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Thursday, July 24, 2008
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19 comments:
The bill authorizes the Federal Housing Administration to insure up to $300 billion in refinanced loans for homeowners at risk of foreclosure, aiming to help as many as 400,000 homeowners trade expensive adjustable-rate mortgages for more affordable 30-year fixed-rate loans. To participate, each borrower’s lender must first voluntarily agree to
reduce the principal balance of the loan to about 85 percent of each home’s current value.
new york times
For your consideration. The price drop winner from today's Redfin email:
Monticello Forest Springfield VA
Listing Price History
Date Price
Jun 20, 2008 $395,000
Jun 26, 2008 $345,000
Jun 30, 2008 $320,900
Jul 03, 2008 $309,900
Jul 07, 2008 $299,900
Jul 23, 2008 $269,900
Source: MRIS
Sales History Date Price Appreciation
Jul 26, 1993 $137,200 --
Feb 27, 2006 $479,900 10.5%/yr
Short sale of course, think they'll find that buyer before time runs out?
I haven't looked at it in detail, but the housing bill actually doesn't look bad to me. It eliminates DAP's, (downpayment assistance plans)-- which were a major source of default risk. It has a revenue sharing mechanism so people can't just use the program to write down the value of the loan and then sell it at a profit if values recover. And most of all, it begins to apply the discipline that we've been lacking for so long. Incomes are going to be examined, loan to income levels are going to be looked at. Debt ratios are going to be factored in. In fact, I don't think it will help as many people as Congress is hoping, partly because a lot of people are not going to be able to qualify at a loan level that will be acceptable to their banks. And I don't think it will slow the fall of prices by much. In short, tho' it may not be terribly effective, I don't see a whole lot wrong with this.
Doesn't this just encourage people to stop paying the mortgage so that they can have their principle and interest rate reduced, saving them perhaps $100,000's ?
Shamrock-- Not that I can see. For one thing, people are eligible whether they stop paying or not. Eligibility is based on ability to pay, not willingness-- so, in other words, if you have a loan you can perfectly well afford, you're not eligible. If you have a loan that is so far above your ability to afford that a lender would be likely to recover more by foreclosing than by writing down the loan, then there's nothing to prevent them from doing that. Hence my guess that this program won't be as effective as they hope.
I know this is Montgomery County not NoVa (yet) but I think it's relevant to the discussion:
WaPo article on foreclosure hot spots in MoCo
A lot of this area is "close in" (by my personal definition) and in good school districts, so I think this is hard to ignore given the similar rates of appreciation in past years.
http://tinyurl.com/6277mu
"I think we are very near to the end of the housing downturn," Yun said.
Other private economists are not as optimistic. They worry that the relief supplied by Congress will not be enough to relieve the pressure weighing on housing and the overall economy now.
----
But it's different here.
It's different in walking distance to the Metro.
It's different on my street.
"Cara said...
I know this is Montgomery County not NoVa (yet) but I think it's relevant to the discussion
WaPo article on foreclosure hot spots in MoCo
A lot of this area is "close in" (by my personal definition) and in good school districts, so I think this is hard to ignore given the similar rates of appreciation in past years."
FYI, this piece quotes the report we all saw last month on Hot Spots and Impending Hot Spots
A. Hot spots. (1) Manassas City, (2) Dale City (PWC), (3) Gainesville/Bristow (PWC), and (4)Accokeek (PG).
B. Impending hot spots (low forclosures now, but could substantially increase): (1) Germantown (MoCo), (2) Centreville (Ffx), (3) Herndon (Ffx), and (4) Alexandria (Ffx county portion).
Sorry - dont know what happened to the end of my post:
C. Potential Hot Spots (declining sales and rising inventory could lead to foreclosures) (1) Olney (MoCo), (2) Falls Church City (mostly condos), (3) Vienna (Ffx) and Adams Morgan (DC, again mostly condos).
Looking at all the deals on the right hand side, why isn't 22192 ever shown? What is so much worse in 22191 and 22193 parts of Woodbridge?
The anonymous,
I thought the article referred NOT to the Ffx Co. portion of Alexandria, but instead to Alex. City:
"Throughout the region, the study identified other impending or future hot spots, including Centreville, Falls Church, Herndon and Vienna in Fairfax County, the city of Alexandria and Adams Morgan in the District."
Ace - I thought so too, until I went back and looked at the actual report - it looks like the WaPo Article is mistaken.
