After the Rate Spike — Mortgage Operations Turmoil…Kick out the Dead Loans Now
Rates are all over the map as lenders assess the damage and price cautiously. Now, it is a mad dash to only focus upon the loans that are locked and have a chance of funding. If the locked loans are not funded quickly and the interest rate complex continues to experience this extreme of volatility, serious losses can occur.
The letter below was just sent by a national bank’s wholesale department this afternoon. This is the mortgage operations nightmare I highlighted in Thursday’s report. In a nutshell, they are kicking aside everything that is not locked or not a purchase in contract.
This is the desperation move that overworked, understaffed mortgage divisions have to make in order to salvage what can be salvaged and fund the loans that can fund in the shortest amount of time possible — preferably before the end of the rate lock.
Kicked aside could be at least half of their past two month’s of unlocked, unfunded originations that may ultimately parish if rates don’t come back quickly…or if the borrower can’t be coaxed into an 3/1 or 5/1 intermediate-term hybrid ARM, which are now at about the same interest rate level as a 30-year fixed was at the beginning of the week. Shortening duration is now an option where two months ago it was not.
GSE Jumbo Loans Were Totally Blown Out – Try 6% – 7%. Not Good for Mid-to-Upper end Market Already on the Ropes
GSE Jumbo fixed rate loans were decimated on Wednesday. This market is highly volatile to begin with — a move like this blows rates out until conditions settle down quite a bit. Anyone with an unlocked GSE Jumbo loan that was hoping for the 5% rate available when the application was taken is out of luck. Jumbo fixed wholesale rates are now 6% to 7% depending upon which lender the loan is with. Even if bond yields and rates don’t come back down, but volatility settles down a bit, GSE Jumbo rates will tighten up to conforming loan rates over the next month offering some relief.
Levering Up on Bubble-Year’s Favorite — the 3/1 & 5/1 Hybrid Intermediate-term Interest Only ARM
Some borrowers with an unlocked purchase or refi that want to go through with the deal — but either find 5.5% unacceptable or can’t qualify at that high of a rate — will migrate to the 3/1 and 5/1 loan products. These are long-term fixed rate alternatives offering much lower pricing than today’s 30-year fixed rates. I highlighted how these programs have made a comeback in my 5-15 report:
5-15 Bringing Back a Bubble-Year, High-Leverage Loan Favorite
Over the past few weeks as 30-year fixed rates have soared, some application volume has moved to a few lenders offering hybrid intermediate-term 3/1 and 5/1 interest only ARMs because of their preferred rates and low monthly payments. Just like during the bubble years, a 5/1 interest only is about 100bps lower in rate than a 30-year fixed. With a spread that large and the benefit of interest only payments, volume will continue to move to this program line if rates stay up. These are the loans that got the housing bubble really going in 2003. From here, the housing bubble was born.
5-15 GSE’s — Re-levering Borrowers Through Exotic Loans as Fixed Rates Rise
Rates this aggressive on this program line are something brand new and not offered by all lenders. The 5/1 ARM was first made mainstream by Wells Fargo in 2003. It quickly became the top high-leverage loan choice and stayed that way until late 2005-2006 when short rates took its pricing to levels that made it cost-prohibitive. From there, the Pay Option ARM took over but that is for a different report.
Although the 3/1 and 5/1 interest only loans of 2003-2006 were on a different level of exoticness than today’s 5/1’s, they didn’t start that way. This re-introduction of ultra-low rates on a favorite ‘bubble-years’ loan program may be the first sign of re-inflating the mortgage bubble by these means.
It is obvious the Fed can’t keep rates down making higher leverage loan programs is easiest way of countering negative affordability from rising rates.
Aggressive 3/1 and 5/1 conforming interest-only hybrid intermediate-term ARM rates are being offered from a variety of lenders…that long of a name just sounds exotic, no? That is because they are. At present the mid-to-high 4% is still available – about the same rate as a 30-year fixed a month ago.
With 30-year fixed rates loans the top choice this time around, these bubble-year’s favorites have been avoided like the plague. However, some that were caught off guard and that must fund a purchase or refi will opt for these. If short rates stay down and long up, these just may get real popular again as they were in 2003-2005. However, if long rates keep moving higher or the market gets even more volatile, I would not expect these to hang around these levels for too long.
