salary cuts, depression, and recession.” With the holidays rounding the corner, and consumer confidence still posting dismal numbers, these factors have just started to affect the housing markets.

2. The End of Subprime Era Opens Up Alt-A Vulnerabilities
Mortgage lenders and housing markets have since suffered the blow of the subprime mortgage mess, but the next wave of hurt could come from the Alt-A loans. Some even fear these Alt-A loans more than subprime loans because of how common they were and their dates of origination. Specifically, most 3/1 and 5/1 adjustable rate mortgages peaked around 2005 to 2006. In addition to the regular ARMs was the Option ARM mortgage which often recasts after a period of negative amortization. Given the timeline, these Alt-A mortgages continue to be a potential risk.

3. Modified Mortgages At Risk of Defaulting
Refinancing a mortgage in California has never been tougher. Full documentation and good credit has just been the beginning–the most difficult factor for most homeowners in California has been the issue of falling home prices. As a substitute for refinancing, mortgage modifications have become quite prevalent among many mortgage lenders. However, a recent study by Lender Processing Services showed an alarming number of mortgage modifications simply end up re-defaulting. According to their numbers, about 25% of mortgage modifications default after only one post modification payment, while more than 50% re-default after several post modification payments.

If you’re one of the many looking to pick up a bargain home, be sure to consider these factors as they can easily affect a given area’s housing market stability. For current homeowners, learn from the mistake of so many others and make sure you find a loan that you can really afford.

For more information, check out our other posts:

- Mortgage Survival Guide, Who’s Left out there?

- California Housing Crisis Lures Investors

- Give Mortgage Lenders Stronger Appraisals

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