[ucodegen]

It doesn’t matter whether the HELOC is from the original lenders or not.. or HELOC financing was used to do the original purchase. HELOCs are recourse loans. The only ones that aren’t are original purchase loans. (NOTE: Other states may vary in this).

Using an HELOC attached to a property just being purchased, to finance the original purchase is on the creative side of financing. I don’t know why they loan was not done with a subordinate 2nd instead of an HELOC.. other than that the bank generally gets higher rates on HELOCs than subordinate 2nds.

If the original purchase loan on property #1 is the 5/1 loan, it is a non-recourse loan. The NegAm is likely a non-recourse. I would recommend having them verified by a tax attorney if possible. Your exposure seems to be the HELOCs/credit agencies/1099s. I suspect you’ll be 1099’d. For the bank to pursue you through the credit agency, they generally have to discount what the amount is when selling the paper to the credit agency to collect on. 1099s allow them to write the full amount off on their books w/o muss or fuss.

The next question has to do with how much total outstanding loans are comparable houses presently going in that area. Consider that the HELOCs are subordinate to the primary loans, they only get money that is left after the primary has been satisfied on a foreclosure. Are the HELOCs 100% under water (comps would only cover the primary loans and not the HELOCs)?

The above is important because if the comps are such that the remainder of the equity would clear out part of the HELOCs, you want to push hard for immediate short sales. Otherwise you end up riding the market down because the amount you get 1099’d on is the difference between the amount the house eventually sells for and outstanding loan balance (allowing for non-recourse primary loan recovery first). The HELOC holder has no initiative to move quickly because either way, they either get a percentage of the amount and 1099 you for the rest, or the 1099 you for the full amount. I would recommend getting a good loss mitigation professional for this (and not a fly by night one either).

[ucodegen]

It doesn’t matter whether the HELOC is from the original lenders or not.. or HELOC financing was used to do the original purchase. HELOCs are recourse loans. The only ones that aren’t are original purchase loans. (NOTE: Other states may vary in this).

Using an HELOC attached to a property just being purchased, to finance the original purchase is on the creative side of financing. I don’t know why they loan was not done with a subordinate 2nd instead of an HELOC.. other than that the bank generally gets higher rates on HELOCs than subordinate 2nds.

If the original purchase loan on property #1 is the 5/1 loan, it is a non-recourse loan. The NegAm is likely a non-recourse. I would recommend having them verified by a tax attorney if possible. Your exposure seems to be the HELOCs/credit agencies/1099s. I suspect you’ll be 1099’d. For the bank to pursue you through the credit agency, they generally have to discount what the amount is when selling the paper to the credit agency to collect on. 1099s allow them to write the full amount off on their books w/o muss or fuss.

The next question has to do with how much total outstanding loans are comparable houses presently going in that area. Consider that the HELOCs are subordinate to the primary loans, they only get money that is left after the primary has been satisfied on a foreclosure. Are the HELOCs 100% under water (comps would only cover the primary loans and not the HELOCs)?

The above is important because if the comps are such that the remainder of the equity would clear out part of the HELOCs, you want to push hard for immediate short sales. Otherwise you end up riding the market down because the amount you get 1099’d on is the difference between the amount the house eventually sells for and outstanding loan balance (allowing for non-recourse primary loan recovery first). The HELOC holder has no initiative to move quickly because either way, they either get a percentage of the amount and 1099 you for the rest, or the 1099 you for the full amount. I would recommend getting a good loss mitigation professional for this (and not a fly by night one either).

[ucodegen]

@BayNegative.

Some very specific questions:

On which of the properties are you facing foreclosure? One (which one) or both?

What are the natures of the loans and amounts? Primary purchase loans? Refi’s of primary and existing HELOCs?

First property: Is the 5/1 I/O ARM the initial financing on the house, or a refi? How was the refi on the first HELOC done to get home #2?
Second Property: is the negam the orignal purchase loan?

From first sniff, it looks like you may have to deal with credit agencies or 1099s (depending upon how the banks feel) with the HELOCs. These are recourse loans (That means the banks can go after you for some ‘skin’. if the banks don’t think you have any skin they can get, they can 1099 you for loan forgiveness.. the amount of which is considered income and is taxible. The banks do this so they can write the loss off on their income taxes.)

Now about the primary loans. I assume these properties are in CA (which is important). Last time I heard, primary purchase loans are non-recourse (bank has to eat the loss and can’t pursue or 1099 you). If the primary loan is a refi, it is now a recourse loan. (Moral: Don’t equity out refi just to get money.. have a good, safe long term plan because you are sacrificing financial protection in the process. Speculating on the housing market does not qualify as safe.).

