FL Foreclosures | Stemming the Tide of FL Foreclosures

FL Foreclosure Storm

Both the people and government of Florida have worked tirelessly to cause the American public to associate Florida with sunshine, oranges, the Everglades, and vacations at Disney World. Unfortunately, over the span of 36 months the state of Florida has lost its identity as the sunshine State and has become associated with the word “Foreclosure”. FL foreclosures are out of control with thousands of new foreclosure filings being registered each and every month.

By now everybody knows the three main causes of the current situation that Florida residents find themselves caught up in. The first of these instigators and the easiest to point fingers at is the subprime mortgage industry.

Just about every American is has been familiarized with this mantra once the press took the story and ran with it long after anything could’ve been done. The truth is well-known now that banks were overrun by the demands of their stockholders to achieve greater and greater profits regardless of what risks they had to take on. This philosophy and drive cause the mortgage companies and banks of America to begin extending mortgages to borrowers with bad credit, weak job histories, and a general lack of ability to repay those mortgages in a consistent and reliable manner. Once the supply of credit began to tighten in this key and pivotal subsection of the mortgage market, the entire industry began to fall down like a house of cards resulting in the collapse of the mortgage companies, banks, and other financial institutions that chose to make these risky loans.

Someone observing the flood of FL foreclosures would be wise to look a little bit deeper than the subprime mortgage situation when making a determination as to what the overall problem was that brought Florida to where it is today. It was not only risky borrowers with bad credit that brought us to this point. Real estate speculators fresh from conferences all across the nation that taught techniques about how to get rich flipping houses flocked to Florida because of the seemingly endless demand and higher price points that real estate commanded here.

Flipping FL Foreclosures

The higher price points are a major factor as speculators are looking to make as much money as possible in the shortest amount of time. A house purchased for $350,000, spruced up with a number of cosmetic upgrades and sold at $425,000 with a 10% profit margin would leave a full $42,500 in cash available to the investor. Conversely, a home bought for $65,000 in Ohio and given the same upgrade treatment then sold for $110,000 at a 10% profit margin only leaves $11,000 available to the investor when all is said and done as a profit spread. Both deals require the same amount of time, and for those with good credit, the same amount of paperwork to complete… but one has a significantly higher payoff when all is said and done.

Last of the three major reasons why FL foreclosures are so rampant is of course the newfound desire of the American people as a whole (in Florida residents in particular) to live outside their means. There’s a pent-up desire and the American people to live a richer life. Many feel that it’s their birthright. They’ll do anything to achieve the American dream, whatever that means to them, up to and including sacrificing security of their family, their home, and their nation as a whole. After all they say, “why should I be the only one going without?”

The argument seems logical at first but it resulted in the cash out refinancing scourge that set the pieces in place for a much broader collapse then could have been achieved from subprime and speculator defaults alone.

FL Refinance Boom

It’s this exact mindset of keeping up with the Joneses that has fueled a record number of defaults coming from all types of borrowers both rich and poor. While moratoriums are discussed and enacted by politicians eager to secure reelection and banks struggle to re-work loans before time runs out, it doesn’t appear that there is going to be any relief from wave after wave of Florida foreclosures that seemed to be crashing upon our sunny shores.

It would appear that there’s not much more that can be done at this time of economic uncertainty. Regardless of the best efforts of Pres. Barack Obama, job losses are on the rise and are predicted to cross 10% nationwide before the end of 2009. The simple fact of the matter is that as long as people do not have jobs they are not going to look to buy a new house. Even worse for Florida is the fact that it is a destination state. A much larger portion of the housing stock in Florida is traditionally owned by out-of-state residents who want to have their own place to enjoy Florida’s year round warmth. These people are just like any other, and when money is tight they are more likely to dedicate the dollars that they do have to keeping the mortgage on their primary residence current versus keeping the mortgage on their vacation home current.

The longer that the recession continues to dig into the American economy as a whole the longer it will take before our state sees any significant decline in the number of FL foreclosures being processed month in and month out.

The good news is that there is light at the end of the tunnel. Unlike states like Michigan, which has been ravaged by a cute economic turmoil due to the upheaval of the auto industry, Florida is an attractive destination for people all across the nation as well as Canada and other countries as well. As soon as a recovery from the recession begins a rally in full force, Florida should see a quick and marked turnabout in the number of FL foreclosures being taken back from homeowners and investors and sold by the banks at rock-bottom prices.

While it may be true that the current generation will not see a run-up in real estate prices that developed from 2002 to 2007 in their lifetime, demand for real estate will increase here first and other states will follow suit. So if you’re worried that the only houses people will ever again by our FL foreclosures being sold at rock-bottom prices, take heart and take out a few history books and start self educating yourself on real estate boom and bust cycles in America. You quickly lose much of your fear and will retain a sense of confidence in Florida’s future.