So much has been written about the housing market problem; who’s to blame, why’d it happen, on and on.  What we haven’t seen much of is the fact that during the “bubble,” mtge lenders were allowing a buyer to have a 61% debt to income ratio.  All their debts, added to the new mtge they were contemplating (mtge payment, interest, taxes and insurance), could be 61% of their gross income.

So, take a family of four, one spouse earning $15k and the other $45k, buying a home with a 61% ratio.

Total income is $60k, and with the new mtge, they have $36,600 of annual debt.  Well, they still have $23,400 left, right?  Oh no, the 61% is of gross income.  If they were lucky enough to have to pay only 10% of the gross income for Fed and State taxes ($6,000), that still leaves them with $17,400, or $1,450 per month, for everything else they need.

Let’s help them budget?  I mean, if the lender felt this approach was OK, who are we to question?

We need money for: utilities, trash service, hlth/life/auto insurance, food, clothes, school supplies, vacation and entertainment (?) and for emergencies.

Let’s use a conservative amount for all the insurance needed…say $650 per month, and use a utility number of $150 per month.  OK, we’ve still got $650 left for the rest of our budget.  Let ‘r snap, c’mon you financial guru’s out there, budget up now!

What you didn’t know is that the couple had a few grand in the bank, a little cushion, in case things got tight.  They have this money because they were provided with a “nothing down” mtge.  They were even allowed to roll the closing costs into the mtge.  No skin in the game here…just monthly mtge payments.

How’s the budget coming?  Did you have to pull out vacation and entertainment money?  Is there enough left after that?

Let’s take this family out a few years and see how they’re doing.  Whoops, the $15k earner lost their job.  Monthly income is now only $1,087 vs the $1,450 they had three yrs ago.  And geez, the savings are depleted as well.

So, the brain jobs that set this program up, the lenders, what did they do wrong?  I mean, let’s just go with basic math, let’s not bother the Actuaries, let’s go back to 6th grade math and try it again.

Today, as in the years before the “bubble,” the ratio used is 31% of gross income.  Whew, they’re on the right track now, ‘eh?  What a joke!  Unfortuneately, the joke is on “Joe the plumber.”  The lenders received bail out money for the errors they made.  Should they have? 

All these homes, homes that have 100% mortgages on them, homes that the buyers can’t pay for, or, realize their home is worth less than it was in 2000, all these (26%) of all US homes, what does it all mean…where and when will it all shake out?

Do you wonder how the banks represent these underwater monuments on their balance sheets?  Would their stock go right down the drain if they held them on their balance sheets at actual value?

I mean…if the bank holds a $600k mtge on a home that is now listed as a short sale, at $200k, is that what’s on the balance sheet?  Or, is it still there at $600k?  How about it bankers, send us the answer.

Well, there is some really good news to go with all this; if you can buy real estate now, you chance to be one of those people who can one day say: “I made my money in real estate!”  The bargains are super!  We’ve been putting our buyers into homes at huge savings.  Just got a single mom into a T/H that sold for over $200k a few yrs ago, for $105k.  A home that had  $925k against it just sold for $510k.  Another that has $4.5m against it, looks like it will get sold for $1.7m; the list goes on.

Today, as I write this post, in the four counties comprising the core Twin City area, there are 1,188 homes for sale for less than $100k, and 3,326 homes for sale in the $101k to $200k range.  If you can buy now, do it!  Rates are so low, we may not see anything like this again…ever.  Buy now and you’ll have bragging rights in 7 to 10 years.

And, if you’re one of the unfortunate home owners who have to sell, give us a call so we can tell you how a “Short Sale,” may help you…or…how to sell and get your equity out.

Do you have an opinion or story to share?  Please do, we love to hear from you even if your opinions differ from ours.

Ed

Whether you’re downsizing, up-sizing, investing in real estate or buying your first home…buying now, right now…is the best time to buy in 40+ years!

With over 7 million home owners behind on their mortgages, the already huge inventory of homes will get even bigger.  The choices available are phenomenal!

