Do you know people who are likely to lose their homes?

IrvineRenter_IHB

IrvineRenter_IHB

New member
<strong>I received the following email from a reader outlining the problems he is witnessing among friends, coworkers, family members and others he knows:



If you have any stories you want to share, this is a place to do it.</strong>



.



My wife and I were recently discussing how many people we know who are in way over their heads with real estate, some of them know it, and some of them apparently do not (not that that changes their reality). Here are a handful of quick examples off the top of my head:



1) The "owner" of the home we are leasing in Orange County. A serial Mortgage Equity Withdrawal abuser, he owes $749k on a $450k home. He also bought $2.24M home in 2006 with $100k (!) down...and he is currently being foreclosed on. He is filing for BK and will lose both homes.



2) Sister-in-law and husband bought a 53 year old POS on peninsula in "Real Bay Area" near peak in 2006 with 10-year interest only. They could not afford a conventional loan, and have since added a new SUV, a baby, a new roof, and now are trying to have a second child. Meanwhile, the sister-in-law is concerned about losing her job. Comps in their neighborhood show they are down about 15% currently. They were banking solely on appreciation; they will not be able to afford their recast in 2016. My bet is they will lose this home.



3) Cousin in East Bay. Bought at peak for $1.1M, home now worth approx. $850K. Used money he pulled out of another home he owns in neighboring East Bay town to buy the $1.1M home. Now that money is gone, and he owes $700k on their second home, which is worth about $500k now. Will lose the one home for sure, perhaps not the second, though he'd be better off financially, in the long run, if he did.



4) Wife's friend from San Diego who bought two "investment properties" in Arizona back in 2005-6, with 40-year Interest Only mortgages. Has no idea what she got into. Will lose both homes.



5) Friend in military who bought condo "investment" in New Jersey with V/A no-money down loan. Now way under water, is acting paralyzed and seems unable to act on sound advice to help him out of the situation. He will lose this home.



6) Another wife's friend who bought a condo in downtown San Diego with a toxic mortgage. Here and her boyfriend are way under water, and will lose this home.



These are six examples of former buyers who will *not* be buying homes any time soon. The pool of potential buyers is shriking due to this sort of phenomenon. If my wife and I can quickly come up with six examples of friends and family who are in way over their heads, imagine how many other examples there are out there, that aren't being accurately accounted for in forecasts, estimates, etc. My intution tells me there are a lot of "stealth" timebombs like the ones mentioned above that will be going off the next few years, continuing to add to the downward pressure on real estate prices.



Another example close to home that I completely forgot about: one of my wife's younger employees bought her first home (condo) in Jan 2006 for $440k with a toxic mortgage, and just realized she is in deep trouble when a neighbor's comp. condo is now up for sale asking $335k.



The list goes on and on. I happen to pay close attention to this stuff, and have contacts who run checks for me (SiteX, etc.) related to one of the larger positions that I hold. But I bet if more of you actually knew the real numbers for your family, friends, and coworkers, you'd be shocked at how many people are way, way over leveraged, and are going to be in for some tough times ahead.



As Mr. Mortgage has pointed out, all of the people who face similar situations, who were prior buyers (borrowers) before, are and will remain removed from the buyer pool for quite some time. I have not seen this phenomenon accurately measured and/or forecasted, but it will no doubt have a strong, long-lasting negative effect on home prices trying to recover.



My wife's former senior partner bought an $875k place in Laguna with a 5-year Interest Only in 2005, and enjoyed the taste of the Kool-Aid so much that he bought another home, two doors down, in 2006, for $1.35M....again, with a 5-year Interest Only. He's under water on both of the places, and his "pre" and "during" bubble behavior is quickly catching up to him, from what someone told us the other night. What's that I hear? "Tick, tick, tick.....kaboom" goes the bubble areas.



As I stated previously, if you have an aunt in Idaho who owns her $56k home, and an uncle in Modesto who has a $148k home with $100k in equity, great. They sound like very nice people, and probably made wise real estate decisions. But they weren't the same people responsible for the bubble prices, and a vast majority of those who were are in a hurt locker right now, whether they realize it or not.



And if you do live in a bubble area, and you were able to run numbers on a handful of your neighbors, coworkers, and friends, you'd very likely see that a high percentage of them have a lot more debt (over-leveraged, mortgage debt, in this case) than you may be aware. But because you aren't aware of it doesn't mean it isn't rampant; the statistics back up my observations.



