Housing Bubble Bursting?

[Steve Owen]

“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”

Alexis de Tocqueville

Nice quote. Basically the same thing that happened to the Romans.

 

[Scott Kibler]

A subprimey wrinkle I forgot about

http://www.azstarnet.com/allheadlines/175559

Rangel recently refinanced a young married couple on the verge of foreclosure. They had bought their first house in 2004 with a "2/28" subprime adjustable rate loan at 7 percent. With no escrow account, the monthly payment was just $703. After the first two years, their payment jumped to $857.
"But the real trouble," said Rangel in an e-mail, "was the fact that they did not have an escrow account." Their insurance carrier abruptly withdrew from the business of insuring property hazards, leaving them with no coverage. Their lender then "force placed" substitute insurance costing $1,700 a year, nearly double the $900 premium they had before. Also, since they hadn't been able to pay their property taxes, the lender paid them, leaving the couple owing an additional $5,000.

Many subprime lenders will not escrow for taxes and insurance. Obviously, the people taking subprime loans are often the people who most need the forced savings account to pay the insurance and taxes when they come due.

A couple recent anecdotes on this subject:

My wife, an RE salesperson, is working with a buyer on a preforeclosure, short-sale purchase. Seller is currently dodging bullets in Iraq, a sad substory for a different topic. Seller refied a couple years ago on what is obviously a generous appraisal at best. Anyhow, the servicer, HSBC, is agreeing to take a substantially short payoff. In doing the title work it was discovered that past delinquent taxes, about $5,000 worth, were sold. Apparently HSBC was too busy to notice at the time. The issue this weekend is whether the short payoff includes the taxes. The seller is still on title so there's a good chance that the payoff does not include these back taxes. This could be a deal killer.

Talking to an RE attorney, she had a comment about escrows. She is one of these closing attorneys that goes through each document with a fine toothed comb and explains each detail ad naseum. She was saying that despite hammering that fact that a particular loan does not escrow, she still gets frantic calls from buyers, now owners, when the tax bills cut. They obviously heard what they wanted to hear at the closing table.

 

[Randolph Kinney]

Borrowing Trouble

http://www.nytimes.com/2007/04/01/business/yourmoney/01nova.html?_r=1&th&emc=th&oref=slogin

WHEN Gregory and Paula Sherman wanted to refinance the mortgage on their ranch-style home in Chattaroy, Wash., near Spokane, in June 2003, they went to a local mortgage broker.

The broker got them a $267,200, 30-year loan at an 8.5 percent fixed rate with NovaStar Financial.


Or so they thought. The good-faith estimate that the federal government requires mortgage brokers to give to all customers said that was the deal. But at the closing, the Shermans were handed loan documents for an adjustable-rate mortgage with a higher initial rate, of 8.625 percent, that would reset in two years.


They reluctantly signed the documents because they had pressing commitments to pay debts and home renovation contractors. It was only later that they discovered that their mortgage broker was paid a commission of $5,344 by NovaStar to put them into the riskier and more expensive loan. That commission added $200 to their monthly mortgage bill.


The Shermans filed suit in 2005 against NovaStar, a lender based in Kansas City, Mo. The suit is now part of a federal class-action lawsuit accusing the company of bait-and-switch practices that increased borrowers’ costs. NovaStar, founded by a pair of entrepreneurs who rode the real estate wave hard by specializing in financing risky borrowers, faces litigants next month when the lawsuit goes to trial in federal court in the Western district of Washington.


Documents in the case show a raft of NovaStar customers accusing the company of using hidden commissions as early as 2003 to generate high-cost loans that may have run afoul of state consumer protection rules.


As NovaStar fights that courtroom battle, it has become Exhibit A for anyone interested in understanding how loose the lending was among some upstart mortgage companies in the great real estate run-up of this decade. The company’s troubles also reveal how willingly investors, regulators and much of Wall Street overlooked mortgage companies’ questionable practices.

 

[Randolph Kinney]

Values drop, so can taxes - trouble ahead?

http://www.latimes.com/classified/realestate/news/la-re-taxes1apr01,0,6460888.story?coll=la-class-realestate-news

Home prices are dropping in parts of Southern California and, for owners who bought at the market's peak, that could translate to lower property tax bills.

