Monday, June 4, 2007

Avoid Real-Estate

Some Prosper lenders who want to be socially responsible and bid on loans that some might consider risky because it's for a good cause. I'm not one of them. I'm interested in seeing my money come back to me and not disappear into a good cause gone bad. I've been watching the blog Calculated Risk and observing the deteriorating conditions in the mortgage and real-estate market. Just today, they noted the increased delinquency problems in mortgages:

... our latest subprime numbers are 14.4% delinquent by at least one payment, plus another 4.5% in foreclosure, for a total of 18.9% either delinquent or in foreclosure. For just subprime ARMs that number is 21.1%...

For this reason I've avoided listings that discuss using funds for real-estate problems. The real-estate market is troubled and I am unconvinced that the risks justify the attempt. I find this especially true since people get irrational about their homes, and will do quite irrational things to keep their homes. I've picked one example to highlight what I'm referring to:

My financial situation: I am a hard working, single mom and have been employed in the insurance industry for over 28 years. I also served four years in the US Navy. Once I am caught up on my mortgage payments, Wells Fargo Mortgage Company will offer me a loan modification - this will lower my current payment and enable me to repay a Prosper loan.
If I cannot pay my past due mortgage payments, I will have no choice but let our home go into foreclosure.

I cannot understand why lenders are bidding on this. They published a budget showing them $500 in the hole each month, admit that they cannot make payments on their current loans, and think that a 23% loan will fix problems with a loan that's most likely <10%. Almost 2/3s of their budget is the house - the loanee should run (not walk, but run) from the house if they were serious about solving their problems. And yet, lenders still bid.

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