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James48843
03-03-2007, 04:24 AM
Foreclosures rising among high-risk US mortgages

By Alexandra MarksRon Scherer, Staff writers of The Christian Science Monitor

One of the great legacies of the housing boom of the past six years is that almost everyone – even people with questionable credit – has access to a mortgage.

But now, some housing advocates contend, all that easy credit is on the verge of creating the worst mortgage crisis since the 1980s. The reason: A rising number of homeowners are shouldering mortgages they can no longer afford. For example:

•In 2004, John Silva refinanced the modest home he and his wife own in Willow Springs, N.C. Today, with their mortgage at almost 10 percent, he worries he's just a "hiccup" away from foreclosure.

•Ten months ago, newly divorced Tammy Myers got a no-down-payment loan to buy a house in Denver. The interest rate is now so high it's difficult to make her monthly payment.

•Susie Smith – a retired social worker who's too embarrassed to use her real name – almost lost the house in St. Paul, Minn., she had lived in for most of her life. That was after she refinanced it and her monthly payments more than doubled from $675 to more than $1,400 a month.

Across the nation, foreclosures and defaults are rising as mortgages that were once affordable are now expensive albatrosses as the introductory "teaser rates" that made the loan possible end and higher interest rates kick in. Some housing specialists worry that the mortgage industry – with more than 20 companies already in bankruptcy – will raise its lending standards so high that would-be homeowners with less-than-perfect credit will be frozen out. There is even some concern that the pullback in lending will extend the slump in the nation's housing market.

"It's the most serious threat to the economy," says Mark Zandi of Moody's Economy.com. "It has the potential to set the housing market back since there could be a whole class of people who can't get credit."

At issue is a class of mortgages that lenders call "subprime" because they do not qualify for the lowest or prime interest rate. These are designed for high-risk borrowers, those with fixed incomes, or those who have had credit problems in the past. Since 1998, more than 6 million Americans have borrowed in this way, according to the Center for Responsible Lending (CRL). The majority of these loans are adjustable mortgages (ARM) that are tied to changes in interest rates.

One in five loans subprime That's a dramatic increase in only a decade. In 1995, subprime represented a niche market: less than 5 percent of mortgages originated. Today, Wall Street analysts estimate they make up from 18 percent to 24 percent.

Advocates contend they've made it possible for millions of Americans who in the past would not be able to qualify for a mortgage to own their home. But critics contend they've also become open to abuse, in part because qualification standards are now so low.

Deregulation has allowed the mortgage industry to create products like the no-down-payment mortgage and the even riskier "no documentation" loan where all borrowers have to do is state their income without providing proof of their ability to repay the loan.

"There was a real rush to make these loans and make as many loans as they could," says Jordan Ash, of ACORN Financial Justice Center, a national low-income housing advocacy organization. "That's because the mortgage companies could sell them off right away" to Wall Street investors.

Investors profited from the high interest rates that consumers were paying.

"Wall Street wanted the mortgage brokers to keep making loans even though they were riskier and riskier," says Ira Rheingold,of the National Association of Consumer Advocates. "They didn't care that ... people were getting loans they couldn't afford because there was so much money to be made."

Abuses got so bad that some lenders were making loans to borrowers who ended up defaulting on their very first payment, according to housing experts.

Defaults ignored in soaring market. While the housing market was soaring, lenders shrugged off borrowers' problems because the value of the property was rising. But now that the housing market is in a tailspin, as many as 2.2 million people could end up losing their homes, worth a total of $164 billion. Another report, concluded that as many as 30 percent of people who obtained subprime loans in 2006 may end up defaulting on them.

"Many families are going to lose their homes," says Deborah Goldstein, executive vp of the CRL in Durham, N.C. "There's a need for federal regulators to address the kinds of abusive mortgage practices that we're seeing."

Last fall federal regulators started to step in, requiring lenders to disclose more clearly the benefits and risks of some subprime loans to borrowers. On Tuesday, Freddie Mac, a quasi-public backer of home loans, announced it would cease purchasing the riskiest subprime mortgages. This week, Fannie Mae, another quasi-public housing organization, said it is working on "rescue" products to try to help troubled borrowers.

Housing advocates believe the regulators are reacting too late. "They're good positive steps but it's not close to being enough – the genie's already out of the bottle," says Rheingold. "What we're seeing now with the incredibly high foreclosure rates ... is a product of the complete deregulation of the mortgage industry over the last 10 to 15 years."

The Mortgage Bankers Association, which represents the nation's major lenders, points out that deregulation has helped create record homeownership.

And the market is already correcting itself, says Kurt Pfotenhauer, the MBA's senior vp for government affairs. Investors are now requiring stricter standards and mortgage companies are weeding out overly aggressive brokers.

"Government regulation of this market will result in fewer people having access to credit," he says. "If you care about people having access to credit you shouldn't regulate the market."

Rate hikes could cause more defaults The catalyst for a lot of defaults will be a change in the interest rates many borrowers pay. This year, holders of some $250 billion in ARMs will see their interest rates rise – perhaps by as much as 1.5 percentage points.

Hugh Moore, an investment manager who runs Guerite Advisors in Greenville, S.C., estimates as many as 1.4 million subprime borrowers will face the prospect of higher interest rates. "I don't know if that constitutes a tidal wave, but you have to believe a number of those people don't have a lot of additional cushion," he says.

Take Mr. Silva's case. In 2004, he was paying 7.6 percent on his $139,000 ARM. Last summer, the two-year teaser interest rate ended and his mortgage jumped 2 percentage points to 9.6 percent. His payments went from $920 to more than $1,200.

The interest on his mortgage, along with his monthly payments, will increase every six months until it reaches a high of 13 percent – if interest rates continue to climb.