Because property taxes are based on 1% of the sales price of a home, a dip in the market can shave more than a few dollars off the assessed value of a house and the biannual payment — the second of which must be paid by April 10 to avoid penalties.

Reductions are permitted by Proposition 8 — an amendment to tax-limiting Proposition 13 — that allows county assessors to reduce property taxes when market values fall. To get one, homeowners must be able to show their residence is worth less than its purchase price.

Gregory J. Smith, assessor, recorder and county clerk for San Diego County, offers an example: You bought a house in 2005 for $400,000 and today its price would be $325,000 — a $75,000 reduction. The tax reduction would be 1% or about $750, Smith said. San Diego County is leading the six-county Southern California region in property value declines. The median price of all homes, which includes new and existing single-family residences, town houses and condos, fell by 5.9% from $510,000 to $480,000 from February 2006 to February 2007, according to DataQuick Information Systems, a La Jolla-based research firm. As a result, Smith's office expects an increase this year in the number of requests for lower bills.

 

[Greg Bell]

Lenders cannot forclose on someone in the armed services due the servicemans act .I am not sure about taxes..

 

[Randolph Kinney]

Mortgage crisis hits million-dollar homes

http://news.yahoo.com/s/nm/20070329/lf_nm/usa_subprime_foreclosure_dc_3

"Because of the financing that was possible, so many people bought the bigger house, the million-dollar house with the bowling alley or the tennis court outside," says Guzek, who works for GreenPath Debt Solutions, a nonprofit service based in Farmington Hills, Michigan. "People across all income brackets are having financial hardship."


For those on the frontlines of the growing U.S. mortgage crisis, these are the early signs that the explosion of subprime loans made to mostly poorer borrowers is reaching higher ground. The damage is hitting homes financed through jumbo loans for more than $400,000 and so-called Alt-A loans that are a notch above subprime and a step below prime.

In the last three months, the percentage of foreclosures for U.S. homes valued at more than $750,000 has climbed to 2.5 percent, the highest since early 2005, when RealtyTrac, a online marketplace for foreclosed properties, began tracking data. The overall rate of foreclosures also is on pace to increase by a third this year.


"Everyone's looking at subprime. The rock they aren't looking under are the adjustable rate mortgages and teaser rates and low money-down loans," said Mark Kiesel, a portfolio manager for Pacific Investment Management Co., the world's biggest bond manager. "It's going to affect prime as well."

California, with 3,384 foreclosures of higher-scale homes since December, is leading the nation, followed by Florida and New York, according to RealtyTrac. The MBA doesn't track foreclosure data by home value.

"To define the problem as a subprime problem is short-sighted," Rosner said. "It's really seeing the tip of the iceberg as the iceberg."


Compounding the risk is the nature of homebuyers of higher-end homes, says Rosner. About 40 percent of homes bought last year were second homes or investment properties. Speculative buyers may be more at risk, he said.


"That giant ATM you've been living in has just shut down," said David Wyss, chief economist at S&P in New York. "Consumers are in debt and we've been living beyond our means for some time."

 

[Randolph Kinney]

Military affected by foreclosures

http://www.msnbc.msn.com/id/17838307/site/newsweek/

As adjustable mortgage rates click upward, a Kentucky family is one of thousands forced from their dream homes and into the nightmare of foreclosure.

How did the Howells' dream home turn into a financial nightmare? They are just two of thousands of homeowners caught in the double bind of rising adjustable mortgage rates and falling home values. For this family, like many others, the numbers got bleak fast. The monthly payments on the Howells' two adjustable-rate mortgages started at $1,100, with a 5.4 percent interest rate (Howell says he needed two mortgages to qualify for the amount necessary to buy the house). But after Shawn returned from Iraq in 2006, the family's interest rate jumped to 9.9 percent—a surge he says he knew was possible but nonetheless took him by surprise. Their monthly payments ballooned to more than $1,400. Making matters worse, he lost the extra cushion of combat pay. Despite working two jobs, Howell couldn't make the new, higher payments. In August, he spoke to NEWSWEEK about his attempts to sell the house and avoid having his credit devastated. But because of the softening real-estate market in his area, Howell couldn't get as much as he had paid for their home, and he ended up being forced into foreclosure proceedings late last year. The experience has left him bitter. "I feel like I was preyed upon, and I feel like there were a lot of people who were preyed upon," says Shawn Howell. "They let people believe that, 'Hey, you can afford this.' All of the sudden, they smack you with the interest ... It's kind of like a dirty car salesman." (His lender, Countrywide Financial, declined to comment on his case, citing privacy concerns.)

