Foreclosures and Financing

[TheAnk]

I'm going on record to agree with Mr Terrence? Hassett.. I think banks need to be better neighbors with these foreclosures.. Leaving a house borded up is a constant reminder of a bank lender and a house buyers gross failures in diligence.. There has to be a more aesthetically pleasing way..

Also, the relative sleeping giant in this foreclosure thing is the knee jerk reaction by lenders shutting out qualified potential buyers.. Its the ultimate catch 22, banks own houses now, but won't finance buyers to take them off their hands.. I think its a ginormous miscalculation, by banks.. To buy a foreclosure you need to either pay cash, use 203k loan, or get investor financing (shylock rates) in most cases.. I think they are overestimating liquidity out there...

In case any of you aren't aware.. Its relatively difficult, sometimes impossible to obtain financing to buy a home.. There are still some avenues for first time home buyers, namely FHA.. But the market (rightly so) is returning to the 20% down rule in most cases.. Is this a good thing? I think so.. Restore some confidence to investors that these CMO products aren't based on worthless notes..

People with multiple properties, with a bank percieved "market risk exposure" are now relegated to the sidelines.. We get lumped in with greedy landlords and Flip This House tv show wannabes.. Its sad really.. But thats how the market reacts, irrational one way, and the same the other.. Those are the new rules..

This 20% down payment has been negatively called a "barrier to entry to home ownership".. While this is true, that down payment serves a critical purpose to market stability.. Putting that amount of cash into a house ensures that you have a true vested interest in the house.. It may delay ownership, but it preserves a steady housing market..

Many people will blame The Great Depression on a few things.. When they mention the fall of the stock market, its an anecdote, and rarely gets discussed further.. Details aren't as important.. But at a risk of getting too technical, the reason for the implosion was very similar to housing now.. a "margin" account is a brokerage account where the lender will allow you to buy more than you can afford, using the securities you hold in your account as collateral.. Today, securities are given a risk %, and you can borrow against that security based on this risk.. For example, a tech stock may only yield 20% of its value for lending, while a bond maybe allows 65%..

The market during the Great Depression did not have this diligence.. In fact, margin accounts yielded 95% liquidity.. Meaning if you had $1000 in securities, regardless of how risky.. You could borrow $950.. When the market started falling, since everyone was leveraged to the hilt, there were no buyers buying.. And we all know what happened.. After this collapse, rules were implemented to ensure this didn't happen, one being the above margin equity requirements..

How does this affect housing? When faced with a palpable real world example like the stock market crash, how can the government allow this silimar but not exact occurance to happen? Why was the 20% barrier to entry removed? Our government stood there and allowed the country to turn housing into a great depression margin lending account. And just like the 5% irrational lending in the stock market during the GD, the gov't allowed people to borrow up to 95% in housing...

While its a little different stocks vs houses, houses being far more static, the parallels are too close to ignore.. the government will need to act swiftly or it could be ugly..

[smcbride11]

Well put, Ank.

The problem, imo, wasn't/isn't the 95% loans... it was the ease at which you could get a loan above the 28/33(?)% debt to income.

When I started looking last July, I was pre-approved (not qualified, approved) for a $429k loan at 5% down. There is absolutely *nothing* in my history that said that I could possibly afford that kind of loan - I was sitting somewhere between 25-30% d/i, too, so it's not like I had a ton of disposable cash. If I were like most people who've said "buy as much house as you can afford, it'll make you money", I'd be bankrupt right now.

To make a long story short, I ended up taking 100% financing for 235... Based on the numbers I worked out, that was the absolute most I could afford. It's tough, but it's not that big a deal... I'm hoping the tax benefits have the effect I think they will. Had I been forced to save 20%, it would be 2014 before I could afford a house.

IMO, the problem in my story is that the bank approved me for about $200k more than I could afford - it's little wonder that they're in trouble with lending practices like that.