"I had wanted a 30-year fixed rate and they told me I'd qualify for one," he says. "Then when I got to the closing they told me I could only qualify for the adjustable rate."

Silva initially walked away. But he had some debts to pay that were due from a stint of unemployment after the dotcom crash in 2000. After two days, he returned and signed the new mortgage.

"I felt like it was a switch and bait," he says.

Ms. Myers is also coping with mortgage sticker shock. As sales director at a Colorado golf course, her commission-driven income depends on weather. When she got her no-down payment loan last spring, costing $2,200 a month, the weather was good and she was bringing home as much as $6,000 a month. When snow came early to Denver, the golf course closed, and her monthly income has plummeted to $2,200 – only enough to cover the mortgage and nothing else. She's maxed out her credit cards and borrowed from family to make payments over the last few months. Her March payment is now due and she only has $1,000 left in the bank.

"They won't take a partial payment, and they say they won't work with me until I've been 60 days late on my mortgage," she says. "I've never been late before, and I don't ever remember being in a financial situation like this before."

Ms. Smith nearly lost her St. Paul house to foreclosure. A retired social worker on a fixed income who is raising a grandson on her own, she had no intention of refinancing her 30-year fixed-rate mortgage. Then her insurance company said her old house needed structural repairs – and it wouldn't issue a policy until the work was done. That's when a mortgage broker came around. He told her he could get her an adjustable-rate mortgage that would allow her to take out equity to pay for the repairs without increasing her monthly payment too much – at least for the first two years. When she asked what would happen after the two-year "teaser rate" was up, the broker told her she could just refinance again.

"And voilΰ, at the end of the two years, I get this slap in the face – they start raising the interest rates every few months and said, 'No, we're not going to refinance,' " she says. Eventually, her payments doubled to more than $1,400 a month. "I told them I don't make $1,400 a month," she says. "'Tough,' they said, 'It's just too bad.' "

Eventually, the lender started foreclosure proceedings. Smith then contacted ACORN, the national housing organization, which negotiated a new fixed-rate loan for her. But her payments are still more than $1,300 a month and she's now working as many part-time jobs as she can find.

"I hate for anyone to find out that I was this stupid, that I could get caught up in something like this," she says. "The sad thing is that I'm not the only one. There are thousands of people that this is happening to."

http://news.yahoo.com/s/csm/20070302/ts_csm/asubprime

ChemEng
03-03-2007, 08:25 AM
Im reminded of the proverb "A fool and their money are quickly parted."

Its sad that so many people are in this situation, but a BIG part of me believes that they did it to themself. If you dont like the product the brokers were pushing, then you could always walk away. No one made them sign the papers.

The idea that the government needs to take action on the lenders is equally laughable. The buyer made a poor choice of mortgage type. Plain and simple. How can government action correct this?

I just wish more people would take accountability for their role in the whole process rather than trying to blame it on a sneaky lender.

James48843
03-03-2007, 11:50 AM
"I hate for anyone to find out that I was this stupid, that I could get caught up in something like this," she says. "The sad thing is that I'm not the only one. There are thousands of people that this is happening to."



There you have it.

Come on people- you screwed yourself.

The time to educate yourself is BEFORE you borrow the money. Now the rest of us will suffer and the economy will tank because you failed to figure out that the payment is going to double in a couple years.

This it what is going to sink the economy into severe recession over the next two or three years.

ChemEng
03-03-2007, 12:03 PM
Unfortunately, she is the exception to the rule. Not to mention, Im sure there is much more money involved with getting some form of government instead of leaning on the accountability of the loan signers.

pyriel
03-03-2007, 05:40 PM
Education and due diligence is the key. People are spreading themselves too thin by accumulating properties left and right. I hope that people reading this article doesnt get scared and shy away from RE. I've decided to hunker down and build up cash. I only have one purchase left and will probably not do anymore purchase until we have another crash. I suggest that people have an emergency nest egg that they can tap into. I'm looking at 1 year total expenditure coverage. This means that if I have zero tenants for all my properties, I should be able to survive for a year.

I hope that this becomes an eye opener to all of our members.

Gilligan
03-03-2007, 10:47 PM
James,
thanks for this new thread, we needed a place to post some good RE stories.



Its sad that so many people are in this situation, but a BIG part of me believes that they did it to themself.

ChemEng,
I agree with you, most of these people did it to themselves by living above their means, spending all their money then borrowing more at an adjustable rate, then they want someone to bail them out. There are a few RE companies out there that buy houses headed to foreclosure but they only pay about 50%-80% of the value.

Gilligan
03-03-2007, 10:55 PM
The New York Times

by Karen Crouse

Published: March 3, 2007

Matt White, L.A. Dodgers pitcher, discovered some rocks while clearing a place to build a house on 50 acres that he bought from his Aunt for $50,000.
A geologist who inspected the property last summer told White that he was sitting on roughly 24 million tons of mica rock worth an estimated $1.2 billion to $2.4 billion.

The article can be found at:

http://www.nytimes.com/2007/03/03/sports/baseball/03white.html

James48843
03-22-2007, 02:05 PM
Government says sub-prime foreclosures not risking the rest of the economy-

http://news.yahoo.com/s/nm/20070322/ts_nm/usa_subprime_dc_1

Officials downplay wider risks of subprime failures By Chris Reese

Government officials on Thursday minimized the broader economic impact of a crisis in the subprime mortgage market, but the largest U.S. mortgage lender said foreclosures in 2006 may be the worst yet.

A U.S. home builder also warned that increased foreclosures could prolong the housing slump.

