24 replies to this topic

[Chad Vander Veen]

All I know is this market is nuts. There are two active short sell houses in my `hood. One is listed at $180K and the other $305K. They're the same exact house, save for a small room addition to the pricier one. Of course, if we tried to sell again we'd get [expletive] due to the short sale comps.

[SacKen]

All I know is this market is nuts. There are two active short sell houses in my `hood. One is listed at $180K and the other $305K. They're the same exact house, save for a small room addition to the pricier one. Of course, if we tried to sell again we'd get [expletive] due to the short sale comps.

Those are some of the oddities with short sales that having a knowledgeable agent helped us with. One might be listed way low just to get interest, yet the bank will never actually accept an offer that low. So if you don't know any better, you could waste a lot of time. The selling agent has some deniability for an asking price being rejected since it is the bank rejecting the offer, not the seller.

At the same time, two houses of similar value may close for totally different prices because there is the extra dependency of the outstanding mortgage balance. The bank will only accept a certain amount of loss. So the same offer may be accepted by one bank, yet rejected by another. You can imaging what happens if both the first and second mortgage are getting shorted! Now you have two banks that all want as much of the total offer as they can get. Nightmare!

[Steve Heard]

Unless I misread something, it sounds like your friend is one of the ones that could have been in a good spot, but chose to give away his many years of equity, now can't pay for it, and expects the bank to take the loss for his poor financial management choices. That really bothers me.

What other investments or purchases could you make where you would get a future refund for lost value? Even with housing, those that are underwater relative to purchase price, but just happen to still have a mortgage that is lower than the value, don't get a break! I'd love for the bank to give be back some money.

There are a couple of different types of modifications, and each might lower the payments to an affordable level:

1) Principal Reduction- This is where the bank agrees to reduce the balance owed to somewhere below what the home is worth. This was one of the program touted by the government a few years ago. Banks were going to reduce balances to 85% of the home's value, thus lowering the payments considerably. For example, the homeowner borrowed and owes $300,000 on the loan, and is struggling to make the $1799 monthly payment. He wants to refinance but finds his home is now worth only $250,000. Banks aren't going to loan $300,000 on a home worth $250,000, so he contacts his current mortgage holder and they modify the loan, reducing the balance to $212,500 (85% of $250K). If they kept the interest rate at 6%, his monthly payment would drop to $1274. That save $525 per month.

2) Rate Reduction- Using the above scenario, instead of a principal reduction, the bank could choose to do a rate reduction, say down to 4%. This would reduce the payments to $1432 per month, saving $367 per.

I actually know a home owner in Southern Cal for which the bank did both. They lowered his balance and his interest rate to keep him from going into foreclosure. The banks know that if they go into foreclosure, they risk selling it for even less, or perhaps no one buys it at the steps so they have to manage the asset, market it for even less money, have tax liens to clear, repairs to make or to discount the property, and have commissions and closing costs on top of that.

In such cases, it may be best to do the mod and keep the paying customer.

Rate modifications have been rare, and principal reductions rarer still, but both are becoming more common.

[Inwit]

I bought a home I could afford and I worked hard to pay off my mortgage early.

Where is my free money for making such a lousy investment decision?

[Doug Moore]

We are sticking it out in our little house on the prairie. Regardless of neighboring prices - up, down or sideways - we love Folsom, our community and fortunately our work is stable. Someday, our mortgage will be much closer to paid off, and then we'll look at our options. Right now, we're digging it where we're at.

[Redone]

What really bothers me is the banks that will not modify loans on those that are not totally underwater.
I have a 79 year old friend in the older section of EDH that has lived in his house for 27 years, but has a current mortgage nearly what the house is worth. ..
I just say this is really messed up ...

Messed up how ?

With 27 years of ownership it should be close to paid off, not upside down.

[Howdy]

We are thinking of rolling the dice and putting our Briggs Ranch home up for sale in the next 6 to 8 weeks. Looks like a great time to make a move up between now and the next 12 months. If the house will sell we are gone. It would be nice to find something in Loomis, Granite Bay, EDH, Rescue area on 1-5 acres and get a little freedom back from having little to no CCR's, HOA's and having neighbors within spitting distance.

[Bill Z]

Messed up how ?

With 27 years of ownership it should be close to paid off, not upside down.

That's what I was thinking.

[Sandman]

All I know is this market is nuts. There are two active short sell houses in my `hood. One is listed at $180K and the other $305K. They're the same exact house, save for a small room addition to the pricier one. Of course, if we tried to sell again we'd get [expletive] due to the short sale comps.

Don't focus so much on list price. As stated earlier some banks/agents will put out teaser prices just to drum up interest/foot traffic. Focus on selling $ comps in your area to get a true idea of what things are really going for.

[Steve Heard]

Don't focus so much on list price. As stated earlier some banks/agents will put out teaser prices just to drum up interest/foot traffic. Focus on selling $ comps in your area to get a true idea of what things are really going for.

This true. Although it is becoming a little more common to find listings where the bank has already approved a sales price and payoff, the vast majority of short-sales are listed at the price at which the agent thinks they will get some interest, not the price the bank will accept.