[TheAnk]

There's alot to blame.. The buyer for no dilligence, the appraiser for cowtowing to the lender and agent, the lender for borderline predatory lending.. I read today that some of the fixes floating around are to lock ARMs into fixed rates without refis.. Expanding FHA.. One time 0% interest loans to rescue buyers..

I think the best avenue is to make FHA an easier program to use, but not raise the lending limits.. FHA guarantees loans to banks, making them desirable loans to own, no risk.. The buyers gets a 30yr fixed, pay their PMI and MIP, and everyone is happy.. Relatively (the buyer pays 1.5% up front, and a nails on chalboard monthly fee for the product)..

No matter what, banks should not be bailed out.. They need to lie in the bed they made... In a federal reserve system we have, there is exactly zero resons to bail out banks.. there can be no runs on banks, there is no risk to peoples money with FDIC and SIPC.. For the most part.. Any bank bailout by our government should result in complete outrage and revolt.. I am not exaggerating..

For home buyers, locking ARMs rewards people for their failure.. Bad solution, but doable with some concessions.. I can say that allowing them to refi into a fixed rate loan ABOVE market rate, maybe by .50% more is a decent solution.. This will save people who are "well to do" about keeping their house, and still allow the incredibly irresponsible to foreclose, and rightfully so.. It will also not incense the fixed rate buyers who acted responsibly, as these ARM users are still worse off for their awful decisions...

FHA loans are tough to write because the house can have no deficiencies, there are income limits, and you must be first time buyer (sort of).. I think changing income limits and increasing the cap home value limit (like 360k now) are mistakes.. These loans are intended to allow lower income buyers to buy a house with only 3% down.. that should not change.. Raising income limits and house values makes the product a housing insurance for far too many people than should be using the product.. It also increases the exposure of our funny money govenment by further increasing their role as housing market stabilizer, never a good thing..

But making the inspection process less intensive and comprehensive would allow more mainstream use of the product, but still within its original intension.

I really do think that without some type of curbs (like the stock market has) installed it could get pretty bad.. But not everyone should be saved, just some people.. and no banks.. There are certainly people out there who need help.. But there are also people out there who do not deserve it..

If smcbride11 went out and bought a 430k house as approved, and was in trouble.. Well.. you get what you deserve.. But he/she didn't, and acted diligently, despite what the bank offered.. If people in this category ever do have difficulty when ARMs adjust (not saying you ever will, just an example), I think help should be levied..

[Jerry2]

There's alot to blame.. The buyer for no dilligence, the appraiser for cowtowing to the lender and agent, the lender for borderline predatory lending.. I read today that some of the fixes floating around are to lock ARMs into fixed rates without refis.. Expanding FHA.. One time 0% interest loans to rescue buyers..

I think the best avenue is to make FHA an easier program to use, but not raise the lending limits.. FHA guarantees loans to banks, making them desirable loans to own, no risk.. The buyers gets a 30yr fixed, pay their PMI and MIP, and everyone is happy.. Relatively (the buyer pays 1.5% up front, and a nails on chalboard monthly fee for the product)..

No matter what, banks should not be bailed out.. They need to lie in the bed they made... In a federal reserve system we have, there is exactly zero resons to bail out banks.. there can be no runs on banks, there is no risk to peoples money with FDIC and SIPC.. For the most part.. Any bank bailout by our government should result in complete outrage and revolt.. I am not exaggerating..

For home buyers, locking ARMs rewards people for their failure.. Bad solution, but doable with some concessions.. I can say that allowing them to refi into a fixed rate loan ABOVE market rate, maybe by .50% more is a decent solution.. This will save people who are "well to do" about keeping their house, and still allow the incredibly irresponsible to foreclose, and rightfully so.. It will also not incense the fixed rate buyers who acted responsibly, as these ARM users are still worse off for their awful decisions...

