Obama, Making Homes Affordable

[Obsessed]

Wendy this is a bad situation,bad advice will only make it worse. As has been said above, you need real legal advice. Good luck to you and your family.

I absolutely agree with that. Talk to a reputable Missouri lawyer who specializes in this area and can give you a realistic view of your options. The good news is that your mortgage is current, you are not in imminent danger of foreclosure or anything like that, and you therefore don't have to make any snap decisions.

Good luck. You certainly have more to deal with these days than anyone should.

 

[Wendy]

I have spoke with our family attorney and since my husband and I keep everything separately owned other than our cars, I could walk and rebuy. What good does this do in the housing market? I guess I should have my hubby go put a contract on the 4300 sf house a mile from me for 240,000. What a steal. I would feel like we hit the jackpot with all of the extra money we would have. No to mention a bigger house.

 

[cheerwind]

the 4300 sf house a mile from me for 240,000. What a steal.

Yeah. My irony detector just overloaded.

America.

Edit

 

[Go West Young Man]

Not knowing the details of your situation, I'm obviously talking out my backside here, but on a completely theoretical basis I'm not sure that it's fair to ask the bank to restructure your loan if you're only willing to put 20% of your gross income towards housing.

If you can't meet the usual standard of 1/3 of your family income going towards housing, then the bank is likely to suggest that you need to make some cuts in discretionary areas (cable TV, 2nd or 3rd cars, retirement savings). They're under no obligation to restructure your mortgage, so you might have to suck it up and play nice until you get caught up.

 

[razorrookie]

And (though I'm really neutral on the political scene) I fail to see where Obama comes into play on this one. Besides the fact that he's having to clean up the mess from alot of bad finanical regulations (or lack thereof), he's kinda having to deal with a lemon of a situation (not unlike yourself when you and your husband lost your jobs).

Just my 2 apolitical cents.

 

[BigHairyGuy]

Pointing fingers about who is at fault isn't really going to help. Most financial advice is that you shouldn't put more than 33% of your gross into a house. That may be why the bank wants around that much for the re-structured loan. Look at it from their perspective-you are a greater risk for them than you were when you were employed, and so they would generally charge a higher interest rate to lend to you. Before any substantive advice: I am not giving legal advice, I'm not your lawyer, I am not licensed to practice law in your jurisdiction. Talk to a lawyer who is. That being said, as a small business owner, there are some specific questions you might want to ask. If the bank doesn't make up the difference on your house upon foreclosure, can the bank come after other assets, such as your business? How will your ability to get small business loans be affected by a personal foreclosure? Even if you don't default, what are the long term business and employment consequences of getting behind on your mortgage? There are definitely some negative consequences to missing payments with the goal of forcing your bank to negotiate--I'd make sure I knew what they were before I started missing payments as suggested above.

The problem is that the bank might not own all of your mortgage, and so it isn't as free to negotiate as it would like. Without getting into the messy details, that was something Pres. Obama's program was supposed to mitigate. But it is entirely possible that the bank gave you the best offer they could because they can't make any decisions. Best of luck.

 

[Synovia]

Let the values drop. Banks will loose money and many families will have to rent - but in a matter of months many more people will be able to afford homes and the currently unused inventory will be bought up. A regular and reliable path of information to banks, builders and buyers will be restored and we'll all hang out until the next bubble sucks money into some other unproductive venture.

While I generally agree with you, foreclosed houses aren't "unused inventory". They don't just sit in a warehouse frozen in time. I've been house hunting for a couple months, and all it takes is a couple weeks for most foreclosed homes to be absolutely destroyed by vandals and sometimes the former owners.

I've seen houses go from really nice, to needing to be bulldozed in a matter of months. All it takes is someone to break an upstairs window (they usually don't board the upstairs) and a couple rain storms.

 

[patrisVII]

While I generally agree with you, foreclosed houses aren't "unused inventory". They don't just sit in a warehouse frozen in time. I've been house hunting for a couple months, and all it takes is a couple weeks for most foreclosed homes to be absolutely destroyed by vandals and sometimes the former owners.

I've seen houses go from really nice, to needing to be bulldozed in a matter of months. All it takes is someone to break an upstairs window (they usually don't board the upstairs) and a couple rain storms.

I was speaking macroscopically - they are fully produced goods not being used regardless of their physical condition (legal obstacles to sale not withstanding). Certainly, the longer a property sits unused and unmaintained the more it's value on the market erodes.