For borrower’s that can deal with an ARM, CITI was leading the pack yesterday. If 30-year rates stay up, ARM rates down and the refi-boom shifts to short duration 3/1 and 5/1 financing, what are we setting ourselves up for in three to five years.
Best Regards,
June 3rd, 2009 at 11:59 pm
Noz,
PEOPLE LIKE ME EXIST FOR A LONG TIME NOW.. WHY IS THE PROBLEM SO BIG NOW NOZ??????????
I didn’t walk away cause I was underwater.. I tried to explain that many times… I walked away because a monthly minus budget, loss of income, high gas prices, maxed out credit cards, savings spent.. HOW MANY TIMES DO I HAVE TO MENTION IT?
ALL THOSE REASONS DON’T MATTER TO WONTON..but it’s ok for PARTYBOY to move on… and WONTON can understands that, but not mine!..so that’s why I said, I should have said I’m walking away cause I’m underwater.. again..is that better WONTON??
I don’t expect everyone to remember all my posts over the last few months.. nor do the research.. It’s all good, I undertand..
btw, legally when someone walks away, bank takes the collateral/the house.. they took mine.. also when not paying the car note, they take it away… when not paying the credit card, it gets canceled..
NOTHING NEW NOZ… part of doing business, right? JUST LOOK AT THE NUMBERS… WHEN WAS IT THIS BAD BEFORE? what change in our economy to get this many people forclosed?? people like me?? are we certain age?are we so much different, or something else took place, that some of you narrow mind can’t understand??
June 4th, 2009 at 12:10 am
EX OWNER:
The point is there’s a difference between walking away because the deal doesn’t suit you and walking away because you had a misfortune (lost a job, illness, etc).
If someone cannot legitimately pay because of loss of income, then that is understandable. Even if you want the home, you’ll not be able to afford it.
But to put it mildly, the douche bags who walk away because they don’t feel like paying for a mistake they made…screw them. They should not only have everything taken away, they should not be allowed to step into another home ever again….ever.
Since you seem to be in the camp of loss of income, I can’t say that I can blame you for finally giving up. But I wouldn’t blame high fuel prices on you walking away.
IF you walked away because fuel prices doubled, then you have a serious budgeting problem and you probably purchased something WELL above what you should since a few hundred dollars tipped you over….is that the case? I doubt it.
There’s a great deal of inertia inherent with the failure of the housing market. People like have existed for a long time…people always lose income and have to give up their belongings. But NOW the difference is people who DON’T NEED TO give up their belongings are still deciding to walk away…that’s why the problem is so big.
It’s THESE people that seriously need to fry.
June 4th, 2009 at 7:03 am
and thats why Principal Reductions for EVERYONE is the only solution, otherwise people will continue to walkaway and hand the keys to a LIABILTY back to the scumbag banks who got us into this PONAZI SCHEME
June 4th, 2009 at 7:24 am
Another good article on you blog! I always come back for me. Thanks.
June 4th, 2009 at 8:29 am
Hi Mark, thank you for your continued market research!!
It appears from this post that our Government has learned nothing and by backing the lenders with tax payer money the lenders will never learn anything either. We will go through even more defaults as a result, but at a higher and higher cost to the tax payers in this country… UGH!!!
June 4th, 2009 at 12:47 pm
“ALL THOSE REASONS DON’T MATTER TO WONTON..but it’s ok for PARTYBOY to move on”
ex_owner, partyboy moved on but he didn’t blame others for his mistake like you are. You can’t seem to get that through your head.
In almost any situation, if you look hard enough, you will find enough blame to go around. But unless you are willing accept FULL responsibility for YOUR action, you will come across as a spoiled irresponsible jerk.
This is you:
1) I bought a home at the peak, because the government was pitching the “American Dream”.
2) I bought a home because the realtor told me to “buy now before it goes up”.
3) I qualified for a home because the bank didn’t verify my loan application.
4) I lost my home because of ga…gas…of gas pri…hahahehe…nevermind. I can’t keep a straight face saying it. Gas prices, ok I said it. I lost my home because of gas prices.
5) I’m fat because of those damn McDonald’s commercials.
6) I’m an alcoholic because liquor stores are everywhere.
7) I’m a drug addict because my friend, the drug dealer gave me discounts.
So you see, I’m only PARTIALLY responsible for my problems.
