Thursday, April 30, 2009

The Plan Update 2 "The Back Story"

I don't think I clarified our personal objective with our own loan modification scenario. I can generalize, but then I'd just be like a reporter. People want to know what they can do based on their own situation, so hearing all the political rhetoric or the talking heads of CNN and Fox News simply repeating and posturing is pretty useless to you and me.

Of my work in April I did 4 appraisals for homeowners who flat out told me that they're trying to take advantage of "the Obama plan". Luckily for me, I'm paid to be objective- not help anyone's agenda, so I've appraised their homes for what they are worth- today. And in every case, I can see in the county records that their initial first mortgage was say $300,000 and now their house is worth $240,000. Are they going to be able to "take advantage" of Obama's plan? Probably not. And I've been paid $350 each time, so although I've benefited, it's clear that these homeowners are wasting their money.

So let me state or reiterate my own situation:

We bought a house in 2005 that was big enough for us, had a great cul-de-sac view lot with only one neighbor- and oh yeah, the view is three different holes of the local golf course AND a beautiful mountain range to the north and a decent view of the mountain range to the south. We put 20% down, got a 5 year interest only ARM with a rate of 5.25%. We paid cash to fully landscape the backyard and put in a $35,000 pool. It's walking distance to a 2 year old elementary school which our daughter now attends.


Where we live, the market peaked right around August of 2006 and has pittered south ever since. Add to that a large number of investment homes where people simply "walked away" and the property values have decreased even more. In 2005, new home developments had lotteries and waiting lists and rude salespeople who simply had to float a balloon in the sky, hire a dude to spin a sign and the neighborhood would quickly sell out. Never mind that four homes on a single street sold to one person who lives in San Francisco (I'm in Arizona). And if that's a real example on a street of thirty homes, then imagine this being duplicated throughout my town, state, and yes- nationwide.


Using the dreaded Zillow as a quick measure, our house was worth our mortgage amount in about January 2008 with no signs of stabilization.

Quite coincidentally, my work had dropped significantly and January-March 2008 was probably the worst three month span of my business. My wife had to get a job, credit cards were being used more frequently and what little savings remaining were circling the drain.

About July of 2008 a fellow business owner and friend of mine named Blake who lives in the neighborhood came over to hang out and drink a non-alcoholic beverage while I had a beer. Like us, he bought at the top, put down 20% and essentially got a bad loan. Let's just say that he was worse off than us. We discussed loan modification way back then but didn't know where to begin. We agreed to keep each other updated on our own progress (if any). From about October, 2008 through even today, my work has been overall busy- so busy that I was actually able to pay off my business credit card which was creeping close to five figures. We had gone through a Dave Ramsey Financial Peace University program through our church (which I now help to administer). But we also decided to cash out our universal life insurance policies, replace them with term policies with more coverage and use the cash to pay off our personal credit cards. So, I'd like to think that our financial situation is actually better now than it was a year ago.

However, my work is very up and down and effective today- May 1st, 2009, the way I've done business has officially changed. This can be a good thing, but all indications are that it is a bad thing which will inevitably drive many Appraisers from the business.

So with our 5 year interest only ARM reaching that 5 year point in July of 2010 and our home value at about 60% of the current mortgage, we feel that we need to really figure out what we are going to do about our home situation. Here are some ideas we have kicked around:
  • short sell our house
  • try to buy another house and then walk away from the one we have now
  • move to an apartment
  • move to the mother in law's home in North Phoenix
  • tough it out and deal with it
  • call our lender to see what they can do
Up until a few weeks ago, we did nothing- which is what so many people do, but then my friend Blake sent me a text...

Next Up "Initial Conversations"


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Tuesday, April 21, 2009

The Plan 2009- Update 1

As expected, things are delayed on the loan mod front. One of my clients is a lawyer who is hosting a loan modification/foreclosure and bankruptcy seminar and he asked me to be there as the Appraiser expert. That's flattering, but I'm looking forward to doing it so that I can better understand the process and how it applies to me.


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Wednesday, April 15, 2009

The Plan- 2009

I just went through a very busy time. From about October til last week, I was sooo busy with work. Too busy to relax. Too busy to spend time with the kids. Too busy to do my taxes. Well, just in time for taxes my work slowed up. And now that taxes are done, I hope to get a few other things in order- particularly, try and get some mortgage relief.