The s*#@ storm for the guy mentioned above will not rain down fully on him until 2010 for the first loan and 2011 for the second......look out below the next couple years, my peeps!
 
[quote author="ABC123" date=1242641828]what's a 40-year Interest Only mortgage?</blockquote>


i think it is a 40 year loan with a 10 year fixed interest only period. the remaining 30 years could be adjustable or fixed depending how the loan was structured.



if i am incorrect someone please correct me.
 
the majority of everyone i know who purchased a home in the last 5 years and who put less than 20% down is now upside down. most are facing adjustable rates this year or in the next few years. most will be adjusting lower so there will be little if any payment shock. some will not be able to afford the new payment and will inevitably face foreclosure. however rates will be going up so these nice cozy low 4% rate will be sky rocketing. foreclosure will be imminent.

the ones who purchased with a respectable down payment and who have a 30 year fixed are not really worried. they like their home and are in it for the long haul.

the ones who are actually in the best shape purchased their home with a Neg Am loan and got the lowest margin possible. sure they neged a bit over the last few years but now with the LIBOR being so low the fully indexed rate in the low 3's. again as soon as the LIBOR goes back up they will be screwed as well.



unfortunatley i think everyone but the 30 year fixed crowd



HOLLY SH!T!!! did you guys feel that?
 
Neighbor a few houses down bought a 3 bedroom, badly remodeled, no backyard house for 675K, he couldn't get 450K for it now. Loan has reset and he stopped paying the mortgage about 8 months ago, he says he could be renting a large house in Newport Beach for the price of the mortgage.



My nanny bought a horrible house in a horrible neighborhood in SA in 2005 for 575K with only 30K in verifiable yearly income and has continued paying on it despite the fact that it is worth 250K (if that) now. There are 4 people working full time jobs in that house in order to barely pay the mortgage. The mortgage company postponed the reset 2 years and it will reset next year. They are finally beginning to discuss walking away.



Of course, all of these stories put a more real face to all of the dots on the FR maps, every one of them is a story like this. Some were greedy, some were naive, some, I believe were neither, they just had bad timing and bad luck. It's all very sad.
 
My landlord. He's upside down on the house and behind on his property taxes. I'm not sure he even realizes he's in trouble. We are moving out, but he has the house listed for rent.
 
[quote author="sugarspunZ" date=1242643730]the majority of everyone i know who purchased a home in the last 5 years and who put less than 20% down is now upside down. most are facing adjustable rates this year or in the next few years. most will be adjusting lower so there will be little if any payment shock. some will not be able to afford the new payment and will inevitably face foreclosure. however rates will be going up so these nice cozy low 4% rate will be sky rocketing. foreclosure will be imminent.

the ones who purchased with a respectable down payment and who have a 30 year fixed are not really worried. they like their home and are in it for the long haul.

the ones who are actually in the best shape purchased their home with a Neg Am loan and got the lowest margin possible. sure they neged a bit over the last few years but now with the LIBOR being so low the fully indexed rate in the low 3's. again as soon as the LIBOR goes back up they will be screwed as well.



unfortunatley i think everyone but the 30 year fixed crowd



HOLLY SH!T!!! did you guys feel that?</blockquote>


My understanding is that even while interest rates go down, option arm mortgages are recasting and the payments are going up.
 
Can't use clients as examples, but of my friends and family, I only know the personal financial circumstances of few. They either have no mortages or very little principal balance on their mortgage. I am not privy to our other friends financial situation, so I have no idea if they are close to losing their homes.
 
