The idea behind cash back is so you can pay closing cost or make minor repairs to the building. However the idea behind 26% cash back is to screw the lender. As soon as the buyer gets their 26% mail in rebate they are gone and the house will go back to the lender. The lender gets screwed because they made a loan for an amount that wasn't covered by the house.
The idea behind cash back is so you can pay closing cost or make minor repairs to the building. However the idea behind 26% cash back is to screw the lender. As soon as the buyer gets their 26% mail in rebate they are gone and the house will go back to the lender. The lender gets screwed because they made a loan for an amount that wasn't covered by the house.
PingSpike
Lifer
- Feb 25, 2004
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Ok, I see where your fraud thing comes in. That makes sense. But in the case of the smaller cash back for closing costs or minor repairs...I still don't understand why they don't just drop the price on the house an equivilent amount instead. Wouldn't that be simplier for all involved, in addition to being less fraud prone?
- May 21, 2001
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I agree with you (also, the buyer is likely to pay less property tax because the house can be arguably worth more to the tax assessor if the buyer just paid a lot). But,
(1) If the seller is a business (home builder, or other company that owns a lot of homes for sale in that market area) then the business doesn't want to lower the perceived value of home in the area. Suppose this buisness is selling 20 comparable homes in a local area. If the first home sells for 26% more, then the other 19 homes get higher appraisals because a comparable home sold for so much. Buyers see that other people are paying a premium for homes in that area and feel the homes are worth more in that location, so the other 19 homes get interested buyers. Etc. The opposite is true for a home selling at a discount. If one goes for a low price, it brings down the price of all of the other 19 homes.
(2) The buyers and sellers have little direct incentive to drop the price vs giving a rebate. To them, the just see the net price being the same in both cases (and they overlook the minor details).
(3) The buyers and sellers are being given advice from "professionals" who's commission depends on the value of that home. Neither the seller's realtor nor the buyer's realtor sure the heck don't want the commission lowered. With the 26% higher buying price, the realtors get 26% more commission. They may very well be encouraging the buyers and sellers to go for the 26% rebate.
PingSpike
Lifer
- Feb 25, 2004
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I figured it was something like that...selling for what people will pay while trying to mitigate the damaging effects that has on the preceived value. Sounds like everyone does well with the system with the exception of the buyer, who gets screwed more then he/she likely thinks.
Hopefully this type of behavior will die out as people become more decerning in the slowing market.
Pretty amazing stuff especially since resident Republicans said this would never happen.
3-20-2007 As Foreclosures Rise, Houses in Detroit Cheaper Than Cars
DETROIT ? With bidding stalled on some of the least desirable residences in Detroit's collapsing housing market, even the fast-talking auctioneer was feeling the stress.
"Folks, the ground underneath the house goes with it. You do know that, right?" he offered.
After selling house after house in the Motor City for less than the $29,000 it costs to buy the average new car, the auctioneer tried a new line: "The lumber in the house is worth more than that!"
Steve Izairi, 32, who re-financed his own house in suburban Dearborn and sold his restaurant to begin buying rental properties in Detroit two years, was concerned that houses he thought were bargains at $70,000 two years ago were now selling for just $35,000.
At least 16 Detroit houses up for sale on Sunday sold for $30,000 or less.
A boarded-up bungalow on the city's west side brought $1,300. A four-bedroom house near the original Motown recording studio sold for $7,000.
"You can't buy a used car for that," said Izairi. "It's a gamble, and you have to wonder how low it's going to get."
Detroit, where unemployment runs near 14 percent and a third of the population lives in poverty, leads the nation in new foreclosure filings, according to tracking service RealtyTrac.
With large swaths of the city now abandoned, banks are reclaiming and reselling Detroit homes from buyers who can no longer afford payments at seven times the national rate.
Realtor Ron Walraven had a three-bedroom house in the suburb of Bloomfield Hills that had listed for $525,000 sell for just $130,000 at the auction.
"Once we've seen the last person leave Michigan, then I think we'll be able to say we've seen the bottom," he said.
Starbuck1975
Lifer
- Jan 6, 2005
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Does anyone know what the process is for shopping foreclosures. I have been using a number of online databases, most noteably foreclosure.com, and while these sites tend to list numerous foreclosures, you have to pay for access to more specific information.
The word on the street is that the rise in foreclosures could cause a bubble crash, and that foreclosure properties are often available at below market value.
