During a recent conversation, I was shocked to find that so many people were so far down in their 401k year-to-date totals. Having withdrawn funds and searched for a better way to invest a couple years ago, I’ve been somewhat sheltered from the hammer that’s smashed a lot of dreams for those either facing retirement, or hoping to in the near or near-distant future.

CDs and ING Direct “Orange” savings accounts have returned reliable returns for me, even if they paled in comparison to the people earning 10-15% or more on their 401k plans. Reading up on insurance investing (via “EIUL” plans or Equity Indexed Universal Life) and trying to decide whether a non-matching 401k would be best or something less conventional would be better, I’ve had my money in limbo so to speak.

It seems that the time I spent losing out on thousands in the market, has come to pay itself back in gold after the adjustments hits, the Dow crashed, and the bailouts started picking up steam.

But just like those who were shocked that a house could… LOSE value… I was no different when it came to 401k performance. I would have figured the smart guys in the expensive chairs had some backup plans to mitigate heavy losses, but it seems that my confidence was misplaced. My 3% interest on my savings account started looking very good compared to some of our below commenters.

So have you lost? Have you gained? How is the market treating your 401k, and will it affect retirement in your immediate future?

Tags: 401k, investing, economy, bailout, crash

Additionally, banks have yet to figure out how to handle the declining market and their financial loss on the loans made to those unable to pay.

Having been through a short sale myself, there is a lot that goes into one and they can be scary. Here’s a related story.

Homeowners unable to afford their mortgage payments can sometimes negotiate an agreement with lending institutions to sell their home for less than their mortgage debt — preventing foreclosure, a harrying process for both lenders and sellers — and, in many cases, absolving debt while preserving credit.

“Both short sales and foreclosures are considered ‘negative information,’ so they stay on the credit report for seven years,” said Patricia Guertler of Consumer Credit Counseling Services (CCCS), a nonprofit organization offering free counseling to homeowners. A foreclosure, however, is more damaging to credit than a short sale, she said.

While a short sale is still a mark against a homeowner, “credit is something that can be rebuilt — and if the damage is only on the mortgage and if [the homeowner is] in good standing, it is not going to destroy credit completely. … It will drop your credit score but not [to] the point where it is completely irreparable,” Guertler said.

As mentioned above though, this next part seems to have been the hardest for many. Getting the bank to accept the short sale isn’t always easy if they’re slow or require more information than you are able to provide in the time given:

For a short sale to proceed, the homeowner’s lenders must accept the buyer’s offer. Lenders may refuse a short sale, particularly when a homeowner is behind on payments and the lender has taken steps toward a foreclosure.

“It is always up to the lender. It is the golden rule. The people with the gold make the rules. If they want to give the borrower a break, then they can do it. That is why … what you want to do is contact the lender. That is the easiest and most efficient first step you can make. The lender may be willing to help you,” said Dave Lang, real estate attorney at the law office of Peter N. Brewer in Palo Alto.

…

“People need to be honest about whether they can afford their homes or not because the longer they wait, the more devastating the financial consequences,” Herzberg said. “Even if you don’t get approved for a short sale and you go to foreclosure, at least you won’t be losing your life savings, going into your 401(k) plan, losing other property, or your IRA” by trying to make payments, he continued.

“Ideal” short-sale candidates are homeowners with credit ratings worth preserving who are still making mortgage payments, Mariwyn Evans wrote in “How to Succeed at Short Sales.” But according to David Knight, Wells Fargo vice president and home mortgage manager, evaluating candidates for short sales involves more than Evans’ statement suggests.

…

Common financial disclosure includes a homeowner’s income and assets, verified by copies of bank statements, savings and investment forms. Additionally, lenders evaluate homeowners’ personal circumstances, described in a “hardship letter.”

Whereas evidence of homeowners’ financial security convinces lenders to offer mortgage loans in the first place, circumstances of dire hardship make short sales more compelling from the lender’s perspective. “The investor will say, why should I do the short sale if there is no challenge for the mortgager? … The investor will be more willing [to accept a short sale] if it is clear that the mortgager cannot afford the property,” Knight said.

Lenders more readily forgive debt for homeowners with modest salaries, who lack assets such as stocks or savings, and who recently experienced traumas such as illness, job loss, a spouse’s death or divorce.

Though executed more quickly than foreclosures, short sales are time-consuming — for lenders, homeowners and real estate agents. To hurry the process along, Herzberg said he and other agents make sure paperwork is organized and submitted in a way that will get the sale approved.

