Happy (almost) Hallowe’en, my Rebellious Readership!
It’s getting awfully alphabet-soupy out there in the banking world right now. So I thought I’d devote a few serious (relatively) lines to a brief overview of the various programs and what-not which are currently part of the home foreclosure universe.
Ready? Here we go...
TARP: How about we begin at the beginning with the Troubled Assets Relief Program. This was the originally big bail out fund, where banks were supposed to sell their “toxic” assets to you and me (er…the government, with our tax dollars) for a chunk of money, then use that additional money to start lending again. Whether this is working or not is debatable. Really, really debatable.
HASP: The Homeowner Stability and Stability Plan: The first formalized effort of the Obama Administration, aimed at getting homeowner’s payments reduced, with the government guaranteeing some of the risk to banks, ultimately leading to…
HARP: the Home Affordable Refinance Program, within fairly strict guidelines, Freddie/Fannie Mac mortgages can be recast based on the current market value of their home. But if your loan is NOT part of Freddie/Fanny, then you can avail yourself of…
HAMP: Home Affordable Modification Program. Designed for mortgage holders with loans from OTHER than Fannie/Freddie Mac and who are more than 31 days in default, this program was launched this past spring. This program requires banks to re-work mortgage payments based on homeowners current income, and does not require the banks to reduce the capital of the mortgage, but loans are amortized at lower interest rates and can extend for up to 40 years.
CLEAR AS MUD, Right? It boils down to one thing-there are lots of programs out there that banks are able and supposed to be using to modify the mortgages of homeowners who are in default. But, as I’ve mentioned elsewhere, the number of mortgages actually being re-worked is dismally low.
I’d like to hear from you, the Rebellious Reader, about any experiences you’ve had navigating the loan-modification jungle. Drop me a note, visit me on Facebook, or post your comment here.
Alphabetically Yours,
Larry
Wednesday, October 28, 2009
Wednesday, October 21, 2009
We were worried about this stuff YEARS ago!!
I wonder if we ever really do learn from history??
I was taking a look BACK at my collection of articles about the real estate world, and I came across a BusinessWeek article dated Sept 11, 2006. In it, the writer is discussing ARMs and calling them “nightmare mortgages” where “the bill is coming due”. YEP, that was three years ago, and that was BEFORE the most recent crash. The article goes on to talk about the fancy bookkeeping banks were doing to show higher-than-normal profits on these loans and to mask the risk of default. Three years ago, alarm bells were sounding in many similar articles, but this one really puts the problem in a nutshell-you can check it out here.
( http://www.businessweek.com/magazine/content/06_37/b4000001.htm )
And you know what banks and mortgage brokers did? Kept on lending. Kept on issuing ARMs, kept on telling consumers that things would be ok. Pretty much hiding their heads in the sands and hoping that the tremors they were feeling in the financial markets were nothing but bumps in the night.
And what are they doing now, three years later? Well, what they AREN’T doing is much to avoid another round of foreclosures. The Newsweek article refers to loans in 2004 & 2005 that would be coming up for re-adjustment soon. Many of those loans have already gone into foreclosure, but what about the loans that were made in 2006 and 2007, when credit was still cheap and ARMS were still popular?
Yep, that’s right. They’re all due for re-adjustment. In many cases, those loans will re-adjust upward, due to the nature of the then-vs-now financial markets.
You heard me, the loans payments will actually go UP! And that means people who managed to keep on top of their payments will suddenly be looking at not being able to make them.
AND their properties aren’t worth what they bought them for. Of course, there’s nothing new there. BUT, these buyers will actually be in worse shape than the buyers mentioned in the BusinessWeek piece, because these newer borrowers are the ones who bought in at the very top of the market. People who bought in 2004 and 2005 are screwed; people who bought in 2006 and 2007 are ROYALLY screwed.
And how’s the job market looking? I’m not seeing any kind of huge recovery where I am here in the San Francisco Bay Area-how about you? Sure, there are dribs and drabs of profit and people who have jobs are keeping them for now. But here’s a chilling thought-when that BusinessWeek article was published (Sept 2006), the Unemployment Rate in California was 4.8%. That’s right…4.8%.
