Strategic default is defined as walking away from a mortgage that you have the ability to pay. Why do homeowners do this? Or not do this? It can be pretty much broken into two schools of thought.
First, the ethical argument. You agreed to buy your house at a then fair market price with a mortgage at the then market rate. You signed a contract obligating you to keep making payments even if similar houses are now selling for half the value of what you paid. Even if a new mortgage can be obtained at a lower interest rate by another buyer. Even if you can’t refinance.
The other argument is that this is a business deal, plain and simple. If I don’t make the payments, you take the house. I’m not going to make the payments, so feel free to take the house.
The report examines the use of social media and social influence on our decision making. If enough people that you know (or are connected to) are saying its fine to strategically default, you begin to get more receptive to the idea. After all, it worked out great for them, why not me? (A lot like the continual anecdotes I hear about the ‘buddy’ that picked up a $600,000 house for $100,000 as a foreclosure - I can do it, too.)
An industry source, CoreLogic, says that 11 million homes (22 percent of the housing market) are underwater and that another 2.4 million have less than 5% equity, so there’s a lot of potential for more strategic defaults out there.
Banks are also part of the problem. People looking for refinance options often get the runaround or can’t qualify with the current stringent requirements. I know mortgage reps that can’t refi their own homes, what chance does a regular consumer have? It may be easier for some people to opt into strategic default as a result of feeling helpless, or because they think the big corporations don’t care about them.
A single strategic default (which ends up as a foreclosure home) won’t kill the value in a neighborhood. But think about the areas where there are a lot of strategic defaults in addition to the short sales and foreclosures due to hardship – loss of a spouse, losing a job, illness. Distressed sales do, in fact, bring down property values and are not good for neighborhoods. Strategic default is only a part of the overall problem.
Friday, December 30, 2011
Cash Is Still King
A report in DS News quotes a study that claims 38% of all homes bought in 2011 were financed by cash, not mortgages. Tight lending criteria is likely one of the causes, but investors are also looking for ways to make their money yield better returns, too. This trend is expected to continue for the near future. And right now we’re seeing true record low mortgage rates (sub 4%)!
My own experience is that there are a lot of cash buyers who want to be owner-occupants. It’s not unusual for me to see cash offers on homes up to the $140,000 price point, so there’s a lot of competition for homes in ‘move-in’ condition.
A recently released Realtor Confidence Index for November 2011 also indicated that 28% of home purchases were cash financed. This report was based upon results obtained from just over 3,000 Realtors nationwide and is conducted monthly by the National Association of Realtors Research Division.
Please remember one very important thing. A cash offer does not guarantee that you will be the successful bidder in multiple offer situations. While it takes some uncertainty out of the equation for the seller, many sellers are still looking at the bottom line. Depending on the margin between a cash and financed offer, they may take a ‘cleaner’ and lower priced cash offer or they may take the higher priced mortgage offer knowing that it will take up to 45 days to close.
Everybody wants a deal but if you’re seriously underbidding on homes that have been on the market less than a month, you’re not going to be in the game.
My own experience is that there are a lot of cash buyers who want to be owner-occupants. It’s not unusual for me to see cash offers on homes up to the $140,000 price point, so there’s a lot of competition for homes in ‘move-in’ condition.
A recently released Realtor Confidence Index for November 2011 also indicated that 28% of home purchases were cash financed. This report was based upon results obtained from just over 3,000 Realtors nationwide and is conducted monthly by the National Association of Realtors Research Division.
Please remember one very important thing. A cash offer does not guarantee that you will be the successful bidder in multiple offer situations. While it takes some uncertainty out of the equation for the seller, many sellers are still looking at the bottom line. Depending on the margin between a cash and financed offer, they may take a ‘cleaner’ and lower priced cash offer or they may take the higher priced mortgage offer knowing that it will take up to 45 days to close.
Everybody wants a deal but if you’re seriously underbidding on homes that have been on the market less than a month, you’re not going to be in the game.