A senior staffer for the Federal Reserve said the central bank is not seeing signs that problems in the subprime market are spilling over into other market sectors. The U.S. Office of Thrift Supervision said its 17 savings and loan banks with significant subprime lending operations were "well positioned" to absorb increases in losses due to foreclosures.

Credit deterioration in the housing market is focused on the narrow subprime sector, Fed Division of Banking Supervision and Regulation Director Roger Cole told a Senate Banking Committee investigating problems among lenders who write mortgages for people with weak or no credit histories.

"At this time we are not observing spillover effects from the problems in the subprime market to the traditional mortgage portfolios or, more generally, to the safety and soundness of the banking system," Cole said.

Scott Polakoff, deputy director of the Office of Thrift Supervision, told the committee that thrifts with significant subprime lending operations were "generally well capitalized."

The chairman of the committee, Connecticut Democratic Sen. Christopher Dodd (news, bio, voting record), told the hearing that while he plans legislation on predatory lending, the solution to the problem of those facing foreclosure on their mortgages may not be legislative.

"Instead, I would seek to ask leaders from all the stakeholders ... to come together and try to work out an efficient process providing some relief for these homeowners who will be caught in this bind," Dodd said.

The largest U.S. mortgage lender, Countrywide, said on Thursday its subprime mortgage defaults for 2006 loans may exceed the company's highest on record.

Countrywide's "worst single origination year was 2000, for which the cumulative foreclosure rate was 9.89 percent," Sandor Samuels, the company's executive managing director, said in prepared remarks to the government panel examining mortgage lending.

"We believe that declining home prices and other factors ... may produce foreclosures numbers on 2006 originations approaching or exceeding those on loans originated in 2000," he said.

One U.S. home builder also warned on Thursday that higher foreclosures could prolong weakness in the housing sector and impact financial performance.

KB Home, the No. 5 U.S. home builder, said its net profit fell 84 percent in its fiscal first quarter ended February 28. The company's chief executive said lending problems in the broader market from rising default rates and tighter lending requirements for borrowers with riskier credit histories could strangle any improvement in the situation.

KB Home shares fell 27 cents to $47.52 in midday trading on the New York Stock Exchange.

A representative of the Conference of State Bank Supervisors told the Senate committee that Congress should not bail out subprime lenders and brokers who made risky mortgage loans to borrowers with bad credit.

Joseph Smith, North Carolina's commissioner of banks, said the overall U.S. mortgage market is strong even if some large subprime lenders suffer financial losses.

(Additional reporting by John Poirier and Kevin Drawbaugh in Washington and Ilaina Jonas in New York)

pyriel
03-22-2007, 05:59 PM
I really feel for these people that was baited to get these kinds of teaser loans. This country thrives in debts and it is what is keeping this country afloat. However, being buried in debts doesnt last long and somehow, at one time or another, the house of cards shall fall.

But instead of concentrating on this negativity, how about we look at the positive side of what is going on. This means that in a about a year or so (maybe even earlier), we might see another big RE drop. As for me, I welcome this wholeheartedly. Yes, it might sound very selfish but I am an investor. And like any investors, we make our profits when we buy really low and sell high. In fact, this is how we are all playing our TSP here. An advice for everyone, dig in now, raise cash, look at your financial statements, fix your credits, learn about mortgage, etc etc et... These would get you ready to move in to some bargain RE properties out there. Good luck to all.

Pyriel

James48843
03-29-2007, 07:39 AM
More sub-prime news articles:

http://biz.yahoo.com/cnnm/070322/032207_toptips.html?.v=1&.pf=loans

Why you should care about the subprime fallout
Thursday March 22, 12:26 pm ET

By Gerri Willis, CNN


The Senate Banking Committee held hearings Thursday on the crisis in the subprime mortgage lending industry. But we're going to tell you why you should care about the subprime mortgage meltdown and how it's going to affect you.
1: As a homeowner

Even if you're sitting nice and cozy in your 30-year fixed mortgage rate home, this subprime lending mess could really put a dent in your home's value.

A recent study shows that about 1 in 5 subprime mortgages will go into foreclosure. And whether that foreclosed property is across the street, or in the same neighborhood, that is not going to reflect very well on your property value.

The Center for Responsible Lending estimates that one foreclosure in the neighborhood lowers the value of nearby single-family homes by about 1 percent. So, if there are 10 foreclosures in your area, you're talking about 10 percent dip in your home's value.

2: In the market

If you're in the market for a home, you're at an advantage. Sellers are becoming very competitive with each other since there are more houses on the market. And prices have come down in some areas too. That means you may be able to score your dream home at quite a bargain.

If you do have solid credit, the 30-year fixed interest rate is very attractive at just above 6 percent. If you don't have good credit however, you may find it more difficult to qualify for a loan.

3: Selling your home

It used to be that securing credit for just about anyone was a no-brainer, but those rules are changing. Lenders tightening their standards, so there may be fewer borrowers out there who qualify to get a mortgage. And that means that fewer people will have the means to buy a home.

That means if you want to sell your home, you need to price it right. You may also have to market your home more aggressively. Make low-cost improvements that can really help to sell your home like sprucing up the backyard or adding some fresh paint to the exterior.

4: In the market for a mortgage

With all the turmoil in the subprime market, it's more important now than ever that you find a mortgage lender that you trust and feel comfortable with. If you have good credit, you'll find that rates are in your favor. That's because there's a real demand now for homeowners that can make their monthly payments.

Make sure you get at least three mortgage rate quotes from banks and credit unions. You may also want to ask friends and family to recommend a lender. Don't fall for promises that seem too good to be true. The day of "low-low" rates and no money down are long gone.