FHA loans are tough to write because the house can have no deficiencies, there are income limits, and you must be first time buyer (sort of).. I think changing income limits and increasing the cap home value limit (like 360k now) are mistakes.. These loans are intended to allow lower income buyers to buy a house with only 3% down.. that should not change.. Raising income limits and house values makes the product a housing insurance for far too many people than should be using the product.. It also increases the exposure of our funny money govenment by further increasing their role as housing market stabilizer, never a good thing..

But making the inspection process less intensive and comprehensive would allow more mainstream use of the product, but still within its original intension.

I really do think that without some type of curbs (like the stock market has) installed it could get pretty bad.. But not everyone should be saved, just some people.. and no banks.. There are certainly people out there who need help.. But there are also people out there who do not deserve it..

If smcbride11 went out and bought a 430k house as approved, and was in trouble.. Well.. you get what you deserve.. But he/she didn't, and acted diligently, despite what the bank offered.. If people in this category ever do have difficulty when ARMs adjust (not saying you ever will, just an example), I think help should be levied..

[TheAnk]

Jerry2, personally I completely agree with you.. People should be held 100% responsible for their actions.. But when I take a larger, more global view, the overall effect of many people going under could be catastrophic..

So while I do agree with you, I think the lesser of two evils is to help some people and let banks and the completely idiotic fall on their face, as they should.. But there are just so many people affected by this, that I think some sort of curbs needs to be implemented.. I think the fringe people need to be assisted..

And yes, that solution flies directly in my views on personal responsibility as a libertarian.. But as I said before, you need to pick your poison.. These people's idiocy will no matter affect us normal, dilligent people.. I think that a bail out of certain folks to head off a recession while completely disgusting, may be necessary.. I think I just threw up in my mouth..

[atheorist]

Economist Dean Baker put forth a beautiful plan to deal with this mess. It does not bail anyone out. Borrowers and lenders will feel the consequences of their decisions, yet society will avoid the idiocy of increasing vacancies accompanied by increasing homelessness.

The laws of foreclosure must be amended as follows for owner occupants only. When the borrower falls behind and the lender moves to foreclose, the borrower will be allowed to remain in the house for as long as he can pay a court-determined fair market rent. There must be provisions for unbiased appraisal and ongoing adjustments to this fair market rent. The title goes to the lender, who can keep it or sell it as he sees fit. Any buyer must respect the right of the tenant to remain as long as he pays the fair market rent.

[Frankie811]

Foreclosures threaten Providence neighborhoods

[Frankie811]

Neighborhoods at risk.

Banks now own more than 800 houses in Rhode Island that were repossessed through foreclosure, setting the stage for what experts say could be a massive real-estate fire sale.

[Frankie811]

Foreclosures stem from new loan practices.

The housing turmoil that is roiling Providence and other cities results from a confluence of factors: historic changes in the real-estate industry, the drive toward home ownership for every American, low interest rates, exotic mortgages, unscrupulous lenders and lax regulators.

[BigUglyCat]

... But when I take a larger, more global view, the overall effect of many people going under could be catastrophic...

And yes, that solution flies directly in my views on personal responsibility as a libertarian.. But as I said before, you need to pick your poison.. These people's idiocy will no matter affect us normal, dilligent people.. I think that a bail out of certain folks to head off a recession while completely disgusting, may be necessary.. I think I just threw up in my mouth..

[TheAnk]

Having an econ degree makes you do odd things, like tracking housing sales, for FUN.. So in my trusty spreadsheet, I noticed some really interesting trends the past year.. Here are just a few examples.. I will let the group make its own inferences on what happened here.. I have my, as usual, very strong opinions on what happened, which in this case I bet most of you will agree with. The first name is the buyer, second the seller, followed by address, date, then price:

Montan, Camila / Aracena, Ardomis 104 Potters Ave Providence, RI 02905 08/30/2007 $240,000

Aracema, Ardomis / Fremont Inv&Loan 104 Potters Ave Providence, RI 02905 02/05/2007 $142,900

