foreclosed (5)

Thousands of homes Foreclosed; Can you afford a Risky Loan?

The adjustable rate mortgage has been around for a number of years and it has helped a number of people afford the purchase of their first home. However, in the late 90’s and early part of the 2000’s some people took advantage of the low rates offered by ARMS and got in over their head. Before buying a home people should really look at all the factors involved with an adjustable rate loan and make sure it is right for them.

Fixed Period Varies

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photo credit: nikcname via photopin cc

The vast majority of current ARM’s offer a well-defined period in which the interest rate is fixed. The defined period typically lasts from 3 to 7 years and can be as long as 10 years. After this defined period the interest rate will adjust based on the index used to calculate the interest rate.

Some people have well defined plans and can use the fixed period for meeting their goals. For instance, a military couple that has an assignment to a particular area could purchase a home using a 5 year ARM and use the time to live in the home with no worries about a change in interest rate.

However, people that are just looking at the low rates of the ARM’s and “hoping” that their income will rise in future years are taking a big gamble.

Rates Will Rise

Years ago when the ARM was first introduced it was always explained the same way. When the market took a dip the interest rate would lower accordingly and the opposite would happen when the market improved. However, the last few years have seen nothing but historically low rates. Getting an adjustable rate loan now ensures one thing; the interest rate will rise once the fixed period ends. The current rates cannot get much lower.

Thankfully, an adjustable rate mortgage will have some safeguards to protect borrowers. The amount of increase for the rate is usually capped each year as well as a cap for the duration of the loan. For instance, most ARM’s will not adjust more than 1% in one year and no more than 5% or 7% over the course of the loan. However, a 5% increase in rate on a $250,000 loan can increase a loan payment by over $700. Keep in mind that when the interest rate adjusts the new payment is factored over the remaining loan term. This can drive up the payment as well.

Plan Accordingly

All of this information points to one simple fact. People considering an adjustable rate loan need to plan accordingly. You should have some type of exit strategy in mind, whether it is selling or refinancing or paying off the loan in order to avoid some potentially hazardous conditions in the near future.

This communication is provided to you for informational purposes only and should not be relied upon by you. Rock Realty is not a mortgage lender and so you should contact a lender directly to learn more about its mortgage products and your eligibility for such products.

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Ok....so for the past few months, I have been hearing a lot
of people saying that their REO Inventory has been slashed or REO is really
slow....or...."a decrease in REO inventory" however, I would like to
suggest an alternative opinion.

 

First, let's talk about one of the earliest steps to
foreclosure, the NOD or Notice of Default. Now, I have looked everywhere and I
can't find a single source authority on just how many have been sent out
monthly since the start of 2011 as a nationwide statistic however, I did find some
interesting articles on many different websites that lead me to believe that
the NODs are on the rise. Granted, I searched like 20-30 different websites so,
I can't realistically quote each one however, the overall trend was most areas
have seen a steady or slight increase in the number of NODs each month. I did
see some articles where some areas have seen a decrease in NODs but, these were
really rare and seemed to be in areas where the average home price was well
over 250k.

 

My point above is, most of us haven't seen the numbers of
NODs drop significantly enough to see such a dramatic decrease in inventory.
Let's be honest with each other....how can we have a decrease in NODs when we
haven't really seen a correlated decrease in the unemployment rate? Yeah, I
said it.....and yes, it's obvious. If you don't have jobs...or job growth then
how can you see a decrease or even a leveling out of NODs? You can't....well,
you shouldn't anyways.

 

Now, what I do see happening, more and more is that many
homeowners are staying in their homes much, much longer than ever before. I
remember a time when I would do a relocation assistance negotiations and the
homeowner had only missed like 7 payments. Now, it's more like 24.....as a
minimum.

 

The sad truth of the matter is, regardless of how long these
people stay in their homes, regardless of whatever new "refinance"
plan the government can come up with, these people can't maintain a monthly
payment because they are too buys trying to find the money to pay their cell
phone bill, their electric bill, their car payment, car insurance, gas, bread,
milk, new shoes for little Jimmy and Susie, etc...

 

In short, yes....your inventory maybe shrinking...hell, it
my have even dried up but, it's not because no one in your service area is in
default, it's likely because the servicers and investors in your area are under
some type of regulations or "understanding" that if they don't want
to loose their FDIC insurance or be audited by the FDIC, they better slow their
roll on foreclosure and keep people in their homes....at least until after the
election that is.