[quote author="awgee" date=1242648932][quote author="sugarspunZ" date=1242643730]the majority of everyone i know who purchased a home in the last 5 years and who put less than 20% down is now upside down. most are facing adjustable rates this year or in the next few years. most will be adjusting lower so there will be little if any payment shock. some will not be able to afford the new payment and will inevitably face foreclosure. however rates will be going up so these nice cozy low 4% rate will be sky rocketing. foreclosure will be imminent.

the ones who purchased with a respectable down payment and who have a 30 year fixed are not really worried. they like their home and are in it for the long haul.

the ones who are actually in the best shape purchased their home with a Neg Am loan and got the lowest margin possible. sure they neged a bit over the last few years but now with the LIBOR being so low the fully indexed rate in the low 3's. again as soon as the LIBOR goes back up they will be screwed as well.



unfortunatley i think everyone but the 30 year fixed crowd



HOLLY SH!T!!! did you guys feel that?</blockquote>


My understanding is that even while interest rates go down, option arm mortgages are recasting and the payments are going up.</blockquote>


two things cause recast. time: 5 to 10 years or reaching the neg cap (usually 105 to 125% of the loan amount depending on investor).

but... with the LIBOR/MTA so low even if they where to recast today IF the margin is low enough the payment shock will not be significant. IF the margin is high which most are the payments will most likely double.
 
I have two first hand examples:



1) Friends in San Diego bought in 2004 as first time home buyers and took the advice of their koolaid drinking family members who advised them to finance via an option arm. Instead of rolling their downpayment into a conventional 30 year with 20% down they decided to make home "improvements" and upgrades. Too naive to read (or care) about the loan, they continued to make the minimum payments. The option arm hit 110% last summer which forced a recast. They are currently trying to loan mod, but I'm afraid that even if the loan mod is approved (WaMu won't touch a principal reduction), they will become part of the 60% statistic who default 6 months post modification. Will probably lose the house.



2) Friends in OC bought a condo in summer of 2006 as first time home buyers. 100% financing in a 10 year i/o arm. Only one family member is now employed full time. Family includes a toddler and another on the way. They no longer can afford their payments and the condo is currently a short sale awaiting foreclosure. They will lose the house and still somehow think they will be able to buy again in a year, "because housing is so cheap".



Case #1 is heart-wrenching because they had the opportunity to be responsible, live within their means, and rely upon conventional financing to purchase their house. If this path was taken, they would be able to afford their monthly payments and weather the storm. Unfortunately, the siren's call of "home values can only go up" and easy money was too powerful to ignore and they are now paying the price.



I do not have much pity for case #2. They were chasing a dream back in 2006 and could not afford the condo precluding the additional family members. Simply a complete lack of any responsibility.
 
[quote author="opuswon" date=1242655455]I have two first hand examples:



1) Friends in San Diego bought in 2004 as first time home buyers and took the advice of their koolaid drinking family members who advised them to finance via an option arm. Instead of rolling their downpayment into a conventional 30 year with 20% down they decided to make home "improvements" and upgrades. Too naive to read (or care) about the loan, they continued to make the minimum payments. The option arm hit 110% last summer which forced a recast. They are currently trying to loan mod, but I'm afraid that even if the loan mod is approved (WaMu won't touch a principal reduction), they will become part of the 60% statistic who default 6 months post modification. Will probably lose the house.



2) Friends in OC bought a condo in summer of 2006 as first time home buyers. 100% financing in a 10 year i/o arm. Only one family member is now employed full time. Family includes a toddler and another on the way. They no longer can afford their payments and the condo is currently a short sale awaiting foreclosure. They will lose the house and still somehow think they will be able to buy again in a year, "because housing is so cheap".



Case #1 is heart-wrenching because they had the opportunity to be responsible, live within their means, and rely upon conventional financing to purchase their house. If this path was taken, they would be able to afford their monthly payments and weather the storm. Unfortunately, the siren's call of "home values can only go up" and easy money was too powerful to ignore and they are now paying the price.



I do not have much pity for case #2. They were chasing a dream back in 2006 and could not afford the condo precluding the additional family members. Simply a complete lack of any responsibility.</blockquote>


Case #2 No mortgage lender will lend to them until 4 years after thier home goes back to the bank. And mortgage lending is going to be a bear to qualify as lenders will continue to tighten lending requirements.
 
If anyone I know is at risk of losing their home, I don't know about it. I know 1 person who's considering walking away from an investment condo because it isn't making him rich like he expected it would. I know a couple who just listed their home for a (IMO) wishing price. I have no reason to think they're in trouble; perhaps just testing the waters. That's the closest I can think of honestly.
 
[quote author="IrvineRenter" date=1242641488]<strong>I received the following email from a reader outlining the problems he is witnessing among friends, coworkers, family members and others he knows:



If you have any stories you want to share, this is a place to do it.</strong>



.



