Second Mortgages Are Major Obstacle to Helping Underwater Homeowners
It's a complicated problem that comes down to which lien takes precedence, and the previous administration attempt to help people who are in over their head due to second mortgages was a failure. The program was also stymied by the unwillingness of banks to take losses on the loans:
Programs to help distressed borrowers so far have focused on lowering the payments on their primary mortgage. But during the go-go years of the housing market, millions of homeowners took out a second or even third loan backed by their home. Many were piggyback mortgages, which enabled home buyers to put little or no money down, while others took advantage of rising home prices to secure home-equity lines of credits.
Now, these secondary loans are aggravating the foreclosure crisis, adding an extra burden that can be the difference between borrowers digging out of debt and losing their home. The extra mortgages also make it far more unwieldy for lenders to untie the knot of excessive debt and provide relief to borrowers. And even when borrowers do get help with their primary mortgages, the second loans can continue to bedevil homeowners, raising the risk they will default later.
The Obama administration is about to ramp up its efforts to tackle second mortgages as part of an aggressive program announced by the White House on Friday to address foreclosures. Other steps include a requirement that lenders offer temporary mortgage relief to unemployed borrowers and increased incentives for lenders to cut loan balances for borrowers who owe more than their homes are worth.
I say we mandate that everyone buy a house and some mortgage insurance.
...if healthcare is a basic right...
...what the hell is a roof over your head? (chopped liver?)
audit-prosecute-incarcerate
So when George "Baby Killer" Bush was bailing out his Republican corporate buddies on Wall Street and his multinational banker buddies, that was acceptable Capitalism. Rightarded ********s has no problem with their buddy Bush raiding America's treasury and handing it over to our nation's enemies.
Now that President Obama -- a black man -- is working hard to fix this Republican economy, now the rightarded ********s cry about "Socialism."
How amusing. Rightards are so fucking insane.
What we do have is Socialism for rich white corporate criminals, and Capitalism for the middle class and poor. THAT is what we have, and rightards who hate America and everything our nation stands for are perfectly okay with that -- as if they'll ever be rich; they're delusionally hoping that some day some how they'll also be rich white crooks.
...it has "borrowitallism"
audit-prosecute-incarcerate
...you know that "Bush bailout for his corporate republican buddies on wall st. and his multinational bankster buddies" ...that you are talkin' about?
well... I know this may shock you but...(Obama voted for it) and...
"therefore apparently"
...had no problem with his buddy Bush raiding America's treasury and handing it over to our nation's enemies.
audit-prosecute-incarcerate
So renters who avoided the bubble are bailing out those who took irresponsible loans on houses they couldn't afford.
How about rewarding renters instead so they can buy those foreclosed homes?
...(I'm a renter)
I still think houses are way overpriced though...
(that was one big ass bubble)
audit-prosecute-incarcerate
Milquetoast:I still think houses are way overpriced though...
It depends where you are. In some areas, sure. But in a lot of areas of the country, homes were never that badly overvalued in the first place. In my neck of the woods (Omaha, NE), home prices rarely grow at a rate exceeding 5%/year. Prices have declined, but not at the terrifying rates they did in large coastal cities.
I live near a big (popped bubble)
Houses for sale everywhere near Atlanta...
audit-prosecute-incarcerate
If you live in a town where a BS Degree gets you a $40k job and starter homes are north of $100k- they are too high.
If you live in a town where a BS Degree gets you a $40k job and starter homes are north of $100k- they are too high.
Yeah...uh...how do you figure? I'm well aware of what a house costs to build - just the land, materials and labor - and I will say categorically that at the level you cite, they're not overpriced. The problem is that real wages aren't going up, not that housing prices are.
Let's do the math: $40K/year grosses you $3333.33 a month. A nice starter house around here will run you, say, $125K.
At 5.25% on a 30-year FHA mortgage, with no closing costs financed, you're looking at a P&I of $120,625. Principal + interest on that is $666/mo (The Mortgage Of The Beast!).