The point remains that the government, lenders (read current mortgage holders) and sellers/homeowners are all acting as if the plunge in home values is the aberration, when in reality the previous home price surge was the anomaly. The fall in home prices is a return to fiscal normalcy.

There are countless homes that have been sitting for sale in my area (south central NH) for YEARS now. We have been renting and our lease expires at the end of this month. In looking for homes, I contacted the developer of a new home site near us and asked if we could rent one of the four homes currently completed. We offered $2200 (on the high end of rents in the area for the size homes). He declined and did not offer a counter price. One of these homes has been completed since the late fall of '08, two were finished last summer and the last one early this year. I don't know what he is waiting for - he is simply not going to sell these homes.

 

[Kevan]

and (though i'm really neutral on the political scene) i fail to see where obama comes into play on this one. Besides the fact that he's having to clean up the mess from alot of bad finanical regulations (or lack thereof), he's kinda having to deal with a lemon of a situation (not unlike yourself when you and your husband lost your jobs).

Just my 2 apolitical cents.

+ 1

 

[Wendy]

Not knowing the details of your situation, I'm obviously talking out my backside here, but on a completely theoretical basis I'm not sure that it's fair to ask the bank to restructure your loan if you're only willing to put 20% of your gross income towards housing.

If you can't meet the usual standard of 1/3 of your family income going towards housing, then the bank is likely to suggest that you need to make some cuts in discretionary areas (cable TV, 2nd or 3rd cars, retirement savings). They're under no obligation to restructure your mortgage, so you might have to suck it up and play nice until you get caught up.

Fannie Mae and Freddie Mac (government loans) require a 33% total debt ratio. So does the Obama modification. If and only if you are FHA can you go as high as 50% debt ratio. So I do not think it is unfair to offer the same to everyone. I was in the mortgage business for most of my career and with simple math I know you do not get a deal done if you are sending close to 60% net earnings to the mortgage payment. Then with taxes and insurance thrown in you are sending 70% of your net to your home. Not likely going to work. Then you add the price of gas in your car and car payment you are done. Forget groceries. I do have two cars but two us us work so it is a need not desire. Also I have turned off my cable I am now saving $39.00. It has not seemed to help yet though : )

 

[malocchio]

I have spoke with our family attorney and since my husband and I keep everything separately owned other than our cars, I could walk and rebuy. What good does this do in the housing market? I guess I should have my hubby go put a contract on the 4300 sf house a mile from me for 240,000. What a steal. I would feel like we hit the jackpot with all of the extra money we would have. No to mention a bigger house.

wendy is correct....if the house is in one partners name,file bankruptcy,foreclose and get out....your spouse can buy in their sole name with no problem to their credit score..however...in some states you may have to divorce ($300 in calif through paralegal),then remarry again down the road

 

[jswhitley]

The Clinton administration legislation that subsidized housing caused the American people to essentially bite off more than they could chew, financially. The legislation forced banks to lend to people that were too high of a risk, with this the banks couldn't even control who they were lending money too. So a lot of banks, started using financial instruments like pick a payment mortgages which were brought into being as a counteraction to the bad legislation ( a way for the banks to cover themselves). Now we, the prudent person are reaping what big government has sown... Best of luck with this, I would seek legal advice.

 

[Uncle Erik]

Another lawyer here. No, I'm not licensed in Missouri and cannot give you legal advice. However, I practiced bankruptcy for a bit and I would strongly recommend visiting a bankruptcy attorney. Even if you don't intend to file, someone who deals in bankruptcy will know how to handle the situation.

Don't be afraid of default. I'm not saying you should (again, talk to a lawyer), but default is an option very few consider while it often has the most attractive consequences. I can't say if that's right for you, but be sure to ask your lawyer about how default would play out compared to continuing payments, bankruptcy, etc.

The reality is that the marke will not recover. Everything is still grossly overvalued in most of the country. The way to tell if a property is overvalued is whether rent would cover the mortgage and taxes, with a bit of profit. If rents are far below the mortgage, watch out. The difference is that rent is a measure of what people can actually pay while a mortgage is a measure of how much you can borrow. With all the tricky and shady loans, the amount that could be borrowed decoupled from reality. Everyone loved it. Banks got fatter fees, homeowners could take out equity for fancy cars and vacations, and so on. But all bubbles eventually burst.

