The proposed rate freeze has frozen my brain.

By
Real Estate Broker/Owner with Tutas Towne Realty, Inc and Garden Views Realty, LLC BK607690

I'm confused!!!!Hi folks. I've been trying to get my head around the proposed rate freeze. Rosemary Brooks wrote a post yesterday expressing her concerns about this program and how it will exclude too many folks. After going back and forth with her in the comments we both agreed that if you can't help everyone then don't help anyone. Here are my thoughts.

I closed on 60 properties in 2005. I don't know the exact number but my guess would be 90% of these were sub-prime 100% deals with the seller contributing 6% towards closing costs.

Being as how I am in the thick of the mortgage crisis, I talk with sellers everyday that are in dire straights. This is what I hear:

Mostly, "I bought my house in late 2005 and was planning to move into it but my situation changed with my job and now I need to sell" Ok first, they bought to flip and probably lied on their loan application to say it would be their primary residence. Now they are trying to cover their asses. They paid $225,000 for a house now worth $170,000 if they are lucky. They've been trying to sell at $299,000 for a year. Still holding on to the dream while they use the equity from their homestead to carry a losing "investment". Now they feel they are entitled to a short sale. I cannot help them and neither should "Big Gov".

The second scenario, is the young couple who bought their house in 2003 for $85,000. They have refinanced three times since then and now owe $200,000 on a house worth $170,000. They do however have beautiful furniture, plasma TVs and new cars. These folks may very well want to stay in their house. Where else would they keep their TVs? These folks need to sit tight and try to keep up with their payments. I can't help them and they should not be "bailed out".

The third seller I speak with is the family who purchased in 2000 for $95,000. They did refinance in 2005 but only pulled out $30,000 to pay some medical bills and do some improvements on their home so the kids would have a little more room. Their house is now worth $150,000 but will be very difficult to sell because it's "old". Homes built before 2004 in Poinciana are now "old" because of all the vacant new homes that are just sitting. These folks I want to help desperately. Unfortunately, with the saturation of homes on the market from the first two scenarios, we may have to reduce to the $130s to have a shot at getting it sold. This would be enough to cover their mortgages but won't give them any money to move forward, so we leave it at $150,000 and hope we get lucky. These folks really need to decide if they need to move or not. If they need to move I may be able to help but "Big Gov." should not.

Now my favorite Sellers and the ones I look for, have lived in Poinciana for many years and either have no mortgage or a very small mortgage. They are looking to downsize or move out of State. These folks can sell because they are in a position to price low enough to beat out the competition. Most understand the market and are willing to price it right. Together we will be able to get their homes sold.

So my questions are, who exactly is this "rate freeze" designed to help and why should these folks be helped? Does declining property values have any effect on the payments they agreed to make when they purchased their home? If folks bought using an ARM, with the hope that they would be able to refinance out of it before it adjusted, then didn't they take a risk? And if they took a risk and lost why should they now be bailed out?

Am I missing something here? If so please clue me in.

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Rainer
86,590
Ron Parise
LocateHomes.com - Cape Coral, FL

I just came across a blog here on AR titled "If you are out of Bankruptcy or Foreclosure, then I have the mortgage for you"     Could this be part of the reason so many are prepared to just walk away from their homes....no consequences.....

Dec 11, 2007 10:47 AM #65
Ambassador
890,780
Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

And I am one to say that government needs to be out of business.  I say it quickly.  The programs you list that are federal are almost a thesis on why... 

And, the people that took out these loans thinking that values would rise were gambling if they didn't have a valid strategy to deal with the property if values didn't rise.  

If I go to Vegas and lose money, should I get a break from the casino, the government and the airline?  Of course not.  But that is what this amounts to.  people took a gamble with their home... and they didn't have a plan B.  

Dec 11, 2007 11:58 AM #66
Ambassador
521,939
Tracy Santrock
Fonville Morisey/Santrock Realty Group, Inc. - Cary, NC
Raleigh - Cary Realtor/Broker In Charge
Glad Broker B. is so cute and funny. It's not quite as funny when the market loses almost 300 points in one day and the FED doesn't cut interest rates.  I wrote about the "Whack" in my blog today for better or worse.
Dec 11, 2007 01:22 PM #67
Rainer
18,257
Gabriel Silverstein
Angelic Real Estate, LLC - New York, NY
SIOR
BB, you know I agree on that no bail out of mortgage jail theme!  Suck it up and take responsibility for yourselves people.  That said, I hope it improves for your part of the world, because I know it is really a mess thee right now.
Dec 11, 2007 03:50 PM #68
Rainmaker
135,495
Jennifer Kirby
Kirby Fine Homes - Minneapolis, MN
The Luxury Agent

Just because people made a mistake and took out an ARM loan or bought a home they couldn't afford doesn't mean they should be bailed out by the government. It's called personal responsibility and people need to start taking it. Don't look to the government to fix your problems because you made a bad decision. Figure it out yourself, and if that means you lose your home, then you lose your home. Yeah, it sucks, but such is life.