My wife and I were recently discussing how many people we know who are in way over their heads with real estate, some of them know it, and some of them apparently do not (not that that changes their reality). Here are a handful of quick examples off the top of my head:



1) The "owner" of the home we are leasing in Orange County. A serial Mortgage Equity Withdrawal abuser, he owes $749k on a $450k home. He also bought $2.24M home in 2006 with $100k (!) down...and he is currently being foreclosed on. He is filing for BK and will lose both homes.



2) Sister-in-law and husband bought a 53 year old POS on peninsula in "Real Bay Area" near peak in 2006 with 10-year interest only. They could not afford a conventional loan, and have since added a new SUV, a baby, a new roof, and now are trying to have a second child. Meanwhile, the sister-in-law is concerned about losing her job. Comps in their neighborhood show they are down about 15% currently. They were banking solely on appreciation; they will not be able to afford their recast in 2016. My bet is they will lose this home.



3) Cousin in East Bay. Bought at peak for $1.1M, home now worth approx. $850K. Used money he pulled out of another home he owns in neighboring East Bay town to buy the $1.1M home. Now that money is gone, and he owes $700k on their second home, which is worth about $500k now. Will lose the one home for sure, perhaps not the second, though he'd be better off financially, in the long run, if he did.



4) Wife's friend from San Diego who bought two "investment properties" in Arizona back in 2005-6, with 40-year Interest Only mortgages. Has no idea what she got into. Will lose both homes.



5) Friend in military who bought condo "investment" in New Jersey with V/A no-money down loan. Now way under water, is acting paralyzed and seems unable to act on sound advice to help him out of the situation. He will lose this home.



6) Another wife's friend who bought a condo in downtown San Diego with a toxic mortgage. Here and her boyfriend are way under water, and will lose this home.



These are six examples of former buyers who will *not* be buying homes any time soon. The pool of potential buyers is shriking due to this sort of phenomenon. If my wife and I can quickly come up with six examples of friends and family who are in way over their heads, imagine how many other examples there are out there, that aren't being accurately accounted for in forecasts, estimates, etc. My intution tells me there are a lot of "stealth" timebombs like the ones mentioned above that will be going off the next few years, continuing to add to the downward pressure on real estate prices.



Another example close to home that I completely forgot about: one of my wife's younger employees bought her first home (condo) in Jan 2006 for $440k with a toxic mortgage, and just realized she is in deep trouble when a neighbor's comp. condo is now up for sale asking $335k.



The list goes on and on. I happen to pay close attention to this stuff, and have contacts who run checks for me (SiteX, etc.) related to one of the larger positions that I hold. But I bet if more of you actually knew the real numbers for your family, friends, and coworkers, you'd be shocked at how many people are way, way over leveraged, and are going to be in for some tough times ahead.



As Mr. Mortgage has pointed out, all of the people who face similar situations, who were prior buyers (borrowers) before, are and will remain removed from the buyer pool for quite some time. I have not seen this phenomenon accurately measured and/or forecasted, but it will no doubt have a strong, long-lasting negative effect on home prices trying to recover.



My wife's former senior partner bought an $875k place in Laguna with a 5-year Interest Only in 2005, and enjoyed the taste of the Kool-Aid so much that he bought another home, two doors down, in 2006, for $1.35M....again, with a 5-year Interest Only. He's under water on both of the places, and his "pre" and "during" bubble behavior is quickly catching up to him, from what someone told us the other night. What's that I hear? "Tick, tick, tick.....kaboom" goes the bubble areas.



As I stated previously, if you have an aunt in Idaho who owns her $56k home, and an uncle in Modesto who has a $148k home with $100k in equity, great. They sound like very nice people, and probably made wise real estate decisions. But they weren't the same people responsible for the bubble prices, and a vast majority of those who were are in a hurt locker right now, whether they realize it or not.



And if you do live in a bubble area, and you were able to run numbers on a handful of your neighbors, coworkers, and friends, you'd very likely see that a high percentage of them have a lot more debt (over-leveraged, mortgage debt, in this case) than you may be aware. But because you aren't aware of it doesn't mean it isn't rampant; the statistics back up my observations.



