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...


Part 1

Part 2

Part 3

Part 4

Part 5


Julie said...

Hey George, I'm in the same situation. My loan is set to change from a 5 yr ARM in June 2010. Tick tock, tick tock. My sister is in real estate and did her loan mod and is going to help with mine. We have two loans our 1st is about 75% of what we owe and is the 5 yr ARM at 5.75% and the other is a 30 year fixed at 8.79%. Plus we had big credit cards bills and started to do credit consolidation, now my perfect credit is in the garbage, at least I figure a lot of other people's credit is in the garbage too.

Christy said...

Wow, this was so interesting to read...Please, please, please write more when you can.

I sold my house March 2008 and just bought another house; we close tomorrow. Many, many people think I should have waited but I really believe the housing market is going to recover, along with the stock market and economy in general.

I feel for you and your situation but i'm guessing there's a tiny bit of comfort knowing that so many others are in the same boat.

I have several friends who can't afford their mortgages because they have lost their jobs. One friend in particular bought a townhouse last year in the Bay Area for about $500,000 and now is totally underwater AND just lost his job...and his wife doesn't make much money at all. Ugh...

It just sucks.

By the way, you are an amazing writer! Seriously, I'm so impressed. If you ever leave the appraisal business, you should write.


Julie said...

Hey George,
Little did I know that when I wrote last night I had a letter waiting for me at home from our 2nd mortgage lender reducing our 8.79% to 4.78% for 3 months! $270/month is a big help! There is a faint light at the end of the tunnel. Cheers! Julie