Category Archives: Foreclosures

PSA About the darn banks

So last I checked, when we get a loan we have to pay PMI- Private Mortgage Insurance. It’s actually a bill that is incurred by the bank, that they pass along to the buyer, and the buyer pays it or else they don’t get their loan. It’s to cover the bank if the buyer defaults and the foreclosed house sells for a loss. Kind of like gap insurance on a car that you purchased- if your car gets totaled and your payout is less than you owe- in comes gap insurance.

Here are my two beefs with this whole PMI thing (two and a half, the fact that the buyer pays it is a little mini-beef).

1) Do you know who pays the difference? The insurance company. Know what happens if (say during a market crash) the insurance company declares bankruptcy? One of two things.

American International Group (AIG) is the largest business insurer in the world. On September 16, 2008, the Federal Reserve agreed to extend an $85 billion bridge loan to keep the insurer from declaring bankruptcy and giving it time to improve its financial position. If it does not, well $85 billion’s not a lot, right?

If it is a smaller insurance company then the state government steps in an covers for it more directly- i.e. pays out it’s claims (although there is a variable cap).

Either way, the final translation is the same: YOU pay for the defaulted mortgage. YOU, the taxpayer. The one who more than likely paid an insurance premium on your own home as well.

2) Well- no big deal right? I mean just say that the market fails- first the house goes into foreclosure and they sell- then the insurance company only has to pay the difference right? That’s not a lot, right? WRONG.

Banks are not managing their properties properly- and why should they? They get the same amount of money either way (actually they might stand to lose a bit by properly managing them, I’m unsure if they’d get reimbursed for that). So they get damaged or run down,  and as a result are selling for Way Way WAY less than the loan. And we are suffering, on several levels for that.

Do something about it. Say something about it. We have a thousand venues for using our voices, let’s get foreclosed property management regulated. There’s another round of foreclosures coming- taxpayers don’t need to pay for them as well.

 

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Foreclosures- Hot Deal? Or Hot Mess?

The It word in the real estate community is the F word. Foreclosures. There are a lot of them out there, they’re doing interesting things to the market, and there are a lot more coming. As of March of 2011, there were around 2,000,000 houses late on their mortgage payments (yes, that’s 2 MILLION) 40% of which were delinquent by 12 months or greater.  Foreclosures are going to be a fixture of the market for some time until we get back on track, so we might as well get familiar with them. So- hot deal? Or hot mess?

For the real estate virgins out there, I’ll break it down a bit before I plunge in. I really hope that everyone knows if you buy a home with a loan, then you are using that house to secure the debt. What a lot of people are missing when they look at that equation is the human element. The people who are leaving these homes are not leaving them happily! While you will have the occasional foreclosure in pristine shape, the fact of the matter is that Donna Reed would not have signed a balloon loan (and anyone that perfect is totally repressed so if the hubby lost his job then the eviction might turn into a rendition of The Shining). Expect these properties to be damaged or run down (getting evicted is bad for drywall, and the owners tend to leave with everything- including the kitchen sink). If you do not want a fixer-upper then don’t go looking at foreclosures, you will still get a great deal.

With all the foreclosures out there, lovely homes in great condition are selling for far less than their assessed value- these are the major deals that people without Home Depot memberships are going to want to take advantage of. If you are a seller, resign yourself to the fact that the market is against you, but any losses that you take you will recoup by buying into your next home at a lower price as well. Don’t make the mistake of lowering your price when the market starts to swing back the other way- do it now. If you sell low when things are picking back up, you might wind up getting the worst of both worlds.

This is where your real estate agent comes in. They will be able to tell you what a fair market value is for your home- the best price at which it is most likely to close. Listen to them when they tell you this, they get it scientifically by using comparable homes in your area (unless they are Traci Amick, who is a house whisperer with reportedly psychic powers). If you are a buyer, listen to your real estate agent’s feedback after you describe what you want. If you have told them you don’t want to do a lot of work and they politely let you know that your price range is off- there is a reason for that. You are not going to be purchasing a foreclosure- you will be purchasing a home, from a person, who likely has a mortgage to pay off.

One final note of warning on foreclosures, to all the Tim Allens who are going to fix up what has fallen down with the market (and my hat is off to you, these homes need your help)- please expect about 50 pages of disclaimers with the purchase of your foreclosure, and don’t be intimidated by them. All they are saying is that the bank is done with the house once you buy it. Just make sure that you get it inspected, so you have a realistic idea of what you are getting into.