Home : Blogs : Roberta Murphy - Carlsbad Real Estate North County San Diego Realtor : The Real View

Bad Loan Storm Ripples

The night before last, I met a friendly woman we'll call Susan, who six months ago had moved with her retired husband from Oklahoma to Las Vegas. They had sold their Oklahoma home and left behind long-term friendships so that they could be near their pregnant daughter and her husband. "In a drunken moment, I happily agreed to move out here and babysit for my first grandchild," she said. Susan has been doing just that for the last six months, since the baby was born. The young parents both work long hours and it seemed like a good proposition for all--at least in the beginning.

Scattered comments from Susan convinced me she was trapped because of real estate problems. It seems the young couple had purchased their first home in Las Vegas with a stated income, 100 percent loan that has resulted in both interest and lifestyle adjustments. Because of rising mortgage payments, both parents must work and simply cannot afford childcare costs. Selling their home is not an option because of the listing glut in their neighborhood.

Grandmother Susan now babysits 60-plus unpaid hours per week, has no friends, and feels hopelessly trapped. I suggested she encourage the young couple check into the ACORN loan program for refinancing alternatives. Perhaps with the savings, the young homeowners could afford to hire a babysitter and Susan could go back to work, which she is anxious to do. She might even be able to contribute to the babysitting costs. If that doesn't work, then perhaps the couple will be left with no alternative other than a short sale. Rentals are relatively plentiful in Las Vegas and might afford some financial relief for the couple.

As real estate professionals, most of us are becoming intimately familiar with this Perfect Storm in real estate where market glut and inappropriate loan products have combined to rip off the financial roofs of many homeowners. I guess this is the first time I have seen these circumstances ripple over to grandparents who have no mortgage problems of their own.

Susan says she wants to go back to work, meet new friends and once again welcome her visiting grandchild and their parents. She wants to reclaim her life. When I suggested the possibility she make friends with the neighbors in her new neighborhood, she shrugged her shoulders and said it seemed most of her neighbors were in the same boat as her daughter and son-in-law. The homeowners are working long hours to make mortgage payments.

I can't help but wonder how many grandparents are indirectly toting mortgage costs for which they never bargained?

http://www.sandiegopreviews.com/

Posted by Roberta Murphy - Carlsbad Real Estate North County San Diego Realtor on 11/22/2006 03:31 PM

Comments (24)

acorn loan, real estate perfect storm, real estate problems, mortgage costs, listing glut, bad loans, las vegas real estate, mortgage relief

Originally posted at: The Real View: Bad Loan Storm Ripples

24 Comments on Bad Loan Storm Ripples

NOV

2006

Very good post Roberta. These stories make me sad and I hear them everyday. The dream of home ownership becomes a prison. These folks should be home enjoying their little one instead of being forced to work all the time. I hope and pray they can find a way out of their predicament.

The sweet deal of home ownership soon passes when home buyers bite off more than they can chew. 100% financing is not for everyone. The problem is so many young folks have known nothing but rising property values. They can't conceive any other market.

Yes, I agree many parents and grandparents are assisting these young buyers. Your story is representative of many issues.

Good post Roberta, welcome home!

Roberta,

Great post.... but I tried clicking onto your link for the Acorn loan.... but it said that it doesn't exist. And do you know anything about this program? Is it 100% financing? I am just curious, as I do this for a living. Besides, you said that they did 100% financing and that the house values have declined a little. If so, wouldn't they owe more than it's worth? If so, there is one program that I know of, which is called 107% financing. But if they had a low rate to begin with... I am just wondering.

Anyhow...I hope all works out for them.

"The Lovely Roberta"

I feel terrible for Grammy Susan. She is in a bad position. She is also an exceptional Grandmother.

I rather doubt anyone could have guessed this would be the end result on the 100% financing.

This really is such a shame. I like my husband, Broker Bryant will pray for these folks.

We will also pray for you. I can tell this has troubled you deeply and I hope you find a way to assist this Lovely family...

TLW "The Lovely Wife"...Another Exceptional Grandmother...ROAR!

Roberta,

I echo Jeff above. And Kristal makes a great point that 100% financing is not for everyone.

From the financing stand point, depending on their situation from the purchase, they would have been able to do better with appropriate guidance.