My wife and I have been patiently waiting a price adjustment to purchase our first home...but we aren't all that savvy on how real estate works.
Is there a process, or resources available, for purchasing foreclosed properties?
The word on the street is that the rise in foreclosures could cause a bubble crash, and that foreclosure properties are often available at below market value.
My wife and I have been patiently waiting a price adjustment to purchase our first home...but we aren't all that savvy on how real estate works.
Is there a process, or resources available, for purchasing foreclosed properties?
Vic
Elite Member
- Jun 12, 2001
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What else did you expect? I've been saying for years that the "boom" in the housing markets was just inflation. In the meantime, the Fed is devaluing the national debt caused by decades of unchecked government spending. Clearly we need even more centralized control to make sure that the little guy gets sh!t on that much more, right?
Hmmm...according to most available information housing in the last decade increased 80 index points (120 -> 200) *REMOVING* inflation, whereas that 20pt increase from 100 (initial index start) took 115 years.
Inflation had nothing to do with this boom, especially when you consider that core goods needed for manufacturing of housing didn't raise in price nearly as fast (not even a significant fraction).
This isn't only supported by Shiller's index, but also other sources, including government sources which show annual housing appreciation oustripping inflation by a factor of 3-4:1.
This comes at a time when inflation is managed to a very low point, in fact some of the lowest and steadiest in history.
Keep shifting blame and reality.
Vic
Elite Member
- Jun 12, 2001
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What shifting of blame and reality? You're trying to imply that every market and every commodity inflates at the same rate. You're only fooling yourself there if you think that inflation has been "managed" in such a way.
As for this need for emotionalism and blame you've come up with up lately, I suggest you cool down before you become the new McOwen here. Just because I disagree with the full extent of your Chicken Littleisms doesn't mean that I'm to blame for anything.
WhipperSnapper
Lifer
- Oct 30, 2004
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It should be noted that Bloomfield Hills is one of the wealthiest areas in the metro Detroit region, filled with million dollar mansions and houses on lakes. Perhaps this particular three bedroom house was near the city of Pontiac, which is an impoverished, high-crime ghetto (an island of blight and poverty surrounded by otherwise upper middle class suburbs).
- May 21, 2001
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1) Houses typically sell at market value. If the market valued the house more than the selling price, then the people would offer more than the purchase price. If the market valued the house less than the selling price, then either no offers would be made or all offers would be below the selling price.
2) A better statement would be: foreclosure properties are often available at prices lower than they would be if the foreclosure properties were fixed up.
3) I've known a couple of people who were foreclosed on and my GF just bought a house that was almost foreclosed (the banks started the foreclosure process but kept delaying it due to her offer). In each case, the house was in shambles. (A) The previous owners didn't have enough money for the house, thus they didn't properly maintain things; important repairs went unrepaired and thus greater damage was done. (B) The previous owners were often forcefully removed from the house, so they take revenge on the house - think sabotage, clutter, and unhealthy "deposits". (C) The house often sits vacant for 6-12 months, pipes will break in freezing weather, animals will have taken residence, etc. That is why the houses sell for less than they could have been worth.
4) Thus, IF you can fix it yourself cheaply, you can significantly raise the value. In my GF's case, we took a month ripping down drywall and fixing the plumbing (the house was only 7 years old, but two winters without heat did quite a lot of damage to a house that wasn't winterized). But the repairs cost her next to nothing (drywall and copper pipes are dirt cheap) and she probably raised the house value $10,000 with those repairs (comparing it to the price of equivalent houses that weren't in foreclosure). If you have to pay others a high price to do the work, you might not have really found a bargain. It probably would have cost my GF $10k to pay others to do all the work we put into it - leaving her with no real incentive to buy that particular house.
5) I can't help you find foreclosures, since I have no idea of where to look.
Cliffs: the houses are cheap for a reason, be prepared to cheaply, but properly, fix it yourself otherwise a foreclosure isn't worth your hassle.
interesting development, creditors adapt on the fly, but the turmoil is gonna cause grief to larger audience:
- May 21, 2001
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I posted this idea a week or two back. Some lenders at that time began ending the zero-down loan. Vic adamantly denied that would ever be the case. As he is in the business, I trust him a lot. But I think this is a thing we will have to watch closely.
If subprime buyers are mostly cut out and if the zero-down buyers are mostly cut out, there will be a lot fewer customers buying those houses. Fewer customers right at a time when demand has slackened. That is NOT a good combination for house prices.