We almost went into foreclosure on a home we owned in Florida last year, but we worked our butts off to do as much as possible to make sure that didn't happen. If it had, we were prepared for the consequences...bad credit for 10 years. We made our bed and we were prepared to sleep in it. Why are so many Americans reluctant to accept the bad? Could it be because our society's need for instant gratification? I see mothers give candy to a one year old to stop it from crying. The child is happy of course. But sometimes you just have to the let the kids cry it out and learn to get over it. Now it looks like a lot of home owners need to cry it out and move on. Yeah, this sounds harsh, but so is life.

As you can probably figure out, I don't like government bailouts. Didn't like it when they bailed out the airlines either. Government was created to govern, not fix the housing market for bad decisions.

Dec 12, 2007 12:44 AM #69
Rainmaker
1,142,060
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

More great comments. It's good to read every one's opinion.

Ron you wrote: We wouldn't be in this mess if prices had continued to rise. The declining value has screwed both sides, the borrowers and the lenders.  ARMS were sold with the expectation that they would be refinanced, before the rates reset. the borrowers expected to get an 80% loan (if values rose 20%) at an attractive rate and the ultimate owners of the loans expected that they would be paid off in two years. A nice plan but declining values fouled it up.

My point exactly. Buyers and lenders made financial decision based on future events happening. That is ALWAYS a recipe for disaster. Buyers were hoping they could refinance out of a rate they knew they couldn't afford. And lenders were counting on refinancing these folks again and collecting more fees. That why they sold these products so hard. Hey it makes since. Write loans and then contact the buyers again in 2 years and write them again. I use to sell supplemental medicare insurance and we were trained to do this. Rewrite them every couple of years into another policy whether they needed it or not to generate more fees. I lasted one month. They were thieves taking advantage of the elderly.  

Dec 12, 2007 03:22 AM #70
Ambassador
2,079,769
Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional
Charles Rutenberg Realty - Clearwater, FL
Palm Harbor, Dunedin, Clearwater, Safety Harbor
A general rule of thumb is that if the government gets involved it only gets so messed up that everyone but government officials loose on the deal - I would like to think that some innocent homeowners will be helped, but I also live in my own Utopian world -
Dec 12, 2007 06:53 AM #71
Rainmaker
147,121
Kaye Thomas
Real Estate West - Manhattan Beach, CA
e-PRO, Manhattan Beach CA
BB- Aside from all the loop holes in the program.. What should really bother all of us it the question about why one owner  should be subsidized while others have to make the  higher payments.. the whol thing is blatently unfair.
Dec 12, 2007 03:18 PM #72
Rainmaker
706,679
Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

BB, I can't believe I read the whole thing! I realize you have acknowledged in the comments that the real beneficiary of this will be the lenders who really can't afford a bunch more foreclosures.

But I would say we all benefit from this same reduction in foreclosures. How much lower do you want the4 market to go? Is it fair to everybody who owns a home to see their equity melting away? Even if they bought years ago and are in no danger, is it fair to them?

And it is not a bailout. The government isn't going to make payments for these folks. All these people crying that it isn't fair need to wise up.

I think what you have done is make a very good case against democracy. Most of the commenters here are wrong. You  want them deciding your future?

Bill Roberts

Dec 13, 2007 05:18 AM #73
Rainmaker
1,142,060
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Bill, Good to see you.

I personally own multiple properties and have watched my equities plummet as well. So I can relate. BUT...such is life. The reality is the market was out of control and is not correcting itself. I'm actually happy to see values decrease to a point where the average Joe can once again afford to buy a house. My market is very much in the thick of things. The only folks who are having troubles on the ones who bought in the last 2 to 3 years who are not needing to move or refinance. Even in a normal market it takes longer than 2 to 3 years to be in a positive position with your home. Freezing rates will not recoup people's equity. It will only prolong the inevitable and at the same time will not even help the majority of folks that are struggling.

Lenders and the consumers made bad financial decisions based on a future event happening(continued appreciation). Why buy a house if you know you won't be able to afford the payment in 2 years when the rate adjust? It's a foolish decision. They took a risk and they lost. Nothing more.