June 4th, 2009 at 1:08 pm
Javagold keep smoking the pipe.. that WILL NEVER HAPEN! You just want a lower balance cause what you don’t blame anyone? or cause you’re treating to walk and trash the place in your way out? or cause you’ll get your TARP either way??
PLEEAAAAAAASSSSSSSSSEEEEEEEEEEE!
wonton, so no blame on cicumstances at all.. huh? Go tell your boss you want 200K sallary.. take control.. don’t blame it on your weak education… or you if you get LAID OFF.. it’s ALL YOUR FAULT! ok? MORAN!
GO GET BLASTERED AT THE BAR.. AND WHEN YOU’RE SUPER DRUNK..GO GET MORE DRINKS.. IT’S NOT LIKE THE BARTENDER WON’T SERV YOU.. they’re job is to give you drinks.. no limit right?
GO GET MONEY OUT OF AN ATM.. see how much you can get in one day.. no limit there right?
STRAWBERRY PICKER GETS A 700k LOAN.. ON 30k SALLARY.. NO LIMIT THERE RIGHT?
why were the brokers doing FRAUD, and DIDN’T refuse loans.. that had no way of making it! it’s the straweberry picker’s FAULT!
GO BACK TO SCHOOL! FOOL! WITH YOUR LONG FREAKING FACE!
June 4th, 2009 at 1:12 pm
Are you going to blame your wife when you get herpes cause she cheated on you.. but you didn’t know? TAKE RESPONSABILITY.. GO SEE A DOCTOR, don’t blame your wife!
KICK IN THE NUTS FOR YOU
June 4th, 2009 at 1:17 pm
?????????????????
3) I qualified for a home because the bank didn’t verify my loan application
????????????????????
WTF ???????? BANK GIVES MONEY WITHOUT VERIFYING??????
June 4th, 2009 at 1:19 pm
YOU’RE LAID OFF WONTON…AND IT’S ALL YOUR FREAKING FAULT OK!
JAVAGOLD AND THE REST OF BALANCE REDUCTIONS… IT’S ALL YOUR FAULT IT, DON’T BLAME ANYONE.. SUCK IT UP .. OR LOOSE THE HOSUE… WHY BLAME THE BANKS??????????
DOUBLE STANDARD HERE!!!!!
wonton… how much you want to bet.. I’ll buy before you do?
June 4th, 2009 at 1:22 pm
just to piss you off… I’ll snatch one from diamond bar before your chinese friends do!
June 4th, 2009 at 1:24 pm
Where’s Wow in California.. with all his input? I’M READY TO HEAR FROM THAT MORAN TOO
June 4th, 2009 at 1:34 pm
That would be spelled:
moron [mawr-on, mohr-]
–noun
1. a person who is notably stupid or lacking in good judgment.
2. Psychology. a person of borderline intelligence in a former classification of mental retardation, having an intelligence quotient of 50 to 69.
ex_owner_now_renter: I assume the intelligence quotient also is applicable to your credit score.
June 4th, 2009 at 2:29 pm
second useless comment from Wow! idiot!
June 4th, 2009 at 3:05 pm
EX OWNER:
You say you qualified for a home because the bank didn’t verify your income.
OK…so doesn’t that ring a bell in your mind at all? Do you not even concern yourself with the monthly payments and what will happen to them if variables change? Such as? Say interest rates? Losing a job? Losing your health? Etc?
I understand that some things are unforseen…actually a great many things are. But sitting in front of a loan document and about to sign it isn’t.
Should you not have run the numbers to see what you can and cannot afford….? Regardless of what the bank said you qualify for?
The bank also told us that we qualify for a 1.5 million dollar home…do you think I’m that stupid to buy one?
June 4th, 2009 at 7:34 pm
ex_owner_now_renter,
I just want to say Thank you! Thank you for your endless rants and the countless hours of entertainment it provides me. Keep it up “BRO”! Keep sucking it too!
