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Sunday, June 26, 2005 8:43 PM

Foreclosure filings jump in Massachusetts

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According to this article in the Boston Globe, Massachusetts foreclosures are up 28% this year even with home prices soaring. Let's take a look.

"The spike in homeowners being taken to court for falling behind in their mortgage payments is one of the results of the 50 percent increase in Massachusetts home prices between 2000 and 2003 -- a bigger rise than in any other state.

Across the country, mortgage debt is growing dramatically, according to Federal Reserve data. Americans took on $904 billion in mortgage debt last year, $276 billion more than two years ago."

Is housing stretched to the limit and beyond? Sure seems that way to me.

"When you tie all these factors together -- the bubble in the real estate market, the popularity of interest-only loans, the willingness of lenders to give loans without a significant down payment, the lowering of standards for lenders, and the deep desire of people to own something priced beyond their means -- you have a recipe for disaster," said Secretary of State William F. Galvin, whose office oversees the registries of deeds in a majority of the state's 14 counties. "That's what you're seeing in the Land Court."

"Falling behind on mortgage payments is often precipitated by a layoff, divorce, or illness. But a new phenomenon is also at work: homebuyers who view the pile of equity in their house as a bank account to pay for credit cards, cars, college educations, or renovations. 'Serial refinancer' is the mortgage industry's term for people who refinance repeatedly, 'stripping' equity from their house."

This can continue only as long as home prices keep rising. Foreclosures have not even begun to rise compared to what I think we will see. It all boils down to jobs and this economy has seen precious few of them. I have been harping about jobs and wages for months. Perhaps it's finally starting to matter. I am not the only one who thinks so. The Globe article goes on to say.....

Jay Brinkmann, a Mortgage Bankers Association economist, said the rise in the number of mortgages entering foreclosure in Massachusetts is attributable to a lag in the recovery of the state's job market, compared with nationally. "We're not going to see a rebound until we get back to the jobs numbers we saw earlier in the decade," he said.

Jeffrey Kitaeff, a bankruptcy attorney in North Andover, said foreclosure "is going to soar even more" next year because of ever-mounting credit card debt. Since 1990, the average household credit-card balance has more than tripled, to nearly $9,400. Kitaeff has many clients who have met their credit card payments by diverting funds from the mortgage.

"A lot of people don't have any money. Their savings account amounts to two hundred bucks, and they're living week to week," Kitaeff said.

The sad reality is that this "recovery" is already long in the tooth. Wages and job growth have not kept up with home prices. Something has to give and I suggest it will be home prices. Falling home prices will be a disaster to anyone and everyone dependant on "Serial Refinancing" to maintain their lifestyle. The day of reckoning is coming and coming soon.

Mike Shedlock / Mish

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