Home › Forums › Housing › “A downward spiral thats tough 2 stop; it feeds on itself. 4closures encourage new 4closures & falling prices discourage buying”
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February 8, 2009 at 1:31 AM #343346February 8, 2009 at 2:54 AM #342789
Lyra
Participant[quote=SD Realtor]The fact of the matter is that when the house sells, that is the ONLY time the valuation of the home is used in a proper manner. Period.[/quote]
Um… You just made my point. The recipient of a principal reduction workout CAN sell the house at market price. And that subsequent sale is when the price discovery occurs (and that’s why the latency exists). Price discovery does not occur at the time the workout is granted. The net result is still deflationary. Principal reductions are basically foreclosures where the lucky lottery winner gets to effectively buy the house back at the foreclosure (market) price. As for appraisals, the point is moot. Lenders will make the offer and the borrowers will decide if it’s worth it to take the deal or just walk. If the principal writedown does not bring the loan down to an amount that the borrower feels will put them above water, they’ll just do the rational thing and walk. Then the house goes into foreclosure, someone buys it, and the comps are set lower. All deflationary.
Contrast this with an interest rate reduction workout. Here the borrower is stuck in an underwater house for a decade while they and the neighborhood get to pretend the house is still worth what it was at the market peak. There is no price disovery at all because the house is not going on the market anytime soon.
Also, I don’t see how you can call it fraud. If the bank gets the investor(s) to agree, they can do whatever loan mod they like with the borrower. Likewise, once Uncle Sam buys the paper, they can do whatever mods they please.
Look, again, I would much rather there be no mods at all. But since it appears that mass loan mods are coming… I would rather see principal reduction mods over interest rate reduction mods.
February 8, 2009 at 2:54 AM #343116Participant[quote=SD Realtor]The fact of the matter is that when the house sells, that is the ONLY time the valuation of the home is used in a proper manner. Period.[/quote]
Um… You just made my point. The recipient of a principal reduction workout CAN sell the house at market price. And that subsequent sale is when the price discovery occurs (and that’s why the latency exists). Price discovery does not occur at the time the workout is granted. The net result is still deflationary. Principal reductions are basically foreclosures where the lucky lottery winner gets to effectively buy the house back at the foreclosure (market) price. As for appraisals, the point is moot. Lenders will make the offer and the borrowers will decide if it’s worth it to take the deal or just walk. If the principal writedown does not bring the loan down to an amount that the borrower feels will put them above water, they’ll just do the rational thing and walk. Then the house goes into foreclosure, someone buys it, and the comps are set lower. All deflationary.
Contrast this with an interest rate reduction workout. Here the borrower is stuck in an underwater house for a decade while they and the neighborhood get to pretend the house is still worth what it was at the market peak. There is no price disovery at all because the house is not going on the market anytime soon.
Also, I don’t see how you can call it fraud. If the bank gets the investor(s) to agree, they can do whatever loan mod they like with the borrower. Likewise, once Uncle Sam buys the paper, they can do whatever mods they please.
Look, again, I would much rather there be no mods at all. But since it appears that mass loan mods are coming… I would rather see principal reduction mods over interest rate reduction mods.
February 8, 2009 at 2:54 AM #343223Participant[quote=SD Realtor]The fact of the matter is that when the house sells, that is the ONLY time the valuation of the home is used in a proper manner. Period.[/quote]
Um… You just made my point. The recipient of a principal reduction workout CAN sell the house at market price. And that subsequent sale is when the price discovery occurs (and that’s why the latency exists). Price discovery does not occur at the time the workout is granted. The net result is still deflationary. Principal reductions are basically foreclosures where the lucky lottery winner gets to effectively buy the house back at the foreclosure (market) price. As for appraisals, the point is moot. Lenders will make the offer and the borrowers will decide if it’s worth it to take the deal or just walk. If the principal writedown does not bring the loan down to an amount that the borrower feels will put them above water, they’ll just do the rational thing and walk. Then the house goes into foreclosure, someone buys it, and the comps are set lower. All deflationary.
Contrast this with an interest rate reduction workout. Here the borrower is stuck in an underwater house for a decade while they and the neighborhood get to pretend the house is still worth what it was at the market peak. There is no price disovery at all because the house is not going on the market anytime soon.
Also, I don’t see how you can call it fraud. If the bank gets the investor(s) to agree, they can do whatever loan mod they like with the borrower. Likewise, once Uncle Sam buys the paper, they can do whatever mods they please.