Three years later, the CA unemployment rate for September 2009 was 12.2%-nearly THREE TIMES what it was when concern was being expressed over the ability of borrowers to repay their loans. (For good, but scary, historical unemployment data see http://www.labormarketinfo.edd.ca.gov/ )
HOLY MORTGAGE-BACKED-SECURITY, BANK-MAN! What are you going to do now that a whole new set of ARMs is ready to blow up your face and there are even fewer people with jobs?
Well, it looks like…not much. As I mentioned before, the banks seem to be having a very hard time actually implementing all the loan modification programs they’ve been instructed to put in place by their newest share holder-the Taxpayers.
So, who the hell knows what’s going to happen when payments go even higher. All I can say is, check your loan carefully, and if your ARM is about to reset, make sure you know what the new rate, and the new payment, is going to be so you can start getting your budget modified now.
Because that’ll be a whole lot more likely than actually getting your bank to work out a LOAN modification for you.
Stay tuned-next week I’m taking a look at the various programs in place for loan-modification. AND I’m having alphabet soup for lunch (TARP…NAMA…HAMP…)
Rebelliously,
Larry
I was taking a look BACK at my collection of articles about the real estate world, and I came across a BusinessWeek article dated Sept 11, 2006. In it, the writer is discussing ARMs and calling them “nightmare mortgages” where “the bill is coming due”. YEP, that was three years ago, and that was BEFORE the most recent crash. The article goes on to talk about the fancy bookkeeping banks were doing to show higher-than-normal profits on these loans and to mask the risk of default. Three years ago, alarm bells were sounding in many similar articles, but this one really puts the problem in a nutshell-you can check it out here.
( http://www.businessweek.com/magazine/content/06_37/b4000001.htm )
And you know what banks and mortgage brokers did? Kept on lending. Kept on issuing ARMs, kept on telling consumers that things would be ok. Pretty much hiding their heads in the sands and hoping that the tremors they were feeling in the financial markets were nothing but bumps in the night.
And what are they doing now, three years later? Well, what they AREN’T doing is much to avoid another round of foreclosures. The Newsweek article refers to loans in 2004 & 2005 that would be coming up for re-adjustment soon. Many of those loans have already gone into foreclosure, but what about the loans that were made in 2006 and 2007, when credit was still cheap and ARMS were still popular?
Yep, that’s right. They’re all due for re-adjustment. In many cases, those loans will re-adjust upward, due to the nature of the then-vs-now financial markets.
You heard me, the loans payments will actually go UP! And that means people who managed to keep on top of their payments will suddenly be looking at not being able to make them.
AND their properties aren’t worth what they bought them for. Of course, there’s nothing new there. BUT, these buyers will actually be in worse shape than the buyers mentioned in the BusinessWeek piece, because these newer borrowers are the ones who bought in at the very top of the market. People who bought in 2004 and 2005 are screwed; people who bought in 2006 and 2007 are ROYALLY screwed.
And how’s the job market looking? I’m not seeing any kind of huge recovery where I am here in the San Francisco Bay Area-how about you? Sure, there are dribs and drabs of profit and people who have jobs are keeping them for now. But here’s a chilling thought-when that BusinessWeek article was published (Sept 2006), the Unemployment Rate in California was 4.8%. That’s right…4.8%.
Three years later, the CA unemployment rate for September 2009 was 12.2%-nearly THREE TIMES what it was when concern was being expressed over the ability of borrowers to repay their loans. (For good, but scary, historical unemployment data see http://www.labormarketinfo.edd.ca.gov/ )
HOLY MORTGAGE-BACKED-SECURITY, BANK-MAN! What are you going to do now that a whole new set of ARMs is ready to blow up your face and there are even fewer people with jobs?
Well, it looks like…not much. As I mentioned before, the banks seem to be having a very hard time actually implementing all the loan modification programs they’ve been instructed to put in place by their newest share holder-the Taxpayers.
So, who the hell knows what’s going to happen when payments go even higher. All I can say is, check your loan carefully, and if your ARM is about to reset, make sure you know what the new rate, and the new payment, is going to be so you can start getting your budget modified now.
Because that’ll be a whole lot more likely than actually getting your bank to work out a LOAN modification for you.