Almonte, Elvio J / Robertson RE 130 Salina St Providence, RI 02908 07/02/2007 $220,000

Robertson RE Inc / Felix, Ivette 130 Salina St Providence, RI 02908 02/07/2007 $29,200

Cruz, Francisco / Liriano, Dennis 137 Sutton St Providence, RI 02903 09/12/2007 $280,000

Liriano, Dennis / HSBC Bank USA NA 137 Sutton St Providence, RI 02903 04/11/2007 $173,900

Martinez, Mirito / Salamone, Francesco 14 Hempstead St Providence, RI 02907 08/01/2007 $263,000

Salamone, Fran. / Rodriguez, Yaneira G 14 Hempstead St Providence, RI 02907 06/26/2007$149,000

Flores, Jose A / Admiral 141 Associates 141 Admiral St Providence, RI 029080 8/10/2007 $245,000

Admiral 141 Ass / Deutsche Bank Natl T Co 141 Admiral St Providence, RI 02908 06/25/2007 $90,000

Deutsche Bank Natl T / CoGalindo, Sofia 141 Admiral St Providence, RI 02908 06/07/2007 $252,937

Cruz, Juan / Liriano, Dennis 146 Courtland St Providence, RI 02909 08/31/2007$250,000

Liriano, Dennis / Aegis Mortgage Corp 146 Courtland St Providence, RI 02909 05/18/2007 $140,000

Gonzalez, Ana M / Siani, Carmine 169 Oxford St Providence, RI 02905 04/17/2007 $230,000

Siani, Carmine / Master Asset Backed Svcs 169 Oxford St Providence, RI 02905 01/30/2007 $130,000

Almanzar, Angie / NE Properties Inc 19 Atwood St Providence, RI 02909 06/18/2007 $260,000

New England Prop Inc / HSBC Bank USA 19 Atwood St Providence, RI 02909 03/13/2007 $125,000

Hernandez, Felix / Lirano, Dennis 19 Diamond St Providence, RI 02907 06/21/2007 $310,000

Liriano, Dennis / US Bank NA 19 Diamond St Providence, RI 02907 04/13/2007 $140,000

Rodriguez, Jose / Ruiz, Elizabeth C 24 De Pinedo St Providence, RI 02904 09/07/2007 $279,000

Ruiz, Elizabeth C / Deutsche Bank 24 De Pinedo St Providence, RI 02904 07/03/2007 $190,000

[Mothra]

Hispanics shouldn't be allowed to buy houses in Providence?

[Pseudo_Work]

Nah, he'd need an Anthro degree to back that one up.

[tangorre]

All kidding aside, it's recent immigrant / low-income minority families that are being taken advantage the worst with predatory lending and these 'ridiculous' mortgages (i.e. $380,000 on a combined family income of $25K, and I wish that was an exaggeration. You should talk to the RI Housing Network, they have plenty of horror stories.)

[mandrake258]

article from yesterday's ProJo:

Foreclosures threaten Providence neighborhoods

[TheAnk]

Healthy dose of haterade from Mothra and Psuedo_Work... I am picking up your thinly veiled accusations like the gas station attendant in Tommy Boy.. "22 mile".. And as to not bring any merit to them, I won't address it any further than saying I won't address it..

Anyway, Its pretty shocking to see it in real life.. Worse, I've encountered many unscrupulous realtors borderline proud of taking advantage of people like this..

The most peculiar is the banks almost instantly selling for a huge loss afterwards... Fishy.. I've scoped out my fair share of foreclosures, and in 99% of cases the banks have a healthy dose of F.U. when it comes to short sales..

Especially this one:

Flores, Jose A / Admiral 141 Associates 141 Admiral St Providence, RI 029080 8/10/2007 $245,000

Admiral 141 Ass / Deutsche Bank Natl T Co 141 Admiral St Providence, RI 02908 06/25/2007 $90,000

Deutsche Bank Natl T / CoGalindo, Sofia 141 Admiral St Providence, RI 02908 06/07/2007 $252,937

The bank is willing to take an almost instant (two weeks) 160k loss on a ppty that this entity turns around remarkably quick for almost exactly what the was owed?? Very, very odd..

