There's a Silver Lining in the Clouds of the Nationwide Mortgage Mess

It's a cloudy and murky storm now hovering over the once clear blue skies of the real estate market. Due to the sub prime and adjustable rate fiascos, foreclosures have dramatically increased and home values nose diving like huge drops of descending rain and creating a mortgage mess.

Here's the current real estate weather report. Foreclosures increased by 75% in 2007 with more than 2.2. million filings nationwide. The largest clouds hover over the states of Nevada, Florida, Michigan, California and Colorado respectively, with California alone having a record number of 481,392 foreclosure filings. 2008 is expected to follow suit and will likely be more ominous than 2007.

As foreclosures increase, more homeowners are feeling desperate and discouraged. Authorities in economic stressed cities like Detroit, Michigan see a correlation between pending foreclosures and homes burning. The conclusion is arson is on the increase due to motivation by stressed out homeowners to fix their situation by torching the premises and hopefully cashing in on insurance proceeds and relieving themselves of going through the foreclosure process.

The mortgage meltdown has caused some neighborhoods across the nation to be plagued with blight because homeowners, unable to make mortgage payments because of bad or ill advised adjustable rate loans that have caused their payments to balloon beyond affordability, have abandoned properties leaving them vacant and becoming havens for insect infestation and stray animal hangouts.

Some homeowners, angry over the whole muddy mortgage situation, have taken it even further by deliberately causing damage to the property before they abandon it by leaving water running and creating mold and mildew problems or just physically destroying portions of the home.

Currently, the FBI is investigating 14 companies related to the mortgage crisis on claims of mortgage fraud, SEC inside trading and other alleged illegalities associated with the sub prime real estate market.

The Mayor of Baltimore, Maryland sued Wells Fargo Bank on claims that the bank is guilty of "reverse red lining" actions - making deliberate high risk sub prime loans in minority neighborhoods under circumstances that the bank knew or had reason to know would fail. This is the opposite argument made against banks years ago when they were found guilty of drawing a red line around areas that they deliberately would not make loans in - predominately ethnic minority neighborhoods, hence the term redlining. The Mayor claims minorities hold more than 60% of the adjustable rate loans made by Wells Fargo and now the majority of those loans are failing and the foreclosure grim reaper is taking its toll.

The above facts provide more than enough evidence to support the premise that the real estate industry is caught up in a stormy situation. The dark clouds of sub prime failures and the gale wind force of foreclosures make the future look bleak and dim.....But, there is a silver lining amidst all the dark clouds.

Where's the silver lining? The evidence is beginning to show itself already. There is and definitely will be good times ahead for the real estate market sooner rather than later. It depends on the lenses you're looking through.

Interest rates on federal funds dropped to 3% on January 30, 2008. Mortgage rates are reacting and starting to fall too. This will prompt more refinancing and help many homeowners that can still refinance troublesome adjustable loans into 30-40 year affordable fixed rate loans thus avoiding the likelihood of future foreclosure or other financial problems.

Congress is contemplating and most assuredly will make legislation or regulatory changes in the maximum amount of the loans that can be acquired with FHA insured backing. The current loan limit of $417,000 is unrealistic in the current market. The democrats are seeking loan limits of more than $700,000. The Republicans suggest limits in the $600,000 range. The obvious observation here is that both parties agree the $417,000 limit must be raised. Once that happens home buyers will be able to access more loan funds and buy houses that are not available right now.

Home prices are down and new home sales are at a record low. Sellers are very motivated and willing to assist buyers with financing. This all adds up to A BUYER'S MARKET. That's the silver lining.

Home buyers, especially first time home buyers will be a huge factor in weathering the storm of the mortgage mess. The winds of change are upon us. History will repeat itself. Out of the dumps of the real estate market the proverbial Phoenix will rise.