What to do if your mortgage lender goes out of business

Subprime risk: Most vulnerable markets

robo
10-28-2007, 10:23 PM
Feds cut down-payment assistance programs
By Holden Lewis • Bankrate.com


For a decade, credit-challenged homebuyers have used a regulatory loophole that lets them get Federal Housing Administration mortgages without putting their own money down, while at the same time avoiding costly subprime loans. About 7,000 buyers per month were exploiting the loophole, and now the feds are squeezing it shut.

The new policy means that prospective homebuyers with marginal credit will have to act quickly if they want to buy houses without putting any money down. Otherwise, they will have to save for down payments or wait for the FHA to roll out its own zero-down program.

At issue is a controversial method of scraping together the down payment for a house. Many subprime lenders require down payments of at least 5 percent. That's a high hurdle for people who already have credit problems; luckily for those borrowers, loans insured by the Federal Housing Administration require smaller down payments -- as little as 3 percent.

Lenders mandate down payments for several reasons, the main one being that borrowers are less likely to stop making monthly payments if their own money is at risk. To make sure that borrowers have something to lose, no lender allows sellers to make down payments on behalf of buyers. But for FHA-insured loans, there has been a way to get around that seller-funded prohibition.

The housing boom and the loophole
The FHA allows homebuyers to accept gifts of down-payment money from nonprofit organizations. There's your loophole: Since the 1990s, the FHA has grudgingly allowed home sellers to "contribute" money to nonprofits, and for the nonprofits to then "donate" the money to homebuyers. In effect, sellers could fund buyers' down payments, which was a no-no, but the enterprise was technically legal because the money was shuttled through nonprofits. The nonprofits collected service fees from sellers.

A lively down-payment assistance industry grew quickly behind the protection of this loophole in FHA regulations. In the 2000 fiscal year, 6 percent of FHA-insured purchase loans had down payments channeled through nonprofits; four years later, 33 percent did. When this funding method was most popular, in fiscal years 2003 through 2005, more than 10,000 people per month were taking advantage of it, boosting the housing boom. From 2000 through 2006, more than 650,000 buyers got their down payments through nonprofits.

The federal housing department and Congress have commissioned at least three studies since 1999 that concluded these loans were riskier than FHA loans that didn't involve down-payment gifts. Sellers inflated home prices to recoup their contributions to the nonprofits, researchers found.

The studies recommended that the nonprofit down-payment assistance loophole be closed. Mortgage lenders, home builders and down-payment assistance programs argued to keep the loophole open, on the grounds that boosting the homeownership rate was good for everyone. The feds didn't take action until now.


http://www.bankrate.com/brm/news/mortgages/20071011_down_payment_assistance_a1.asp

pyriel
11-01-2007, 11:56 PM
Depending on who is reading these articles about the housing woes, we can either say that it is bad or it is good. For those on the red end of the stick, of course it will be bad. However, for those RE investors, do you think that they are panicking right now? I'm not talking about those speculators that bought properties hoping that the RE market will continue to rise and they were getting all those crazy mortgages and overextending themselves. Those good RE investors are actually smiling from ear to ear. Ask yourself when you read this kind of articles; are you seeing an opportunity or seeing that this market will come crashing down.

Guam is currently in the uptrend right now. I say we have another 5 good years. Hopefully, I will be in better positions 5 years from now so when the wall start crushing down, I will be ready to scoop up some bargains out there...

Pls be careful...

Pyriel

Gilligan
12-24-2007, 01:19 PM
With the low dollar...
Foreign Buyers Snap Up 2nd Homes in US
http://biz.yahoo.com/ap/071224/real_estate_foreign_buyers.html

James48843
02-14-2008, 11:26 AM
Looks like home prices are falling at record rates:

Home Prices Fall in 77 U.S. Metro Areas, Realtors Say

By Bob Ivry
Feb. 14 (Bloomberg) -- Home prices fell in a record number of U.S. metropolitan areas in the fourth quarter, according to a report released today by the National Association of Realtors in Chicago.

The median sale price of a U.S. home dropped 5.8 percent to $206,200 in the last three months of 2007 from $219,000 in the same period of 2006, the realtors group said today. Prices fell in 77 of 150 metropolitan areas, the most since the group began tracking values in 1979. The decline was 10 percent or more in 16 metro areas, the association said.

Prospective homeowners had a tougher time getting mortgages in 2007 as lenders tightened standards amid rising foreclosures, and made 14 percent fewer loans and 28 percent fewer jumbo loans, which cover up to $417,000 of a home's value. Prices have fallen more than 10 percent since their July 2006 peak in the worst U.S. housing slump in 26 years.

``The continuing crunch in the jumbo loan market that began in August has disproportionately reduced the number of transactions in higher price ranges,'' said Lawrence Yun, the association's chief economist. ``Higher ratios of sales for more moderately priced homes are naturally dampening the national median price as well as the data for some of the more expensive markets.''

The economic stimulus package signed by President George W. Bush this week will raise the jumbo loan limit to $729,750.

Nationwide Declines

All five regions of the U.S. experienced price declines, led by the West with 8.7 percent. The drop was smallest in the Midwest, at 3.2 percent, the realtors group said.

The metropolitan area with the biggest decrease was Lansing- East Lansing, Michigan, which had a 19 percent decline. Prices fell 18.5 percent in the Sacramento, California, region and 17 percent in Riverside and San Bernardino, California -- the so-called Inland Empire -- and in the Jackson, Mississippi, region, the group said.

Of the 73 areas with price increases, 11 had gains of 10 percent of more. The greatest was in the Cumberland, Maryland, area, at 19 percent. The areas around Yakima, Washington, and Binghamton, New York, had 18 percent and 15 percent jumps respectively.

