CAR - "Foreclosures to be hot niche in '07" (12-15-06)

"Adjustable-rate mortgages with interest-only options have driven much of the buying activity over the last five years. With a slowing market, some owners may find that they owe more than their property is worth. In 2007, approximately 9 million adjustable-rate mortgages (ARMs) will readjust. Combined with a flattening or decrease in prices, many owners will be caught in the squeeze of having higher payments and no way to pay for them."

"In 2001, only 2 percent of the ARMs were interest-only, while today more than 35 percent are of this type of loan. San Diego has the most dangerous track record in this respect. In 2006, a whopping 47 percent of the purchasers used an interest-only product. This means that these properties have no equity. Assuming a 6 percent commission and 2 percent in additional closing costs, sellers typically pay 8 percent to sell. On a $300,000 sale, the seller would have to come up with an additional $24,000 to close. If property values have decreased, the seller would have to come up with even more. In many cases, the owners simply do not have the resources to put any more money into keeping their home. As a result, expect foreclosure rates to continue to increase as the market flattens or declines. An increase in foreclosures translates into four different types of opportunities for the savvy agent."