Foreclosures

Steve there is so much of this, it would blow everyones mind how extensive this is. If the government and banks do bail this out the foreclosures will be so huge that it will destroy the values of homes to the point if you bought in the last 5 to 6 years your home could plummet way below what you paid for it. To make that worse many people borrowed against their homes for all kinds of things.

The feds must keep some value in the home market or our entire economy will plummet into a serious recession just like the last time. Steve I am in the building business and have many friends in the lending business the depth of this problem is only in it's infancy. People buying foreclosures right now better be real careful, especially if the feds don't step in a meaningful way. The feds will soon be cutting way back on private contractors and contracts as Iraq and the war on terror stabilizes.

What you say is somewhat correct steve, but it is far more complex then what you say. If the feds and banks don't do something meaningful our home values will plummet with the flood of cheap foreclosures hitting the market. All I can say steve there are an awful lot of people that are caught up in all this and if they are not bailed out then our home prices will plummet.

We are just at the tip of the iceberg of this mess.

I saw it all happen before when there was no major bailout and people good people that bought their homes the way they should lost everything too because they could not sell because their home was worth way less then what they paid for it. Steve you can whine all you want how people should of been smarter etc, but that does not change or solve the current crisis that could throw us into a major recession.

I can tell you 10 to 15 years from now we will have another crisis in the real estate. Hopefully the subway and immediate commercial growth will save our immediate area from it. But sometimes I am not so sure, but that is another story

 

Steve we can talk all we want about could of and should of.

Now the crisis must be fixed.

On a side note the savings and loan crisis unraveled first in Dallas Texas when a house painter (yes that is right a house painter) built what would amount to a large empty city just east of dallas. Thousands and thousands of empty units both residential and commercial. He was able to keep going by having appraisals done on the same real estate as many as several times a day and some crooked lenders. Then it spread like wild fire from there. Hurting innocent people like crazy when their home values declined rapidly. We are on the infancy of another crisis that can do the same damage to all of us and the economy if it is not fixed now. Or Armageddon will strike again.

Lee j

 

Sounds like it is a catyclismic crisis of epic proportions.

 

I'm all for individual responsibility when it comes to making decisions such as purchasing a home. With that said, when I purchased my home the mortgage broker at Wells Fargo was very misleading and overall it was a very bad experience. We made it very clear from the beginning that we wanted a 30-yr FIXED-rate mortgage and that we were not interested anything that does not amortize. Several times he still tried to talk us into a 5 year ARM. Of course his rationale was that most people don't stay in their house for more than a few years so this would save us money in the long run. Of course my response was what happens in five years when I can't sell my house or its worth less than I paid for it? He said that was very unlikely to happen. Well, three days before closing I get a copy of the loan documents and find out he has our first in a 30 year fixed, but our second is interest only. It took everything in me not to cuss him out. I demanded that he have it changed to a 30 yr fixed at a rate quoted to me by a different broker we earlier considered doing business with. I told him if he could not accommodate this request, we have someone who can. We ended up getting it fixed, but I couldn't believe what a hassle it was. The problem is that most people purchasing their first home are very naive and often think that the lender has their best interests at heart. Nothing could be further from the truth. Who cares about steroids in baseball? It shuns in comparison to the fraudulent lending practices that have gone on over the last decade. In my opinion though, you reap what you sow. I hope the government hits them hard.

 

Home buyers have to do a lot of research to know what is a good deal and what isn't. A good real estate agent should help guide buyers, especially first time ones, into a good loan arrangement. Unless you have the means to take a gamble on an adjustable rate, go for a safer fixed one, in my opinion. If you can't afford a down payment and need an interest-only loan you may not be ready to buy.

That's just my opinion.

 

Villager,

I assume your response was to my post. I agree with most of what you said. Luckily my fiancés parents are very in tune with the real estate industry so they helped us a lot through the process. Unfortunately saving 20% for a down payment on our first house in this market would have taken us several years. Meanwhile, we would continue throwing away thousands of dollars every year renting (about $20,000/yr). So over three years (conservatively) we would pay $60,000 towards someone else’s mortgage while trying to save money for a down payment. Why would we do that when we could be paying for something where we are establishing equity? That seemed like a no brainer to me since we can comfortably afford it and since we plan on staying there for quite some time. I think it also helped that we bought after values had already fallen significantly (15% according to the County assessment). Unless values continue to fall significantly (who can really predict that?), I think we made a good decision.

-Rob

 

So is this finally an admission that the surge is working?! Caught ya, Lee!

I'm kinda with Steve on this. I think a restructuring is good and healthy, I think people suffering and learning from consequences is good. The only reason I see the govt getting involved is to try to stabilize concerns to keep the stock market more steady, keep consumer confidence up (especially in this key Christmas shopping season that makes or breaks many companies) and to avert panic.

By the way, a question. Those predatory banks--were they intentionally trying to write loans they know people coudn't afford...because last time I checked, banks make money from collecting payments, not foreclosing. So it seems their self-interest would be to go to that edge, but not go over.

 

The only caveat to this is that if you check your amortization table, you aren't really building any equity for quite some time. Take a $400k loan for thirty years at 6%, you're only paying $400-$500 in principal for the first few years. The rest is interest. In fact, you pay more interest than principal until the 223rd payment (in 18 years)!

Now add up your PMI and very high property taxes in this area, plus out of pocket costs for house maintenance, upgrades, replacement, etc. and the true cost of your home is much higher than you think.

Then factor in this. Let's say that you bought a home that was previously going for $500k, but you got it for roughly $400k. Let's say the market continues to drop and it's worth $375 or $350. You now have negative equity, you haven't paid much in real principal and when you sell, lop off $20k for commissions.

