Turmoil and challenges generally result in change and there sure have been some significant changes in mortgage lending over the past year! I’ve been working in this business for over 15 years and have never witnessed anything like it. However, it’s not all bad. Sure some loans are not being made that would have been, but, many of those loans never should have been done to begin with! Imagine you’re a lender and a new customer calls you and says his credit rating is weak, he has no verifiable income and wants a zero down loan with interest only payments. Are you bursting with joy to have this great new borrower? Do you feel confident that you will receive all of the loan payments on time? Heck no! This loan is ugly and if it was your money you would not loan it out! Well, the mortgage industry made loans like that and now we’re paying for it.
What’s the good news? Well, the good news is that this type of compromise allows loans to still be approved. Instead of
not making risky loans at all the loan can still be done, just at a slightly higher rate. We are actually still making Zero Down loans at really good rates. I have also gotten some very tough loans approved in the last couple of weeks, so, if a loan makes sense and it’s packaged properly it’s still getting approved and mortgage rates are as low as they’ve been in the past 2 years! It’s another great year to be a home buyer and mortgage loans are still being made at low rates so Let’s Make it Great in 2008!
More mortgage articles by Ken Mascia
[tags]mortgages, michigan[/tags]
Ken,
I appreciate the update. Even as a buyer’s agent I often get confused with what’s been happening in the mortgage lending business. Thanks
-Joe
You’re welcome Joe. Thanks for the feedback. It’s nice to know somebody is reading this stuff!
I wanted to ask a mortgage question about he opportunities to buy at distressed prices. Idesa rehashed from the CBS news special house of cards…
I was fascinated by seeing recent talk of the developing game contemplated by people walking away from mortgages. Musical houses may be next?
That’s where you walk away from one overpriced houseat nearly the same time as you buy a foreclosed (or REO) property nearby for a lot less. Then your neighbor can move into your house doing the same thing, and so on …
When the music stops playing everyone who actually wants to live there has moved a short distance into a probably comparable house at a fraction of their former house price / payment.
In the past apparently opportunities arose to do this in ‘mill towns’ or ‘company towns’ when a major negative employment event occurred causing housing prices & demand to drop. and occur they did! Within the span of a few years everyone shuffled into similar houses at a fraction of hte previous price.
If you have a job, plan on staying, and are not generally dependent on credit scores to finance cars, etc. then it may be worth the potentially enormous savings if you have a large non-recourse mortgage. I guess you have to purchase the second home (at like 50% off) with a good down payment (cash) prior to walking from the first. I don’t know how this can be pulled off (the details) but it has happened so im told. Like a game of musical chairs.
Anybody know if there will be opportunity for homedebtors to do this again in steeply-depressed priced markets in Michigan today? I have excelelnt credit!
Hi Russ,
What you describe would fall under the heading of Fraud. The only way you could do this would be to buy the new house with the intention of letting your existing home go into foreclosure. You don’t have to read to far into this to know it’s wrong! Obviously the big loser in this scenario is the banking industry. Don’t get caught up in a web of deceit that could land you in serious trouble.
To start with, we all would agree that mailing the keys back to teh bank isn’t fraud. It’s defaulting on your debt, but its not fraud.
Have you ever had a client who purchased a new house before his existing house was sold?
Of course you have. Certainly some clients have had difficulty selling their house that they moved out of. I did too. Trying to sell your empty house after you’ve found a new place to live isn’t a fraud.
But then the old house just wouldn’t sell (at least not for what is owed on the mortgage). Client fully intends to sell the house (if he can find a dumb enough sucker to pay that much for it). Client gets worn down making 2 mortgage payments, eventually deciding to stop paying & let the expensive house go into foreclosure. This has happened before to many and it was never called a fraud.
The thing is: Client buys new house fully intending to live in it, and fully intending to sell his current house. **The loan app is completely truthful**. Client moves into new cheaper house as intended. Client lists existing expensive house for sale. But it just doesn’t sell. Client gets worn down making 2 mortgage payments, eventually deciding to let the expensive house go into foreclosure. There is no fraud.
Countrywide and several banks publicly said that they started noticing several borrowers who could afford to pay, but simply chose not to. Their credit cards were being paid. They had $ in the bank. But they didn’t pay the mortgage- presumably becasue they were so far upside down or underwater that it didn’t make financial sense to do so. The logical aftermath of a large home price decline. An accelerating trend. But most of these people went into apartments, not less expensive home purchases.
I’ve gotten legal advice on the “fraud” question. I’ve just wondered about the non-recourse nature of the majority of 1st mortgage purchase money (not refi) loans- coupled with very large drops in house price comps in certain markets. There are several discussions and stories about people who are underwater on their loans just walking away from their houses. It’s a rational decision and isn’t fraud, though you may think its wrong to walk away, because you promised to paya debt.
If you rent an apartment to live in – prior to walking away from the house you can’t afford- is that fraud? Of course not.. So why is it fraud if you buy a less expensive house to live in prior to mailing the keys back to the bank?
Was hoping for more involved discussion from real estate pros involving their expertise with mortgage contracts instead of you telling me it’s wrong because it fails a smell test. You don’t owe us legal advice but isn’t the rigorous discussion what your blog is for?
It might seem wrong to not pay a debt; and it will trash your credit. But if you can’t afford an expensive house? I wanted to know if there was some avenue for a bank to sue you for the difference after exercising foreclosure on the house you moved out of. They could 1099 you to the IRS (can they still do that?). But suing you for hte difference? It’s a fair question to ask.
Ken- thanks for taking some time to reply. I really do appreciate your thoughts even if I was looking for some more legalistic or detailed explanation.
Hi Russ,
You should consult with an attorney on these matters.
Green Light Daddy-O.
practically speaking most who will walk away are severely upside down on their mortgage. They are usually better off moving into apartments. And they are not far enough upside-down in the mortgage for this to make sense.
He initially thought I wanted to sue a realtor because of the loss! Some California reaktor is getting sued for giving self-serving (misleading) advice about the neighborhood’s comparable sales to a mark (sorry- i mean client). The mark lost money as she payed way too much for her house. The realtor got a fat commission. Good Show!
In RE: mortgage swapping: The damage to credit was the most severe caution. That can screw up employment opportunities these days when they check credit. Also emphasized buy the bargain BEFORE walking away and make sure you have the CASH for your down payment. And then try to sell the current house at unrealistic price before letting it go.
But this is going to start happening in the Florida and Vegas markets where prices come down largely & rapidly. Some will rent apts; others with CASH and forethought will move into cheaper houses that just happen to be about hte same square footage as their last foreclosure.