with much love,
NHO
June 7th, 2009 at 9:57 am
I can defend the gas price deal, would you say paying $2,000/mo for gas is reasonable? I do not, you cannot do without it, cannot work without driving. We paid over $3500, in one month for gas last april(08)…. do you think that wouldn’t affect your personal life? Paying more for fuel than a mortgage payment is insane. If you don’t think fuel prices have anything to do with people(or business) overextending themselves your nuts. Then add the interest people pay for the unexpected cost in fuel etc., then you can see some of the things that lead to where we are now. I feel sorry for anyone who bought a house in the last 5 years. You will be sorry if you don’t buy for cash or have cash to escape in the event of an emergency, ANYONE that financed this year or last is going to be stuck fo a very loooong time. God forbid if you lose a job or need to move. I’m glad you bought a “home” but you may not be glad in the future(for your sake I hope it worksout) You are up-side-down NOW buddy, that is a fact! And will be worse in 1-2 years. So take your high horse and ignore where prices are going, ’cause your screwed! Sorry that is life, you are the next runner up on the
“American Loser” show
June 7th, 2009 at 10:13 am
Follow up, and i forgot to mention to newhomeowner; how will you feel when you are 50% down from todays prices?
How would you feel if they NEVER return to your purchase price? You don’t care?
Then you bought a prison not a home.
June 7th, 2009 at 9:58 pm
Mike:
First off…what the hell do you do to spend over $3500/month on fuel? If you tell me that it’s because you own 2 or 3 SUVS to drive your kids to school…then frankly too freaking bad. Adjust your lifestyle, drive less, do whatever others do to cut fuel costs.
Should I give a sh^t about the douche bags who go around in Suburbans and Escalades and Hummers to drop of their kids to school when they could do with a 25-30 MPG sedan? Too freaking bad they are spending money of fuel and over extending themselves. If they had half a brain, they’d have been wiser.
We barely break $250/month for fuel costs…so whatever the hell you are doing…short of having a construction company or something…is completely retarded.
Secondly, just because you are upside down doesn’t mean you should walk. If you made a bad decision in life…as many did KNOWINGLY in this market (otherwise known as gambling)…do you expect others to bail you out?
Let me ask you something. You go to Vegas, you make a bet…you lose. What do you expect the casino to do for you? Give you a free room, dinner, and your money back?
So are you being sarcastic or serious?
June 8th, 2009 at 8:33 am
No, the fuel is not for hummers etc. either way. My actual fuel cost was over 2k. If fuel was $1 per gal; my cost would have been near $500/mo. in 1998 the economy was no better than last year,and average MPG of cars was not much worse than most newer MPG standards. Wages are no better today than in 1998, so why should the fuel cost about 4x more? Why would gas be 1.40 in Dec 08? Theft at $4.50. simple.
I know some very small construction companies that were paying 8k/month fuel cost for only a few trucks. It does not increase your income. And in a bad economy you cannot increase your prices to cover the added cost. Also many times you are requred to do fewer, smaller jobs increasing your driving. None of these things are the fault of the people, It is a direct result of the economy. Individuals only have a small amount of control over costs and waste reguarding their habits.
Most people buy gas because it is required, not because they feel like spending money.
Either way, do you think fuel did not cause a problem for many people and business’?
Do you really think that if a buyer in 2006 put down $100k and is now upside down $250k is irresponsible? It is happening every day.
The problem with your logic is that you are only blaming the individuals not the overall economy or gov. Like ex owner said he is partially responsible but only to an extent.
Like I said; If you bought a home in the last 12 months and thought you were “secure” etc. and your home goes down another 50% from where you bought and NEVER goes back up are you irresponsible?
Fact of the matter is: prices are determined by lender guidelines and terms. NOT PRICE
The general public is being robbed 1000 different ways. Most of which we have very little control.
Where do you think prices would go if terms were 2% int only 580 FICO 0 down, no limit on the number of homes or DTI?
Where do you think prices will go if terms are 30% down PITI 720 FICO 28%DTI?
hummmmm?
People that bought when terms were tighter 20 years ago were no more responsible for prices going up than a person buying in 06 and prices going down.
The banks control the TERMS.
Personally, I think they should keep changing the guidelines over the next 10 years, for example. in 2009 rate 5% 10% down 650 fico, 2010 rate 6% 15% down 700 fico, 2011 rate 7% 20% down 720 fico,2012 rate 8% 30% down 740 fico ETC. that way nobody could ever sell or refi.
Sounds fair? That is what has happend to people that bought in the last 5 years. Change the terms and blame the people.
Forget the move up buyer, game over….
