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"


Part 1

Part 2

Part 3

Part 4

Part 5


MurphDogg said...

Leave me wanting more? Jackass. What is this, sweeps week?

Christy said...

What happens to your credit if you walk away? What about a loan modification strategy through your bank? How can you buy/"find" another house if you don't have anything to put down and still own the one you have? If you "walk away" won't that prevent you from buying a different house? (I'm just learning about this stuff so forgive my ignorance.) :]

I know several people who are in a similar boat.

I'm glad at least that you are making money and have been able to pay off some substantial loans. That part must make you feel pretty damn good, considering the number of friends that we all have who are unemployed. It's fortunate that you and your wife have jobs.

Interesting stuff. Too bad writing doesn't typically pay the bills, otherwise you would be a wealthy man. I love your writing style.

The Voice of Reason said...
This comment has been removed by the author.