If banks would work with mortgage holders,

[cabinover]

wouldn't everyone come out better in the end? I'm talking about the folks that could afford a decent sized mortgage if the APR hadn't jumped at the end of an ARM?

Say a family is on the hook for $125K at 10% now. If they could afford a 7% note wouldn't the bank be foolish to turn their noses up at this offer and keep the mortgage above water?

Your thoughts, I'm not a financier, but I do fancy some things

[Charles]

Originally Posted by cabinover

wouldn't everyone come out better in the end? I'm talking about the folks that could afford a decent sized mortgage if the APR hadn't jumped at the end of an ARM?

Say a family is on the hook for $125K at 10% now. If they could afford a 7% note wouldn't the bank be foolish to turn their noses up at this offer and keep the mortgage above water?

Your thoughts, I'm not a financier, but I do fancy some things

Well, you're on the right track, but there are a couple of things to consider.

To start with, the banks are in the banking business, not the repossessing business. They really want you to stay in your house, and make the payments. And the longer it takes, the better they like it. They will work with you if they can, it's in their best interest.

What has happened is that a lot of folks picked up 100% mortgages at "teaser rates"...which doesn't even pay the interest on the loan. So every month they live there they're getting more upside down in their loan.

This worked great while property values were expanding something like 20% in places...you could sell out and turn a profit with very little invested. Then property values started going negative...your 125K home is now worth 100K, and once you add in what you haven't been paying for due to the "teaser rate", you now owe 130K.

So now you're on the hook for 130K for a property that's worth only 100K. The smartest thing you can do at this point is to walk away.

This is all hypothetical, so we'll adjust a few things. 125K won't even buy you much here in Bugtussell, probably wouldn't buy you a packing crate in some markets. The bigger the loan, the more interest you pay.

I think that a 30 yr fixed is around 5.5% at the time, provided you have a good credit rating. Which is going to cost you app $460 per month before you touch the principal. Get a 200K note, it's twice that. Don't forget taxes, insurance, and upkeep.

A lot of times, a banker will cut you some slack and take a loss to put you in a house, or car, or whatever. A loss is better than a beating. They really want you to succeed, and eventually own your property...but they are in no hurry for you to pay for it.

Actually, right now is a good time to buy a distressed property, provided you use your head. Just remember, the good one's have already been snapped up by the people in the loop.

Chas

[Twodogs]

My wife works with folks that are close to repossession all the time (she's a real estate agent). The banks are starting to negotiate more, but you have to know how to do it. Trouble is, most folks think a real estate agent is out of the question when they're in that shape, but they aren't. It's actually the best move a homeowner can make. Many times the agent will get the bank to give them time to sell, and even take a little hit without ruining the homeowners credit. I think they have enough properties that are rotting away and grown over.

[merrylander]

I wonder how anyone knows who owns their mortgage nowadays. Figure that they were bundled into derivatives. Then the derivatives were sold in "tranches" (French word for slices) so near as I can figure there may be umpteen people who each own a piece of the mortgage.

[cabinover]

We're with a hometown bank that retains it's mortgages. I like that.

"So now you're on the hook for 130K for a property that's worth only 100K. The smartest thing you can do at this point is to walk away."

Let's go on this hypothetical then. If it were mine I'd look at it as having my money in it already. For most of us this would probably be their main and only home. So the house is only worth 100K, unless something happens the value will return within five years or so. If the bank would drop the interest rate to today's rate it would help them by keeping the payments made and the house kept up, and help the homeowner by lowering their payments and keeping them in the house.

It's probably too easy of a solution but I'm easy. I'm not cheap though

[Charles]

Originally Posted by cabinover

We're with a hometown bank that retains it's mortgages. I like that.

"So now you're on the hook for 130K for a property that's worth only 100K. The smartest thing you can do at this point is to walk away."

Let's go on this hypothetical then. If it were mine I'd look at it as having my money in it already. For most of us this would probably be their main and only home. So the house is only worth 100K, unless something happens the value will return within five years or so. If the bank would drop the interest rate to today's rate it would help them by keeping the payments made and the house kept up, and help the homeowner by lowering their payments and keeping them in the house.

It's probably too easy of a solution but I'm easy. I'm not cheap though

Sounds like you were like us, when I built our house we had to verify our income and come up with 20% of the appraised value. So we had a vested interest in our home even before we moved in. Then I rehabbed our old shack, sold it, applied the profits to our new loan,and we also doubled up on payments. Within a year we had a 50% stake in our home. Even if property values had dropped on us, we would have never been upside down.

I was speaking more of the people who were unqualified to borrow enough money to buy a 12 pak, and wound up with 100% financing in a 200K house with payments that didn't even cover the interest. Now they might as well walk away, didn't have anything in the 1st place, and should have been renting in the 1st place. As a matter of fact, it should be against the law, instead of THE law to loan money to people who won't qualify for a conventional mortgage.

BTW, we're with a local bank also. 100% owned by a bunch of tightfisted farmers, and the President, besides being a pretty smart banker, is a tightfisted farmer also. They know how to count, and get it right the first time. The other locals were bought up by bigger banks. I had accounts with two of them, never could balance my checkbook with either, and always came up short every year. And I can count too. Not a problem with the tightfisted farmers, the balance always works out.

Just attempting to qualify my previous statements.

Chas

[Charles]

Originally Posted by merrylander

I wonder how anyone knows who owns their mortgage nowadays. Figure that they were bundled into derivatives. Then the derivatives were sold in "tranches" (French word for slices) so near as I can figure there may be umpteen people who each own a piece of the mortgage.

Kinda like buying hamburger at the A&P. Looks great on the outside, open it up and everything on the inside is rotten.

Chas

[merrylander]

Originally Posted by Charles

Kinda like buying hamburger at the A&P. Looks great on the outside, open it up and everything on the inside is rotten.

Chas

That's because they treat the outside with sodium nitrate, makes the meat nice and pink.

[Twodogs]

I'm lucky enough to be able to do my own carpentry work. I bought my shak (literally an old fishing shak) for 57K, tore down everything but one room (to ease permitting), then me and the Missus built a new house by ourselves. Took us every bit of two years while we lived in a basement that the rain would come in, but now it appraises for over 250k. We didn't borrow any dough for lumber either, just paid as we built. Even if I did have a big mortgage though, I'd tough it out and hope for the value to come back in a few years.

[Charles]

Originally Posted by Twodogs

I'm lucky enough to be able to do my own carpentry work. I bought my shak (literally an old fishing shak) for 57K, tore down everything but one room (to ease permitting), then me and the Missus built a new house by ourselves. Took us every bit of two years while we lived in a basement that the rain would come in, but now it appraises for over 250k. We didn't borrow any dough for lumber either, just paid as we built. Even if I did have a big mortgage though, I'd tough it out and hope for the value to come back in a few years.

Way to go, cupcake!!! I love people who do it the hard way...and the smart way. And I also agree, honor your debts. It stinks at times, but people will respect your for it. And the one's that you'll need will be there.

They only thing that people hate worse than a deadbeat is a deadbeat that personally owes them money. Not too many 2nd chances there.

Chas