Add another $300 for taxes and insurance, and you've got a monthly nut of $966. That's pretty damned good, to get a house.
And of course you get the thrill of deducting the $2400 of property tax and $6200 (for the first year's interest - that figure will decrease, albeit slowly, as you pay off the mortgage).
Quite manageable, unless you overextend yourself on credit cards, car payments, etc.
in places like where I live here in Vegas, as jasonq pointed out it depends on where your at, not all states went nuts. But for where they did, CA, FL, NV etc, oh yes, just wait for the Alt-A's and Option ARMS to reset, we are in the eye of that storm.
Look at the chart loan reset chart.
http://www.doctorhousingbubble.com/wp-content...
2nd mortgages, the home acting as an ATM in action.
Goodnight, Frau Blücher
VegasRage wrote: 2nd mortgages, the home acting as an ATM in action.
That exactly, unfortunately. (Vegas, huh? Things are awful out there from what I hear.) Well, a lot of the seconds are from folks using houses as an ATM, but a lot are in 90/10 mortgages, 85/10/5s, etc.
All these bad ARMs are a slightly different kettle of monkeys, though. More a case of people thinking the bubble would go on forever than anything.
For those who don't know, an Option ARM is one that allows you to choose a payment type. Typically you have four choices, in increasing amount - 1) Some bare minimum amount; 2) Only that month's interest; 3)A 30-year note equivalent; 4)A 15-year note equivalent. When you choose the first option, you wind up with negative amortization, where the difference between the amount you paid and the month's interest accrued is added to your principal balance.
Option ARMs also allow lenders to basically cheat, by writing loans at a much lower "teaser" rate. If they had to qualify a couple who make, say, $100K/year, they would maybe be able to borrow $325K at 6%. But at 2%, their borrowing ability goes up to over $500K. IMO, these loans drove a lot of the ridiculous expansion of housing prices in places like LA, Vegas, Phoenix, etc. Because people could borrow so much, they did, never thinking the bottom would fall out.
To make matters worse, many of the folks who took Option ARMs didn't have the discipline to either pay the full payment or put the cash aside for the balloon payment. Now that their houses have declined in value to less than they owe, it's impossible for them to refinance without coming up with cash - sometimes a huge amount of cash. Who the hell has $100,000 laying around?
Another facet of the second mortgage is the 90/10 type of loan, where the buyer, thinking the house was going to continue to appreciate, took out a 90%LTV first mortgage, and a 10% second to cover the down payment. They did so with the intention of refinancing a couple years down the road, when rising values would give them enough equity to qualify for a regular conventional mortgage. Didn't happen, though. There were also 85/10/5 loans - 85% conventional, 10% second mortgage for the down payment, and a 5% personal loan. Amazing, huh?
ARMs resetting is not inherently a problem (especially now with interest rates being so low), except that now the people who took them out are faced with the inability for the house to appraise for what they owe on it (and thus need to finance it for).
Wikipedia has some great info about the different types of mortgages - recommended reading for anyone who wants to understand how we got in this frickin' mess.
My point of View exactly. The same efftards we are supposed to be wanting to bail out voted for Bush/Bush/McSame, watch Fox, oppose EFCA, oppose Health Insurance Reform, buy into the Birther BS and all the rest.
I didn't buy for any other reason than I thought, and still think the prices are too high. I can move in tomorrow on a signature and will not because I will not overpay. If they hadn't been lemmings they wouldn't have signed on for what they could not pay.
What I am worried about is all this talk about commerical mortgages going belly up. If all these stores close because they can't pay the rent, how are Americans going to find any work?
I don't see that happening anytime soon, large commercial real estate holders are a lot smarter than the majority of small homeowners who were sucked into the home equity frenzy.
I'll admit that may be true where you live, but here in Illinois it's a different story. There are a lot of commerical property that have stores that have either moved out or are barely hanging on. I don't know how they make their money at the end of the month. And yet in a few places I still see construction of strip malls! Not as many as they once were but still...