Look, again, I would much rather there be no mods at all. But since it appears that mass loan mods are coming… I would rather see principal reduction mods over interest rate reduction mods.
February 8, 2009 at 2:54 AM #343253Participant[quote=SD Realtor]The fact of the matter is that when the house sells, that is the ONLY time the valuation of the home is used in a proper manner. Period.[/quote]
Um… You just made my point. The recipient of a principal reduction workout CAN sell the house at market price. And that subsequent sale is when the price discovery occurs (and that’s why the latency exists). Price discovery does not occur at the time the workout is granted. The net result is still deflationary. Principal reductions are basically foreclosures where the lucky lottery winner gets to effectively buy the house back at the foreclosure (market) price. As for appraisals, the point is moot. Lenders will make the offer and the borrowers will decide if it’s worth it to take the deal or just walk. If the principal writedown does not bring the loan down to an amount that the borrower feels will put them above water, they’ll just do the rational thing and walk. Then the house goes into foreclosure, someone buys it, and the comps are set lower. All deflationary.
Contrast this with an interest rate reduction workout. Here the borrower is stuck in an underwater house for a decade while they and the neighborhood get to pretend the house is still worth what it was at the market peak. There is no price disovery at all because the house is not going on the market anytime soon.
Also, I don’t see how you can call it fraud. If the bank gets the investor(s) to agree, they can do whatever loan mod they like with the borrower. Likewise, once Uncle Sam buys the paper, they can do whatever mods they please.
Look, again, I would much rather there be no mods at all. But since it appears that mass loan mods are coming… I would rather see principal reduction mods over interest rate reduction mods.
February 8, 2009 at 2:54 AM #343351Participant[quote=SD Realtor]The fact of the matter is that when the house sells, that is the ONLY time the valuation of the home is used in a proper manner. Period.[/quote]
Um… You just made my point. The recipient of a principal reduction workout CAN sell the house at market price. And that subsequent sale is when the price discovery occurs (and that’s why the latency exists). Price discovery does not occur at the time the workout is granted. The net result is still deflationary. Principal reductions are basically foreclosures where the lucky lottery winner gets to effectively buy the house back at the foreclosure (market) price. As for appraisals, the point is moot. Lenders will make the offer and the borrowers will decide if it’s worth it to take the deal or just walk. If the principal writedown does not bring the loan down to an amount that the borrower feels will put them above water, they’ll just do the rational thing and walk. Then the house goes into foreclosure, someone buys it, and the comps are set lower. All deflationary.
Contrast this with an interest rate reduction workout. Here the borrower is stuck in an underwater house for a decade while they and the neighborhood get to pretend the house is still worth what it was at the market peak. There is no price disovery at all because the house is not going on the market anytime soon.
Also, I don’t see how you can call it fraud. If the bank gets the investor(s) to agree, they can do whatever loan mod they like with the borrower. Likewise, once Uncle Sam buys the paper, they can do whatever mods they please.
Look, again, I would much rather there be no mods at all. But since it appears that mass loan mods are coming… I would rather see principal reduction mods over interest rate reduction mods.
February 8, 2009 at 11:09 AM #342820SD Realtor
ParticipantLyra –
A house for sale for 520k. Three comps over the last 6 months are used that say 490k, 520k and 515k. House appraises at 510k. Two other neighbors on the street receive principal reductions down to 500k within the past 6 months but the appraiser does not know about them. The reductions were made by a combination of what those homeowners could afford due to thier salary as well as the current direction of the market. If the appraiser does not know of these two reductions then how does the appraiser include them in his valuation of the home. House is then appraised and an INFLATED value that does NOT REPRESENT THE COMPS.
The fraud is not committed by the lender who granted the mod. The fraud is committed against the person buying the home and his lender/appraiser. It is committed because there are other financing events happening to other homes in the neighborhood that are not being disclosed to the appraiser. You have called these events foreclosures where the winner was the current homeowner. In reality those homes should have gone to foreclosure and then sold at the true market rate. At least that way the appraisals would have been done correctly. Or perhaps the homeowners received the modification should put a big sign in front of the home saying “I won this foreclosed home and got a principal writedown! Appraisers call me to get fair value of my home as a comp.”
It is funny you keep mentioning price discovery. Exactly who is granted this discovery? Is it made public? Are appraisers made aware of it? Are other lenders made aware of it?
To say that a principal writedown is the same as a foreclosure is a joke. It is not the same because it is not set the market. Let me ask you this as well, what about many different lenders making many different writedowns in the same neighborhood? Even the writedowns get skewed because NOBODY has an honest picture of the market.