The problem now is that we're still not quite living in the real world. Part of this is because banks lend based on their assets. If that asset base shrinks, so does the amount they can loan. If the ratio goes underwater, the bank gets taken over by the FDIC. This is why they gamed FASB into dumping mark-to-market. In other words, you used to have to value assets at market rates. Now you are free to just make up numbers for assets. Yeah, they really did that. So almost every bank now has fake numbers and would probably be insolvent if their assets were valued correctly.

Add to that the bizarre shadow inventory of real property and the fiat money. Something like 70%-80% of foreclosed/delinquent property is being held off the market. This has been used to "demonstrate" that things are "recovering" and to squeeze some price gains in a market here and there. But it's not. A $400k house in a so-so neighborhood in LA just doesn't fly, even if it's off a peak value of $650k, because the same place sold for $130k 12 years ago. Salaries have stayed flat for some time - the boom was from using creative mortgages and people drawing down home equity to purchase goods. There wasn't any real economic expansion at all.

Also, you cannot blame Obama for this. He has to clean up, but the real problems mostly trace back to rhe repeal of Glass-Steagall in the Clinton administration. Before you lump Clinton, remember that there was a Republican Congress at the time. The repeal lasted through the Bush administration and a Democratic Congress. I don't see any clean hands around here, no matter what side of the fence you're on.

How to fix the mess? You got me. I don't see any good options. We're not through this yet, either. So far, only subprime melted down. Commercial is going under at the moment. Option-ARM and Alt-A are going to go radioactive in late 2011 through 2012. That's going to drag down prime. Oh, and corporate bonds are going to roll over around then, too.

I don't know what will happen. But it sure doesn't look good. Nothing will improve until real property reaches *normal* valuation (check the Case-Schiller index for a shot of reality) and bank assets are based on real-world measures.

 

[Baloosh]

Another lawyer here. No, I'm not licensed in Missouri and cannot give you legal advice. However, I practiced bankruptcy for a bit and I would strongly recommend visiting a bankruptcy attorney. Even if you don't intend to file, someone who deals in bankruptcy will know how to handle the situation.

Don't be afraid of default. I'm not saying you should (again, talk to a lawyer), but default is an option very few consider while it often has the most attractive consequences. I can't say if that's right for you, but be sure to ask your lawyer about how default would play out compared to continuing payments, bankruptcy, etc.

The reality is that the marke will not recover. Everything is still grossly overvalued in most of the country. The way to tell if a property is overvalued is whether rent would cover the mortgage and taxes, with a bit of profit. If rents are far below the mortgage, watch out. The difference is that rent is a measure of what people can actually pay while a mortgage is a measure of how much you can borrow. With all the tricky and shady loans, the amount that could be borrowed decoupled from reality. Everyone loved it. Banks got fatter fees, homeowners could take out equity for fancy cars and vacations, and so on. But all bubbles eventually burst.

The problem now is that we're still not quite living in the real world. Part of this is because banks lend based on their assets. If that asset base shrinks, so does the amount they can loan. If the ratio goes underwater, the bank gets taken over by the FDIC. This is why they gamed FASB into dumping mark-to-market. In other words, you used to have to value assets at market rates. Now you are free to just make up numbers for assets. Yeah, they really did that. So almost every bank now has fake numbers and would probably be insolvent if their assets were valued correctly.

Add to that the bizarre shadow inventory of real property and the fiat money. Something like 70%-80% of foreclosed/delinquent property is being held off the market. This has been used to "demonstrate" that things are "recovering" and to squeeze some price gains in a market here and there. But it's not. A $400k house in a so-so neighborhood in LA just doesn't fly, even if it's off a peak value of $650k, because the same place sold for $130k 12 years ago. Salaries have stayed flat for some time - the boom was from using creative mortgages and people drawing down home equity to purchase goods. There wasn't any real economic expansion at all.

Also, you cannot blame Obama for this. He has to clean up, but the real problems mostly trace back to rhe repeal of Glass-Steagall in the Clinton administration. Before you lump Clinton, remember that there was a Republican Congress at the time. The repeal lasted through the Bush administration and a Democratic Congress. I don't see any clean hands around here, no matter what side of the fence you're on.

How to fix the mess? You got me. I don't see any good options. We're not through this yet, either. So far, only subprime melted down. Commercial is going under at the moment. Option-ARM and Alt-A are going to go radioactive in late 2011 through 2012. That's going to drag down prime. Oh, and corporate bonds are going to roll over around then, too.

