*Interest rates WILL rise with every government on the planet running deficits like crazy that they need to sell bonds to cover. A deluge of crap will hit the bond market over the next 2-5 years.

Probably the value will continue to drop. Except the new loan default when they walk away will accrue losses to the govt. not the banks that got bailed out by taxpayers.

Every state is different.

No two states are not on fire.

RE: Kary L. Krismer @ 135 –

A car can be destroyed and still be drivable. It remains to be seen if it will be repaired and how well.

No, a car can be damaged and still be drivable. If it’s destroyed it’s just a pile of metal, plastic and ash.

Let me be more to the point.

In my crystal ball I see a future where credit is a very bad thing. I can see a time within the next five years when mortgage payments will be about the same amount as rent. Home ownership will have taxes, insurance, and the costs of maintaining a home. Properties will be hard to sell and our equity will be built by wise purchases, home improvements and paying down the principle balance.

That’s the way it has always been, until recently.

I’ve been talking with some of the old timers in the real estate business. It is strange how our thinking has been distorted these past ten years. The fact is the bad old days are coming back. Sorry.

RE: Kary L. Krismer @ 133 –

What you never address is that our economy is destroyed..

It’s not that bad, goto Mill Creek Town center sometime and look at all of the overfull restaurants and lines at the high end grocery stores.

A car can be destroyed and still be drivable. It remains to be seen if it will be repaired and how well.

RE: Kary L. Krismer @ 133 –

What you never address is that our economy is destroyed.

It’s not destroyed (yet). It’s been severely damaged, and may still collapse, but it’s still plugging along on some level.

What you never address is that our economy is destroyed. If you are a Real Estate agent, how’s that going? Banks, mortgages, global finance, International Trade, software development, electronics, transportation, government programs, and the list goes on have been decimated.

People need to have the ability to pay the very high price of properties then compare that price to the actual value.

Promises? How about the promise that banks were doing business in good faith?

We are a long ways away from the 1980s or 1990s.

Kary, you are always talking about what a terribly bad idea it is to walk away. Here’s a question for you, for arguments sake let’s say that you have a $400k mortgage on your home, two years from now there are numerous homes on your street similar to yours for sale at $200k. Now, a well educated and pretty old guy as you are I’m sure you have at least half a million in your retirement account and a of other invetments as well. Would you not think walking away from your mortgage or short sell and buy one of the $200k home cash and live debt free for the rest of your life as a pretty sound financial decision? I do. ( I have no idea what kind if any mortgage you have and I don’t want to know, the amount was just for arguments sake ).

Well walking away in that instance would possibly require filing a bankruptcy, which is a risk I wouldn’t want to take (even though the retirement funds you mention would be exempt from the reach of the trustee). I’d also have the bankruptcy on my record for 10 years and always have to answer that I’d had a house foreclosed.

Let’s just say I’d done that 25-30 years ago, when my condo was underwater. Buying the place I bought in 2007 would have been tougher.

Beyond that, I’m really not very big into breaking promises. That’s really what it comes down to. A contract is a promise.

YOU AND DR ROUBINI HUM THE SAME TUNE

I know what you mean by high priced dumps. When they built Bellevue with flats and 1 bathroom ramblers for the lower class single income household in the 50s, who would know it would become the land of two incomes no kids….

Too bad they didn’t replace the 50s rusty pipe water supply and road infrastructure, before they upgraded all the home costs….that’s why when I moved out of Bellevue, I bought in an area with new water pipes and infrastructure….LOL

Peter Schiffs new CNBC video

HAPPY 4TH OF JULY

RE: Rhonda Porter @ 120 –

I too had a post disappear this morning. I think July 3rd is designated as ” delete posts by wise, brilliant people day.”

you forgot “good looking” on that list, which probably explains why all my posts seem to be showing up

I can save $200k in five years. My wife wouldn’t be happy about that, but it’s a doable deal.

You are refusing to see Real Estate as the investment instrument it is. It’s all numbers. There are zoning code and land use changes. There are development plans by government and private corporations. Every aspect of Real Estate is real and tangible.

We have had a global contraction of the financial markets. Without a global economy pushing the value of United States properties we will end up with a massive over supply of housing units. By massive I mean millions of housing units no one wants, let alone needs.

Add to that the contraction of the credit markets here and you have over priced properties selling today for far beyond current or future value. Any loan made today is being made on an over priced asset. In two years those mortgages will be just as worthless as the mortgages traded today.

It is over, done, finished, a complete waste of every one’s time to try to convince people that the credit market will come roaring back and Real Estate will follow. If you buy today you need to buy what you like and plan on keeping it until you pay down the principle in order to sell it again.

RE: Kary L. Krismer @ 50 –

Dr. Roubini agrees with me too.

Does Dr doom’s opinion only count, since he agrees with you?

I too had a post disappear this morning. I think July 3rd is designated as ” delete posts by wise, brilliant people day.”