Once again, there is nothing, I repeat NOTHING good or helpful about writedowns. To insinuate that they are more helpful then interest rate adjustments for the general market is incorrect. They help one person, the homeowner. However they are just as damaging to the overall market. They conceal and distort true market conditions. They subsidize a homeowner who should be allowed to keep the home. They keep inventory off the market that should be allowed to be put on the market for open.
Finally by conceal the value and not making it public to appraisers other principal writedowns are made incorrectly. Resale homes that are not distressed are subject to be appraised at fair value.
Now if you would like to address the points I made about fair and PRESENT valuations of homes rather then to keep talking about “when the home finally sells latency discovery is made” then your argument may be more valid. Also commenting on how fair appraisals can be made for other homes would be helpful.
I am sorry for the sarcasm but as a potential buyer this stuff enrages me and I see no good in it as all. This further confuses me that you as a potential buyer seem to be more forgiving of this practice then interest rate mods. To me they are both VERY DAMAGING for the market. One is certainly more harmful then the other to the homeowner.
February 8, 2009 at 11:09 AM #343146ParticipantLyra –
A house for sale for 520k. Three comps over the last 6 months are used that say 490k, 520k and 515k. House appraises at 510k. Two other neighbors on the street receive principal reductions down to 500k within the past 6 months but the appraiser does not know about them. The reductions were made by a combination of what those homeowners could afford due to thier salary as well as the current direction of the market. If the appraiser does not know of these two reductions then how does the appraiser include them in his valuation of the home. House is then appraised and an INFLATED value that does NOT REPRESENT THE COMPS.
The fraud is not committed by the lender who granted the mod. The fraud is committed against the person buying the home and his lender/appraiser. It is committed because there are other financing events happening to other homes in the neighborhood that are not being disclosed to the appraiser. You have called these events foreclosures where the winner was the current homeowner. In reality those homes should have gone to foreclosure and then sold at the true market rate. At least that way the appraisals would have been done correctly. Or perhaps the homeowners received the modification should put a big sign in front of the home saying “I won this foreclosed home and got a principal writedown! Appraisers call me to get fair value of my home as a comp.”
It is funny you keep mentioning price discovery. Exactly who is granted this discovery? Is it made public? Are appraisers made aware of it? Are other lenders made aware of it?
To say that a principal writedown is the same as a foreclosure is a joke. It is not the same because it is not set the market. Let me ask you this as well, what about many different lenders making many different writedowns in the same neighborhood? Even the writedowns get skewed because NOBODY has an honest picture of the market.
Once again, there is nothing, I repeat NOTHING good or helpful about writedowns. To insinuate that they are more helpful then interest rate adjustments for the general market is incorrect. They help one person, the homeowner. However they are just as damaging to the overall market. They conceal and distort true market conditions. They subsidize a homeowner who should be allowed to keep the home. They keep inventory off the market that should be allowed to be put on the market for open.
Finally by conceal the value and not making it public to appraisers other principal writedowns are made incorrectly. Resale homes that are not distressed are subject to be appraised at fair value.
Now if you would like to address the points I made about fair and PRESENT valuations of homes rather then to keep talking about “when the home finally sells latency discovery is made” then your argument may be more valid. Also commenting on how fair appraisals can be made for other homes would be helpful.
I am sorry for the sarcasm but as a potential buyer this stuff enrages me and I see no good in it as all. This further confuses me that you as a potential buyer seem to be more forgiving of this practice then interest rate mods. To me they are both VERY DAMAGING for the market. One is certainly more harmful then the other to the homeowner.
February 8, 2009 at 11:09 AM #343254ParticipantLyra –
A house for sale for 520k. Three comps over the last 6 months are used that say 490k, 520k and 515k. House appraises at 510k. Two other neighbors on the street receive principal reductions down to 500k within the past 6 months but the appraiser does not know about them. The reductions were made by a combination of what those homeowners could afford due to thier salary as well as the current direction of the market. If the appraiser does not know of these two reductions then how does the appraiser include them in his valuation of the home. House is then appraised and an INFLATED value that does NOT REPRESENT THE COMPS.
The fraud is not committed by the lender who granted the mod. The fraud is committed against the person buying the home and his lender/appraiser. It is committed because there are other financing events happening to other homes in the neighborhood that are not being disclosed to the appraiser. You have called these events foreclosures where the winner was the current homeowner. In reality those homes should have gone to foreclosure and then sold at the true market rate. At least that way the appraisals would have been done correctly. Or perhaps the homeowners received the modification should put a big sign in front of the home saying “I won this foreclosed home and got a principal writedown! Appraisers call me to get fair value of my home as a comp.”