I am looking at the report right here and it identifies an "impending Hot Spot" as:
"Fairfax County Census tract 421700, in the Route 1 corridor in the Alexandria portion of the County"
Sorry I dont have a link for the report - I printed it out and saved it. If you look through posts of about 1 month ago, you should be able to find it.
FWIW, I learned the fate of one of the remaining 675 or so Alt A loans that was due to reset in Alexandria.
My neighbor bought 2 years ago, and got an Alt A adjustable loan with a teaser rate because his old house hadnt yet sold (he can afford 1 mortgage fine but 2 was a stretch). He has since sold his old place and wanted to refinance ahead of the rate reset.
I told him I was a bit worried for him because the house may not appraise. I thought I had a good eye for the neighborhood, so I privately pegged his house to be worth 620K, 630K tops (he needed 650K to successfully refinance). The appraisal came back yesterday at 700K!
Personally, I think the appraiser is on crack, but it shows if values haven fallen much, the banks will bend over backward to eject one of the potentially toxic loans from their books. Also, it shows that not every one of these garbage loans went to someone who could not afford it.
Is this guy’s story atypical? Probably, I have no doubt that many many many of these loans went to people who cannot afford it even with the bank’s help. However, just like that, one more of the 675 remaining ALT-A loans in Alexandria has been wiped off the books, and the housing market was none the wiser for it. 1 down, 674 to go.
CRT,
Your neighbor was approved for a second mortgage with his first house unsold. Hence his credit and assets are both probably stellar. The bank would be stupid not to make sure the appraisal came in to retain him as a customer on a better performing product. Good to know his bank hasn't fallen off their rocker.
In the boom times, his decision made sense, as did getting a second mortgage for the downpayment amount that would soon be paid off by the previous sale. That's who those products were designed for. Unfortunately they don't work so well in a down market. Glad to know he was able to manuever out of it still though.
CR had a cool post on the preventative work-outs on performing neg am loans for a particular bank. If you follow the link or read the comments, you'll find that according to their own report, most of the neg-am ARMS were converted to 5 year interest only ARMs. And that within a year something like 13% of them already defaulted. I bring this up as one measure of the percent of those 675 outstanding option-arms that will default. From this one data point I'd say, more than 13% but less than 50%. (Given that the allowed range is 0 to 100% not very constraining...)
Cara - of those 674 remaining, keep in mind this is all categories of adjustable ALT A loans. The total number of Negative Am loans made was 300 (they rounded to the nearest 100 in the last public report the fed made).
In any event, 13% re-default number you cite is probably the most vulnerable of the vulnerable loans (they dont have the income to refinance into a 30 year fixed). Thus, it will only be a percentage of all Neg Ams that go down this road - the percentage is unknown (i.e. how many are like my neighbor and can escape into a 30 year fixed, how many can sell, how many are hopeless)?
That said, I think the percent that default (of this subset) is probably much more than the 13% to 50% collar you suggest. My own experience in modifying commercial loans is that at least 50% of them eventually default. I further think residential loans are a bit weaker (all things considered) than commercial loans. My guess is that of all those loans that go for re-modification (not refinance mind you but a cram down style remodification), at least 40% will default and perhaps as many as 75%
>C. Potential Hot Spots (declining sales and rising inventory could lead to foreclosures) (1) Olney (MoCo), (2) Falls Church City (mostly condos), (3) Vienna (Ffx) and Adams Morgan (DC, again mostly condos).<
This is based on that housing report and just to clarify about Adams Morgan. They used the 20009 zip and Adams Morgan as one and the same. They aren't. There's a number of new, large, bubble-boom condo complexes in Columbia Heights, Shaw that are all part of that zip.
Am I the only reader who missed this?
http://www.loudountimes.com/news/2008/apr/29/realestate/
Am I the only one who did not know that Equity Homes had gone under?
Currently on the market are many Equity homes in Loudoun including this one which originally sold 1/03/05 for $1,237,656. It is now on the market for $799,000.
http://homes.longandfoster.com/Real-Estate/PropertyDetails.aspx?MlsCompanyID=2&MlsNumber=LO6629129&Add=13047-BRUCE-CT,LOVETTSVILLE,VA-20180
Yes, Equity went under Months ago-
One of the local TV stations did a report on all the current Equity Homeowners that have serious structural issues with their "newer" Equity Homes -
with no recourse since they are out of Business!!!
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