“If one page is filed incorrectly, it can cause the whole short sale to be thrown out. So it is very meticulous work,” he said.

…

Some of the “back and forth” occurs because homes with second mortgages require both lending institutions to approve the short sale. “If the home has a second mortgage, you have to get the second mortgage institution to release lien,” Knight said.

To speed up the short-sale process, Knight’s “number one recommendation or request” to homeowners and their agents is to “let the [bank's] servicer know when you are listing properties… We can order the appraisal ahead of time; we can knock 17 days off. As soon as you know you have that contract to sell that property, let us know and we can start action that will shorten your time to get a decision,” he said.

Short sales can result in discounts to the buyer between 8 and 20 percent below the home’s market value, according to Evans. Second-mortgage lenders heed offers for a few thousand dollars on their loans, “cents on the dollar,” because the alternative — foreclosure — could bring in even less return on their loan, Knight said.

Traditionally, second-mortgage lenders accounted for the risk of default by charging homeowners elevated interest rates. Many banks, however, were unprepared for the current housing crisis. “We’re going through an unprecedented environment,” Knight said. “A lot of smaller banks have closed because they are not getting paid,” Piano said.

However, you’re not out of the fire yet. The IRS will always want what is owed to them:

After successfully cancelling thousands of dollars of debt, a homeowner may rejoice — only to discover that, to the Internal Revenue Service, the forgiven debt represents taxable income. “A nonrecourse loan may not necessarily give you the [tax] protection that you think you have, if you took equity from the property going into foreclosure to put into other properties; if you refinanced,” said Alan Olsen, managing partner at Greenstein, Rogoff, Olsen & Co., an accounting firm with an office in Palo Alto.

Given the complex financial and emotional challenges faced by homeowners who cannot afford their homes, CCCS’ Guertler says homeowners’ best bet is “to get as much information and to act as soon as they realize they won’t be able to make their payments to their lenders.” Though she advises homeowners to act swiftly, she also offers a warning:

“Be careful of fast or easy solutions companies may offer — because there are no easy or fast solutions. The only one that can help them at this point is the lender because they are the ones who hold the loans.”

Tags: foreclosure, short, sale, credit, IRS

But the truth is that you still have to ask a few basic questions.

There are several strands to the market’s optimism about an early V-shaped economic recovery. Among these is the fact that, while certainly not good, the various US macroeconomic indicators, like GDP growth and employment, for the first quarter of the year were not nearly as bad as the Cassandras had led us to fear.

…

Valid as these arguments might be, they totally overlook the fact that the US economy is still being adversely impacted by the very same three negative shocks that caused the US economy to go into a funk in the first place. Worse still, it would appear that at least some of these adverse shocks are now intensifying.

What are those three negative shocks?

Are US house prices at the national level now not declining at an accelerating pace in a manner that has no precedent in the past seventy years?

Have not international oil prices dramatically risen to around US $125 a barrel, or approximately double the level that they were a year ago, thereby more than offsetting the US government’s tax rebate program?

And is the US financial system not still in the throes of what Paul Volcker has referred to as the “mother of all credit crises”, as vividly illustrated by the Federal Reserve’s recent still very gloomy survey of bank lending intentions?

There’s no doubting the first question. We’ve seen proof of that in all of our neighborhoods recently.

The second is a bit more convoluted and complex, but we end up noticing the end result of higher gas prices each time we make a trip to fill the tank.

And the third, is something that the Ron Paul campaign has continued to preach about for some time now. Whether you agree that the Federal Reserve should be eliminated or disagree – there’s no doubt that we’ve seen that lowering rates has NOT helped the situation.

Over the past year, declining home prices have already wiped out around US $2.5 trillion in US household wealth. They have also caused analysts to raise their estimates of the potential losses to the financial system from mortgage lending to US $500 billion. This has effectively put an end to the ability of households to use their homes as ATMs to finance their consumption spending. It is little wonder then that US consumer sentiment has plummeted to multiyear lows.

Sadly, the immediate outlook for US home prices is grim. At present an estimated excess inventory of around 1 million unsold homes is weighing heavily on the housing market. Compounding this situation of excess supply is the fact that private sector mortgage lending has all but dried up in the wake of large sub-prime mortgage losses.

Worse still, a rapidly increasing rate of foreclosures is substantially adding to supply on an already glutted market. And there is every prospect that the foreclosure rate will continue to increase as declining home prices boost the number of households with negative equity in their homes to around one third of all households by the end of the year.