I have been told that for those who moved here 2-3 years ago, home values have dropped so much that those people are kind of stuck now.

Anyway, don't mean to be doom and gloom, that's Lee's job

 

Rob you are absolutely correct, especially for first time buyers. Each of us have different needs and financial situations.

Steve I agree it is fixing itself, but I am for foreclosures only as a last resort. The banks need to redo the loans so it is affordable like when they first made the loan if it is adjustable. Many banks are going under because they foreclosed then work the loan out somehow. Something is better then taking a lose in foreclosure. Banks are finally getting on with what they have to do or face extinction. If they would of been aggressive in doing so in the beginning of this crisis there would of been less banks going under and making the government to come in and do something which of course cost us tax payers. The government and regulators should be aggressive making the rules work so the banks can be aggressive in saving as many loans as possible and keeping people in their homes, no matter within reason that it takes.

If they don't only the vultures will come out ahead. Vultures are what we call people looking to prey upon the weak and take all they can for personal gain. There are a lot of vulture funds set up at this moment and waiting to swoop down at this very moment. The land that my home and subdivision sit and where verizon sits and home depot and about every piece of land that is around me was bought with vulture funds back in the early nineties by a friend of mine who set it up with foreign investors. The money came from foreign sources at that time so most of the profits went back to that country and did not stay here. Real estate values plummeted and it was not until about 911 did things really start to turn around around here. Now perhaps the present boom here was connected to 911, of course it was. Many of you all owe your jobs and high salaries to 911. And people a kidding themselves if they don't think the last explosive growth here was not connected to 911.

I know because I had clients that were having a hard time selling their homes for what they paid for them in the early nineties 8 to 9 years later. Then bam 911 happened and everyone was getting rich again and salaries were going threw the roof and people were bragging at parties how much their home was going up and the housing party was on again as we call it in the business and the largest expansion of our economy also then took place.

Now the party is over expect for the vultures and their large vulture funds and their very deep pockets. They will be the big winners because they can hold on for as long as it takes. This is not going to be a party for the small investor without deep pockets and I really believe the worst is yet to come. But 10 years from now Wow is it going to be the start of the party all over again.

The bust and recovery are going to take longer this time because the boom went on for soooo long. They are both directly related. And I have no more to say on this topic ever. At least until later next year.

Lee j

Lee j

 

I can see that. I bought right at the peak 2.5 years ago. Values seemed to go up maybe $15k-20k after I bought but now they are easily $100k-$120k lower than I paid. Fortunately I looked at the ARMs and immediately dismissed that idea as a gamble I was not willing to make. Also quite fortunately I was able to put a sizable chunk down which I did to stay under the jumbo loan cutoff and I am fortunately am not underwater but I don't have any equity either. If I had to sell I'd likely be slightly underwater if you factored in various fixes and sales commission. Now if I did not have the ability to put so much down I'd very much be stuck here, having done everything right (except of course choosing the peak time to buy) but yet needing to magically come up with $120k or so just to walk away.

 

Silence Dogood and others as you all know the quickest way to pay off a mortgage is to pay something more on the principle every month then just the regular payment. And watch that mortgage just dissappear in a fairly short period of time such as paying a 30 year mortgage off in fifteen years or less. Of course you can buy one of these programs from the sharks for several thousand dollars and it does all the math for you and even shows how you can borrow the money to get this all started and still pay that back and still pay the mortgage off in a fairly short period of time. All kinds of twists on this topic and theme. Too many to go into here. My advice to anyone wanting to get into the foreclosure business , unless you have deep pockets and know the business very well don't do it, or you could end up like many of those flippers that got caught up in the boom. My last word on this too until later next year.

Lee j

 

That logic applies when the banks actually hold the mortgage. Most banks securitize mortgages these days which is why the sub-prime mess is so widespread. It's difficult to track down who holds what mortgage (or portion thereof).

http://www.riskglossary.com/link/mortgage_backed_security.htm

Actually, here's a better explanation from the Chicago Federal Reserve: http://www.chicagofed.org/publications/fedletter/cflnovember2007_244.pdf

"Thirty years ago, if you got a mortgage from a bank, it was very likely that the bank would keep the loan on its balance sheet until the loan was repaid. That is no longer true. Today, the party that you deal with in order to get the loan (the originator) is highly likely to sell the loan to a third party (see fi gure 1)." --From the Fed report

 

One last comment. As we said in this business for the last many years wall street basically holds your mortgage anymore. They are packaged and sold to investors as a package not as an individual loan anymore. Again wall street controls a lot more of our lives then maybe it should.

Lee j

 

Well my big neighbor is sitting there pretty empty as well the AOL campus will soon be. The dot coms were dying right before 911 and commercial construction was halted everywhere right before 911. The nations security and Iraq saved LOudoun county from a slow death. Sorry but the last large boom of LOudoun is directly related to 911. Now that things are slowing in those areas so is Loudouns economy as among the rascals that decided to try to get rich quick off the housing boom and most lost. Most of my clients are foreigners right now, or foreign born. It was not that way a few years ago, I think that says something about the local economy.

I will say this if you are correct Steve then we should not see any economic downturn here as we see less federal spending on security and Iraq, both are directly related to 911.

Lee j

 

Lee, you have more "last comments" than a politician!

 

Silence,

Those are all good points that we took into consideration before we purchased. I would like to believe we bought towards the bottom, but some here believe the worst it yet to come so who knows. The other thing to be considered is what will interest rates look like in 3 years? The mortgage companies are going to have to make up all that money they're losing to foreclosures somehow aren't they?

Thanks,
-Rob