How do the people who build these things think they're going to get tenants? Who is going to be able to make money in this economic enviroment? That's what I want to know.
But commercial brokers know what they are doing. If they aren't making money, they won't do it, its that simple, which is why they can often let property will sit idle for years. They aren't losing their shirts. They can write off the loss, depreciate the loss or use it to offset gains elsewhere or apply for grants or programs to use elsewhere.
The ones who really lose are the communities who lose their revenue base literally shut down and cannot attract new business or residents that can support community investment.
Land speculators and developers don't exist to benefit communities. Just like the power of money on the federal level, brokers and developers with multiple holdings and wealth regularly wield enough power to ensure that zoning and taxation rules benefit their wallets first, not the community.
A beautiful example of that in action is the practically complete buy-out and destruction of St. Louis' historic North End by a Texas based real estate conglomerate. A city hall tied in knots with greed, self dealing and racism, just to name a few factors has managed to destroy what once was a thriving, historic and important part of St. Louis.
I'll agree with you about land speculation and development. If ever there was a form of legalized swindling, that ranks right near the top. If there is one thing that always got me riled is the fact that developers build what ever they want, take the money and run. Then, the community has to raise taxes to pay for all the things the developers didn't (roads, sewers, etc).
which makes me want to bang my head against the wall when I hear morons like the tea baggers claiming that government regulation is what ails us.
Jesus, how can people be so GD stupid?
As a realtor, I occasionally get to deal with people who want to sell their homes, but have second mortgages or home equity loans/lines of credit that either prevent them from doing so or greatly erode their equity. I have the onerous task of explaining this to them when they see that they'll have to pay out of pocket to move - "What do you mean 'equity?' Your equity is sitting in the garage!"
More often than not, they've taken these loans to finance new cars, college educations for their kids, pay off higher-interest debts, etc. These loans were sold that way to the public, many of whom apparently didn't take the time or have the sense to realize that: 1)These loans went against the value of their house; 2)That value might not always increase.
I knew when the boom was going on that these second mortgages and HELOCs were going to bite people in the ass eventually, when I heard how they were being marketed. Used to be that a second mortgage was a sign you were in trouble (or at least short of cash) but the banks made them into something you could use to take a vacation or whatever.
Some of the fault lies with the banks here, but I think considerably less than it does for the subprime/creative financing crisis. The vast majority of these folks knew what they were getting into.
I don't know. I'll admit I don't have your experience Jasonq, but if you have to explain to people such basics as you did, it means that the people in question probably should not have taken out that second mortgage. Too many people don't understand or only partially understand mortgage finance, and all too often put too much trust in what other people tell them.
...but that's the society we live in. It's a deeper structural problem, really. We have all sorts of folks with esoteric knowledge and jargon and specialized skills who we depend on to tell us what we're getting ourselves into, or what they're doing for (or to) us. I mean, when was the last time you asked your mechanic to explain how the transmission in your car works? He could, but would you understand it? Should you have to?
That isn't the problem per se - the problem is human greed and dishonesty, and a too-free money supply that enabled that greed to spread like a cancer.
That said, the immediate problem w/ home equity loans is partly the banks' fault for: 1) Not explaning it to the borrowers adequately; 2) Marketing it with the euphemism "home equity loan". But home equity loans aren't difficult to understand the basics of. Consumers should have some responsibility - to themselves if no one else - to at least attempt to understand what they're being sold.
I saw this happening and knew a crash was imminent. I cannot tell you how many people I refused to move forward on because it was obvious that they had no possible means to handle the additional debt.
I saw people absolutely adamant about turning their modular or small cape into a McMansion or adding on a 'bonus room' or a three stall garage because some appraiser/mortgage broker worked them over so hard that they were convinced not doing so would cause them to lose!
I can tell you of at least three or four people off the top of my head that I know are in deep because they overbuilt and over financed because they were convinced that their property would increase in value forever.