Stay tuned-next week I’m taking a look at the various programs in place for loan-modification. AND I’m having alphabet soup for lunch (TARP…NAMA…HAMP…)
Rebelliously,
Larry
Wednesday, October 14, 2009
Buyer's Tip-Take a Look in the Mirror...
If you're considering buying a home in today's crazy market, I would encourage you to think carefully about what kind of buyer you really are before jumping in. With the chaos that I'm seeing in the Bay Area and beyond, there are fantastic opportunities to make some great deals, but that ALSO means, and I don't want to be too crude (I have a reputation for subtlety and finesse to maintain, after all ;), that there are tremendous chances to really screw yourself up.
Here are the three types of buyers-where do you fit?
WHOLESALE Buyer (WB)-
This kind of buyer buys low and looks for a quick turnaround. A WB needs to obtain a property in good condition that can resell fast, at a profit, and in some cases has a buyer lined up before the title transfer goes through. In this kind of market, buying like this can be tricky because many properties available through foreclosure will need significant updating/fixing before they can be sold on. A Wholesale Buyer needs to offload properties quickly and needs a good network of potential buyers in order to turn around a property as soon as possible. There are good bargains available, but you have to have a good eye and really understand the pluses and minuses of a given house before moving forward, or you can be stuck with something that has no appeal to the next buyer.
Investment Buyer (IB)
An IB buys and plans to hold the property for awhile. Maybe he'll rent it out, maybe she'll spend a chunk of change to update and modernize an older home and recoup the money in a few years when prices rise. IBs will need to have good down payments (see my earlier post about cash becoming king again). If this is the kind of buyer you are, you must have firm financial footing to be able to support the initial cash outlay plus on-going charges. If you want to buy and hold, this is a good time for that if you're ready to play landlord or are able to pay for remodelling out of pocket with no need for additional loans in this credit-tight market.
Retail Buyer (RB)
Call him a family-guy, or call her a modern woman...but this buyer is looking for something for themselves. If you work smart, you can take real advantage of what's going on right now. First, have a very very good sense of your finances and what you can afford to pay, not just right now, but in 5, 10 or even 15 years from now. Don't count on a home's value skyrocketing and your mortgage becoming a giant ATM machine to pay for college for your kids or the automatic refinance option in a couple of years. And even though cash is becoming king again, if you don't have the $100K+ that might mean in the SF Bay Area housing market right now, there are some good options to explore, especially as more and more sellers are getting creative (in a good, REBELLIOUS way, not a scheming high-commission, pass-the-risk-on mortgage broker kind of way). I'm seeing lease-to-buy deals happening, I'm seeing co-signing becoming big again, and I'm even seeing some private sellers willing to work with mortgages that are amortized over a few more years than normal to keep payments rational. Lastly, stop thinking of your home as an investment that you'll cash in some day-start thinking of it as a place you want to be, where you want your family to be, and where you want to stay for awhile.
So, yeah, today's market is crazy. It seems like loans are tough to find, foreclosure properties carry high risk, and maybe you'll have to sit on what you buy for awhile. But, if you know what you're looking for, and you REALLY have a good idea of what kind of buyer you are, then you can surf the chaos like a pirate ship riding a wave.
Buy Rebelliously!
Larry
Here are the three types of buyers-where do you fit?
WHOLESALE Buyer (WB)-
This kind of buyer buys low and looks for a quick turnaround. A WB needs to obtain a property in good condition that can resell fast, at a profit, and in some cases has a buyer lined up before the title transfer goes through. In this kind of market, buying like this can be tricky because many properties available through foreclosure will need significant updating/fixing before they can be sold on. A Wholesale Buyer needs to offload properties quickly and needs a good network of potential buyers in order to turn around a property as soon as possible. There are good bargains available, but you have to have a good eye and really understand the pluses and minuses of a given house before moving forward, or you can be stuck with something that has no appeal to the next buyer.
Investment Buyer (IB)
An IB buys and plans to hold the property for awhile. Maybe he'll rent it out, maybe she'll spend a chunk of change to update and modernize an older home and recoup the money in a few years when prices rise. IBs will need to have good down payments (see my earlier post about cash becoming king again). If this is the kind of buyer you are, you must have firm financial footing to be able to support the initial cash outlay plus on-going charges. If you want to buy and hold, this is a good time for that if you're ready to play landlord or are able to pay for remodelling out of pocket with no need for additional loans in this credit-tight market.