It is funny you keep mentioning price discovery. Exactly who is granted this discovery? Is it made public? Are appraisers made aware of it? Are other lenders made aware of it?
To say that a principal writedown is the same as a foreclosure is a joke. It is not the same because it is not set the market. Let me ask you this as well, what about many different lenders making many different writedowns in the same neighborhood? Even the writedowns get skewed because NOBODY has an honest picture of the market.
Once again, there is nothing, I repeat NOTHING good or helpful about writedowns. To insinuate that they are more helpful then interest rate adjustments for the general market is incorrect. They help one person, the homeowner. However they are just as damaging to the overall market. They conceal and distort true market conditions. They subsidize a homeowner who should be allowed to keep the home. They keep inventory off the market that should be allowed to be put on the market for open.
Finally by conceal the value and not making it public to appraisers other principal writedowns are made incorrectly. Resale homes that are not distressed are subject to be appraised at fair value.
Now if you would like to address the points I made about fair and PRESENT valuations of homes rather then to keep talking about “when the home finally sells latency discovery is made” then your argument may be more valid. Also commenting on how fair appraisals can be made for other homes would be helpful.
I am sorry for the sarcasm but as a potential buyer this stuff enrages me and I see no good in it as all. This further confuses me that you as a potential buyer seem to be more forgiving of this practice then interest rate mods. To me they are both VERY DAMAGING for the market. One is certainly more harmful then the other to the homeowner.
February 8, 2009 at 11:09 AM #343284ParticipantLyra –
A house for sale for 520k. Three comps over the last 6 months are used that say 490k, 520k and 515k. House appraises at 510k. Two other neighbors on the street receive principal reductions down to 500k within the past 6 months but the appraiser does not know about them. The reductions were made by a combination of what those homeowners could afford due to thier salary as well as the current direction of the market. If the appraiser does not know of these two reductions then how does the appraiser include them in his valuation of the home. House is then appraised and an INFLATED value that does NOT REPRESENT THE COMPS.
The fraud is not committed by the lender who granted the mod. The fraud is committed against the person buying the home and his lender/appraiser. It is committed because there are other financing events happening to other homes in the neighborhood that are not being disclosed to the appraiser. You have called these events foreclosures where the winner was the current homeowner. In reality those homes should have gone to foreclosure and then sold at the true market rate. At least that way the appraisals would have been done correctly. Or perhaps the homeowners received the modification should put a big sign in front of the home saying “I won this foreclosed home and got a principal writedown! Appraisers call me to get fair value of my home as a comp.”
It is funny you keep mentioning price discovery. Exactly who is granted this discovery? Is it made public? Are appraisers made aware of it? Are other lenders made aware of it?
To say that a principal writedown is the same as a foreclosure is a joke. It is not the same because it is not set the market. Let me ask you this as well, what about many different lenders making many different writedowns in the same neighborhood? Even the writedowns get skewed because NOBODY has an honest picture of the market.
Once again, there is nothing, I repeat NOTHING good or helpful about writedowns. To insinuate that they are more helpful then interest rate adjustments for the general market is incorrect. They help one person, the homeowner. However they are just as damaging to the overall market. They conceal and distort true market conditions. They subsidize a homeowner who should be allowed to keep the home. They keep inventory off the market that should be allowed to be put on the market for open.
Finally by conceal the value and not making it public to appraisers other principal writedowns are made incorrectly. Resale homes that are not distressed are subject to be appraised at fair value.
Now if you would like to address the points I made about fair and PRESENT valuations of homes rather then to keep talking about “when the home finally sells latency discovery is made” then your argument may be more valid. Also commenting on how fair appraisals can be made for other homes would be helpful.
I am sorry for the sarcasm but as a potential buyer this stuff enrages me and I see no good in it as all. This further confuses me that you as a potential buyer seem to be more forgiving of this practice then interest rate mods. To me they are both VERY DAMAGING for the market. One is certainly more harmful then the other to the homeowner.
February 8, 2009 at 11:09 AM #343382ParticipantLyra –
A house for sale for 520k. Three comps over the last 6 months are used that say 490k, 520k and 515k. House appraises at 510k. Two other neighbors on the street receive principal reductions down to 500k within the past 6 months but the appraiser does not know about them. The reductions were made by a combination of what those homeowners could afford due to thier salary as well as the current direction of the market. If the appraiser does not know of these two reductions then how does the appraiser include them in his valuation of the home. House is then appraised and an INFLATED value that does NOT REPRESENT THE COMPS.