Wow everyone,

That is unfortunately a not so uncommon situation. I guess there are a lot of people at fault for their situation. You know, I do not know their whole situation, but I have seen a lot of people do this kind of thing to themselves. These folks, at least with the given info, probably didn't do that though. You know, the only time I recommend an ARM is if the clients seem serious about improving thier credit or if it is a really short term move.

I have however had people who seemed interested in straightening out their credit and never doing it. In the end, the interest rate and credit are a situation of buyer beware.

Frankly, buying your first home in the Vegas market seems to be quite the gamble too. For years, people have speculated in that market. I assume it is at least like San Diego COunty where people were encouraged to buy homes that they never intendedd to make the first payment on. I even saw an ad once where an agent was advertising for clients to list their new purchases with her before they even signed the mortgage. You can't help but to figure that at one point that kind of specualtive market is going to crash and leave a big group of folks who can't afford the payments hanging. It would abviously hurt folks like your acquaintances who seem to have some need to refi.

There is some good news though. These real estate crashes tend to reverse course after a few years, and real estate tends to return to its value. Since the Vegas market is hemmed in by BLM land and limited water/sewer resources, their values should increase again soon.

Just curious, other than the ARM issue, what good would the ACORN loan do to help keep their expenses down? Usually sub-prime lending avoids MI payments. The 100% financing and increasing property taxes would still have these folks paying higher payments. I do not know a lot about the ACORN loan. I think it is offered by BOA< but I beat 90% of their rates frequently.

Great post. You did not mention if Grandma is living with the kids, or did she buy another home. My son just returned home from living in Las Vegas and reports prices are dropping fast. If the kids bought in the last six months, they are already upside down. The only gamble they have left is on rates. But instead of working Grandma to death, they should Short Sale and find something to rent they can afford. Or, perhaps if they all enjoy living together, maybe grandma can go on title with a refinance using some of her equity, assuming there is some, from her previous sale. Then maybe the new mother can stay home with the baby and grandma can go to work and make some new friends. Just a thought.

Bryant and Lovely Wife: I'll take the liberty of accepting your prayers on behalf of that family. They are needed.

Kristal: Thanks for the welcome! This is a pickle the sandwich generation never expected.

Jeff: I had done a blog about the Acorn loan sometime back. Hope this works: http://activerain.com/blogsview/Nuts-about-ACORN-Loan-Program?5183

Robert and Jeff: With conservative guidance, the young couple would have probably waited in making their home purchase. Like so many novice investors, they thought the ride would never end--and that markets never correct.

David: I failed to mention that the grandparents, six months ago, invested their Oklahoma equity in a new Las Vegas home. Their real estate investment is as much under water as that of their daughter and her husband. I did not have the heart to even broach that subject....

(Hope this goes through; I am on my husband's computer!)

This is all to common and so sad....What's even more interesting is, I live in Indiana, which has the highest foreclosure rate in the nation, and our property values havn't moved hardly at all in over 5 years...

I hear some real estate agents blaming the new home industry! I don't see how the new home industry is at fault, it's more the fault of wrong lending practices....

I have a client in a very similar boat. They bought their home (before becoming my clients) at the very peak of the market, ~ August of 05'. With a baby on the way, they want something completely different and can afford a more expensive home - if only their home would sell! Well, its probably worth a little less today than when they bought it. And yet, to make the #'s work in their mind, they want an unrealistic price....

I haven't seen the grandparents so affected yet, but we, unfortunately hear stories like this far more often than I wish. With the kind of depreciation we've had in our market, its likely to get worse.

i welcome realtor questions regarding loan programs. it shows that i am not hiding anything and am putting them in the best loan.

you never know when a realtor might have lending experience/knowledge that blows your deal out of the water if you dont work hard to put the borrower in the right loan

Tom,

I'm the same way. I try to be as open as possible. Actually, my way of doing business always involved coming up with a long term plan for the clients.

With rates where they are now, most clients would be crazy not to either take a 30 year fixed, or World's stable Pick-a-Pay with the Equity Builder Option. We're at a rare position where rates are low and the 30 year fixed is lower than the ARMs.

The joint planning thing started out when I was new and wanted to make sure I found what the client wanted from my reps. Then I figured out it was the best tool out there. My close rates are insane. Of viable apps, I bet I have an 80% close rate. Since most of my loans are purchases, I still get those clients that never decide to buy. They make up most of my non-closes.