June 8th, 2009 at 9:46 am
Mike,
It’s called self control. Right, the government, banks, etc dangle all these incentives for buyers, however, if in the end you can not afford it, you can not afford it. It wasn’t like the real estate agents, banks, government all held a gun to your head forcing you to sign the mortgage. You made the choice out of your own free will.
This point has been made through out this blog. My dream is to own a Ferrari. If the dealer came up to me and offered an $8,000 credit and the government said it would give me a tax break and the bank would give me a good rate, in the end, can I really afford to buy it? I need to think about the ramifications, not only in terms of the initial cost, but also the cost in maintenance, etc. Yes, owning it would probably make me really happy, but in the end, I would be over stretched. If i chose to buy it, it would be a “gamble”.
I’m sorry for your situation, but in the end, we all make choices out of our own free will. Some of the choices are good, some are bad and we need to live with it.
June 8th, 2009 at 9:56 am
The banks/lenders/servicers are doing PR’S……just got someone 136k PR on their 1st mortgage, and settled a 92k 2nd mortgage for 9k…..
June 8th, 2009 at 12:10 pm
MIKE:
If a normal person who owns no business is using $2K a month of fuel, they deserve to lose their home. That’s the ludicrous and completely unnecessary.
For me to have fuel costs of $2k a month, I’d have to spend in a DAY what I usually spend in a month…EVERY DAY for the whole month.
Businesses can also write that off..I cannot.
Lower your fuel bills. Drive a smaller car, drive less. Walk, take the bus, bike, whatever.
June 8th, 2009 at 1:59 pm
Nevermind. Sometimes life is more complex than that. Write offs don’t pay bills. thanks for your insight
June 8th, 2009 at 2:24 pm
Please stop using cars and gambling as analogies to this issue- they are not even close.
Loanmodchick- who were the servicers ? and what was the main reason for PR? also were there strings attached?
June 8th, 2009 at 2:32 pm
bought at the wrong time-
Servicers were Litton/Popular.
Main reasons was dramatic drop in income and CLTV at 140%
Nope, no strings attached!
June 8th, 2009 at 3:08 pm
wow thats awesome!! 1 home owner saved now 100,000’s to go- you go loan mod chick- save the world lol
June 8th, 2009 at 3:11 pm
Yep! One person at a time!
I also got him a 2% fixed for 40 years for 5 years, adjusts 1% each year; locks in a 6 at year nine. PITI payments.
: )
June 8th, 2009 at 4:41 pm
MIKE:
Indeed…nevermind…because what you claim makes no sense at all.
bought at the wrong time:
Yea they are the same….deal with it.
June 9th, 2009 at 10:04 am
NOZ:
“Let me ask you something. You go to Vegas, you make a bet…you lose. What do you expect the casino to do for you? Give you a free room, dinner, and your money back?”
No you don’t and niether does anyone else who gambles at a place where you GAMBLE.
NOZ:
Secondly, just because you are upside down doesn’t mean you should walk. If you made a bad decision in life…as many did KNOWINGLY in this market (otherwise known as gambling)…do you expect others to bail you out?
Yes – yes it does it is a life choice- walk if you have to- that has nothing to do with you NOZ. It isn’t asking anyone to bail them out. It was the papers signed and the agreement between the bank and the buyer. If the bank comes looking for a handout because they made a bad gamble then you should take your anger out on them. They want your tax money Noz, not anyone else.
June 9th, 2009 at 10:32 am
bought at the wrong time:
So buying a home with your eyes closed in a volatile market isn’t gambling huh? You just chug along and believe everyone else and do whatever everyone else is doing right? Just copy your neighbor and hope to make a buck…is that it?
Regarding bailouts and walking…I bet most walkers would love for banks to modify their loans at other people’s expense…precisely what this loan mod/stimulus BS is about.
Walkers like yourself went into a home purchase probably with little to no proof of income…because most of you didn’t give a damn about the consequences…just a quick buck was on most peoples’ minds right?
Now that folks who really want to buy (i.e. don’t have a down payment, or make less than average), they are shunned by banks because they don’t make enough, have little to money down, etc….essentially the market was completely messed up by the former bunch of charlatans who went around getting loans and cash outs to buy and flip.
I’m angry at the banks too…but that doesn’t get crook home owners and buyers off the hook either. Doesn’t any read contracts they sign anymore? No sense of obligation and responsibility? I don’t get it.
June 9th, 2009 at 10:53 am
Don’t let my name fool you Noz- or should I say don’t assume anything about me.
