For most of us in the Real Estate business this story does not come as a surprise! In these economic times the pain is shared by all. As a Realtor living and working in the Ashburn, Leesburg area for over 20 years there have been many times when I just couldn’t believe the types of loans being made or the prices being asked. In this article written by Bloomberg.com we are now entering the last two phases of this housing mess.
1. Prime borrowers are now running out of reserve funds or have given up paying a mortgage on a houses that is worth 20%-50% less then when they brought it. The Loudoun and Fairfax county areas have been buffeted by our federal jobs so I don’t think its as much job loss as in other areas. I am starting to hear more people ask whether it makes financial since to pay on a house that you might have paid $200K to $400K more for then what it is worth today (that’s an extra couple $1,000 a month in some cases!).2. We will also start seeing the readjustment of loans start happening within the next year. If you read my blog (Road to Recovery) there was an interesting PPT chart showing the avalanche of refi’s that will hit the market in the next couple years. Just about every loan that was made over the last 5 years was an adjustable rate loan.
So, can you say perfect storm. ** The new appraisal rules will make it harder (if not impossible to refi regardless of credit). **Interest rates continue to rise (we are at about 6% now we were at 4.5% a few months ago). **Now that the federal money has been given away banks are starting to not be as generous with the loan modifications. Most banks are only granting 5-year loan modifications, which will readjust in 5 years. This means if the value of your home does not change by as much as 50% in some cases you will be in the same boat in a couple years as you are in today. I’m not sure of anyone who thinks the market will bounce back 20%-50% in the next 5 years. ** I heard (unconfirmed by Indy Mac) two reports from different real estate agents that Indy Mac is no longer processing Short Sales but rather sending houses directly to foreclosure. Talk about a lose-lose situation! It should be interesting to see what these houses look like after Indy Mac evicts its borrowers( so much for good faith effort)!
What’s the answer to this mess…? How’s about a long-term plan by the lenders! Wouldn’t it be nice if banks just wrote off the bad debit (which they have for tax proposes) and just reset borrows with nice 30 year mortgage rates that they can pay rather then half measures that will prolong the pain. This whole mess is like watch my 7-year take off a Band-Aid.
I sure hope this is a short Band-Aid and not a long one!
Take care,
Chuck
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