Now if you didn't already know this, I'm a real estate Appraiser. I learned from the best, I started my own company, I've bought a few houses and my family moved from California to Arizona in July of 2005. Now when your house in California is worth $900k and you see a brand new similar size house for $400k, then it sounds too good to be true. Never mind that the beach isn't 5 miles away. Never mind that there isn't a good infrastructure in place yet. Never mind that the closest fast food is half an hour each way... and it sucks. Never mind that it gets up to 117 in the summer time.

So I dutifully put down 20% on a home with a 5 year interest only loan. After all, the longest I'd owned a house previously was 3 years. And the California economy was about to collapse. And California had gone a very long time without an earthquake. And Arizona was a top job growth state. And the area we were moving to had grand plans of commerce and roads and parks and wifi- you know, the good stuff.

Well, now I'm a statistic. I'm one of the ticks on the downward spike of the line graph. I get lumped in with the speculator who bought 20 houses in a neighborhood with the hopes of 100% appreciation in a few years. I'm one of the families who haven't missed a mortgage payment, takes care of their yard, goes to the HOA meetings.

But my profession is what has enlightened me. We all see the news and read the newspapers or online news portals. You know the news reel with the Realtor sign hanging askew with waist high weeds and half evaporated green swimming pools. I see that every single day. I go into those houses every single day. I used to feel sad- the pink daughter's room, the blue son's room, the handprints in the concrete. Plus, I'd sometimes see the MLS photos of the same house from 6 months prior when they were trying in vain to sell the house. Lost dreams, broken homes.

Here's the typical cycle-

1. March 2006- Family buys a home at peak of market for $360,000 with a loan of $288,000- perhaps they put 20% down, perhaps they got a bad loan, perhaps they are an investor, etc.

2. December 2007- Family realizes the market is falling and they feel like they better sell- list home for $400,000

3. April 2008- Home doesn't sell because either banks aren't lending, buyers are scared, too many competing homes for sale, etc. Price has been dropped to $375,000

4. June 2008- Neighboring homeowner with more equity prices their home below market value simply to get rid of their homes- thus lowering property values- model match sells for $290,000

5. July 2008- Seller can't lower the home price any more because it's now worth less than they owe- priced at $299,000

6. September 2008- Seller tries to short sell their home but banks move too slow and the market continues to fall- priced at $250,000

7. October 2008- Seller completely stops making payments for whatever reason

8. January 2009- Bank forecloses on home- owners are evicted

9. March 2009- Bank lists home at bottom end of current market range since they simply want to get rid of it.

10. April 2009- Home sells for $145,000.


The problem is that many many many homeowners start at step 1 and skip all the way to step 8- with 9 and 10 to soon follow. I see it all the time. I appraise a house for the bank at about step 9 and in doing my research I see that the previous owners never even tried to sell their home. Was that their plan? Was that a deer in the headlights situation? I don't know. But in many cases I suspect the Bambi scenario.

So now let's get personal. Although the numbers are different, my situation is very similar to step 1. But I already know that I'm at Step 5. My house is now worth at least $80,000 less than my mortgage. I love the house. It's home. But come July 2010, my monthly payment becomes adjustable- and that's a potentially bad thing for the cash flow and I'll be forced to pick up at Step 6.

This brings us back to "The Plan" for 2009. Basically, I need to modify my loan. If that means convert it to a fixed product, reduction in principal or a combination of the two, the objective is to keep this house affordable so that my lender can still make money off of me and I can still afford to live in my home. "They" say that the bank won't even talk to you unless you're three months behind on payments. And whether that's the case or not, I don't want to find out. I personally know a friend who tried this and the bank foreclosed on him- and now he's a renter. I made a feeble attempt to contact the bank back in November but got the response of "we can't help you since you're not behind". I didn't have time to press it any further back then, so I put the whole project aside.

As things progress (or stall), I'll keep you updated. After all, home ownership is a cornerstone of our economy. If my experience can help even one more person, then I feel like I'm making a difference. I'm your guinea pig.- Just leave a comment and it will encourage me to continue...


Preview

Part 1

Part 2

Part 3

Part 4

Part 5