[ucodegen]

@BayNegative.

Some very specific questions:

On which of the properties are you facing foreclosure? One (which one) or both?

What are the natures of the loans and amounts? Primary purchase loans? Refi’s of primary and existing HELOCs?

First property: Is the 5/1 I/O ARM the initial financing on the house, or a refi? How was the refi on the first HELOC done to get home #2?
Second Property: is the negam the orignal purchase loan?

From first sniff, it looks like you may have to deal with credit agencies or 1099s (depending upon how the banks feel) with the HELOCs. These are recourse loans (That means the banks can go after you for some ‘skin’. if the banks don’t think you have any skin they can get, they can 1099 you for loan forgiveness.. the amount of which is considered income and is taxible. The banks do this so they can write the loss off on their income taxes.)

Now about the primary loans. I assume these properties are in CA (which is important). Last time I heard, primary purchase loans are non-recourse (bank has to eat the loss and can’t pursue or 1099 you). If the primary loan is a refi, it is now a recourse loan. (Moral: Don’t equity out refi just to get money.. have a good, safe long term plan because you are sacrificing financial protection in the process. Speculating on the housing market does not qualify as safe.).

[ucodegen]

@redelow

Regarding raising interest rates to 18 or 20%, how could we do this? We have so much debt outstanding would this create a balance of payments risk (ie we don’t take in enough revenue to pay our debt service)?

Yes and no. Basically the treasuries yield a ‘fixed’ rate of return upon issue. This is done by discounting the face value by the rate of return and the time over which the return applies. If after issue, the yield on new issues goes up, the existing outstanding issues will still yield the same amount. What happens is that the face value of existing treasuries will now drop to compensate for the change in yields. An Q&D(quick and dirty) example. We purchase 2 10 year Tbills, one day apart. The first Tbill is at 5%. The rates jumped the next day and it was issued at 7%. The price for the first $10K Tbill will be about $6139. The second will be about $5083. After the rate jump, you will not be able to resell the first treasury for its initial purchase price. If you wanted to sell both treasuries on the third day, they would both go for about $5083 each, meaning that you would take a $1056 capital loss on the first treasury. (I am not going to get into yield curves at this point.)

What the increase does mean, is that further deficit spending will be more expensive, but it does not adversely affect existing payments. If Congress can get its act together and control spending (ha, ha.. yeah right), the shift in interest rates would allow the fed to buy back treasuries at a face value less than what they were issued at. Of course, deficit spending would have to cease to do this.. Or the fed could increase the Money Supply(M0) to fund the repurchase (which has other nasty repercussions).

[ucodegen]

@redelow

Regarding raising interest rates to 18 or 20%, how could we do this? We have so much debt outstanding would this create a balance of payments risk (ie we don’t take in enough revenue to pay our debt service)?

Yes and no. Basically the treasuries yield a ‘fixed’ rate of return upon issue. This is done by discounting the face value by the rate of return and the time over which the return applies. If after issue, the yield on new issues goes up, the existing outstanding issues will still yield the same amount. What happens is that the face value of existing treasuries will now drop to compensate for the change in yields. An Q&D(quick and dirty) example. We purchase 2 10 year Tbills, one day apart. The first Tbill is at 5%. The rates jumped the next day and it was issued at 7%. The price for the first $10K Tbill will be about $6139. The second will be about $5083. After the rate jump, you will not be able to resell the first treasury for its initial purchase price. If you wanted to sell both treasuries on the third day, they would both go for about $5083 each, meaning that you would take a $1056 capital loss on the first treasury. (I am not going to get into yield curves at this point.)

What the increase does mean, is that further deficit spending will be more expensive, but it does not adversely affect existing payments. If Congress can get its act together and control spending (ha, ha.. yeah right), the shift in interest rates would allow the fed to buy back treasuries at a face value less than what they were issued at. Of course, deficit spending would have to cease to do this.. Or the fed could increase the Money Supply(M0) to fund the repurchase (which has other nasty repercussions).

[ucodegen]

@lindismith

I would have to agree with kewp on this. A lot of people were sold on the premise of it being the American Dream. That people could be invisibly building equity that they could later tap if they needed to. It is a dream that the RE industry uses to justify and support the high prices for housing.

Best thing to really do is look at it as a rent-buy decision, and go by the numbers. I do have to agree with the issue of lack of financial education. My personal opinion is that financial education should be one of the focuses of our K-12 education system. A person may have live with the consequences of bad or poorly informed financial decisions for years. It would be money well spent.