I don't know what will happen. But it sure doesn't look good. Nothing will improve until real property reaches *normal* valuation (check the Case-Schiller index for a shot of reality) and bank assets are based on real-world measures.

Excellent post! This man knows his stuff. Very insightful - thank you!

 

[ddstb]

Excellent post! This man knows his stuff. Very insightful - thank you!

+1 Thanks for the information, Uncle Erik!

 

[Matt S]

The root issue here is that home values ARE too high. The market, via massive foreclosure rate, is screaming this fact. Trying to keep prices elevated via low interest rates and gov. backed re-financing only prolongs the inevitable adjustment and puts more people out of homes (both by foreclosure/eviction and by the inability to pay the elevated price of a new home) in the meantime.

Let the values drop. Banks will loose money and many families will have to rent - but in a matter of months many more people will be able to afford homes and the currently unused inventory will be bought up. A regular and reliable path of information to banks, builders and buyers will be restored and we'll all hang out until the next bubble sucks money into some other unproductive venture.

Agree. The easy money of the past decade allowed cost of living to artificially increase, while wages stayed stagnant. People weren't making any more money, just able to spend 105% of their income instead of 100. Naturally, the house of cards starting falling down eventually.

Today, wages are still stagnant, yet housing prices are being artificially propped up. Living in the DC Metro area, they always mention in the news stories on the housing market that "there is a lot of activity in the below $250k range". Does it surprise anyone that there was a whole pack of people waiting for a home priced closer to what normal folks make, and that doesn't require 50% of your income to pay the mortgage?

When I moved to this area in 2006, you'd be lucky to find a 1 bedroom condo in even some of the more outer suburbs for less than $200k. Coming from Upstate NY where my parents owned a 4 bedroom home with a decent sized yard only valued at $150k, I wondered "who are buying these things?" when I saw town homes going for $500k but no evidence that I wasn't the only one in the area not making well into six figures.

I live in Loudoun County, the so-called "wealthiest in the US", and the median household income is $110k/year. Assuming you net 65% of your income after deductions, I estimated you take home 6000 a month. "Affordable" is 30% of all housing expenses. I'll say you spend 30% on mortgage alone. That is only $1800 a month. Or about $270000 worth of house assuming a 20% down payment a average interest rate on a 30 year fixed. Let me tell you, even in today's market, $270k isn't getting you much in Northern VA.

So, I am once again back to my question from 2006. When you see new town homes under construction for "in the 300's"...who is buying them when the median income only buys $270?

Edit: Just saw Uncle Eric's similar rant while I was putting this together. I probably would have just +1'd his rather than go through the trouble...

 

[Go West Young Man]

Fannie Mae and Freddie Mac (government loans) require a 33% total debt ratio. So does the Obama modification. If and only if you are FHA can you go as high as 50% debt ratio. So I do not think it is unfair to offer the same to everyone. I was in the mortgage business for most of my career and with simple math I know you do not get a deal done if you are sending close to 60% net earnings to the mortgage payment. Then with taxes and insurance thrown in you are sending 70% of your net to your home. Not likely going to work. Then you add the price of gas in your car and car payment you are done. Forget groceries. I do have two cars but two us us work so it is a need not desire. Also I have turned off my cable I am now saving $39.00. It has not seemed to help yet though : )

Like I said, I wasn't talking specifically about your situation, I hope I didn't come across as combative or insulting. I understand that money is tight everywhere and we're all trying to make do in a bad time. When we cut off our cable we saved $110 / month, that made me feel good!

 

[Wendy]

Like I said, I wasn't talking specifically about your situation, I hope I didn't come across as combative or insulting. I understand that money is tight everywhere and we're all trying to make do in a bad time. When we cut off our cable we saved $110 / month, that made me feel good!

You must have had At&T U-Verse. LOL

I did not in any way think you were being combative or insulting. I know this is a very hard time for everyone.

 

[Walter Sobchak]

Wendy this is a bad situation,bad advice will only make it worse. As has been said above, you need real legal advice. Good luck to you and your family.

Jim nailed it, as usual.

An Attorney experienced in these matters will likely give you a free consult and lay out easy to understand options. I'll bet you find the stress lessens a great deal once you know what options you have and what a realistic plan might be.

So very sorry to hear it. Hope it all works out well.

 

[Wendy]

Another lawyer here. No, I'm not licensed in Missouri and cannot give you legal advice. However, I practiced bankruptcy for a bit and I would strongly recommend visiting a bankruptcy attorney. Even if you don't intend to file, someone who deals in bankruptcy will know how to handle the situation.