Prices in the Atlantic City, New Jersey, area rose 11 percent in the quarter, according to the association.

Median home prices ranged from $72,600 in the Youngstown, Ohio, region to nearly 12 times that amount in the Silicon Valley area of California, where the median price was $845,300, the group said.

In the fourth quarter of 2006, home prices fell in 73 of 149 metropolitan areas, said association spokesman Walter Molony.
U.S. home sales fell 21 percent in the last three months of 2007, according to the report. The West saw the biggest drop, with 28 percent. Nevada, Wyoming, New Mexico, Arizona, Oregon and Utah all had sales declines of more than 30 percent, the realtors said.


(Note: My local county figures show home prices fell on average 24% in my county year-over-year. )

alevin
03-12-2008, 09:25 AM
Freddie Mac CEO says housing drop has 2/3 more to go. http://www.marketwatch.com/News/Story/Story.aspx?guid=%7bA34A7AC8-276C-40CB-BE4C-A538BA6607B1%7d&siteid=yhoo&dist=yhoo

As a side note, I stumbled over a blog yesterday (forgot to bookmark it, forget who it was), who described a rule of thumb for longterm sustainable housing prices in any particular community. The RofT being 3x the median household income for that community. Based on that, my home's price has grown by a little over 2%/year over the past 9 years since I bought. Good "investment", eh? More like a TIPS.

Something for other folks to consider that may be trying to figure out reasonable bids on new purchases. I've been selectively jobhunting the past few years due to longterm gradual budgetary downsizing trend here, housing prices in communities with potential jobs has been a primary criterion for me deciding whether to go after a particular job or not, relative to my income and comfort level with payments on a 30-yr mort (my basis for determining affordability compared to current situation). Yikes! Right now the budget pressure still exists but not as extreme as it appeared awhile back, so think I'll stay put awhile longer.:cool:

Gilligan
03-15-2008, 03:17 PM
Housing prices are holding steady in college towns.
Enrollments -- especially at large public universities -- are growing as more children of baby boomers (so-called echo boomers) graduate from high school. At cash-strapped public universities, dorm beds are limited and students are often forced to find private housing after freshman year......

http://news.yahoo.com/s/bw/20080314/bs_bw/mar2008bw20080313093883

Real estate is based on supply and demand. If you have a kid that will be going to college in the near future, you may want to explore investing in a house for them to stay in for the 4 year term rather than renting an apartment.

Silverbird
03-30-2008, 12:45 PM
ARM Reset charts: A little dated but you can see the trends.:rolleyes:

http://www.bubbleinfo.com/statistics-2007/

RAE
03-30-2008, 07:16 PM
Interesting article on mortgage equity withdrawals over the last several years and what it may portend for consumer spending and the market over this next year or more. Not a reall cheery picture.

http://www.financialsense.com/Market/wrapup.htm

GUCHI
03-31-2008, 08:12 AM
hey folks

can anyone guide me on how a rent to own would work ??? :confused: i would be the owner looking to rent.

thanks:D
guchi

Minnow
03-31-2008, 10:20 AM
GUCHI: From: www.themtgprofessor.com (http://www.themtgprofessor.com) good luck, hope it helps!!!!


What Is a Lease-to-Own Purchase?


A lease-to-own house purchase (also "rent-to-own purchase" or "lease purchase") is a lease combined with an option to purchase the property within a specified period, usually 3 years or less, at an agreed-upon price. The borrower pays an option fee, 1% to 5% of the price, which is credited to the purchase price. The borrower pays rent, and an additional rent premium that is also credited to the purchase price. If the purchase option is not exercised, the buyer loses both the option fee and the rent premium.


As with any kind of financial contract, lease-purchase deals can be structured in such a way that all the benefits flow to one of the parties and none to the other. Buyers especially need to be careful. But lease-purchase plans have a solid economic rationale, which means that they can be structured so that both parties benefit.
Contract Features of a Lease-Purchase


A lease-purchase has 5 major provisions. The sale price of the house and the rent are market-determined, yet subject to negotiation just as in a straight purchase or rental transaction. Buyers often know less about the market than sellers, which places buyers at a disadvantage unless they do some homework, which is advisable.
Buyers generally prefer a long option period because it provides more time to build equity and repair credit. A long period can boomerang on them, however, if they are never able to exercise the option, since they lose the rent premium they have been paying all the while, in addition to the option fee. Sellers generally prefer a short option period, but if it is too short, the house won’t be sold.
The option fee and rent premium are viewed differently by buyers and sellers. To the buyer, they are part of the equity in the house they will soon own. Fully anticipating that they will exercise the option, the only cost is the interest they would otherwise have earned. To sellers, however, these payments are the best guarantee that their houses will sell; if they don’t sell, the payments are retained as income. That the benefit to the seller generally exceeds the cost to the buyer makes the lease-to-own deal a possible win-win.
Using a Lease-Purchase to Buy


The lease-purchase offers homeownership opportunities to consumers with little cash and/or poor credit, who are prepared to bet on themselves. The bet is that before the option period expires, they will qualify for the mortgage they need to exercise the purchase option. During the option period, they have the opportunity to rebuild their credit and accumulate equity while living in the house.
The development of the sub-prime market, in which consumers with poor credit or no cash can obtain loans, does not seem to have lessened interest in lease-purchase. It is very likely that those who succeed in exercising their option under a lease-purchase do better than if they had financed a conventional purchase in the sub-prime market. The savings in finance costs will more than offset a higher price on the house. But those who can’t exercise their option will lose their bets.
Consumers who need to rebuild their credit rating during the option period should understand that paying their rent on time won’t do it. Rent payment information is not used in compiling credit scores. While Fair Isaac, the company that developed credit scoring, has recently unveiled an “expansion” score based on “non-traditional credit data,” it does not yet include rent payment information from individual home owners. Lease-purchase buyers who need a higher credit score must focus on their credit cards and loans.
Even though it is costly, the right not to exercise the option is of value to buyers. If there is something seriously wrong with the house, neighborhood, or neighbors, the money left behind on a lease-purchase is much smaller than the cost of an outright purchase followed by a sale.
Dangers to Buyers