I did note in the referenced article, that the interest rates were rather high (avg noted about 10%). The only way you get those rates, even from Countrywide, is if you have a really bad FICO and negligible assets. Recently (Aug ’07), a friend of mine refi’d her place with Countrywide at about 5.8% for a fixed Jumbo amortizing loan. She has a FICO in excess of 700. I think she finally realized what I told her about her previous mortgage broker taking her to the cleaners (the refi ended up being at a lower rate than what her mortgage broker’s ARM would reset to). Even still, Countrywide pushed her to do a cash out. She did limit the cash out to a small amount.. but it looks like I still have to do some financial education with her. The cash out allowed Countrywide to increase the interest rate on the loan. (See Calc’d Risk section on Mortgage finance/Risk based Pricing, check on the pricing of points on the sheet shown.)

[ucodegen]

@cooprider14

He’s a too-tightly-wound pessimistic cheerleader riding shotgun in the bandwagon of irrational exuberance, panic, euphoria and mindlessness typical of today’s volatile markets.

Oh, you mean he is seriously bipolar with ADD and hyperactivity disorder?

[ucodegen]

I don’t think that Rep. Bernie Sanders gets it.

He is lambasting Greenspan for the behavior of Congress. Congress and the States regulate the condition and laws under which manufacturing occurs.. not Greenspan. Congress sets import tariff rates.. not Greenspan. Rep. Sanders does not understand that in a global economy, things change. There should be an overall shift in work to a higher tech (higher paying) work versis blue-collar labor.

4Trillion dollar national debt.. well Hello Congress, which writes the spending bills!!! That includes you Rep. Bernie Sanders!!! So how is Greenspan going to help Health Insurance? I think Congress can help by regulating costs (Hospital rooms cost more than $2000/night.. for what? Double occupancy?.. The medicine, oxygen etc are additional charges) $2000/night buys you one hell of a hotel room!!

Fed can’t change CEO pay..

A lot of the reasons why many middle class people can’t afford anything is because they don’t control their spending (got to have that new BMW X5 SUV!!).. myself, I drive a 1985 Pickup (no joke!).

Nate Evans was behaving inappropriately. He was grand-standing to try to get something for You-Tube.

[ucodegen]

Anyone want to take a stab at the reason for the 91-day yield flight from the FFR? Is there a historical precedent?

Maybe discounted for anticipated devaluation of the dollar?

I don’t think many of the foreign investors will be picking up much US paper right now. Too risky. Dollar devaluation will eat into returns. The people in the US don’t save enough to handle the current deficit spending..

So onward to peso-dollars!!! I think Bernanke will learn that the US economy is no longer an island. Hopefully before it is too late. Keep the rate high, people may pick up US paper.. keep the rate low.. and what foreign country would want to pick it up? Rate of return/yield does not offset the risk..

[ucodegen]

@Dr. Chaos

“Greenspan said in an interview with Austrian magazine
Format that low interest rates in the past 15 years were to blame for the house price bubble, but that central banks were powerless when they tried to bring it under control.”

He is just plain freaking lying. And for ideological reasons.
…Most prominently is the regulation of their member banks in terms of “what counts as capital that they can borrow against”. Different assets (i.e. loans to public) count differently depending on their credit quality.

While I agree with the comments previously to this point, this I believe you are seriously wrong. You have forgotten that most of the run-up in prices was after 2003, which was when the rates started heading up. You have forgotten the issue of securitization which gets the loans off the banks books. Most of these shaky mortgages were securitized. In addition, non-banks were involved with a lot of the lending, who then sold off the loans as bundles/traunches through securitization. The banks largely held the good paper(loans) but sold off the dirty paper. The only way they would get hit is if they have to buy back the paper because they misrepresented the risk of default. In addition, the fed does not control the banks origination ‘quality’.. but the FDIC can (they insure the depositors, and therefore the risks of any lending).

The reason why most of the new shaky loans were securitized was because there is a value the Fed does control, which is the bank reserve ratio(like margin ratio). It is the ratio of value on loan to deposits/assets on hand. The banks could not loan anything more out. But if they securitize the loans, they can sell of the bundles of loans as a yielding security, and get money back from the sale, get the loans off their books to keep the bank under the reserve ratio.. and get all those origination fees etc with (supposedly) little skin in the game.

The Fed also has authority over margin requirements for stocks. (Why? Lessons of 1929, of course, back when people actually seemed to learn things from experience instead of accusing others of being ideologically impure).