The s*#@ storm for the guy mentioned above will not rain down fully on him until 2010 for the first loan and 2011 for the second......look out below the next couple years, my peeps!</blockquote>


Which is why i am laughing at all these bottom callers as they are idiots and are shills for the NAR, prices will continue to fall. They say buy but they forget that California's unemployment is at a record high of 11.2% and climbing and the State is about ready to layoff thousands along with the auto dealers there is another 3 years of hell coming folks...Green shoots my ass.
 
I don't know of anyone that I am close to that is losing their home, at least that I am aware of. However, I doubt they would admit it to me, since I have been a full fledged and outspoken bear since 2005. But, here is what I know of personal acquaintances...



My neighbor received his third NOD in the last 2.5 years. The first time he got a NOD and got out of it, he re-defaulted a year later. This third NOD was only six months after he dug himself out of the hole again. He bought his "vintage" home, on nearly a 1/2 acre lot, albeit a sh*tty location, in in 81 for $86k, and 05 he took out a subprime loan of $375k. Even at a fire sale price, he only owes 60% of the home's value. I don't know him that well, but IRCC he is a business owner who is probably suffering from the economic situation. His kid is about to graduate college, but he will have a degree that will have little job prospects that will pay well enough to help save him, and more than likely an advanced degree will be required to make some real money. I feel sorry for him, and I wish there was something I could do. I really hope he digs himself out this hole.



I know a new home sales agent that I worked with, who bought in Ladera's Covenant Hills, that has postponed their auction date three months in a row, and is now scheduled for June. This agent really drank the Kool-Aid, and wouldn't listen to me or the senior VP about how housing cycles work. This agent also did some shady things to flip a company property, when people who really wanted to buy a home to live in couldn't get it, because... they would be priced out forever. Now homes in this community are selling for less than they originally sold for new. Karma is a b*tch. The spouse of this agent is also a resale residential agent, who made money on some of the shady flips as the listing agent. I hope they get foreclosed on, they deserve it for ODing on the Kool-Aid, and ruining the reputation of what RE agents should be.



My aunt and uncle bought a home in Bend Oregon sometime between 04 and 06. In Dec. 06 I warned them that Bend has no real job market, and it was self feeding it's jobs in RE. They wouldn't listen, and spewed some crap about job growth, that wasn't fact based but RE agent BS based. They are underwater. I doubt they will walk away, but suck it up and bleed every month on the property, only because they own a few other cash flow positive properties. I could be wrong, because my aunt should retire, and yet she keeps working.



I might know of more, and I will have to keep my eyes and ears open for any that I find out about. I am proud to say, that of all the loans I did during the bubble, including some subprime and option ARM (I didn't sell them this loan, they specifically asked for it, even after I explained in detail how it was a ticking time bomb) deals that I did. I hope that it stays that way, but as this economy continues to contract, then I unfortunately think I will see a few in the future.
 
[quote author="sugarspunZ" date=1242643730]the majority of everyone i know who purchased a home in the last 5 years and who put less than 20% down is now upside down. most are facing adjustable rates this year or in the next few years. most will be adjusting lower so there will be little if any payment shock. </blockquote>


The people in interest-only or Option ARMs may survive the reset--at least until rates go up--but they will not survive the recast at the end of the fixed rate period. It is the recast that is the big problem.
 
Hubby's brother and wife bought a condo late '04 and withdrew some equity that was available after it went up in value. The comps are currently around $250K and I think they paid maybe $400K, so I do know that they are quite heavily underwater. I never thought about their loan until this thread. If they are in a 30 year fixed they wouldn't lose the home, just be underwater for lord knows how long. However, knowing them, I wouldn't be surprised if they were in an adjustable. I really do hope that they have a fixed rate because it's one thing to choose foreclosure, but another to be forced into it.
 
An old friend of mine found me on Facebook a few months ago. This is an exerpt from the first message he sent:



<blockquote>I see you are fan of IHB. I've been following that blog for years now. Still waiting for prices to come down so we can buy a house somewhere. <My brother> and his wife bought a place in Quail Valley a few years ago and recently foreclosed. My parents bought a place in 2005 and they recently foreclosed. The <family we both knew> foreclosed on their place in Canyon Lake. Those are just a few of the stories and now I look like a genius that I sat on my hands for so many years. Another great blog you might be interested in ishttp://www.calculatedriskblog.com... some of the same regulars from IHB also post there.</blockquote>


I have other friends who bought a condo near SCP in July 05. They are seriously, like 50%, underwater but I don't think they will foreclose. They can afford their payments with their 30 year fixed and are hunkering down to stay a while. They know their only hope of a bigger place (it's a 900 sqft place and she is due in August) is to rent their current place out sometime in the future. At least they aren't sitting around and doing nothing. He is in school to get his MBA (to hopefully secure a promotion and more $$$) and she, who for years refused to work on a Friday, now works every other Friday. They don't have many cards to play but at least they are playing them.
 