We’ve recently looked at so many foreclosures and short-sale homes and find a good percentage are not beat up at all.  In addition, many are eligible for the super FHA 203k plan, whereby you can get the fix-up cash you need…and…it gets better, since most of these will be devoid of all appliances, this program will kick in cash for that as well.  Nice! 

One of our “pros” recently put his client in a home that sold in the $230k’s just a few years ago.  Now, our client is in a large 4 bedroom, 2 bath home on a large, fenced lot with landscaping, a very big - new asphalt drive, new interior fixtures, new bath fixtures, new electrical box and some wiring, new plumbing, some new carpet and all new - higher end appliances.  He’s on cloud nine, thanks to our pro being informed.

All this was financed through this terrific FHA product and the client has nearly a new home.  He’s in it for the $164,900 he paid, plus the $25k he didn’t have but the FHA plan provided.

If you care to know how this plan could work for you, give us a call and we’ll give you the details.  We have so many first time buyers that know they can get a good deal but just don’t have the money to make repairs.  Find out how this plan can get you in the home you want and put the cash in your hand that you need.

And by the way, for those of you that would like to stay in your home, vs. a short sale or letting it go into foreclosure, give us a call, we’ll help you get the info you need.  No worries, you don’t have to be selling or buying, this one’s on the house!

We come across so many people that don’t understand how the “HAMP” program works…or…they’ve called their mortgage company and get nowhere on the phone with them.  You have to know how to work with these birds and what the rules are because half the time, they don’t know themselves.  Let me share a success story with you:

another of our “pro’s” is talking with one of our clients; a single mom with a serious financial crisis…less hours and very reduced pay, no where near the child support money she needs and…increased mortgage payments from an adjusted rate mortgage plan.  What to do?  She calls her lender and is told they will have to see if she’s qualified to adjust her payment…they’ll get back to her.  Weeks go by, no call back. 

She calls again and gets the same story.  (Enter our guy.)  She tells him what’s going on and he tells her she is qualified and asks her to give him an authorization letter, where he will be allowed to talk with her lender on her behalf.  He called the lender and told them she was absolutely qualified, to read the mandates and get busy helping this lady.  Within days…new ball game.  The lender is cooperating and the mortgage will be adjusted to a comfort level for her.  The family can stay put!

                                                                   Dontchaloveit!

And don’t be embarrassed if you paid too much, have no equity and the bank is on your case. (Cute story,see theWSJ /2/8/2010 by JamesHagerty.)  

My interpretation: the MBA (mortgage bankers association), movers  and shakers…right(?)…paid $79 million for their newer headquarters in 2007.  They thought they might be better off to sell it now.  They have an offer and it looks like they’re going to take it.  They owe the bank $75 million but the offer is for less, only $41.3 million.  Oh shucks…looks like they’ll have to come to the close with the balance…right?  Oh, but some good luck, they may not have drawn the whole amount because the bldg. was under construction.  They’ve refused to be interviewed about their intentions.  Smell fishy to you too?  But wait..there’s more!

Their chief executive, John Courson, in an interview last year, said that people that were “under water” -borrowers owing more on their home than it was worth- should keep paying their loans if they could.  He went on to say defaults hurt by lowering property values and sent the wrong message to their kids.  Well guess what?  He refused to be interviewed about what his Association was going to do about the balance owed.  Can we guess what that means?  Funny stuff, this?  You should feel bad about your situation?

                        Call us, we’d be happy to help you end the financial pain!

Back to the “buy” side; rates we thought were going up are still in the 5% range and jumbo rates are still in the 5.5% range…hey…the time to buy is right now…remember…you make money in real estate “on the buy.”  Also, if you’re buying to occupy, there’s the $6.5k to $8.5k govt. tax credit, or, cash if you don’t owe taxes. But that will blow away if you aren’t under contract by the end of April and scheduled to close by June 29th of this year.  Doesn’t look like they’ll extend it either…so…latch on if you can! 

Next time: “The Hogger.”  (Don’t miss it, it’s pretty funny…pathetic…but funny.)

Ed