Thursday, December 15, 2011
A Lot Of House For The Money
Freshly painted and recarpeted it is in 'move-in' condition. You'll love the gas fireplace in the great room, the doorwall to the deck and a full unfinished basement. Municipal water and sanitary sewers, the community has a common pool and clubhouse and public sidewalks for ease of walking.
No offers for first 7 days, then offers from owner occupants until day 13, all others after that. Must have a Wells Fargo Home Mortgage pre-approval to submit an offer or proof of funds for cash offers. Priced at $133,900 - watch my web site for price updates and other new listings. MLS# 211128026.
How Do You Legislate Common Sense?
The National Transportation Safety Board (NTSB) thinks it’s by banning all cell phone use while driving.
It actually recommends banning the use of all hand held electronic devices, even if they’re ‘hands free’. So answering a call while wearing your Bluetooth headset would be illegal. Interestingly, they exempted GPS devices, most of which are not integrated into the car dashboard, because they are “designed to support the driving task.” Hmm. So a navigation app on my cell phone would probably be illegal, but maybe not. I guess that will depend on the interpretation of the officer that pulls you over.
None of us would reasonably argue with their premise that, “no call, no text, no update is worth a human life.” But there are many distractions available to drivers, from fiddling with a sound system, to drinking a cup of coffee or eating while driving, to even arguing with a passenger (usually a family member). How about the folks that are smoking and driving? While using a standard transmission?
I personally will answer a call with my Bluetooth, but the only way I initiate a call is by using the voice controls, which means you have to be in my address book. I can’t tell you how many times I’ve made a caller wait for a time (seconds to minutes) until I could pull over and safely have a more in-depth conversation or to write something down.
I think those of us that are on the road a lot, whether you call yourself a ‘road warrior’ or not, are more in tune with safe driving practices. Michigan already has a ban on texting and driving (July 2010) which I think is reasonable and a good thing. But don’t tell me I can’t use my hands-free device to answer calls. If I think conditions are too bad for that, I will let the call go to voice mail. But then, I consider myself a reasonable person.
Regardless of your opinion, contact your legislator and let him or her know how you feel about it. You can use this service to find your Michigan State Representative if you don’t already know who they are.
The entire NTSB Meeting summary on this topic is here.
It actually recommends banning the use of all hand held electronic devices, even if they’re ‘hands free’. So answering a call while wearing your Bluetooth headset would be illegal. Interestingly, they exempted GPS devices, most of which are not integrated into the car dashboard, because they are “designed to support the driving task.” Hmm. So a navigation app on my cell phone would probably be illegal, but maybe not. I guess that will depend on the interpretation of the officer that pulls you over.
None of us would reasonably argue with their premise that, “no call, no text, no update is worth a human life.” But there are many distractions available to drivers, from fiddling with a sound system, to drinking a cup of coffee or eating while driving, to even arguing with a passenger (usually a family member). How about the folks that are smoking and driving? While using a standard transmission?
I personally will answer a call with my Bluetooth, but the only way I initiate a call is by using the voice controls, which means you have to be in my address book. I can’t tell you how many times I’ve made a caller wait for a time (seconds to minutes) until I could pull over and safely have a more in-depth conversation or to write something down.
I think those of us that are on the road a lot, whether you call yourself a ‘road warrior’ or not, are more in tune with safe driving practices. Michigan already has a ban on texting and driving (July 2010) which I think is reasonable and a good thing. But don’t tell me I can’t use my hands-free device to answer calls. If I think conditions are too bad for that, I will let the call go to voice mail. But then, I consider myself a reasonable person.
Regardless of your opinion, contact your legislator and let him or her know how you feel about it. You can use this service to find your Michigan State Representative if you don’t already know who they are.
The entire NTSB Meeting summary on this topic is here.
Tuesday, December 06, 2011
Holiday Spirit in Howell Michigan
A couple of weeks ago, some business owners in Brighton got together and made a video about just that topic.
Now we have a great promo video of being in downtown Howell during the Holidays. A lot of video was shot during the Fantasy of Lights Parade (which everybody should see at least once!) and really gives you the feeling of shopping in a downtown area.
