Escrow company says 71% of purchase loans used 100% financing in 2005
First off, I want to thank:
Legacy Escrow Service, Inc in Washington State for sharing some of their 2005 year end statistics with me. Due to the competitive nature of the business, they asked that I not use the exact amount of purchase loans that they closed, but it is safe to say it was SEVERAL hundred purchase loans. Out of these purchase loans, 71% used 100% financing to get into the home. Many of those 100% loans used ARM's and interest-only payments. I want to reiterate that this is just one escrow company in the state of Washington, but I think it is just one more piece of data that confirms what I have been saying here all along.
I can tell you that I don't doubt those numbers for one minute. It goes hand in hand with what I have seen myself the past year. Legacy Escrow serves mainly the Seattle, Everett, and Bellevue communities in Washington State. Seattle might not be a top "bubble area" in the country like Southern California, but don't discount their numbers and don't think other areas are not seeing similar statistics. PIMCO research indicated that 82% of the purchase loans in California were either I/O or negative-amortization.
I feel like I'm beating a dead horse, but do you see the problems that could arise if 60-70% of the people are buying a house with NONE of their own 'skin' in the game? Yes, some of these people are responsible, but I think we can all pretty much agree that 70% of the people in ANY area are not going to be the 'sophisticated' type of homebuyer that is using 100% financing becaue they are getting a better return on their money elsewhere. Most people are doing 100% financing because they have no money to put down. They are using interest-only ARMs, and many are probably going stated because they don't even qualify under the 50% debt-ratio when going full doc.
Look at it this way...if property drops 5%, that leaves 71% of "several hundred" people underwater. Oh my bad, I forgot...real estate only goes up. Silly me, I forgot to follow the NAR (Nat Assoc Realtors) mantra where you face the nearest condo or housing development and chant "higher, higher, higher" 3 times per day. I was trying to drink their kool-aid, but I kept spitting it out while laughing at the various FB loan scenarios I see on a daily basis that are being counted on as the continuing fuel for this bubble.
Sorry for being a smart-ass...but I feel like the guy back in 97-99 who was saying that buying stocks that are trading 180 times future earning is not a smart move. The fundamentals weren't there, as they aren't there this time around. You just watch the "sping surprise" that many people are about to get when they all list their properties in March/April. I talked to 4 different people today that all mentioned they were going to be putting their places on the market in that time frame as "the appreciation will start again in the spring". Actually, it will be more like groundhog day...but he ain't showing up....so get ready for a long winter.
I look forward to the comments...