NOV

2006

There are so many great loan products - but NOT for every situation. EDUCATION in the areas of loans and borrowing is in high demand. Too many people are out-ARMing their expected raises. Sad story. Good luck.

Sad story Roberta but a wake up call for buyers wanting to do 100% financing. I always remind clients to live within their means and not let emotions get the better of them when buying. Good post Roberta!!! -Aloha

How about Grandma going back to work where she can meet friends and be out and about, and using that income to pay for the babysitter?

Craig: Good points. Too often, people will look to blame anyone or any thing other than themselves for their problems.

Kaushik: If your clients can afford a more expensive home, they might want to consider taking the loss on their current home sale and making it up on the replacement home's probable discount. It should be a wash--or better.

Maureen: This was the first case where I had heard of grandparents being trapped/stung by these circumstances. I agree with you that the stories are just beginning to unfold.

Tom, Jeff and Mariana: Transparency is always the best policy for our real estate clients. This market will provide valuable (and painful) lessons for both real estate professionals and homeowners.

Kengo: Aloha to you! I agree that people should live within their means--but too many included rising home equity (and cash out financing) as part of their "means."

Sharon: I suggested that alternative to Susan, but she feared that Las Vegas child care costs would be too high for her to carry. I think she wants to cut the umbilical cord she inadvertantly attached to herself.

Roberta:

What a sad story. I find it very important for at least one of the parents to be home with their baby for bonding purposes. We all must make sacrafices typically to afford such luxuries though.

Grandma maybe could help for a few hours a week but 60 hours - wow, that's too bad.

I too will send positive thoughts to this couple that they can figure out a way to make this situation work in a better manner.

Roberta:

For what it's worth...here's what I've been doing lately with refinances for people whom are buried in a bad loan:

Equity is the problem. Sometimes family members can help the next generation. I have two banks who will make 100% loans, interest-only with a 5 year fixed rate (around 6% apr). Here's the hitch: They will lend up to 100% of the present day value to refinance the existing loans, not get cash out. They must have someone deposit 20% of the current property value in a CD with that bank as "additional collateral".

One recent closing went like this: Value was $510,000, loans totaled $500,000. The grandparents deposited $105,000 in a certificate of deposit for 60 months with an APY of 5.17%. The grandkids got one loan at 6.5% apr, interest-only. This reduced their payment by over $1000/month. the risk? if they default, the grandparents can lose the "shortage" if the property is forclosed upon and sold.

wow ACRON i am going to have to check that out............Equity the key but equity is scarce in this slower market

I've often tell my buyers that when they are looking for a mortgage, that they need to get more than one opinion. I've often thrown in the 'what if' scenerio to them. Unfortunately, many of them sometimes have to work two or three jobs here in Florida just to purchase a home or to continue making payments on their mortgage. I believe it's truly sad when someone is entice to obtain a mortgage which later carry heavy penaly in which many find it hard to get out of - the bottom line, buyers need to do their homework and make sure they can afford to maintain a mortgage payment.

NOV

2006

I saw a lot of creative loans written in the early 90's in Hawaii, ARMS, neg amort., etc. In the mid 90s the foreclosures hit hard.

I see the same type of loans being written in this market with several new twists that will help dig the holes deeper.

I hope we are not going down the same road.

Roberta, thank you for such a touching article. It is sad when persons are not counseled appropriately to the size of their purchases in the day and age of stated, no doc 100% loans.

Our counterparts (Realtors) are sometimes so eager to put them in houses that go above their means of affordability.

Everyone just seems too eager to get the job done and then go out and hunt for the next deal. If those types only knew how easy it would be to spend a little extra time with their clients and get them into property they can truly afford - even if it isn't what said client wants to hear.

I do believe the market here in Las Vegas will be turning shortly and resale inventory will be greatly reduced by the end of 2007. I just hope they can all hang on before they lose it all. Right now buyers are hanging out in the new construction market because of so much inventory and they are offering "incentives" (if you want to call them that since they are tied to the preferred lender!)

I hope you let her know that prices are not dropping like flies here. You can see in GLVAR's October Monthly Report that prices are just varying between -3 to +3 month over month and year over year. If you look at page 6 of that report it has a graph showing average and median prices to show that the market isn't in freefall.

If anyone has questions about the market feel free to ask!

Leave a response…

Name:

Email:
(optional)

Comment:

What does the graphic say?