[TheAnk]

Flores, Jose A / Admiral 141 Associates 141 Admiral St Providence, RI 029080 8/10/2007 $245,000

Admiral 141 Ass / Deutsche Bank Natl T Co 141 Admiral St Providence, RI 02908 06/25/2007 $90,000

Deutsche Bank Natl T / CoGalindo, Sofia 141 Admiral St Providence, RI 02908 06/07/2007 $252,937

[TheAnk]

In pure Frankie The Link tradition:

http://money.cnn.com/2007/10/24/real_estat...sion=2007102412

[TheAnk]

So recently, Oct 23rd, a bunch of Providence foreclosed houses were sold via an unnamed public auction site, relatively quietly.... Two in particular, in front of Stop & Shop went for 52k and 76k.. I forget the exact #s..

WOW thats damn cheap... Not sure whether to be scared or happy that they are sold..

I think if these boarded up houses "quietly" go to auction its probably the lesser of two evils.. Even if they sell for deep discount, it will lessen the eyesore foreclosures.. My guess is this is probably necessary to prevent reaching a tipping point in neighborhoods..

Thoughts?

It will most certainly dip rents..

[Pseudo_Work]

So recently, Oct 23rd, a bunch of Providence foreclosed houses were sold via an unnamed public auction site, relatively quietly.... Two in particular, in front of Stop & Shop went for 52k and 76k.. I forget the exact #s..

WOW thats damn cheap... Not sure whether to be scared or happy that they are sold..

I think if these boarded up houses "quietly" go to auction its probably the lesser of two evils.. Even if they sell for deep discount, it will lessen the eyesore foreclosures.. My guess is this is probably necessary to prevent reaching a tipping point in neighborhoods..

Thoughts?

It will most certainly dip rents..

[Mothra]

I'm with you - I'd rather see them sold for cheap really quickly than sit around and act as catalysts for the decay of everything around them. And frankly, horray for cheaper rents. I'm tired of going halfsies on an ice cream cone.

[TheAnk]

If you bought a house for 52k and the guy next to you bought for 180k.. His rent ratio is much higher than yours.. Two equal apartments, 52k guy only has to charge a fraction of Mr 180 to turn a profit..

I understand rents are "sticky", meaning the 52k guy is going to check market rent and set it in line.. But if enough of these foreclosures go on the cheap, you have a lot of houses with lower cost basis, so to speak, and they can offer cheaper apts for rent.. And as these houses are bought, they are no longer condemned and unihabitable, putting addl apts on the market that previously were not rentable (foreclosed houses are not livable per the bank)..

So a lot of auctions, houses sold on the cheap, lower cost basis, more supply = cheap rent.. Its a tough call though.. Because mixed in with these cheap sales you have lending practices tighening, meaning less people CAN buy, and more will rent.. It will be interesting to see how the whole thing shakes out

These particular houses, and a few more were auctioned live, right in PVD, at a few locations.. Pretty tough to fix that.. The rules were simple, too.. Small check to enter, and standard auction rules..

[jencoleslaw]

there is a lot of controversy around these auctions. a lot of noise about how the auctioneers ignore people and call on others (the same folks at every auction), and that it has been obvious enough for it to be reported to the FBI.

[yossarian]

there is a lot of controversy around these auctions. a lot of noise about how the auctioneers ignore people and call on others (the same folks at every auction), and that it has been obvious enough for it to be reported to the FBI.

[TheAnk]

I think jen may be talking tax sales.. These foreclosures are different, REOs who unable to sell, put it to live auction.. I don't know whether it is appropriate to send a link, nor do I want to.. But they seem to be reputable.. I will attend the next series and let you know how up and up these auctions are..