On October 2, 2005, Bob Mahlburg, an investigative reporter for the Sarasota Herald-Tribune, published an article on a substantial lease-to-own program in Florida that had generated numerous complaints. Over a 5-year period hundreds of deals were executed under this program but only a handful of purchases. In fact, there were more evictions than purchases.
The contract used in this program made it all too easy for the seller to avoid having to sell when it was more profitable to evict the tenant and do another deal with another hopeful buyer. The moral: read the contract very carefully to make sure you are confident you can live up to all the terms, such as paying your rent on time, every time.
Using a Lease-Purchase to Sell


Most home sellers want a cash sale, but for those prepared to hang on to the property awhile longer, the benefits can be compelling. Bob Bruss, an expert’s expert on lease-purchases, says that in this market, there are always more buyers than sellers – he has been both. As a result, buyers generally pay top dollar, perhaps including some assumed future appreciation.
To be sure, the deal may fall through, but in that case the seller gets to pocket the option fee and rent premium. The seller also enjoys the tax deduction on his mortgage interest payments during the option period.
Copyright Jack Guttentag 2007

GUCHI
03-31-2008, 11:08 AM
minnow

i really appreciate the info. it will be a BIG HELP !!!

guchi:)

offtrack
03-31-2008, 12:15 PM
Guchi Lease to own is pure hustle designed to grab the rent plus the option money. I'd stay away from this if I were you unless you want the potential headaches that could come from bad blood between you and the lessee especially in this market where prices may be falling and credit is tightening.

GUCHI
03-31-2008, 01:04 PM
We have the house listed with an agent, but under the current market we have not had much for looks as of late. i want to keep it listed for at least April and possibly May. the interested party came to us with the lease with option to buy, is that a bad sign ?? :confused: we are not desperate yet, since we have someone renting already. but the new people are willing to pay more for rent plus purchase the house. any more advice wouild be helpful.

thanks
guchi

offtrack
04-01-2008, 09:16 AM
Here are a couple of articles on aspects of legitimates and scams. Usually the buyer is the one who must beware, but if he's coming to you with a contract you better fine tooth comb it with your lawyer. My big question would be whether the buyer knows what they are doing. Are they fully aware of the risk involved or just acting cause they want a house? If you can look at their credit report you can probably figure out if they'll be able to afford a mortgage in the time parameters of the contract. Remember the house will have to appraise at the price you both agree on. Hopefully you are not too leveraged that you can absorb any potential problems that could arise from their failure to pay rent.


http://opportunitiesaplenty.com/Debt_Blog/2007/11/_rent_a_house_to_own_what_to_watch_out_f.html

http://www.buzzle.com/editorials/12-2-2005-82927.asp

GUCHI
04-01-2008, 09:50 AM
thanks offtrack i have checked out the sites.

Silverbird
04-07-2008, 11:04 AM
Foreclosures Come to McMansion Country

By Reuters | 07 Apr 2008 | 10:18 AM ET
Million-dollar fixer-upper for sale: five bedrooms, four baths, three-car garage, cavernous living room. Big holes above fireplace where flat-screen TV used to hang.....

The crisis has hit especially hard here in Loudoun County, Virginia, where upscale developments have supplanted horse farms over the past fifteen years.

About an hour's drive from Washington, Loudoun is one of the nation's most affluent counties, with a median household income of $98,000, more than double the national figure.

The county has also ranked as one of the nation's fastest growing in recent years as developers built thousands of super-sized, amenity-laden houses to keep pace with the booming high-tech economy.

These houses are sometimes nicknamed "McMansions," disparaging both their extravagance and their look of mass production -- like hamburgers from a McDonald's restaurant.
http://www.cnbc.com/id/23993467

GUCHI
04-07-2008, 12:25 PM
Sbird
i have a house on the market (realtor listed) and just had a open house(joke) sunday that noone showed for. i know the market is bad, but come on !!! we felt that Spring would bring out some buyers, i tend to have my doubts now.nothing to do ,but wait!!

guchi

weatherweenie
04-07-2008, 12:36 PM
Sbird
i have a house on the market (realtor listed) and just had a open house(joke) sunday that noone showed for. i know the market is bad, but come on !!! we felt that Spring would bring out some buyers, i tend to have my doubts now.nothing to do ,but wait!!

guchi

I also have my house on the market. It has been listed for 3-4 weeks. I have had ZERO showings.

I knew it was going to be tough to sell, but wasn't prepared for it to be this tough.

Thankfully I'm not in a position where I have to sell.

GUCHI
04-08-2008, 06:49 AM
lucky you !!!! i have to sell to get my money back out of the flip. fortunately we have a renter at the time. expect a tough sell !! we also listed our present home which we thought would sel quickly due to location and price. it did not and thats when i realized how suppressed the market was !!!! good luck and hang in there.

Show-me
04-08-2008, 07:08 AM
Someone reported that the bank are not foreclosing on delinquent homes anymore because of the flood on the market and it is cheaper for them to do nothing than foreclose. Also, it keeps the foreclosure off the books. Sneaky crooks. Point of the piece was to show that the banks are cooking the books again and the public is not getting the real story of how bad it really is.