In the biggest bubble in modern history, did they do anything about margin requirements? Did they use the single most targeted tool they have? No.

True.. (Margin requirements in stock accounts are similar to reserve ratios on banks).

Bartenders have more sense than Alan Greenspan. You cut them off, period.

That didn’t happen until the bars became liable if the person had an accident afterwards. Hum.. sue the Fed??

And he didn’t do ANYTHING, and lied and says that the Fed was powerless.
Wrong. First one (stock bubble), he did the wrong thing. The second one, he couldn’t because Congress allowed loans to be securitized with little oversight as to how they were securitized. This provided an end run around reserve ratios (margin requirements). I think additional authority should be given to the SEC with respect to securitized loan paper. It would be real nice to have R.E. brokers and mortgage brokers have to go through the same regulations that a ‘stock broker’ has to go through… with the same repercussions. (SECs ban on a person can be for life).

If a stock broker told a client that all he had to do if he couldn’t handle the monthly was to ‘remargin’ his existing holding because the increase in value would take care of any costs.. they would lose their license… possibly for life.

Many mortgage brokers were saying just that.

If a stock broker starts giving investment advice w/o being a licensed CFP/CFA, their goes their Series 3 or 7..

But many RE brokers were giving people financial advice, or trying to drum up some fear (buy now or forever be priced out..).

[ucodegen]

On the Park House, take a look at the tops of the windowsills one either side of the front door. They should either form a continuous line or parallel lines with respect to each other and the porch ceiling. Image here.

Both front windows lean downward from the center (1st through 3rd images). I suspect a cracked foundation. See the patch on the porch concrete.. which also shows a height difference. The outside wall near the SUV looks like it is canted outwards.

[ucodegen]

@asianautica

Careful using calculations based upon an IO loan and not an amortizing loan. You are not building up principle, and are effectively renting from the bank. In addition, you trade the mobility of renting for the lack of mobility on owning. Trade between mobility and lack of mobility on an even monthly price point is not an even trade. The only thing that would balance such a trade would be speculation on further home value increase, which is not such a good bet right now.

@surveyor
Approach by looking at effective ROE. Interesting but I don’t think it applies in this instance because the individual seems to be looking at offsetting current rent by owning. On the other hand, if they are looking to buy as an investment property, ROE based calcs are appropriate.

@want a good deal
Zip is 92122.

One thing I noticed about the listed property.. Railroad tracks!!! In fact, double tracks, which is where locomotives pass each other(bottom of image). They sometimes have to idle in these locations till the other train arrives from the other direction. Somewhere around half of the units at that location have windows/sides facing the tracks.. Pools seem small (not lane’d) and only two for the entire complex. Parking is either open space or carport. 2 tennis courts, 1 basketball court at the far end… I wonder what those trucks are doing on the access road below the hill near the basketball courts..

I would be careful about using Craigslist for the rent figure. It could be condo-flippers trying to make sure they cover costs. Take a look at http://www.forrent.com and find equivalent apartments. There is also a new apartment complex near completion in that general area, which should decrease demand significantly. Go to hybrid view on the associated google map for the property and look north. That in-process construction is nearly done.

[ucodegen]

My impression on the Market is that it is the Wall Street(ers) trying to game the system. They want lower rates because it will allow them cheaper financing for purchases on margin as well as mergers/acquisitions. Panic helps sell this idea to the Fed. The Wall Street(ers) also make money on transactions/movement. Right now the market doesn’t want to go anywhere until the risks on the sub-prime/Alt-A CDOs/MBS(s) have been figured out (as well as who owns them). Therefore the Wall Street(ers) try to cause churn in the market (up/down/up/down movement) to get their transactions/movement. A good read on this would be looking at the ‘Cramer’ games Jim Cramer was playing when he was a Hedge fund manager. Panic the crowds, followed by exciting the crowds, back to panic etc. I have given this behavior a term: “Trampolining the Market”.

Some items on the market are PE cheap, some are expensive. Just pick and choose.. and let the market fluctuations work for you…

[ucodegen]

SD Realtor

Something is still not adding up

What about listings that were around in 06 that are now going through NOD -> REO process? Does anyone have historical foreclosure data (counts broken down per step of the process) for the time period? I am wondering of some of the listings were people trying to get out in 06, tried to refi more recently (because they were underwater and didn’t want to/couldn’t take the hit.. after all it will turn around next week..), and now going to the bank. I wonder how many banks are/were playing hardball on short-sales?

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