I really don’t think we are too far off from each other in thougt- It was the charlatans (all of them) that had a huge hand in this- But you say:
“Now that folks who really want to buy (i.e. don’t have a down payment, or make less than average), they are shunned by banks because they don’t make enough, have little to money down, etc”
That was the problem, in any normal market they wouldn’t have qualified in the first place. But the lenders got creative and wah lah- here we are-
I don’t think anyone and I mean anyone should get bailed- however- If I could choose I would choose the public- it our money-all of ours- the gov’t doesn’t earn money they just collect it from us. All of us.
Keep being callous Noz that fixes everything
June 9th, 2009 at 10:57 am
Being callous has nothing to do with it. People who tried to act like crooks should be screwed over. Regardless of whether they are individuals who work in banks or are shady people trying to buy or sell a home.
You want to blame everything on lenders…but what about the person signing on the dotted line? Did the lender have a gun to that person’s head forcing him or her to sign? Did the lender force that person to draw out hundreds of thousands of dollars of fake equity and so they go and run to the nearest BMW dealer and buy toys?
Keep pushing the responsibility to the lenders Bought at the Wrong Time…that also fixes everything.
June 9th, 2009 at 11:15 am
Is your sole porpose just to start a fight?
no the lenders didn’t hold guns but they could have just said no. They could not have gotten so greedy and created a way for anyone to qualify. They were supposed to make sure that people who signed on the dotted line were on the up and up.
Thats the problem- yes there were flippers and crooks and stated income liars- but who let them do it? No one put a gun to the lenders heads to make more demand. They were in charge.
I believe the topic was the day after the intrest rate spike- not “Noz please give us your nasty opinion on everyone you hate”.
June 9th, 2009 at 11:38 am
It’s called personal responsibility…just because one party allows you to do something that doesn’t make sense does not mean you should do it.
This is a concept that most homeowners who are in trouble or flippers who want a bailout conveniently ignore.
Personal responsibility is something most people definitely get offended about when mentioned….as witnessed here.
June 9th, 2009 at 1:07 pm
NOZ Anyone who to stops paying(or can’t pay) due to increased interest rates, job loss, poor underwriting, bad loans etc. are the reason for prices declining. The banks that wrote the loans and the people who signed for them are reason the market is so messed up. The minority of failures are causing a drop in anyones property value with-in a 1 mile radius.
I comp houses for banks all day evey day.
Sometimes(very often) homes are sold for way less than they would sell for if they waited more than 1 day on the market for a buyer. But due to the banks being in distress, thier poor lending practices etc. they no longer care. They just need any money they can get as soon as they can, combine that with the fact they have insurance on other properties in the same area and know distress sales will cause more defaults(this is a fact). They have an incentive to cause defaults. Same goes for credit cards, they cut the lines and jack the rate, knowing it will cause more defaults, inturn paying them interest & fees on money they knew they should haven’t lent.
Your logic is reasonable, but the system and people involved area not.
Therefore individuals do what is in their best interest, just like the banks.
If the gerneral public could “save or create” like our gov. then , we could simply say we are saving money by not paying bills, or we can create income by not having a job and living for free until they kick you out.
June 9th, 2009 at 1:38 pm
MIKE:
I don’t think we disagree.
Let’s be clear – for someone who:
LOST A JOB
HAS HEALTH ISSUES
HAS LIFE CHANGING ISSUES
IS THROWN INTO TRULY UNFORESEEN CIRCUMSTANCES
– if you have to walk away, then these reasons to do so.
However – for someone who:
BOUGHT A HOUSE TO FLIP
PURCHASE A PLACE THEY COULD NOT AFFORD KNOWINGLY
DID NOT READ THEIR CONTRACT AND NOW CRY WOLF
DID NOT TAKE THE TIME TO KNOW WHAT THEY ARE GETTING THEMSELVES INTO
DECIDES THAT BECAUSE THEIR HOME ISN’T WORTH WHAT THEY PAID FOR IT SO NOW THINK THEY ARE ENTITLED TO NOT PAY
– these people need to lose everything and not be allowed to buy another home again.
I am only speaking about the client side. I don’t want to get into the charlatanism and crookery of the banking and money industries.