Retail Buyer (RB)
Call him a family-guy, or call her a modern woman...but this buyer is looking for something for themselves. If you work smart, you can take real advantage of what's going on right now. First, have a very very good sense of your finances and what you can afford to pay, not just right now, but in 5, 10 or even 15 years from now. Don't count on a home's value skyrocketing and your mortgage becoming a giant ATM machine to pay for college for your kids or the automatic refinance option in a couple of years. And even though cash is becoming king again, if you don't have the $100K+ that might mean in the SF Bay Area housing market right now, there are some good options to explore, especially as more and more sellers are getting creative (in a good, REBELLIOUS way, not a scheming high-commission, pass-the-risk-on mortgage broker kind of way). I'm seeing lease-to-buy deals happening, I'm seeing co-signing becoming big again, and I'm even seeing some private sellers willing to work with mortgages that are amortized over a few more years than normal to keep payments rational. Lastly, stop thinking of your home as an investment that you'll cash in some day-start thinking of it as a place you want to be, where you want your family to be, and where you want to stay for awhile.
So, yeah, today's market is crazy. It seems like loans are tough to find, foreclosure properties carry high risk, and maybe you'll have to sit on what you buy for awhile. But, if you know what you're looking for, and you REALLY have a good idea of what kind of buyer you are, then you can surf the chaos like a pirate ship riding a wave.
Buy Rebelliously!
Larry
Thursday, October 8, 2009
October Seller's Tip-Are You Counting on Loan Modification?
I've been saying it, but I think it bears repeating-if you’re the owner of a distressed property, and you’re hoping loan mediation/moderation may be the way to go to get your loan down, you may need to think again.
Recent data from the National Consumer Law Center suggests that loan servicers are in no hurry to actually do much to help modify a loan. The report confirms something that I’ve been talking about for awhile-there isn’t really much incentive for banks to actually bother to work on modifying a loan with you. The reports was brought to my attention because I keep an eye on anything that cover the California real estate market, which was one of the areas examined by the NCLC. Basically, the loan modification guidelines mandated by the government have no teeth, and the way the programs are implemented make it very difficult to jump through all the hoops. And I don’t mean financial hoops-I’m in FAVOR of requirements that help insure the soundness of a buyer's financial background. In this case what we're seeing are procedural hoops (red tape, bureaucracy, whatever you want to call it). The report goes on to recommend MANDATORY loan modifications-meaning the government will require lenders and mortgage servicers to work with borrowers in a timely manner. To read the report for yourself, follow this link http://www.consumerlaw.org/issues/foreclosure/index.shtml
But believe me, if the day ever comes that the current loan modification "guidelines" become "rules" with some teeth, it will be too late for many homeowners facing their foreclosure crisis TODAY. If you're in that situation, it may be time to explore all your options.
Rebellious Regards,
Larry
Recent data from the National Consumer Law Center suggests that loan servicers are in no hurry to actually do much to help modify a loan. The report confirms something that I’ve been talking about for awhile-there isn’t really much incentive for banks to actually bother to work on modifying a loan with you. The reports was brought to my attention because I keep an eye on anything that cover the California real estate market, which was one of the areas examined by the NCLC. Basically, the loan modification guidelines mandated by the government have no teeth, and the way the programs are implemented make it very difficult to jump through all the hoops. And I don’t mean financial hoops-I’m in FAVOR of requirements that help insure the soundness of a buyer's financial background. In this case what we're seeing are procedural hoops (red tape, bureaucracy, whatever you want to call it). The report goes on to recommend MANDATORY loan modifications-meaning the government will require lenders and mortgage servicers to work with borrowers in a timely manner. To read the report for yourself, follow this link http://www.consumerlaw.org/issues/foreclosure/index.shtml
But believe me, if the day ever comes that the current loan modification "guidelines" become "rules" with some teeth, it will be too late for many homeowners facing their foreclosure crisis TODAY. If you're in that situation, it may be time to explore all your options.
Rebellious Regards,
Larry
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