Posted on 10/07/2003 1:31:34 AM PDT by sarcasm
After years of borrowing in a sizzling housing market, more homeowners are finding themselves upside down on mortgages.
They borrowed more to buy or fix up homes than they can now afford, and a growing number are turning to short sales — selling homes for less than they owe — to unload high payments and avoid foreclosure or bankruptcy.
No organization tracks short sales, but real-estate agents, housing counselors and mortgage companies say they have been seeing more of them since the economy tanked and employers began laying off workers.
Most are the end result of delinquent mortgages — those not paid for more than 90 days — which have risen dramatically in the Seattle-Tacoma area the past three years. The number of delinquent mortgages rose 50 percent between June 2000 and July 2003, according to Loan Performance, a San Francisco firm that tracks mortgage data monthly.
For GVE, the increase in mortgage trouble is good news. GVE, in Covington, is one of the few companies in the area that brokers short sales, and business is up 70 percent in the past nine months, founder Joanne Anderson said.
She has been working 16-hour days, six or seven days a week, to keep up with demand, she said, and plans to hire 10 employees in the next year.
In the late 1990s, people were encouraged by rising stock portfolios and a robust economy. They took out large mortgages and tacked on home-equity debt with the help of looser loan-qualifying rules.
But low down payments, subprime loans (high-rate home loans aimed at buyers with terrible credit), and predatory mortgages (loans for people who often shouldn't have one), have gotten more people into homes they can't pay for.
"We're seeing tons of short sales and foreclosures because people are in over their heads," said Debra Snoey, branch manager at Windermere's Federal Way office, who works with Anderson on short sales. "It's refreshing when a buyer has equity now."
Although some lenders say buyers should max themselves out for a mortgage, being more practical is safer.
"(People) are buying more expensive homes because they want one bigger, newer and better," Anderson said. "But they don't realize that if they bought a home for $20,000 less and saved up $5,000 for a down payment, they'd be sitting so much better."
Some homeowners find themselves in trouble when they least expect it.
An Issaquah woman who recently sold her house for $30,000 less than she owed on it never thought she'd be in that position.
The woman, who didn't want her name used because she's embarrassed, said she and her husband earned more than $200,000 a year, lived in a 3,200-square-foot custom-built home on an acre, and bought a new car every year.
Then her husband took a pay cut to save his job, and they couldn't keep up with the bills. The couple divorced, and he filed for bankruptcy, leaving her with three kids and two mortgages.
To make it, she put the family's home on the market, reducing the price four times in six months. In May, it finally sold, but at a loss.
"It's awful and embarrassing to do a short sale and admit you're a deadbeat," she said. "(But) people make mistakes. This can happen to anyone."
Sellers lose a lot in a short sale, but buyers can make out because the homes usually are worth more than they cost.
Hal Bancroft and his partner bought a 3,330-square-foot house in Everett last year from a couple who could no longer make their payments. The former owners had taken out a second mortgage to buy a motor home, but the man lost his job at Boeing and his wife broke her back. They sold the home for $205,000 — $30,000 less than they owed.
The deal had strings, though. Short sales can take several months to close because lenders take longer to approve them.
"It took four months to close what should have been a 30-day transaction," Bancroft said. "The byword with short sales is patience."
For real-estate agents, short sales aren't so good. Adnan Othman, with John L. Scott Real Estate in Lynnwood, said he usually receives a reduced commission of 1 to 1.5 percent and sometimes doesn't get one at all — agents typically get 3 percent on a regular sale — but he keeps handling them. Othman is working on four now.
"There's a lot of sadness when you see this," Othman said. "You want to throw a life preserver to them and see if you can help."
Sounds more like extremely poor money management and planning on the part of the sellers in these situations.
No organization tracks short sales, but real-estate agents, housing counselors and mortgage companies say they have been seeing more of them since the economy tanked and employers began laying off workers.
This is all speculation based on anecdotal evidence by somebody writing an article from a predetermined viewpoint.
Call me when the numbers are in.
interesting .... wonder if I should buy my house now (3000+ sq ft, 160K) or wait a few years and watch the market collapse.
I wondered the same thing three years ago, figuring that the market was near the top.
I bought anyway, and my home has increased in value about $150,000 in those three years.
The bottom line is, nobody knows which way the housing market is going to move, or even more to the point – which way its going to move in your area.
But building equity is usually a good move, as opposed to building your landlord’s equity.
What we have today is a recipe for disaster. Many people continue to refinance their homes, taking advantage of lower interest rates to increase their total mortgage obligation. This money is then used for things like paying off credit cards (that are usually promptly run up again), taking vacations, buying boats, furniture and big-screen TVs. These people figure that housing prices will continue to rise 10-20% a year forever and that they will just "re-fi" for another influx of cash in a few more years when they need it.
Well these people are short-sighted, for as another poster pointed out, salaries have only been rising at a fraction of that of real estate. Thus the average mortgage will take an increasingly bigger bite out of one's paycheck if one keeps refinancing all the time.
A 30-year mortgage is a beautiful thing if you get one and stick with it. My parents bought a house in 1968 with a 30-year mortgage. At the time, they were paying $150 a month, which seemed to them to be enormous. But as they moved through the 1970s, that mortgage got easier and easier to pay until such time that it became a nuisance bill only. Now my parents are old-fashioned so they religiously paid that sucker right through 1997 before my father would retire. They never refinanced once nor did they ever take out an equity loan. By the end of the mortgage, my parents were sometimes paying more on the heating bill then they were on the mortgage itself! Well when the note was finally paid off, they sold the house and moved to Alabama, getting over 20x for the house what they paid for it back in 1968. Their retirement was made right there.
Many older people factor in their home equity for retirement. When the kids are grown up and they are ready to retire, they sell the family home and move into a smaller place, using the cash to help fund their retirement. So many younger people are going to have nothing but a humongous mortgage to pay off when the retire!
Personally, I think things are going to get very bad for a lot of these people. I'm 41 years old and I have nearly 60% equity in my home and I'm still nervous about it. If I was like some of these other people my age who are tapped into their homes for 100% (or more) of its market value, I wouldn't be able to sleep at night.
I hate, hate, hate real estate, and granted my current situation may have something to do with that. And I will probably never own the property "free and clear", because 1) it's the cheapest money I'm ever going to borrow, and 2) I can write off the mortgage interest. But where that leaves me, in essence, is renting from the bank with the additional proviso that I'm on the hook for the remaining balance if something terrible occurs (eminent domain, discovery of Indian burial ground on property, etc.)
I've talked to real estate agents that hated the falling rates, because they encouraged people to suck all of the equity out of their homes. If someone needed to sell because of a move, or some financial calamity, there would not be enough equity to pay off the old mortgage and the selling costs. The problem is going to be even greater now.
I'm hoping to pick up something from a lender stuck with being a reluctant homeowner, after there's a glut of foreclosed homes on the market in my small town.
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