Don't be afraid of default. I'm not saying you should (again, talk to a lawyer), but default is an option very few consider while it often has the most attractive consequences. I can't say if that's right for you, but be sure to ask your lawyer about how default would play out compared to continuing payments, bankruptcy, etc.

The reality is that the marke will not recover. Everything is still grossly overvalued in most of the country. The way to tell if a property is overvalued is whether rent would cover the mortgage and taxes, with a bit of profit. If rents are far below the mortgage, watch out. The difference is that rent is a measure of what people can actually pay while a mortgage is a measure of how much you can borrow. With all the tricky and shady loans, the amount that could be borrowed decoupled from reality. Everyone loved it. Banks got fatter fees, homeowners could take out equity for fancy cars and vacations, and so on. But all bubbles eventually burst.

The problem now is that we're still not quite living in the real world. Part of this is because banks lend based on their assets. If that asset base shrinks, so does the amount they can loan. If the ratio goes underwater, the bank gets taken over by the FDIC. This is why they gamed FASB into dumping mark-to-market. In other words, you used to have to value assets at market rates. Now you are free to just make up numbers for assets. Yeah, they really did that. So almost every bank now has fake numbers and would probably be insolvent if their assets were valued correctly.

Add to that the bizarre shadow inventory of real property and the fiat money. Something like 70%-80% of foreclosed/delinquent property is being held off the market. This has been used to "demonstrate" that things are "recovering" and to squeeze some price gains in a market here and there. But it's not. A $400k house in a so-so neighborhood in LA just doesn't fly, even if it's off a peak value of $650k, because the same place sold for $130k 12 years ago. Salaries have stayed flat for some time - the boom was from using creative mortgages and people drawing down home equity to purchase goods. There wasn't any real economic expansion at all.

Also, you cannot blame Obama for this. He has to clean up, but the real problems mostly trace back to rhe repeal of Glass-Steagall in the Clinton administration. Before you lump Clinton, remember that there was a Republican Congress at the time. The repeal lasted through the Bush administration and a Democratic Congress. I don't see any clean hands around here, no matter what side of the fence you're on.

How to fix the mess? You got me. I don't see any good options. We're not through this yet, either. So far, only subprime melted down. Commercial is going under at the moment. Option-ARM and Alt-A are going to go radioactive in late 2011 through 2012. That's going to drag down prime. Oh, and corporate bonds are going to roll over around then, too.

I don't know what will happen. But it sure doesn't look good. Nothing will improve until real property reaches *normal* valuation (check the Case-Schiller index for a shot of reality) and bank assets are based on real-world measures.

I guess I should first state I am not blaming Obama, It is actually called "Obama Making Homes affordable". If you go through a real estate attorney, local government office or direct with your lender. I was just stating the name of the program. I get enough back and forth between my hubby and I on our political party differences Good mean fun.

With that being said, I think your post is right on. I started with First Franklin as an underwriter to be bought out by National City bank then Merrill Lynch. We wrote sub-prime loans only. The last 6 months we were open we started with Alt-A business. At least 90% of the loans we did were interest only ARMS. Average credit score was maybe 610. I know my hand was forced more times than I could count to approve a loan that was not good. One time in particular I wanted to walk out. I was forced to compete a loan for a gentlemen who sent in fake employment verification. Ask me how did I know. The man worked in the same Ford plant my husband did. My husband worked up until the last half Wednesday the plant was opened, later it was leveled. My borrower still worked there though. He just happened to get the wrong underwriter. I was not allowed to deny his loan since my knowledge was from personal knowledge. If you lived in St. Louis you knew, it was on the news and in every paper. I still had to do the loan. I am sure it defaulted shortly after.

All of the loans we did could go to a total debt ratio of 55% unless you were under a 590 credit score then it was 49% and we wonder why they fail. In addition to that the appraisals were so pushed, we would tell the appraiser what we needed, not ask what it was worth. So many of our loans were cash out refinances rolling all of their debt into the home.

With the modification plan the lender figures and analyzes your budget and comes up with a payment that keeps you within your means. My payment came back $1000.00 higher then originally quoted. In addition to that they are qualifying this loan based on my husbands extra 30-40 hours OT he is currently working. this is only expected for three months. The lender does not mind though. I think from experience unless it is likely to continue you should never count on overtime.