June 9th, 2009 at 3:33 pm
Noz, actually if banks were smart they would allow a person to buy, who defaulted and lost $200k, say they had bought at $400k sold for $250k.(plus misc. costs);
let them buy a home from them for example at $100k and if the value goes up to 200k someday they have something to collect. Obviously this would only work in markets where the current sales prices are well below what the home should sell for in a normal non-distressed market.
Instead they discount them to 50-70k and sell to investors that will never give the bank another cent. Without a home the former owner most-likely would never have income or assets to pay, even if they garnish wages or take other worthless personal property.
This could only happen at the bottom of the market since they may just walk if the home drops further
I see houses that sold for 400k, selling for $100k ,I’m talking about over 2500 st ft homes built in the last 5 years. Not just 1 or 2, that is what the maket is, in some areas of Vegas…
No doubt the current sales price is too low. (But, unfortunatly will go lower)
Someone that can buy for way under replacment cost most likely would have a very good increase in value 5-10 years from now. Unless the economy keeps getting worse.
Like it or not, homes (were) the biggest store of wealth for many decades of people. After a very large correction(now playing at a neighborhood near you) they will be again.
You know as well as I do after prices bottom some bank will start the whole game over. It’s in their best interest. Leaving out the people who default will only reduce any chance of a bank being repaid.
Another way to look at it would be: bought @ 400k walk away lose $200k, assume the home will never go to $400k again.
Buy 2 years later same home for $120k, if the home goes back up to $300k the buyer is better off than paying interest on 400k loan, and would have the ability to sell at a profit of 150k(120-300-costs) add the savings in interest, plus the $150k profit they could pay the loss incured by the original lender. Not to mention the original home couldi’t be sold until they paid the diff. and probally would have defaulted anyway. It would be a much better credit risk for the bank than keeping the $400k house. If the $400k house stays at $120k and never goes up the buyer saves on the interest payment over 30 years. Since we’re gambling, it’s almost stupid to say in the original home.
Of course the numbers change based on a million different factors. Really the people who bailed first(most irresposible) while prices were still near the peak are better off(if they didn’t buy too soon again). They might have only ended up losing 50k for the bank. Someone bailing now may lose 350k. In this declining market the longer people try to save their home the more they lose if they default. They are punished for making more payments. In a declining market the most responsible owners are punished.
Since housing is a gamble this would be the best way to look at it.
June 9th, 2009 at 4:49 pm
Property prices are going to sink like a stone.
June 20th, 2009 at 12:51 pm
If you want to see a reader’s feedback
, I rate this article for 4/5. Decent info, but I have to go to that damn google to find the missed bits. Thanks, anyway!
p.s. Year One is already on the Internet and you can watch it for free.
December 13th, 2009 at 12:32 pm
Once the due date has passed and there
January 18th, 2010 at 7:41 am
I have to admit I am very impressed with the quality of your blog. It is certainly a pleasure to read as I do enjoy your posts.
January 23rd, 2010 at 5:15 pm
I like your site. I’m looking forward to more visits here. Thanks!
February 6th, 2010 at 4:34 pm
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February 13th, 2010 at 8:34 am
Thanks a lot for a bunch of good tips.Took me time to read all the tips, but I really enjoy the article.
May 28th, 2010 at 2:30 am
Hi,this is Clifton Arizzi,just observed your Blog on google and i must say this blog is great.may I quote some of the information found in this blog to my local students?i am not sure and what you think?anyway,Thanks!
May 28th, 2010 at 9:57 am
So long as I don’t have to pay the bill for these crook buyers/sellers/walkers/cheaters, I couldn’t care less where the interest rates go.
As far as I’m concerned, any loser who walks away from a mortgage when they could pay for it should be thrown in jail…along with the bank CEO’s and the rest of the Wall Street charlatans like Goldman’s head douchebag. Wow…what a crook that guy is.
Enough giving away crap to people….if they want to do that, then EVERYONE should be entitled to it…not just crook homeowners.
August 14th, 2010 at 10:24 am
I say no more real estate bubbles!
September 1st, 2010 at 4:44 pm
The reason why the economy is in this sorry state is because of the real estate bubble then burst. They’ve should of just raise the interest rates and everything would have been avoided
September 2nd, 2010 at 1:52 am
Banks are not lending money anyway. Taxpayers bailed them out and they received Tarp funds. Instead of lending that money out. They are sitting on it.