Table 2 begins w/LTVs 105% or higher; there is a 2% hit to fee unless the home owner opts to have their mortgage amortized for a term shorter than 30 years; then the hit is 1.5%.

Table 3 is the credit score portion where if you have a 720 or higher, you will not be hit up to 125%LTV. 719 and lower are hit and the lower the mid-credit score and higher the LTV, the harder you’re hit….up to 3% starting at <620 with LTVs 70.01+

So if your LTV is 70.01+ and you have a <619 mid score, you're hit at least 5% to fee…suddenly the refi probably doesn't make much sense (and this is assuming the bank would actually do the refi–I'm betting they won't).

Credit scores 620+ with LTVs <97 are better candidates for FHA financing (depending on their credit history).

This program isn't going to work for many. When I hear some of the stats from our elected officials about how many people HARP has helped, I laugh. I've done one "HARP" refi for a past client… and I've had refi clients who have 740+ credit and 40%LTV where they receive a response from automated underwriting that states they qualify for the HARP program–the benefit for the client if they elect to do the HARP refi is their appraisal may be waived. I'm sure these folks, who do not need this program, are being factored into the figures of how many people were helped by HARP…folks who didn't need help at all. I'd like to see stats of who has been helped by HARP with LTVs greater than 80%.

THAT WAS THEN, THIS IS NOW

20 years ago there were only like 200Million in America people for banks to service. 20 years ago we still had a manufacturing base well above our current 9%.

I bought in about 20 years ago too and it was the bottom of the 80s Seattle Bubble [a perfect time to buy], IMO we haven’t even got close to the bottom yet, Dr. Roubini agrees with me too.

But I do agree with you on one salient point: who cares if you fold at the poker table with the right timing; if you really want a house and have like 50%-100% down, I see very little risk, albeit not the best investment strategy. 20% or lower down today, I see very high risk with extremely bad investment strategy.

DO WE THE PEOPLE WANT TO BUY BAD INVESTMESTS?

If we didn’t already have like $13 Trillion in debt which will possibly bankrupt us with likely hyper-inflation in future treasury rates increases because of chronic debt increases I might I agree with you.

And if you’re a rentor looking for future bargains; you don’t want more government -propped treasury hyper-inflation either, raising prices.

RE: cheapseats @ 97 –
“I tend to agree with Kary though that I donâ��t really see why you coudnâ��t walk at a future date if you took the 125% re-fi.”

There was some discussion about refi’s potentially not being “non-recourse” loans, as the orginal mortgage might have been. If this is the case, you will have lost the “put option,” ie. the ability to walk away from a non-recourse loan. Anyone considering this need to look at this closely to make sure this is not the case.

That would be a big issue for people in California. I don’t think it has any real application in Washington, that I’m aware of. I don’t think I’ve ever seen a non-recourse home loan here (although they generally become non-recourse if the lender non-judicially forecloses).

RE: Racket @ 105 –

Where would you be in 5 years when home prices have bottomed and you’ve been saving over a third of your income every month, assuming you didn’t buy now?

50% D2I if your renter flakes? It sounds like you’ve got reserves, but still….

It’s nice to have choices, eh?

That making a huge assumptions that housing prices have a significant drop in them. Houses can be purchased easily for 20-30% under market for savvy buyers.

So hypothetically if I purchase a house at this type of discount, and we do experience another drop then my “good deal” turns into an “ok deal”.

Now if I wait 5 years after all the dust settles on the foreclosure markets, and house prices stabilize (not having to compete with distressed properties). And the type of property that I want can’t be had for the same discount. I’m screwed. And what if I am forced to buy it at at 12% interest rate?

The house that I have an offer in on has a TAV of $780K I am looking at picking it up in the mid 4’s so I have some room to drop.

I feel like I have hedged my bets a little bit.

There was some discussion about refi’s potentially not being “non-recourse” loans, as the orginal mortgage might have been. If this is the case, you will have lost the “put option,” ie. the ability to walk away from a non-recourse loan. Anyone considering this need to look at this closely to make sure this is not the case.

A very fitting post for the times we are in…………

Where would you be in 5 years when home prices have bottomed and you’ve been saving over a third of your income every month, assuming you didn’t buy now?

50% D2I if your renter flakes? It sounds like you’ve got reserves, but still….

It’s nice to have choices, eh?

You are seriously missing the point of Real Estate. Either as an investment tool or the family home the point is that property prices exceeded value and banks lent on those inflated prices.

Let me say that again to be clear: Banks lent on over inflated prices. Banks ignored the value of the Real Estate and lent on over inflated prices. The prices were made up by Comparative Market Ananlysis and even today Real Estate agents, banks, lenders, appraisers, and investors are going back to that same old sales gimmick.

Real Estate, the value of the land, has a value that is set in stone.

None of the NWMLS, National Association of REALTOR, sales gimmicky data changes the fact that property prices far exceed Real Estate values.

