Repost: Help, I Need $153,000!

This is a repost from my main blog M is for Money, where I deal with finance in general not just the perils of being underwater. This is related to my earlier post, Called My Lender.

How do you come up with $153,000 in a hurry? Really I have no idea, but that is the amount I would need to refinance my mortgage. I bought a small starter home in 2005, we planned to move up after ~5 years. I took out an adjustable rate loan, which now seems like a ticking time bomb in my lap. Mortgage rates have never been better but like all the other underwater homeowners, I can’t take advantage of them. I tried calling my lender to see what they could do. The news wasn’t good.

They are holding my mortgage, it was not sold off to investors. But any modification or refinance would have to conform to traditional standards and the loan could not exceed 80% of the appraised value. The not so helpful loan officer asked how much I was upside down - I told him I didn’t know but it was significant. Afterwards, I used their online home valuation estimator. Based on my current loan balance, their value estimation and the 80% limit, the difference was $153,000. Yeah, I’ll just write you a check.

Their valuation model had some quirks, my home value was placed 50% below the comps! Only 1 of the 8 was actually in my neighborhood. None of the comps have a view like I do, most are in poor condition and all have smaller lots. Still, even an optimistic appraisal would leave me owing a hundred thousand to refinance. Money I don’t have.

The call left me rattled. I had held on to the hope that my lender, a credit union, would be more flexible. The money has already been loaned out, why not reduce the risk of default. It’s extremely painful knowing I could pay half as much for the same house. I’ve made a lot of financial mistakes in my day, but I’ve been able to recover. I don’t know what to do this time. It will take me 10 years to save up that much. If the rate adjusts to the maximum, my payments would increase by 60%. The $3500 monthly house payment would eat up most of my salary, say goodbye to saving. I feel helpless.

Called my Lender

I called my lender today to see what options I have. Unfortunately, not many. They are holding my loan as I guessed, but any modification or refinance has to conform to an 80% Loan to Value limit. As you know, I owe way more than the current value. I tried explaining to the gentleman that it was in their interest to offer me better terms, I'm not sure he understood why! Unfortunately he was a lowly peon and I'll have to go higher to get any real help. I have the name and number of his manager, who was away at the time. My best hope is that Fannie and Freddie start allowing no-appraisal refinances. A precedent like that may convince my lender that these are extraordinary times and conventional practices need to be re-evaluated.

What Happened to the Neighbors?

I haven't had a chance to read the full article but it looks like a good read. Courtesy of GQ magazine What Happened to the Neighbors sends writer Charles Bowden to live in foreclosure hotspot Lake Elsinore.

I hope everyone has a happy holidays, in spite of the economy and our housing woes.

Can you Afford it Now?

This story from the LA Times caught my attention: Can you afford it now? The article looks at several price points in the Los Angeles housing market and what you can find for sale in that range. You can tell we're in completely different territory than a year or two ago, the prices start at under $100k! The thought that you can buy something in the greater LA area for under that is rather shocking, the median price of a home last year was close to $500k. But my dreams of affording a nice neighborhood still seem just that, dreams. The offerings for the $500,000 to $1 million range are not very impressive, regular houses in regular towns.

Short Sales

The LA Times has advice for underwater homeowners trying to engineer a short sale – How to unload your home through a short sale. Short sales seem more myth than reality, most stories involve their failure. Usually the bank is slow to respond and eventually the buyers walk away from the deal. If you’re a desperate short seller, the unwelcome news is that most end up in foreclosure. This article has a few tips to help you succeed. Here are a few of their main points:

1. Look for an agent with experience in short sales, it’s helpful to find an agent with contacts at the loss mitigation departments of major lenders.
2. Make sure you qualify – you must be behind in your payments and have little to no equity. Generally you must show a form of hardship – job loss, divorce, rising payments etc.
3. Offer the right price – lenders have a bottom line number they’ll accept, it’s pointless to submit offers for less. Generally lenders won’t accept less than 80% - 90% of current market value.

A short sale is preferable to a foreclosure. The damage to your credit is not as severe - the short sale is recorded as settled for less than full amount. In a few years you can own a home again, hence their popularity.

I know there are several houses in my neighborhood currently listed as short sales. Most were purchased around the same time we moved in, so they are similarly underwater. I haven’t noticed any movement on those homes, though a foreclosure was sold recently. If you are trying for a short sale, I wish you luck.

Should Cities Buy Foreclosed Homes?

This poll at the OC Register caught my attention: Should Surf City Buy and Sell Foreclosed Homes? Surf City is Huntington Beach, CA and apparently the city council votes tomorrow on a program to buy foreclosed homes and then sell them as affordable housing to residents. You can stop on by and register your opinion on their poll. Personally this will have little impact on the overall housing crisis, cities do not have deep enough coffers to buy up all the distressed housing. But affordable housing is an ongoing problem in Los Angeles, so this could benefit individuals and families who have been priced out of ownership. The city's main concern is removing the blight of abandoned homes and the associated cost to the city. What do you think, good idea or not?

Decades to Recover

From USA Today, Why home values may take decades to recover. Their analysis looks at historical home price trends compared to the bubble years. If you adjust prices back down to historical norms and then apply the normal rate of appreciation, it will take years to reach previous highs. Even after we re-attain those price highs, value will still have been lost to inflation.

The article starts with an extreme example of how far prices have fallen. Mr. Wallick of Oregon bought a brand new house in Arizona for $200,000 in 2005. He put $70,000 and took out a 15 year fixed rate loan. The house is now only worth $80,000 and he is walking away.

There are some ominous predictions for those of us hoping to ride out the storm. This quote in particular was distressing:

"We will never see these prices again in our lifetime, when you adjust for inflation," says Peter Schiff, president of investment firm Euro Pacific Capital of Darien, Conn. "These were lifetime peaks."

In previous bubbles the recovery took a long time, but it did eventually arrive. This implies that we may be waiting in vain. Unfortunately predictions like this tend to be self-fulfilling. Hearing this news more people could decide to walk away from their homes, accelerating and deepening the collapse. It certainly does not cheer my heart.