Here are a few I know:



1. They had an ideal life. Husband firefighter, wife an architect. Two grown up boys and a house was paid-off in Downey.

Then came the greed. They took en equity on the Downey house, and bought a 8 bedroom, 7 bathroom house in Sierra Madre for the family of four, I think for 850k. Husband retired, and they thought they can flip the house soon after. But no, they cashed out on the equity, and refinanced with interest only. Bought two new cars, and renovated the house. Bought dogs and cats, and built an aquarium in hte house. Then had lipo. Then it all came crashing down. House was on the market for 6+ months for a 1.2 mil, and then was foreclosed. They are back to Downey house, paying a huge mortgage for the equity they drew on it. Wife got laid off. Husband is retired. One of the boys jobless and at home.



And they are not done. They just opened a new line of credit because it was their 30th anniversary and she had to get something for him, he had to get something for him. They don't have to worry, I guess. We will pick the tab, or our kids will do.



2. Husband investment banker. Wife architect. They bought a house in bay area. Lovely one at the peak. They could afford it. But then they bought Audis. Matching ones and the house gifted them, I guess. Now husband lost his job, wife is hanging on, and they are underwater, ready to walk out very soon.



3. Husband a techie. Wife another techie. They save on everything else, but bought the house in peak even when they knew the market would crsh. How much can it possibly go down in So cal was the justification. They bought for 750k, and the neighbors are all unloading at 450k. They won't walk out, but every day is living hell. couple is going through family counseling.



4. Husband architect. Wife a nurse. Bought a house in Pasadena for 550k. And bought matching furniture, TVs in all the rooms, etc. Now husband lost his job, and houe has gone down a 100k at least. They have a five yr fixed which will reset next year. Bank hasn't helped them yet. They might walk out.



Sigh* Sometimes I pity them, sometimes I am angry.
 
[quote author="Cubic Zirconia" date=1242696278]Here are a few I know:



1. They had an ideal life. Husband firefighter, wife an architect. Two grown up boys and a house was paid-off in Downey.

Then came the greed. They took en equity on the Downey house, and bought a 8 bedroom, 7 bathroom house in Sierra Madre for the family of four, I think for 850k. Husband retired, and they thought they can flip the house soon after. But no, they cashed out on the equity, and refinanced with interest only. Bought two new cars, and renovated the house. Bought dogs and cats, and built an aquarium in hte house. Then had lipo. Then it all came crashing down. House was on the market for 6+ months for a 1.2 mil, and then was foreclosed. They are back to Downey house, paying a huge mortgage for the equity they drew on it. Wife got laid off. Husband is retired. One of the boys jobless and at home.



And they are not done. They just opened a new line of credit because it was their 30th anniversary and she had to get something for him, he had to get something for him. They don't have to worry, I guess. We will pick the tab, or our kids will do.



2. Husband investment banker. Wife architect. They bought a house in bay area. Lovely one at the peak. They could afford it. But then they bought Audis. Matching ones and the house gifted them, I guess. Now husband lost his job, wife is hanging on, and they are underwater, ready to walk out very soon.



3. Husband a techie. Wife another techie. They save on everything else, but bought the house in peak even when they knew the market would crsh. How much can it possibly go down in So cal was the justification. They bought for 750k, and the neighbors are all unloading at 450k. They won't walk out, but every day is living hell. couple is going through family counseling.



4. Husband architect. Wife a nurse. Bought a house in Pasadena for 550k. And bought matching furniture, TVs in all the rooms, etc. Now husband lost his job, and houe has gone down a 100k at least. They have a five yr fixed which will reset next year. Bank hasn't helped them yet. They might walk out.



Sigh* Sometimes I pity them, sometimes I am angry.</blockquote>


I bet that either you or your spouse is an architect!
 
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