Can buyers in default 365 days or longer be saved?

[sdrealtor]

[quote=walterwhite]Those redfin listings above will probably close a bit higher than the asking prices I think.[/quote]

Perhaps but the point was that prices are still well below 30% off peak and closer to 50% off peak.

[sdrealtor]

The low end crashed quickly because it should have. As you said it had no buffer. It increased by a much higher percentage. This isnt a war on on the working class. These loans were made to people who could not pay them off if they were at 0% interest. They could only work with increasing property values. These loans had to be cleared out asap because there was no hope for them.

In the mid and upper ranges, there were plenty of bad loans made overextending borrowers but most were to people with real jobs, incomes and assets. Again this isnt a plan to support the rich at the expense of the poor or any kind of economic class warfare. Some of these loans weren’t made to people with long term real jobs and most of those seem to have been resolved quickly. I used to track all the foreclosure data around me and every week it was full of realtors/mortgage people whose income disappeared. These should have been wiped out quickly and they were. The others have stuck around much better and will continue to resolve themselves because there is a way to save them.

I never said it was fixed nor do I beleive it’s over but they are winning the war and I beleive they will win it. The worst has passed already.

[an]

[quote=walterwhite]Those redfin listings above will probably close a bit higher than the asking prices I think.[/quote]
You’re probably right. Here are some that have closed:

http://www.redfin.com/CA/Murrieta/40202-Jonah-Way-92563/home/6679382 – 55% off peak
http://www.redfin.com/CA/Murrieta/25943-Marco-Polo-St-92563/home/6642977 – 49.55% off peak
http://www.redfin.com/CA/Temecula/44084-Mountain-Vw-92592/home/6360469 – 63.5% off peak
http://www.redfin.com/CA/Temecula/45786-Corte-Lerma-92592/home/6253482 – 54% off peak

[CA renter]

[quote=sdrealtor]The low end crashed quickly because it should have. As you said it had no buffer. It increased by a much higher percentage. This isnt a war on on the working class. These loans were made to people who could not pay them off if they were at 0% interest. They could only work with increasing property values. These loans had to be cleared out asap because there was no hope for them.

In the mid and upper ranges, there were plenty of bad loans made overextending borrowers but most were to people with real jobs, incomes and assets. Again this isnt a plan to support the rich at the expense of the poor or any kind of economic class warfare. Some of these loans weren’t made to people with long term real jobs and most of those seem to have been resolved quickly. I used to track all the foreclosure data around me and every week it was full of realtors/mortgage people whose income disappeared. These should have been wiped out quickly and they were. The others have stuck around much better and will continue to resolve themselves because there is a way to save them.

I never said it was fixed nor do I beleive it’s over but they are winning the war and I beleive they will win it. The worst has passed already.[/quote]

As you’ve noted in other threads, most homes appreciated by about the same amount (but different percentages). The reason the mid tier was able to increase the way it did was because people who owned the low-end homes were selling for $200K-$400K+ more than they had paid for their homes. This money came from the new entrants with zero-down NINJA loans, which is why these new low-end buyers had no buffer.

Many (most) of these newly rich low-end sellers took that money and used it as a down payment on a mid or higher-tier house. They could now afford to pay $600K, and only have a $200K-$300K mortgage. That’s what pushed the mid-tier prices up — new entrants with a lot of money to use as a down payment.

The mid-tier sellers could then use that money for a higher-end home. They had higher down payments, but these people often did have higher incomes as well, so they could afford to get slightly larger mortgages.

This is why you saw the largest price increases on the lower end, as a percentage of pre-bubble prices, vs. the mid and higher-end homes.

While some of these new mid-tier buyers were responsible and will be able to stay in these homes, there is no NEW money coming into the market to justify the higher prices in the mid-tier market. Many pre-bubble owners (and new owners) of mid-tier homes took new HELOC/refi loans that were just as irresponsible as the NINJA loans at the bottom. These people have been able to stay only because of the intervention by the Fed/govt. Not only that, but the artificially low interest rates and govt-backed mortgage market have enabled new entrants to pay bubble prices for mid-tier houses, without having to pay market interest rates and without enough skin in the game to entice private lenders to lend to them.

Prices are determined by what NEW buyer are willing and able to pay. Prices that resulted from a credit bubble that happened in the past are irrelevant.

Where do you think prices would be without all the Fed/govt intervention? Where would prices be with market interest rates and GSE loans with loan limits of $350K or below? That’s what some of us are waiting for.

[Anonymous]

[quote=FormerSanDiegan]
I follwed the advice further up on the thread.

The results indicate that prices in Temecula in aggregate are currently about 44% off peak. (At the trough they were about 49.8% off peak).

The particular house shown in the chart (orange line) is a foreclosure and is more than 50% off peak.

With these facts in hand, you may now continue your little spat.[/quote]

No need, I already won.

The “spat” is about homes that apply to this thread: “buyers in default…”

Do yo think every home now in default was purchased at the very peak?

