anotherfuckedborrower.blogspot.com
Free Foreclosure Listings Tuesday, January 10, 2006 FB's and comments/feedback I got busy working on a few things tonight, so I don't have the time to hammer out a long post. but since I know everybody loves a good FB story, I have a few quickies to share. Primary borrower has credit in the mid 600's and the co-bwr has credit in the high 500's. The LTV was less in the 70% range and they had a BK almost a decade ago. They were trying to go full doc, but looking at the income they had (about 5k a month between them), they were probably going to come up short on the 400k loan amount. and the Notice of Default (NOD) was sent a little while ago. Sooooo, needless to say, I can't do much of anything once the NOD has been launched and the foreclosure process starts in a week. But besides that, I don't think there would have been a way for the borrowers to afford the payments either. especially with those fico scores and mortgage lates (prior to the foreclosure). I looked at another loan where the borrower was going stated with a Fico in the high 500's. The only problem was that they wanted a loan to 98% LTV. Might as well take it to 100%, no sense in refinancing to leave a few measly grand on the table. but the 550k loan amount helped to put another nail in the coffin. I looked at a few other 'ugly' loans, but nothing that really put the borrower in an FB type position. Anybody on laptops or smaller screens that are having problems?
The article investigates situations where borrowers refinance one interest-only (I/O) loan for another when the interest only period stops. There appreared to be some sighs of despair as people thought "oh no, this thing is never going to end if people can keep refi'ing into another I/O loan". There are quite a few obsticles in the way of simply refinaning again to another I/O ARM. Note: I'm looking at several rate sheets and using rates that are typical of what is being seen in the market. Not only do the payments adjust, but you have to start paying the PRINCIPLE off as well (unless you refi/sell/foreclose). Let's say the rate jumps to 675% (could be higher, but most have a 15% cap on each adjustment) and NOW you have to amortize over the next 28/27/25/23/20 years because you didn't pay any principle during the initial I/O period. Let's also remember that I'm not even crunching the numbers of how much extra money will be paid in interest over the various periods. That would get really ugly, and besides, most people won't keep these loans that long, or stay with the property that long. Ok, that's nice SoCalMtgGuy, but these people are going to refi before the adjustment hits. Before they can refi, they will need a few things: They will need to have some equity if they plan on refinaning the way they have been the past few years. I'm going to assume they didn't put very much, if any, money down. To show that they have equity, they will need an appraisal. It is "easier" to do that in a market that is trending upwards. If the comps are falling, it is very hard to push the value on an appraisal. Some of you are asking why they need some equity to refi. not the broker, not the title company, not the lender, and not the escrow company. All of those people want, and need to get paid for their services. So unless this borrower (which can't afford a higher monthly payment) has several thousand in savings to pay the fees, they will need to use the equity to pay for the refinance. Let's look at some scenarios that might hurt people's ability to refi into another I/O loan: - property values decline, and they are upside down. and if/when they do refi, they will be at such a high rate because of the LTV and higher rates that they won't be able to afford that either. My lender will not refi an ARM into another ARM until it is adjusting or unless they are lowering payments a few hundred dollars per month or they are taking out enough cash to be at least 2x the cost of the refi. Even if the loan is adjusting, there can be times when there isn't a benefit to spend thousands of dollars to refi to save a few hundred. Higher LTV's will mean higher rates, and harder times for the borrowers. It seems that many people like to buy furniture/stereo/other goods on credit when they buy a new home. but if you can't pay for those things in a timely manner, it WILL ding your credit score, and that will affect the rate you can get when you look to refi again. But let's get back to our scenario, and assume that our borrower can get a 725% I/O loan on $300,000 and let's assume they paid cash for the refinance. The best case scenario for this borrower is to have enough equity so that they can refinance. Notice that I was kind, and did not add the cost of the refinance to the 300k loan balance. Now that we have looked at the math, let me tell you what I see in the real world. These are the people who habitually refinance as many as 2-3 times in a year. That would make 6 refinances in about a 4 year time period. But THIS time they were really going to pay off all their debt and not get into more debt. If you just assume the standard 6 months interest that is charged as a pre-pay penalty, these borrowers wasted a good 60-80k in pre-pay penalties as they jumped from loan to loan. Their LTV was too high, debt level too high, loan amount too high, and credit score too low to do a loan that would make sense for these borrowers. but I have no idea if they really changed their ways or not. Many of you reading this blog are probably scratching your heads in amazement. I have touched on it before, and I will touch again on HOW many of these ARM's are sold. The brokers sell the loan like this: "just get in the market. Get a low payment now, and when it adjusts, you will have equity, so just refinance into another ARM" It is stated so plainly that property will appreciate and refinancing will "automatically" bring lower payments like it has the past 5 years. The broker get an "annuity" from people coming back to them every 2-3 years to refinance. There are lots of good brokers that are professionals and will recommend what is best for the borrower, not their own personal pocketbook. There are also lots of brokers that love to churn the loans and make the easy money. It isn't something you just jump head first into with some broker over the phone. There better be some homework done before you make a financial decision with hundreds of thousands of dollars. Just take what you learn here, crunch the numbers, and make a decision for yourself. Don't be afraid to ask questions you already know the answer to. This way you will find out if they have integrity and/or are just an idiot. All and all, on paper it looks like there is going to be a massive refi-boom coming again in 2007 for sure. The problem is that many of those borrowers don't intent to refi, they intend to sell. but they wanted to make the money on appreciation, and then cash out. Even if only 15-20% of the people had that idea, that is still a ton of inventory that will be dumped on the market. as there is no precedent for the way money has been lent out these past few years. On a side note, I made some changes to the blog over the past few days. At the request of several people who have been reading this blog for a while and who I have been helping over e-mail, I added a 'donate' button. It takes a lot of time to write the posts and reply to each of the hundreds of e-mails I have received.
I don't usually repost articles because I know that many of you have made the rounds on the "bubble blog circuit" and seen them elsewhere. There are some articles though that deserve to be posted, and expounded upon.
A Home Boom Busts - Shanghai's hot housing market has fizzled after a run-up fed by speculators, threatening a significant part of China's economy. Since it appears they are currently experiening a housing bust, let's look at some of the signals that are now so "obvious" to them, and see if there are any similarities to the United States "frothy" regions. Let's start here with these 3 points: "Shanghai's housing bust comes after a doubling of prices in the previous three years, a run-up fueled by massiv...
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