Do not forget that if secondardy purchasers refuse to buy them then the lenders will either have to hold them or sell them off at significant discount. Either way it will increase the capital requirements and costs for originating mortgages, leading to higher borrowing costs for the average borrower.
Great for Hedge Funds and others who can take some risk, because they are going to be bringing in lots of subs pretty cheaply. Very bad for everybody else since the market can't take much increase in borrowing costs.
Vic
Elite Member
- Jun 12, 2001
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1. Dullard is wrong. I did not adamantly deny that zero-down loans would disappear. I said that they already exist in more forms than just subprime and Alt-A, and gave examples of VA, FHA, and similar government and community supported zero-down programs that will not be effected by this shake-up. In fact, the thread at that point went into a discussion about the merits of VA loans by those who had actually acquired them. So either Dullard is being ignorant here, or he is intentionally mischaracterizing. Either way, I don't appreciate it. One has to ask why he can't be honest here is he supposedly trusts me so much.
2. I'm glad that LK is finally starting to own up to the REAL blame here, which is the big Wall Street houses that he works for that have provided all the funds for the subprime and Alt-A mortgage lenders, and set all their lending guidelines, right down to telling the mortgage lenders exactly what their rate sheets should look like and exactly what the underwriting criteria should be. But nah, he won't actually do that, it might disrupt his short-selling.
- May 21, 2001
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Calm down there, Vic. Take a few minutes and relax. Then come back and enjoy the forums once again.
I posted the banks may be ending zero-down loans. For some odd reason I can't find your reply (was it in the same thread that I posted that?, I know you replied to me on the subject). Your reply was to calm the fears that the banks wouldn't be ending it. You listed a government sponsored program (at a time when the governement is looking to change laws dealing with housing, are these programs safe?). Government programs have nothing at all to do with my post about banks ending the loans. Maybe that is where the mischaracterizing came from - your original reply didn't address my post. Thus when I reply to your reply, it isn't really on the original topic any more.
So, lets get back to the original topic and keep it focussed. Are banks (without any special cases that only apply to a subset of buyers, such as VA loans) ending the zero-down loans? Or will these loans still be abundant? Will I, a person who doesn't qualify for those programs, be able to get a zero-down mortgage in lets say 1 year?
1. Considering that a lot of people, other than banks, are shutting down Alt-A funding sources, it isn't too hard to imagine that this will lead to further closure on the 0-down area.
2. Lets be realistic here. Mortgages are funded in several ways, but it basically breaks down into three simple paths. Either the company itself keeps them and raises unsecured debt and equity and funds at the company WACC, it securitizes the assets itself whether it's term or short-term conduit funding, or it sells the assets to other people, who then fund them through their own channels, whether that be further term securitization, asset backed conduits.
Now, holding on balance sheet through unsecured debt and equity is very costly, as equity is expensive as is unsecured debt. Not to mention that regulatory capital requirements require extra retained capital, and accounting standards require loss reserves. All of this can be very costly to lenders, which is passed on to consumers.
The 2nd way of funding mortgages is self-MBS issuance. These programs are underwritten by banks but are also checked and rated by Rating Agencies who look at the collateral of the loans, historical performance, and determine how to structure the issuances so that every lender takes the appropriate risk. They then bid on those bonds, demanding an interest rate compensation for their respective risk. Since sub-prime has been a point of concern in the last few years for agencies, companies like Fitch have raised over-collateralization requirements, meaning that for every $1 of loan you put in, you may only get $.80 in bonds sold, that $.20 is OC, which protects investors from losses. The selling company holds that OC, as a first-loss position. Meaning that if defaults are too high for collected interest to cover, then the OC absorbs additional losses.
OC requirements have been climbing, since Rating Agencies have seen the looming storm. Thus, borrowing costs have been increasing (since OC is funded through WACC). However, this has been stemmed by lenders selling OC to hedge funds and other investors.
The 3rd way of funding assets is to sell whole-loan. You organize a pool of assets and sell all rights, responsabilities, and balance (including accrued interest) to other organizations who then either sell or securitize. These sales can be at discount to the face value of the loan (depending on risk).
Admittedly, money has been "loose" for the last couple years as foreign and domestic investors have been willing to fund mortgages, even going down-credit to do so. They have done this, thinking times would keep going well, at low rates. Thus, you get low borrowing costs to the ultimate borrowers.