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A Thank-you Goes a Long Way in a Sunnyvale REO

It is not easy to close a transaction, and an REO is no exception. In my area we do not have a lot of bank owned properties for sale. Even in 2009, when San Jose had a good number, the northern part of Santa Clara County had very few foreclosed homes as a percentage of listings, and newer, nice homes were even harder to find. In 2010 the REO inventory has been few and far between, so when a 4 year old home in the western part of Sunnyvale came on the market I had a buyer who jumped on it right away, and managed to get his offer accepted in a multiple offer situation. The home was foreclosed by Chase, and they wanted a pre-approval from Chase, so the listing agent told everyone to go through Long Nguyen, a very nice and competent loan officer from Willow Glen. My client was very impressed with Long, and decided to use him to get the loan for the property, not just for the pre-approval. Well, nothing was particularly easy. The appraiser took 14 days to submit her report, and on a 17 day contingency that does not work out too well. The underwriter also declared the property a second home instead of a primary residence, so that took time to fix. Last week it was apparent that not only would we not meet the contingency removal deadline, but the closing date was also not going to be possible. Long tried to pull strings and got his wrist slapped, but kept persevering. My client was a little perplexed about how innefficient everything was, but did not blow a gasket. In the middle of a bad conversation about things not going right I stopped and thanked Long for doing so a great job and working so hard for us. He acted as if I had just handed him a million dollars. I guess a thank-you goes a long way, especially in these tense times.

The great news is that loan docs were finally drawn, my client signed today, and hopefully we close by Wed, only 2 days late. Chase gets their money and a new loan, my buyer gets a 4 year new home with great schools and only a little cosmetic damage, Long, the listing agent and I get our commission, and no one was yelled at, belittled, or made to feel like they were not wroking as hard as possible. It really makes for a more pleasant transaction if you just say a few thank-yous.

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Whats Next?

So…Where are we heading in this market? Countless moratoriums at the Federal and State level. Moratoriums from the banks themselves trying to work out loan mod’s. Local Judges refusing to evict homeowners., Local sheriff’s doing the same. Now we have programs like HAMP and Court decisions like National Bank v. Kesler. There is such an underpinning of resentment from the American people against not only the Banks but corporate America as well. Will this sentiment continue to stall the inevitable? I for one am of the opinion that the market must be allowed to run its course. Real estate is and always has been cyclical. Yes, this is one of the worst markets we have seen in decades but “this too shall pass”.There is a huge amount of shadow inventory the banks are holding. Release it. By all means, do loan mod’s for people who are able to, for people who were duped into loans they could not afford. Help those that we can but at the end of the day these loan mod’s are mere Band-Aids, just delaying the inevitable by a year or two. Put the homes that are foreclosed on the market. Foreclose on the homeowners that have no justifiable means to pay those notes and let the market work its way out. It will be ugly or uglier than it has already been…But we will see quicker return to normalcy. The Government would be better served by spending to create jobs so that MORE homeowners do not lose their homes.So, how do we repair it once it hits “Sea Level”?Keep interest rate levels low and keep the tax incentive for first time home buyers.Ease restrictions on investors purchasing multiple properties. (This is key to the rebuilding)Ease restrictions on homeowners who have had foreclosures and or BK’s to get back into the market.Create restrictions so Banks can no longer offer exotic loans (I hear new ARM programs are coming)There are many others but I would love to hear some other ideas.
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Another housing slump coming?

From MSN Money today. BofA and Wells Fargo have both been on the record stating that the "shadow inventory" does not exist. This is the third published report I have read that sates otherwise. As servicers continue to trickle product into the market there is a strong chance that this will prolong the housing slump for more than originally thought. The tsunami we have all heard about, while driving prices continually lower might rid the market of this distressed inventory faster and perhaps hasten a quicker recovery...Thoughts?Analysts say 7 million soon-to-be foreclosed properties have yet to hit the market.Posted by Elizabeth Strott on Thursday, September 24, 2009 8:59 AMAny optimists touting a housing recovery might want to pause and think about this: Amherst Securities Group analysts believe the market faces another major hurdle because about 7 million properties that are likely to be seized by lenders have yet to hit the market.The "huge shadow inventory" reflects mortgages already being foreclosed upon or now delinquent and likely to be and, assuming no other properties are on the market, it would take 1.35 years to sell this inventory based on the current pace of existing-home sales, analyst Laurie Goodman wrote in a note to clients.In 2005, there were 1.27 million properties in the same situation.There have been a number of recent economic reports hinting at a recovery for the housing market. In May and June, the S&P/Case-Shiller 20-city index of home prices rose, the first month-over-month increases in values since 2006. Prices for U.S. homes rose by 0.3% in July from June, the Federal Housing Finance Agency reported earlier this week."The favorable seasonals will disappear over the coming months, and the reality of a 7-million-unit housing overhang is likely to set in," the analysts said, according to Bloomberg News .Meanwhile, The Wall Street Journal reported on Wednesday that real-estate agents and analysts worry that when the shadow inventory is unleashed, it could cause a big bump in the road to recovery and add a new layer of difficulty for the housing market.Ivy Zelman, the chief executive of Zelman & Associates, a research firm based in Cleveland, believes 3 million to 4 million foreclosed homes will be put up for sale in the next few years. The question is whether the flow of these homes onto the market will resemble "a fire hose or a garden hose or a drip," she told the paper.
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