Big box stores and malls are fine for some things, but don’t forget about the folks who work right there on your Main Street. They usually do a lot more for your community than the big franchises (sorry, corporate policy doesn’t let us do that) and they really are more a part of your town than the big outfits.
Make a pledge to yourself that you’ll do at least some of your shopping at the smaller, local businesses this year. And while you’re in your downtown, why don’t you stop at a local restaurant for lunch or an appetizer and try something new?
Monday, December 05, 2011
Foreclosure Purchases By Owner Occupants Declining?
Wow. Real Estate Professionals know that buying a foreclosure is an economical way for first-time homebuyers to get into a house of their own, so this recent study by New Vista Asset Management surprised me a little.
As reported in DS News, New Vista began tracking foreclosure sales in Q1 of 2009 and has continued their quarterly tracking since that time. They monitor 18 national housing markets, of which only Wayne County is in Michigan, but they plan to add additional unnamed housing markets beginning in 2012.
There has been a general decline of owner occupant purchases since the advent of the data collection. An owner occupant is a homebuyer that plans to live in the house, as opposed to a purchase by an investor for rehab-resale or as a rental property. Interestingly, the only one of the eighteen markets that showed a gain in owner-occupant purchases was Wayne County, MI.
I list foreclosures, and it’s not unusual to have a stipulation in the listing agreement that says no offers will be submitted for the first 7 days, then offers from owner occupants only for the following week. However, this is not universal among banks and some entities are going to auctions and bulk sales of ‘as-is’ homes that will generally not appeal to an owner occupant, due to either the cost or scope of needed repairs.
Banks that will take the time and effort to put a home into move-in condition are the most likely to have sales completed by an owner occupant purchaser.
As reported in DS News, New Vista began tracking foreclosure sales in Q1 of 2009 and has continued their quarterly tracking since that time. They monitor 18 national housing markets, of which only Wayne County is in Michigan, but they plan to add additional unnamed housing markets beginning in 2012.
There has been a general decline of owner occupant purchases since the advent of the data collection. An owner occupant is a homebuyer that plans to live in the house, as opposed to a purchase by an investor for rehab-resale or as a rental property. Interestingly, the only one of the eighteen markets that showed a gain in owner-occupant purchases was Wayne County, MI.
I list foreclosures, and it’s not unusual to have a stipulation in the listing agreement that says no offers will be submitted for the first 7 days, then offers from owner occupants only for the following week. However, this is not universal among banks and some entities are going to auctions and bulk sales of ‘as-is’ homes that will generally not appeal to an owner occupant, due to either the cost or scope of needed repairs.
Banks that will take the time and effort to put a home into move-in condition are the most likely to have sales completed by an owner occupant purchaser.
Saturday, December 03, 2011
USDA Rural Development Loan News
On December 1st the U.S. Department of Agriculture’s (USDA) Rural Development (RD) program reported that they are funded for FY 2012 in the amount of $24 Billion for their Single Family Housing Guaranteed Loan Program (SFHGLP). Purchase loans are available now but it will take approximately two weeks for the funds to be posted to the program for loan refinances, and in the interim they will approve ‘conditional’ commitments for loan refinancing.
The FY 12 loan structure is 2 percent upfront guarantee fee for purchase transactions; 1 percent upfront guarantee fee for refinance transaction; and 0.3 percent annual fee for both purchase and refinance transactions.
RD loans can be refinanced WITHOUT an appraisal. Contact your lender or loan originator for more details. USDA RD loans are a great option for those that qualify. See their web site for more information. All Livingston County Michigan single family homes are eligible for RD financing, if you meet the income requirements.
The FY 12 loan structure is 2 percent upfront guarantee fee for purchase transactions; 1 percent upfront guarantee fee for refinance transaction; and 0.3 percent annual fee for both purchase and refinance transactions.
RD loans can be refinanced WITHOUT an appraisal. Contact your lender or loan originator for more details. USDA RD loans are a great option for those that qualify. See their web site for more information. All Livingston County Michigan single family homes are eligible for RD financing, if you meet the income requirements.
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