More Ways For Banks To Send The Wrong Message

The majority of us can certainly understand the need to tighten up the mortgage industry after the fallout from too many subprime and high risk loans which failed a few years back. However, the punishment still doesn't fit the crime.

Getting a mortgage continues to become even more of a challenge these days, with upcoming additions to the process potentially raising costs for consumers and for mortgage brokers starting in April. At this point in the real estate crisis, issuing mortgages is no longer the problem.

New research starts out as a positive statistic, to indicate that more investors are paying cash for properties as they take advantage of the good deals out there for buyers. New research of the Southeast Florida market (from Palm Beach to Miami) shows that more than 54% of houses and condos sold there during the 4th quarter of 2010 were paid for in cash. (This research was provided by Zillow.com.) That comes to more than 7,500 sold properties PAID FOR WITH CASH!

The purpose of these statistics is to show that homes are selling and the deals for buyers are good. And that could be. In 2006, about 13% of homes were purchased with cash. From a little more than one in ten to more than half - in under 5 years. Of course, in 2006 there were plenty more mortgage programs more easily available.

What does today's trend have to do with the banks? Plenty.

Face it, the majority of the 7,500+ homes paid for with cash were bought by investors. I'm sure a percentage of them bought more than one property at these low prices.

Yet, these investors paid in full instead of going for mortgages. If you have the cash, you'll get a mortgage. But in just this one slice of the country, there were about 7,000 possible mortgage transactions that did NOT happen. It's time to look at why.

My guess is this is because of how little the banks have to offer in return for cash today, even when compared with 2006 when mortgages were the vast majority. A savvy investor wouldn't put up the entire $200,000 for a condo when they could get a decent return on a long-term CD instead. So they would get a mortgage, enjoy the tax advantage, and pay it off as scheduled, while investing the remainder of their funds someplace else.

It could have been CD's, Money Market, or other bank programs that paid more than the paltry amount they pay now. No reason for investors to look in that direction today.

If getting a mortgage wasn't such a hassle, a savvy investor could make a $40,000 down payment on 3 separate properties valued at $200,000 each, and have working capital left over to pay the mortgages for months to come. Then, they could invest their "working capital" into short and long-term CD's to grow their money toward future property payments, or use a home equity loan on one property to help pay down the others.

But now, these investors are passing by the mortgage opportunity and putting their trust into turning a profit as the market turns for the better. Heck, if an investor were to sell later this year and only make $5,000 more on a $200,000 property, they would likely do better than with a 6-month CD.

Some consumers watch for trends by investors. Now they can see that a bigger percentage of people buying property are NOT getting a mortgage, even when they could. Not exactly an incentive for the typical consumer to want to take out a mortgage to buy another property.

Oh, I also have a hunch that the 7,500+ sellers who received cash from the buyer probably didn't use their money to start a savings account and watch it grow.

Hopefully the banks will do what it takes to bring back the home mortgage as a viable option, before it's too late.

VA Loan Mess Exposed

It's bad enough that even the largest of banks have added to the mortgage mess. Now the word comes out that Wells Fargo, Wachovia, and SouthTrust caused problems on some VA Loans resulting in a settlement just announced for veterans:



http://www.armytimes.com/news/2011/02/military-wells-fargo-mortgage-refunds-022111w/


It turns out this settlement was from a class action suit filed 2 years ago. So the veterans who have served our country get some money back, finally. That's the only good news out of this story.

But hold on. This raises some important questions:

1) How does the government, consisting of people we elected, let this happen? Why did the bank executives receive their millions of dollars in bonuses from the government "bailout" more than one year before veterans who have served received a settlement pittance?

2) Why is this story not all over the media? How come I found out about this via an article in the Army Times?

3) If this lawsuit was filed 2 years ago, how much did the law firm receive from this settlement or via other means? Sorry, but my hunch is that the amount they were paid took away from the pittance the veterans are getting.

4) Are you, the reader, outraged over the quote from Wells Fargo Home Mortgage Co-President Cara Heiden of “We hope that by settling this matter, we can demonstrate to veterans our steadfast commitment to doing right by them.”?

Some commitment. Two years later, a class action suit gets settled. If Wells Fargo was "commited to doing right", why did it take this LONG to pay out?

Time to say this still again. The next time the banks mess up the mortgage industry, let the government pay back the outstanding loans. Let the banks struggle for themselves. Please don't make the same mistake again. They penalized the mortgage holders and helped those who screwed them. Keep this in mind the next time you vote to elect someone to office.

What happens in California stays in California

What happens in California sometimes stays in California, and sometimes it doesn't. It is way too soon to tell with regard to The California Foreclosure Prevention Act that took effect last week.
The intent is to require mortgage lenders to prove they worked with the homeowner to make a loan modification before they can begin foreclosure procedures.

This is with all the best of intentions. Yet, already there are 2 schools of thought on this.
One is that it could provide enough options to make a difference and prevent some people from losing their home and somewhat reduce the number of foreclosures. This in turn helps to keep property values higher when an area has fewer foreclosures to pull down the average home price.

The other thought is that not everybody facing foreclosure can be helped enough to make a difference and that is only delays the inevidible while costing the owner facing foreclosure more time and money.

Similar measures have already been attempted in California over the years and, obviously, were not completely successful. This time around, people from other states will also be monitoring to see if there is any (or enough) positive impact on the marketplace over the next few months. If there is, look for other states to look into this.

Meanwhile, I have seen several stories and heard from a few different sources which are not endorsing many of the "loan modification" programs now being made available. It appears some are being started by people looking to make a fast buck at the expense of home owners too stressed out to take a serious look at the potential long term impact of a loan modification.

Whatever your feeling, it is important to note that consumers do not pay for a legitimate loan modification program if and when it really does make sense. There are some web sites and advertisements out there looking to confuse consumers into thinking they need to pay an up front fee to get a certain loan modification program. Not true.

Legitimate entities, such as some banks, offer a loan modification program with no up front cost since they understand that those in need to not have the funds needed to preserve their current mortgage. Keep that in mind.

You may have noticed that some lenders are now offering a 40-year mortgage in addition to the conventional 30-year. They make it look appealing for the short term by showing monthly savings sometimes as much as $200 per month above the 30-year. However, some 40-year mortgages require an upfront payment to implement. When factored out, it reduces the monthly savings. For example, a $2,000 fee to save $200 per month comes out to $167 per month for the first year. Do the math with those figures and it amounts to a $33 per month savings for the first year. Without knowing what mortgage rates will be like in 1 year.

If you respond by saying "but in 1 year I could refinance", you would be right, but you would also be faced with still another fee to refi. That assures you would have spent to save a bit more than $1 per day.

Note that this is only for the short term with a 40-year mortgage. For the long term, needing 10 more years to pay also serves to increase the amount of interest you would be paying on the property.

Put this all together and it shows why financially challenged home owners should explore other options besides a loan modification to prevent foreclosure and to hopefully maintain (or not decrease) their credit status.

It becomes time to not be concerned about a profit and to be concerned with getting the loan balance paid off. If the house is valued at $300,000, but there is $200,000 left on the loan, the distressed owner would be out of his/her/their obligation with a sale for $200,000. A potential buyer, and it only takes one, would be more apt to "steal" the home for $200,000 than to wait until the $300,000 asking price comes down to $250,000 in 3 months.

The seller frees up the obligation, and could then rent or live within their means for as long as needed.

With single family home auctions now available through which the seller has a right to refuse the "winning" bid, situations such as this are now possible.

Simply put, it does not need to cost any more to avoid foreclosure.