However, i-banks do not control how lenders underwrite the initial loans, they only dictate what they will and will not buy and at what prices. These prices are set not only by banks, but also by rating agencies, government regulators, and international regulators. Issues such as FAS140/155/156, capital requirements, and BASLE II, set the amounts for which banks and ultimately the purchasers of the securities must pay to purchase and hold the securities, all of this is based upon risk and return, especially the perception of risk on the forward basis.
Might have some banks told lenders that they would fund riskier paper? Perhaps, but the oversight is significant, both from regulators and agencies, thus it wouldn't be easy.
Ultimately, it comes down to placement of responsability. I-bankers do not extend the loans to borrowers, they just fund the loans on the back-end. They do not set document requirements, they just tell you what they will pay for a certain level of documentation. They do not force lenders to lie to applicants or mislead them as to the properties of the loan. They do due-diligence to try and catch such fraud and other problems, as do the Rating Agencies, but they are not all-knowing and all-seeing.
No, the real blame doesn't lie upon those who extend funding, but those who extend the actual loans and entice those who wish to borrow to do so. They are the ones who pushed exotic products down-credit in the hopes of making a quick buck.
Go ahead Vic, shift blame. Your industry is unscrupulous and lacks significant oversight. There is too few checks and balances, which is not as true for my industry.
3-22-2007 Credit counselors overwhelmed by U.S. mortgage crisis
Demand for counseling appointments at CCCS's Cincinnati offices has risen 87 percent from a year earlier.
Britton said people should call a reputable credit counselor as soon as they're in trouble. Loans can be restructured, and emergency funding may be available. But she admits the counseling industry is already overwhelmed.
"If I stop answering calls to actually talk to a client and help them, the messages pile up, and there's no time to call them all back," Britton said. "It's only going to get worse."
Demand for counseling appointments at CCCS's Cincinnati offices has risen 87 percent from a year earlier.
Britton said people should call a reputable credit counselor as soon as they're in trouble. Loans can be restructured, and emergency funding may be available. But she admits the counseling industry is already overwhelmed.
"If I stop answering calls to actually talk to a client and help them, the messages pile up, and there's no time to call them all back," Britton said. "It's only going to get worse."
Vic
Elite Member
- Jun 12, 2001
- 50,422
- 14,337
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For some reason, the search isn't working for me in finding that thread either. However, I do recall the discussion clearly, including Fobot's reply about how great his VA loan was. And I felt that I was on topic with your discussion, just like here. You said zero-down loans were disappearing, I pointed out how they weren't.
And yes, you could qualify, even if you're not a veteran. FHA only requires that you purchase a home at or below the median price for your area AND that you not have any previous history of defrauding the government, while many other community-based programs are equally generous (for example, Fannie Mae's community program caps income limits to 150% of median for your area). Those aren't going away.
Hell, I closed a no-down purchase on a standard conforming program just the other day. The borrower had an 800 FICO, low debt ratios, and more than a year of his income in savings (all fully documented of course). That program ain't never going away.
Vic
Elite Member
- Jun 12, 2001
- 50,422
- 14,337
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Blah blah blah is that all you ever do? I know exactly how subprime mortgages are funded up to secondary, thank you very much. You don't need to bore us with technical details in an attempt to obscure who is really controlling the purse strings. In the meantime, your Wall Street buddies just pulled one of the biggest pump-and-dump scams in history. But no worries, they'll have plenty of apologists like you and plenty of money left over to buy as many talking heads and politicians as needed.
Vic
Elite Member
- Jun 12, 2001
- 50,422
- 14,337
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Vic
Elite Member
- Jun 12, 2001
- 50,422
- 14,337
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LK, is this you?
Nah, let's just keep blaming the go-betweens. Wall Street was happily buying subprime loans just a few months ago, demanding more and more, then they suddenly stop buying them and start shorting. But oh no! it's those evil subprime lenders who caused all this!
Who wants to bet that Christmas bonuses at Goldman Sachs will be even bigger this year than last?
:roll: <^>
Nah, let's just keep blaming the go-betweens. Wall Street was happily buying subprime loans just a few months ago, demanding more and more, then they suddenly stop buying them and start shorting. But oh no! it's those evil subprime lenders who caused all this!
Who wants to bet that Christmas bonuses at Goldman Sachs will be even bigger this year than last?
:roll: <^>
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