GUCHI
04-09-2008, 08:11 AM
show
i have noticed houses for sale in my neighborhood have been listed forever, they just won't sell !!!! mine included !!! please someone help us. i have heard that even qualified buyers can't get a loan, whats up with that ??????

Gilligan
04-09-2008, 11:07 AM
show
i have noticed houses for sale in my neighborhood have been listed forever, they just won't sell !!!! mine included !!! please someone help us. i have heard that even qualified buyers can't get a loan, whats up with that ??????
Guchi,
instead of reducing your asking price, consider gifting the down payment. You can gift 6% of the price, that should allow the seller to buy your house with no down payment. You will increase the amount of buyers by advertising, "Home for sale, $0 down".
http://www.getdownpayment.com/sellers/

GUCHI
04-10-2008, 08:07 AM
gill
thanks for the info. i forwarded the site to my real. est. agent to see if it is a viable option for me. i don't understand all the aspects of the ( 6 % gift).

guchi

12%ayear
04-23-2008, 04:01 PM
Remember when everyone is doing the same thing, it is the time to do the opposite. That is what happened with Oil and Gold. Back in the late 1990s people were laughing at them. Look today. When everyone was buying stocks in 2000, look what happened. Same with Real Estate, everyone was buying and flipping properties. There were and still are shows on TV about flipping real estate. The bottom-line is that this was a huge ponzi scheme based on our greed. It all started shortly after 9-11 when the Fed was cutting rates to the bone. Greenspan cut too deep and caused this reaction from banks and the real estate market. Banks wanted to give away money. Appraisers were overpricing the worth of property to keep this scheme going. Homeowners felt house rich and borrowed. They took vacations, bought SUVs,and other wasteful things. Now what happened???? It all backfired on us. The US Dollar is worth crap causing oil to go even higher. Inflation is here and strong. Food prices are skyrocketing. We are at war on a credit card. We are fixing roads in Iraq but not in our towns. There are no silver lining this time around. This will take time to solve and work itself out. People are afraid to buy and banks are tight with the buck. They will be very careful this time. The answer is that we need to get the US DOLLAR back up and fight inflation now!!! The Fed should be increasing rates because this will make the US DOLLAR stronger and allow property value to become more stable.

pyriel
04-24-2008, 10:38 AM
Remember when everyone is doing the same thing, it is the time to do the opposite. That is what happened with Oil and Gold. Back in the late 1990s people were laughing at them. Look today. When everyone was buying stocks in 2000, look what happened. Same with Real Estate, everyone was buying and flipping properties. There were and still are shows on TV about flipping real estate. The bottom-line is that this was a huge ponzi scheme based on our greed. It all started shortly after 9-11 when the Fed was cutting rates to the bone. Greenspan cut too deep and caused this reaction from banks and the real estate market. Banks wanted to give away money. Appraisers were overpricing the worth of property to keep this scheme going. Homeowners felt house rich and borrowed. They took vacations, bought SUVs,and other wasteful things. Now what happened???? It all backfired on us. The US Dollar is worth crap causing oil to go even higher. Inflation is here and strong. Food prices are skyrocketing. We are at war on a credit card. We are fixing roads in Iraq but not in our towns. There are no silver lining this time around. This will take time to solve and work itself out. People are afraid to buy and banks are tight with the buck. They will be very careful this time. The answer is that we need to get the US DOLLAR back up and fight inflation now!!! The Fed should be increasing rates because this will make the US DOLLAR stronger and allow property value to become more stable.


Hello all... I have some downtime so I decided to swing by my favorite site. The old timers know that I am currently in Afghanistan helping the government win the hearts and mind of the the Afghan people. I am currently the Battalion Team Chief for 3rd Battalion 3rd BDE 203rd Corps. Spring offensive is about to start so we will be doing missions with my Afghanistan counterparts sometime soon.

I've always regarded 12% input on matters dealing with investment. I just want to counter that bringing up rates will not help the economy at this time. The Fed is bringing down rates to stimulate the economy. When rates go down, more people borrow more money and thus more money will be circulating within the economy. Bringing the rates up will hinder people from borrowing so this means that we have less money circulating and stimulating the economy. Increasing rates will not increase the buying power of our dollar in my opinion. As long as we continue to print paper money without anything to back it up except more debts, we will continue to see dollar's value to go down.

Another problem that we are seeing now is that there were many speculators who jumped into RE and people who are living beyond their means that tries to get more of what they can afford. However, for those who have studied RE a little closer, they understand that just like stocks market, RE also has its cyclical trends. This is an opportunity for those who saved their pennies to buy some good RE in the market. It is a buyer's market right now and there are so many good investments RE that are moving under everyone's noses. here is a good example, some houses that used to sell for 900k in San Diego is now down to 500k. Just look at the RE trend in CA and you will see that your property there will grow within the next 3-5 years. I'm not saying that you should buy anything that comes your way. Do your homework, collaborate from those who have done it before, try not to speculate and live within your means.

Good luck all and I hope that everyone is safe at home.

Pyriel

Silverbird
04-24-2008, 03:55 PM
Usually, Fed bringing down rates would improve interest rates, but right now it's not happening because there are so many bad loans out there. Cutting rates drops the dollar, which means commodity prices will go up, and there is less worldwide interest in holding dollars or dollar rated bonds. Raising the rates might bring Fed rates closer to the actual borrowing rates out there, but not good psychologically for the nation. I'd prefer the Fed "hold 'em" for a bit.

Silverbird
04-25-2008, 04:33 PM
Homeowners Convert to Costlier Fixed-Rate Loans Amid ARM Fears

April 25 (Bloomberg) -- Mortgage refinancing in the U.S. is increasing as record numbers of homeowners (http://www.bloomberg.com/apps/quote?ticker=MBAVREFI%3AIND) dump their adjustable-rate mortgages for the security of a fixed loan.