Iraq vet, Shawn Howell and his family in front of the home they lost to foreclosure last year

 

[Greg Bell]

Cheery news for people like me...signed , Chicken Little..

The credit cycle has run its course. The housing bubble has burst. The home prices are plunging at a rate never seen before. Where does it end?

The answer to the question depends on an analysis of home prices. If a home sells for $500,000. The real cash value of the home is around $85,000. That means if there was no tax advantage, if there was not ready credit available to buy the property, the real estate would exchange hands around $85,000 instead of $500,000.

The economy is headed for a depression driven by deflation. After a total financial meltdown across the globe, the credit system will disappear for along time. The massive federal deficit and lack of revenue will create the scenario when the tax advantages of owning a home will also disappear. With no tax advantages, people will not borrow to own properties that decline in value over time.

As a result, before the real estate meltdown is over, the banking and financial services sector collapse will create a scenario when homes will be traded in pure and simple cash. That may require a 85% fall in real estate prices.

What happened to the stock market in 1929 will happen to the real estate market now. After the great depression legislation restricted people to maintain adequate margin in the stock market. The same will happen to the real estate market now.

 

[Greg Bell]

Please read , for the Military

Mortgage Relief: Under certain conditions, an active-duty military member or his dependents may receive temporary relief from paying a mortgage.
Termination of Leases: A member of the military just entering active duty may be able to terminate a lease without repercussions, if certain conditions are met.
Protection from Eviction: An active-duty member of the military who leases a house or apartment can prevent an action for a period of time, usually three months, if the rent does not exceed $1,200 a month and the active-duty status impacts their ability to pay rent.
Six Percent Cap on Interest Rates: Under the SSCRA, an active-duty military member can cap the interest rate at six percent for all obligations, including mortgages and car loans, entered into before beginning active duty. Once a service member requests the rate reduction, the creditor must either comply or apply for court relief. The SSCRA puts the burden on the creditor to show that military service has not “materially affected” a service member’s ability to repay the debt. The court generally grants relief if the creditor can make his or her case.
Stay of Proceedings: If an active-duty member of the military is sued, he or she may have the proceedings postponed.
Reopening Default Judgment: If a default judgment is issued against an active military member, he or she can reopen the judgment once certain conditions are met.
Relief is also available in regards to taxes or assessments for qualified service members and dependents. A service member or dependent may, at any time during his/her military service, or within six months thereafter, apply for relief of any obligation or liability incurred before active duty. The court may grant stays of enforcement during which time no fine or penalty can accrue.
SOURCE: Department of Housing and Urban Development

 

[Greg Bell]

Some more help for the military



The SSCRA’s 6 percent interest rate applies in two instances:

where the individual incurs a debt, then enlists in the military; and
where the individual is in the reserves or the Guard and incurs a debt and is subsequently called to active duty.
The law is in effect all the time -- not just during times when the U.S. is involved in a war.

More than 100,000 National Guard and military reservists have been called to active duty, and another 1.3 million reservists may be called if the war escalates. The provisions of the Act are not necessarily granted automatically, so service members are advised to notify their lenders, and, where applicable, their attorneys or the Internal Revenue Service to apply for the protections.

Some protections for reservists and members of the National Guard are provided only if the service member is "materially affected" by being called to duty. For example, if a service member cannot show up in court for legal actions, he or she would be materially affected. In the case of financial obligations, if low military pay scales create an economic hardship for the military member or her family, the protection might apply.

None of the provisions of the Soldiers’ and Sailors’ Civil Relief Act of 1940 are automatically granted. In order to receive the benefits, the more than 100,000 National Guard and military reservists who have been called to duty must notify their lenders either by the phone or through a letter. Lenders will want to see a copy of the service member’s military orders and information about earnings.

Lenders also may want:
• The date on the Induction Order (activation date) and the mortgage date to ensure the mortgage pre-dates the Induction Order.
• The