The fraud is not committed by the lender who granted the mod. The fraud is committed against the person buying the home and his lender/appraiser. It is committed because there are other financing events happening to other homes in the neighborhood that are not being disclosed to the appraiser. You have called these events foreclosures where the winner was the current homeowner. In reality those homes should have gone to foreclosure and then sold at the true market rate. At least that way the appraisals would have been done correctly. Or perhaps the homeowners received the modification should put a big sign in front of the home saying “I won this foreclosed home and got a principal writedown! Appraisers call me to get fair value of my home as a comp.”
It is funny you keep mentioning price discovery. Exactly who is granted this discovery? Is it made public? Are appraisers made aware of it? Are other lenders made aware of it?
To say that a principal writedown is the same as a foreclosure is a joke. It is not the same because it is not set the market. Let me ask you this as well, what about many different lenders making many different writedowns in the same neighborhood? Even the writedowns get skewed because NOBODY has an honest picture of the market.
Once again, there is nothing, I repeat NOTHING good or helpful about writedowns. To insinuate that they are more helpful then interest rate adjustments for the general market is incorrect. They help one person, the homeowner. However they are just as damaging to the overall market. They conceal and distort true market conditions. They subsidize a homeowner who should be allowed to keep the home. They keep inventory off the market that should be allowed to be put on the market for open.
Finally by conceal the value and not making it public to appraisers other principal writedowns are made incorrectly. Resale homes that are not distressed are subject to be appraised at fair value.
Now if you would like to address the points I made about fair and PRESENT valuations of homes rather then to keep talking about “when the home finally sells latency discovery is made” then your argument may be more valid. Also commenting on how fair appraisals can be made for other homes would be helpful.
I am sorry for the sarcasm but as a potential buyer this stuff enrages me and I see no good in it as all. This further confuses me that you as a potential buyer seem to be more forgiving of this practice then interest rate mods. To me they are both VERY DAMAGING for the market. One is certainly more harmful then the other to the homeowner.
February 8, 2009 at 1:05 PM #342849CA renter
ParticipantAgree 100% SDR.
The only way I would encourage principle reductions is if:
1. The lender and the borrower are the only ones to be affected. NO bailout money should be received by anyone along the transaction chain…all the way to the derivatives written against that mortgage.
2. The transaction should be flagged as a sale for purposes of public records and appraisers should have to use those as comps when appraising properties in the future. These new comps are the real sales, since the “buyer” wasn’t really buying the house at the previously inflated price since he/she had no intention of paying it off with earned income (that would be from a JOB, not housing appreciation).
February 8, 2009 at 1:05 PM #343176ParticipantAgree 100% SDR.
The only way I would encourage principle reductions is if:
1. The lender and the borrower are the only ones to be affected. NO bailout money should be received by anyone along the transaction chain…all the way to the derivatives written against that mortgage.
2. The transaction should be flagged as a sale for purposes of public records and appraisers should have to use those as comps when appraising properties in the future. These new comps are the real sales, since the “buyer” wasn’t really buying the house at the previously inflated price since he/she had no intention of paying it off with earned income (that would be from a JOB, not housing appreciation).
February 8, 2009 at 1:05 PM #343285ParticipantAgree 100% SDR.
The only way I would encourage principle reductions is if:
1. The lender and the borrower are the only ones to be affected. NO bailout money should be received by anyone along the transaction chain…all the way to the derivatives written against that mortgage.
2. The transaction should be flagged as a sale for purposes of public records and appraisers should have to use those as comps when appraising properties in the future. These new comps are the real sales, since the “buyer” wasn’t really buying the house at the previously inflated price since he/she had no intention of paying it off with earned income (that would be from a JOB, not housing appreciation).
February 8, 2009 at 1:05 PM #343314ParticipantAgree 100% SDR.
The only way I would encourage principle reductions is if:
1. The lender and the borrower are the only ones to be affected. NO bailout money should be received by anyone along the transaction chain…all the way to the derivatives written against that mortgage.
2. The transaction should be flagged as a sale for purposes of public records and appraisers should have to use those as comps when appraising properties in the future. These new comps are the real sales, since the “buyer” wasn’t really buying the house at the previously inflated price since he/she had no intention of paying it off with earned income (that would be from a JOB, not housing appreciation).
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