The amount of refinanced home loans will reach $321 billion by the end of June, the most in a year, according to estimates from Washington-based Fannie Mae (http://www.bloomberg.com/apps/quote?ticker=FNM%3AUS), the largest buyer of mortgages. Nine out of 10 of those borrowers will choose a fixed rate, Fannie Mae said.

Property owners are abandoning adjustable-rate (http://www.bloomberg.com/apps/quote?ticker=FHAVARM%24%3AIND) mortgages, or ARMs, to ward off the prospect of higher payments.

http://www.bloomberg.com/apps/news?pid=20601213&sid=au53A_G4d.nI&refer=home

Miss_Piggy
04-27-2008, 06:07 PM
http://www.car.org/index.php?id=Mzg0MzA=. (http://www.car.org/index.php?id=Mzg0MzA=.)

Silverbird
04-29-2008, 04:15 PM
More Subprime, Alt-A Mortgages May Head `Underwater' (Update2)

By Jody Shenn
April 29 (Bloomberg) -- About half of recent subprime and Alt-A borrowers may soon owe more on their mortgages than their houses are worth or hold minimal equity, putting $800 billion of debt at greater risk of default, according to Barclays Capital.

Subprime loans from 2006 and 2007 that exceed the value of the homes jumped 5 percentage points to 19.8 percent in the fourth quarter, and may reach 26 percent by midyear if prices drop at the same pace, Barclays analysts wrote in a report yesterday. Alt-A loans, a grade better than subprime, would grow to 23 percent from 16.3 percent.

Many of the loans are in areas (http://www.bloomberg.com/apps/quote?ticker=SPCSSD%3AIND) where prices are falling faster than the U.S. average, so the size of the shift is underappreciated, New York-based analysts Ajay Rajadhyaksha (http://search.bloomberg.com/search?q=Ajay+Rajadhyaksha&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) and Derek Chen (http://search.bloomberg.com/search?q=Derek+Chen&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) wrote...
http://www.bloomberg.com/apps/news?pid=20601087&sid=a8rYIdIDvfIo&refer=home

Asylum
05-15-2008, 09:30 AM
from the original story at the top of the thread:


Mar 2007 - Some housing specialists worry that the mortgage industry – with more than 20 companies already in bankruptcy – will raise its lending standards so high that would-be homeowners with less-than-perfect credit will be frozen out. There is even some concern that the pullback in lending will extend the slump in the nation's housing market.

Yes.. this has come to pass... even buyers with good credit are not assured approval. This makes sell houses even more difficult.

Frixxxx
05-15-2008, 09:42 AM
from the original story at the top of the thread:

Yes.. this has come to pass... even buyers with good credit are not assured approval. This makes sell houses even more difficult.

But still, wouldn't the banks be more forthcoming with money if they were actually "RECIEVING" money for the houses that forclosed. It seems to me that there needs to be more incentive for the banks to actually sell their empty properties or turn it over to a mangement company to stop "writing-off" all this debt. Is it me or have the banks forgotten that they NEED customers to operate? Yes the fine line is there but getting some money is better than no money.:cool:

luv2read
05-15-2008, 10:02 AM
But still, wouldn't the banks be more forthcoming with money if they were actually "RECIEVING" money for the houses that forclosed. It seems to me that there needs to be more incentive for the banks to actually sell their empty properties or turn it over to a mangement company to stop "writing-off" all this debt. Is it me or have the banks forgotten that they NEED customers to operate? Yes the fine line is there but getting some money is better than no money.:cool:
They obviously don't think so. They've figured out they can make loans, package and sell them to get their money back instead of holding them and collecting monthly payments. If they default or foreclose on the ones they can't sell, they write them off. With all of them doing this with each other, it will take a while for them to need any new customers to make new loans under the new more restrictive standards. Sound like a giant ponzi scheme?

Asylum
05-16-2008, 08:40 AM
:sick:

...the bank's main asset is debt... bad bad bad

http://research.stlouisfed.org/fred2/data/BOGNONBR_Max_630_378.png

luv2read
05-16-2008, 09:50 AM
:eek::sick::nuts::worried:

Silverbird
05-16-2008, 02:37 PM
Sigh, I assume that is what's making F so volitile? If that was a barometer we'd be riding in 50' waves.

Silverbird
05-22-2008, 02:27 PM
Big Downpayments Return, Hurting Housing Recovery
As U.S. banks mop up the mess from billions of dollars of bad home loans, buyers are finding the days of cheap money are over and, in many cases, tougher versions of old lending rules now apply.


People of modest means have seen the American dream of home ownership move further out of reach. Even affluent buyers, who took advantage the last decade's low interest rates and looser lending standards to move up to more expensive homes or to buy investment properties, are seeing their options evaporate.
Gone are the days when almost anyone could get a loan with a down payment of less than the traditional 20 percent.
http://www.cnbc.com/id/24770001

Asylum
05-23-2008, 09:34 AM
Big Downpayments Return, Hurting Housing Recovery
As U.S. banks mop up the mess from billions of dollars of bad home loans, buyers are finding the days of cheap money are over and, in many cases, tougher versions of old lending rules now apply.


People of modest means have seen the American dream of home ownership move further out of reach. Even affluent buyers, who took advantage the last decade's low interest rates and looser lending standards to move up to more expensive homes or to buy investment properties, are seeing their options evaporate.
Gone are the days when almost anyone could get a loan with a down payment of less than the traditional 20 percent.
http://www.cnbc.com/id/24770001

easy money is long gone... even HELOC's are had to get...