I just wrote a post that shows the reality of how values "declined" in my area. By the way my area has the highest foreclsure rate in Central Florida and possibly the entire State.

http://activerain.com/blogsview/306137/Is-Your-Reality-In

 

Dec 13, 2007 06:38 AM #74
Anonymous
Tony
First, home mortgage rates above 6 percent for a primary residence should be a crime.  No private or public entity should be permitted to even offer a loan / funding that adjusts if it exceeds 6 percent for a "primary residence".  That's why I don't have a problem with this freeze on rates.  Flipping, speculation, etc. should not benefit from relief.  As for housing prices, it's supply and demand.  If I have a $300,000 house and you'll pay $450,000 to live in it because you love the house and there aren't many to be had...then God bless you.   The way southern California is built up, people want good housing and there's no room to build tons of new homes in the metro area.  So they build condos ever higher into the sky...that's why your $300,000 home is $450-500,000.  What value do you put on the quality of your life?  Everyone shares the GREED factor for this situation, investors, pension fund managers, lenders, RE agents, borrowers, and the Fed.  So spread the wealth and let everyone share in the fun.  But to hell with putting primary residence owners into the street.  If they're on time with their 6% mortgage...give them a break and leave them the hell alone.  One final note...why should homeowners get a tax break...simple...it's called property tax.  If you don't own...you don't pay it.  If the Fed allows mortgage companies to charge stupid rates for mortgages, then get your extra tax money from them...not me.
Dec 13, 2007 10:13 AM #75
Rainer
118,460
Erin Stumpf (Attardi)
Coldwell Banker - Sacramento, CA
916-342-1372 / DRE# 01706589 Sacramento, CA

You hit the nail on the head.  I was having a conversation with another agent in my office just yesterday regarding your first scenario sellers.  I get at least a call a week from these folks wanting me to do short sales on their homes.  I could have a couple dozen of these listings if I wanted to take them on.  I have taken on three short sales this year from folks who had legitimate hardship, and this mortgage bailout is here too late to help them. 

Dec 14, 2007 10:31 AM #76
Anonymous
Bryant Splogs

Is Bryant Tutas an Internet splogger?

Dec 19, 2007 02:01 AM #77
Rainmaker
1,142,060
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time
Hey what's a splogger?
Dec 19, 2007 02:10 AM #78
Ambassador
557,018
"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL

Hun...

A "Splog" (spam blog) is a fake blog created to deceive the search engines with artificial search results.

As the person that typed it didn't sign in...I do believe that was meant to be some sort of insult :)

You "Splogger" you. Woof :)

P.S. Remember...If someones not taking 'petty' shots at you...You ain't doing something right :)

TLW...ROAR!

Dec 19, 2007 10:14 PM #79
Ambassador
557,018
"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL

Okay...

Curiosity got the better of me so I ran it through the Urban Dictionary:

Splogger = "Bloggers who either write very little content on their blog or have it full of extremely controversial topics to try to increase traffic."

I gather you are a 'Splogger' cuzz this issue froze your brain :)

How about I run out and get you a 'Slurpee' for breakfast?

That would make you a 'Slurping Splogger' :)

I'll go away now...My job is done here :)

TLW...ROAR!

Dec 19, 2007 10:42 PM #80
Rainer
15,019
Terri Habecker
AIG, Allied, Fireman's Fund, CNA, Travelers,The Hartford, Pr - Dana Point, CA
Life Matters & So Does Your Insurance Co
Who do I "blame" for buying our Home before the values skyrocketed at a fixed rate? Any help for people who did the right things? lol What do we get??
Dec 21, 2007 12:41 AM #81
Rainmaker
1,142,060
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time
Terri, I like that. Maybe the government should give you a tax break. It's not your fault values sky rocketed. Why should you have to pay extra taxes? 
Dec 21, 2007 06:54 AM #82
Rainer
15,019
Terri Habecker
AIG, Allied, Fireman's Fund, CNA, Travelers,The Hartford, Pr - Dana Point, CA
Life Matters & So Does Your Insurance Co

I like how you think! Ya, tax breaks! Actually....

I just hope taxes don't go up to pay for all the folks who lost their "Bets"

Dec 26, 2007 10:01 AM #83
Anonymous
Darla, Connecticut Realtor

Well, I agree with the bandaid theory.  However, I believe that it is a somewhat necessary bandaid.  I have been in the business long enough to see the fallout for a lovely second time and stand distressed about the government stepping in...it was not so swift or dramatic in the past...the chips fell where they fell.

I do not believe that we are getting the whole story, which leads me to contend that things have a strong potential to get bleaker.  Lets just say that aside from the money folks perhaps it may have occurred to the big gov who else would be impacted from the huge flood of subprime foreclosures.  Regular, homeowner citizen with a fixed rate and some 7 plus years of homeownership and equity to afford a loss in perceived value...this markets perfect seller.  With a huge influx of supply these sellers have the potential of disappearing quickly.

My point, is without some type of bandaid...things have the potential of being much worse and tremendously far reaching, chipping away at house values still further.

I shudder and get off my soap box!  Love your blog! 

 

 

 

Jan 04, 2008 12:41 PM #84
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