[Anonymous]

[quote=sdrealtor]BTW, the answer to who would want to stay in their underwater home even if refied to 4% is just about anyone’s whose payment would be at or close to the rental amount net of taxes. Why wouldnt they want to stay in their home if they could at the same or lower cost than renting?[/quote]

Because they would be trapped in their current location. If they need to change jobs in the next six months (very possible, since they are probably unemployed now) they are stuck with a house they cannot sell.

Of course if they do need to move/sell, they could just stop making payments again, as they have nothing to lose.

Which is why no bank will want to give them the refinance – the loan would be secured by a property worth less than the loan amount.

Which brings us back to square one.

The plan doesn’t work. You cannot “save” people who have a negative balance sheet without erasing the debt. All options fall into two categories:

1) Debt forgiveness (i.e. principal reduction)
2) Debt elimination (i.e. foreclosure)

Nothing else will work because nothing else addresses the crux of the problem.

It doesn’t matter what games we play with interest rates – you have to fix the homeowner’s balance sheet.

This is really the same discussion we’ve had so many times on this site. There are no solutions that aren’t going involve either mass foreclosures or mass principal reduction. We’ll probably see some combination of both.

[sdrealtor]

The loan is already secured by a property worth less than the loan amount and it would be the gubment’s doing to refi them into lower rates. If the payment is close to rent they arent trapped because they could rent it out. It is not an end all be all plan but something that would help alot. It would also apply to those with equity who are current on their loans but cant qualify for a refi at lower rates. It should be a no brainer as they “qualify” in reality because they already are making higher payments which is the true test not some arbitrary loan guidelines. Putting money in consumers pockets will stimulate the economy and create demand for goods and services that will create jobs. I think its the best plan out there.

[sdrealtor]

CAR
Good summary of what happened and one I put forth years ago so I wholeheartedly agree with it.

Where we divurge is with what is going on and will go on in the middle. Prices are lower than they were (my house is down about $200K off peak value) and interest rates are lower by 2 to 3% on fixed rates. There is lots of NEW money out there contrary to what you like beleive. There are plenty of people who stayed in their low end homes 10+ years who have tons of equity and are only now moving up. There are people who didnt buy and saved. There are people inheriting lots of money as the “greatest generation” passes on. There are wealthy immigrants coming to the US because of globalization.

Buying my house at the peak (around 950K) would result in a mortgage payment of about $4700 with 20% down. At today’s value (about $750K) the payment would be about $2900. Throw on taxes, insurance and HOA and its not much more than the rent on it (approx $3500). When you consider the tax write off it’s probably cheaper to buy than rent my house if you have 20% down.

[Anonymous]

[quote=sdrealtor]The loan is already secured by a property worth less than the loan amount and it would be the gubment’s doing to refi them into lower rates. [/quote]

The government would do the refis?

Let’s try an example:

The government would pay off a $500K loan (i.e. write a check to a bank for $500K to make the bank whole.)

Government is now holding a $500K loan on a $400K property. If homeowner decides to walk, the government loses up to $100K in the whole scenario.

If this home were in Temecula, the government would now be underwater $250K+
😉

Since the the government is likely already guaranteeing the original loan, this really just takes us in a a big circle and doesn’t solve anything.

It doesn’t help the homeowners, and doesn’t help the government’s balance sheet. If it helps anyone it would be the banks, mortgage brokers, and real-estate hustlers who will inevitably find ways to defraud the whole scheme.

I like to hear creative idea as solutions to problems, but we aren’t going to find one here that won’t just result in a bigger mess.

The cleanest way out of this is what most Piggs have been advocating all along: Foreclose and put it back on the market, at market prices. Only sell/loan to those who can afford it.

If we rewrite the rules of the game now, it will only reward those who cheat.

[NotCranky]

[quote=pri_dk][quote=sdrealtor]The loan is already secured by a property worth less than the loan amount and it would be the gubment’s doing to refi them into lower rates. [/quote]

The government would do the refis?

Let’s try an example:

The government would pay off a $500K loan (i.e. write a check to a bank for $500K to make the bank whole.)

Government is now holding a $500K loan on a $400K property. If homeowner decides to walk, the government loses up to $100K in the whole scenario.

If this home were in Temecula, the government would now be underwater $250K+
😉

Since the the government is likely already guaranteeing the original loan, this just really just takes us in a a big circle and doesn’t solve anything.

It doesn’t help the homeowners, and doesn’t help the government’s balance sheet. If it helps anyone it would be the banks, mortgage brokers, and real-estate hustlers who will inevitably find ways to defraud the whole scheme.

I like to hear creative idea as solutions to problems, but we aren’t going to find one here that won’t just result in a bigger mess.

The cleanest way our of this is what most Piggs have been advocating all along: Foreclose and put it back on the market, at market prices. Only sell/loan to those who can afford it.

If we rewrite the rules of the game now, it will only reward those who cheat.[/quote]

I am with you on these points, but the suggestion by the OP also included that the interest in arrears “more than 365 days” be rolled into the loan.

How is this boot licking idea not class based welfare? You help the rich bankers you help the realtors, and you help middle class people and up, who by all reasonable standards live in luxurious digs. Sounds like corruption/theft to me. Let the nations capacity for charity be used for more deserving people.

[Author]

Posts