How can I be more clear about that?

The majority of the sales taking place today, in this Spring season are over priced. The problem may be less than it was two years ago, but these loans today are a problem to be dealt with next year and the years after.

After reading the other blog comments from Rhonda’s article it sounds like this is a dead program already.

Come to think of it 25% over 100% financing was a very low per centage to compensate for the rate of decline we have had the past two years.

Well the biggest problem is that most the people that need it probably have 80/20s.

As to the second comment, being 20-25% off the peak is close to the limit, but the thing is the peak was very short lived. We were only over $470k for three months, so only a few people bought in that time frame.

buying a second home before foreclosing on the first was becoming popular before the fed started cracking down on it. It is called ‘buy and bail’ and is considered mortgage fraud.

I’m not sure how that would be actionable, because you plan on paying the new loan, and didn’t plan on not paying the old loan when you got it.

I could see that if you filed bankruptcy too, the new lender might have a non-discharge claim, but that would be relatively irrelevant given the prevalence of non-judicial foreclosures. I’m not sure of current practice, but when I was practicing few banks ever requested reaffirmation agreements from debtors on home loans. The ones that did were almost always out of state, although I do recall Sea-First having done it once for some odd reason.

Maybe there’s a criminal statute involved, but again I don’t see it because you’re planning on paying the new loan.

RE: Kary L. Krismer @ 95 –

No, the premise to this refinance plan is that you have already lost equity. That’s a big difference from just getting a lower payment.

Losing equity, paying refinance fees, and having an extended period of paying down a principle balance for a property you know has already lost value seems like a very bad combination.

I view it more this way. What the government is doing to lower interest rates was politically unpopular to those who were locked in because they’d lost equity. This reduces the number of those people. But this will be politically unpopular with people who don’t want any government interference in the market.

So to summarize. 1. Politically popular with people who can refinance. 2. Politically unpopular with those you can’t or don’t need to.

As to your comments though, I view refinancing as being something you do after making some calculations to see if it pays off over X number of months. The equity you have in your home isn’t one of the variables that gets plugged in, other than if you are thinking about walking, that would affect the how long you’re going to stay variable.

then good for you and rock ‘n’ roll. Be sure of that point though because rents ARE falling and ‘landlording ‘is is a tougher racket than most understand. Best of luck with your choices they are good ones to have.

Hey I’d take that guarantee!

RE: David Losh @ 79 – How many people can imagine being 35 with no house payment? How much different would your life be? But just getting started on such a program seems impossible to most who spend it all on “stuff” and have nothing left to show.

.

I bought my first house on a 30 year loan when I was 22 I paid $175k for In 2001 and refi’d into a 15 in 2003.

So I have 2 options at this point. I can leverage my equity, and use it to buy another house and rent out my current house for the mortgage payment.

Or,

I can pay it off.

So what do I get when I pay it off? Well for one I can’t write off the interest any longer. I live in the same crappy starter house I bought when I was 22.

What can I get when I do option #1? I can get a really nice house with very little cash from savings (to use on other investments). I can upgrade neighborhoods. I can get a bigger house.

With sub 6% interest rates and being at an age where I still can work hard and earn money I decided to do option #1. Because I guarantee you if you hand me $100 I can hand you $106 back and have some profit to boot.

With both mortgages I would be at about 50% D2I that is with house #1 vacant. Roughly 35% with #1 occupied.

I really feel at this point I can flip a coin, but I decided to upgrade my quality of life.

It’s also worth noting that this is basically what people like Donald Trump do for a living. When they name a wing of the courthouse after you and people still lend you money, you must be doing something right.

Come to think of it 25% over 100% financing was a very low per centage to compensate for the rate of decline we have had the past two years.

No, the premise to this refinance plan is that you have already lost equity. That’s a big difference from just getting a lower payment.

Losing equity, paying refinance fees, and having an extended period of paying down a principle balance for a property you know has already lost value seems like a very bad combination.

The agents are trying to flog homes that sold in 2007 for $800K for $500K now. How long before the neighbors who bought at $800K just say to heck with it and buy one of the foreclosures for half price?

That’s an interesting point. Instead of “walking” away and renting for the next 10 years or whatever, why don’t I just buy the house next door that’s identical to mine, and stop making payments on the old house? No change in lifestyle; I don’t care about the credit hit since I’m still living where I want to; and I don’t even have to rent a U-Haul.

That seems like the smart way to “refinance,” given a coinciding drop in home prices and interest rates. (And a good story for the bank about buying the house next door for your elderly mother-in-law.)

However, in my opinion if you are even thinking about walking, I would think hard before I plunked down cash on the refi costs. But if you are in the camp that thinks RE will rebound in the next year or two, re-knock yourself out.

“Bankruptcy is temporary, stupid is forever.”

As to this post, I think that it will likely achieve what I believe to be its intended purpose.
To help a few people stay in their house and scatter some probable near term foreclosures out over a longer period of time.