…

To be sure, policy measures have been introduced to stimulate the economy in the form of a US$170 billion tax reduction package and Federal Reserve interest rate cuts totaling 3 1/4 percentage points. However, with the very real prospect of the US economy sliding deeper into recession, one might ask whether enough has been done to cushion the economy from America’s largest housing market and credit market bust since the Great Depression.

No matter how you slice it – this quote puts things into perspective. It’s a dog-chasing-tail scenario and for us to call things based on the change in one side of it, is anything but responsible:

“A very real danger of rapidly declining home prices for the US economy is that it raises the real risk of creating an adverse feedback-loop. For as declining housing prices reduce consumer wealth and add to the financial system’s losses, they push the economy further into recession. Yet as the economy slides deeper into recession, it exacerbates the downward spiral in housing prices.”

Tags: ron, paul, federal, reserve, credit, crisis, recession, tax, rebate, checks

JPMorgan Chase on Tuesday said it plans to transfer 420 customer-service jobs from the Valley to locations outside Arizona as part of an ongoing workforce-efficiency drive.

Affected workers will be eligible for other jobs with Chase, which has 475 openings in Arizona in retail financial services and other areas. Those who don’t land new jobs with the company will receive severance packages.

Chase, the largest bank operating in Arizona based on deposits, counts about 9,000 workers in the state.

Mary Jane Rogers, a Chase spokeswoman, said the transfers don’t stem from weakness in any particular business unit.

“We’re continually reviewing our business priorities looking for efficiency,” she said. Chase plans to transfer the jobs to Texas, Ohio, the Philippines, Missouri and Michigan – places where she said Chase has lower operating costs and excess capacity.

Chase plans to transfer the positions gradually through year-end and will give 60-day notices to affected workers, most of whom handle telephone calls from customers and perform account-maintenance and research work. The affected employees are among 2,000 workers at a Chase facility near Sky Harbor International Airport.

Efficiency. The most beautiful and horrible word all at once – depending on which side of it you’re on.

There were some colorful comments that seemed to hint at some more reasons behind this:

It’s hard to believe that Chase will have lower operating costs anywhere in the US. Arizona wages are so low, it must be almost the bottom. So I guess most of these jobs will go to the Philippines.

This is a hard blow to Arizona which needs these low level jobs urgently because of our failing schools turning out so many people who are not qualified for anything better.

“ongoing workforce-efficiency drive” in plain American English=kiss your jobs goodbye. Chase will pay $1.25 per day to Makmoud in the Philippines and put the labor cost savings in the executive’s year end bonus. Chase would hire illegal aliens for cheap if they could, at least the paychecks would stay in the Arizona economy.

YEAH MY SISTER IN LAW THAT WAS WORKING FOR CHASE SHE TOLD ME TODAY THAT THEY GOT NOTIFY THAT THEY WILL BE GETTING LAID OFF. SO NOW CHASE IS GETTING READY TO GO TO THE PHILLIPPINES AND INDIA. SO NOW WHEN PEOPLE CALL CHASE WE ARE HARDLY GOING TO UNDERSTAND IN WHAT THESE PEOPLE ARE SAYING. THANKS FOR NOTHING CHASE! SELL OUTS!!!!!!!!!!!!!!!!!!!!!

It’s called capitalism. Selling out is a key component. Chase axed the entire fitness center and staff at their building on University and Mill Ave in Tempe. I hear from a friend who is privy to inside info that job cuts will role out at that same Tempe location next month!

Chase has just lost my business. I will be closing my account by End of week. I was already upset with Chase and their poor customer service, but this just shows that I do not need to put my money into an organization that won’t support the local economy. Desert Schools… HERE I COME…

What part of capitalism don’t people understand?
The robber-barons that control the U.S. would kill half the working class if it added 2 cents per share to their dividend.

Carnegie once said about the poor “No problem with the poor. We can always hire half of them to kill the other half.”

Only a fool banks at a bank when a credit union is available.

I’ve worked at Chase over two years and they have been actively outsourcing IT jobs the entire time I’ve been there. There are now more IT employees in Bangalore than there are here in Phoenix. I have suffered through two years of dealing with incompetent bumbling Indians who have taken American jobs who can just barely speak English and have zero respect for America.

Wake up AZ this is the wave of the future in corporate America and Chase is no different. The name of the game is cut costs by offshoring every job you can and use the goodwill you generate in those third-world countries to get more business from them.