It was a scam and all scams work well when they have the requisite amount of greed and desire to believe on the part of the victim.
That up here in New England where property is king, investors I know are stymied because the banks are not allowing foreclosed or abandoned properties to go the way of the market. Some buyers are coming out of the woodwork but most are newbies who are paying too much and risking too much.
The banks started this mess and both the Bush and the Obama administration are enabling their greed and self serving behavior to continue. The banks should be forced to liquidate their assets at market value and stop attempting to hold onto the inflated values of these properties.
They should also be mandated to adjust overly mortgaged borrowers who are in crisis, whether that means a loss to them or not. Too big to fail needs to cease immediately. They are holding the economy hostage.
Just what do the banks think they are going to do with all those homes? They cannot sell them at a higher rate in this market. So what's going to happen to them?
In my area many of the banks are not even foreclosing anymore because they don't want to take responsibility for the properties. It's better now, but on some streets 1 out of 3 houses were either empty, for sale or for rent.
I've also been hearing rumblings about a pending commercial real-estate bust. I'm not sure if and when that happens it will be as pervasive/destructive as the housing market, but it does seem banks are hoarding their current assets.
This is what I am concerned about! What happens if the perfect storm of continuing residential mortgage failure meets with this supposed commercial real-estate bust, then what? In some places this appears to be just unfounded fears, but in others? Does anyone have any information that could shed light on this?
Hopefully the banks' efforts to control the market downswing by holding their portfolios will backfire if the commercial holders go belly up as well.
I don't think that commercial property will lose as much though, in that commercial property only does as well as the community to support it and that has little to do with banking and more to do with the outside market.
Although, I must contradict myself and say that there has been a glut of office space and retail space built around here that again was based on the moronic idea that the 'boom' would never end.
Retail is contracting and will continue to contract as long as the real base of economic power for this country is lost to globalism. We have been losing for the last twenty years, but the constant propping up of the economy by artificial stimulants like low housing loan rates and easy credit cannot sustain for long.
The real fact is that we need to bring back concrete wealth production in the form of manufacturing, whether low or high tech, with living wages and worker protection. That will stimulate the economy over the long haul.
Anything else besides that is a sham. This country cannot survive on brokers and burger flippers.
Nobody made people pay ridiculous prices for chipboard McMansions- I certainly didn't because I felt the prices were unrealistic and unsustainable. If you go out and pay $100,000 for a Ford Focus that is really worth about $15k and cannot make the payments because you signed a ridiculous loan agreement that is your fault.
LET THE MARKET WORK. Let the prices fall to a more realistic level and then buy. When Realtors are asking $200-300k for a house in SC LA (South LA- read gangland), prices have still got a far way to go.
I live out in flyover country and make easily 50% more than the median household income in my community and will not pay the rapacious prices being asked for homes. Meanwhile, lemmings are still lining up to try and finance so they can 'move up' even though they really cannot afford it.
Bailing out a market that has yet to settle makes absolutely no sense at all. I fell sorry for the kids who suffer for the sins of the parents, but the majority of the parents around here fancy themselves as Republicans, think the Teabaggers are right and deserve to get their stuff set on the curb. After being ejected from the house they couldn't afford and overpaid for, they can drive off in the monster Government Motors pickup that they also cannot afford.
I think they need to feel the heel of poverty for a season and maybe some mental clarity will take hold.
In 1983 I bought a rust belt house. It had two bedrooms and 13 bullet holes. I turned a 80% profit on that sucker in 12 years. A lot of hard work and few nights out. I have NO sympathy for idiots who buy houses that they cannot afford.
"but the majority of the parents around here fancy themselves as Republicans, think the Teabaggers are right and deserve to get their stuff set on the curb. After being ejected from the house they couldn't afford and overpaid for, they can drive off in the monster Government Motors pickup that they also cannot afford.
I think they need to feel the heel of poverty for a season and maybe some mental clarity will take hold."
I could not agree more.
Comments are closed on this entry