Oh, great! Now folks in the Phillippines will have access to my financial dealings. Why not! We’re global, eh! That’s why it’s so darned funny that we’re actually building a wall–a wall!!–along our southwestern borders. Absolutely nothing is restricted to the USA any longer. I understand that our passports–our passports!!–are done in Thailand or somewhere like that. As if no one in a Southeatern Asian country might like to immigrate to the U.S. So, where, might I ask, are we actually practicing “homeland security”? What a joke!

Time to start outsourcing our cash to different venues. It’s time to FORCE the banks to reveal a couple of things:

1. Who thier owners are…. BOFA (Bank owned [by] Foriegn (inappropriate term)) is owned by the Arabs, Bank One the same can be said.
2. Where thier main areas of employment are… Thanks to Bill Gates and the dumbing down of America more and more HB1 will be maintained, more foriegn workers.
3. Make them absolutely prove they will leave 99% of thier base operations in the USA.

And stop the administration and congress from letting these f’ing corporations write thier own ticket. If the idiots that call themselves congress can’t write bills to protect the American people them put them out on their asses. Concerning Bushes legacy, I really want the economy to fall flat on it’s ass while that B@$t@rd is still in office. His legacy will expose him and his ilk for the lying scum they are.

Chase sucks and is run by morons.

That aside, I think it’s funny when people direct their anger towards those in India. If someone was offering you a good job wouldn’t you take it?

We shouldn’t be mad at them rather we should be mad at corporate america.

Let’s face it, corporate america is sailing us down the river. Our main export now is jobs. This isn’t the fault of capitalism, it’s the fault of greed. That’s ok, their money won’t do them much good when all the poor people are trying to break into their house. Hitting someone with a hundred dollar bill doesn’t hurt too much. They’ll get theirs in the end but we’ll all get screwed along the way.

Be interesting to see how much this affects their bottom line once you factor in any resulting loss in customers.

Tags: Chase, Bank, lending, outsourcing, jobs, recession, depression, layoff

It’s a crushing feeling when you find the value of your house is less than what you paid for it. Even if you never took out a home equity loan, made payments as usual, and have a very valid reason to sell like a death in the family, loss of a job, etc.

Mortgage delinquencies will continue to rise over the next six to 12 months as home prices decline and economic conditions remain difficult, according to one forecast released Monday.

The Core Mortgage Risk Monitor (CMRM), an index of foreclosure risk compiled by real estate data analyzer First American CoreLogic, increased 16% compared with the same period last year.

CoreLogic analyzes house price trends, foreclosure rates, economic health factors and fraud propensity to predict the chances that future mortgage delinquencies will occur.

The index, which has increased over the last four quarterly reporting periods, is now 47% higher than it was in the first quarter of 2002 when the last recession was winding down.

Nationwide, the markets with highest levels of delinquency risk also had double-digit declines in home prices and weakening labor markets.

“House price depreciation factors are now outweighing economic stress factors,” said Mark Fleming, CoreLogic’s chief economist.

…

“High house price markets are now high risk markets,” said Fleming.

Falling home prices have created a vicious cycle: Lower prices lead to more defaults, resulting in excess inventory, which causes demand to fall, bringing home prices even lower, leading to more defaults.

This downward cycle puts pressure on the broader economy, with declining home prices impacting personal wealth and consumer confidence.

Tags: real, estate, home, prices, foreclosure, mortgage, default

Having come close to it personally (my short sale story), and having met hundreds of friends and readers going through it, I don’t personally believe that this will offer much in the way of help for those facing foreclosure. Although the HOPE NOW alliance sounds good in person, this is not one of those problems that can be fixed by throwing money at it.

Today, six of the largest servicers, who represent 50 percent of the mortgage market, are announcing Project Lifeline, a targeted outreach to homeowners’ 90-days or more delinquent that may lead to a “pause” in the foreclosure process. This is an important new initiative, targeted to reach not only subprime borrowers, but all 90-day delinquent homeowners nationwide with a step-by-step approach to find individual solutions to individual problems. We encourage all HOPE NOW servicers to adopt this new program.

Project Lifeline is aimed at homeowners who face a real risk of losing their home, but have not yet addressed the problem. Perhaps they are hoping to find a way to get current on their mortgage payments, or perhaps they don’t think any solution is possible. For whatever reason they have not yet taken action; our hope is that today’s announcement will reach them, and they will reach out immediately for help – especially now that the foreclosure process is upon them.

Of course, there will be homeowners who still take no action, and some will simply walk away from their mortgage – particularly those borrowers who put little or no money down and whose mortgage exceeds their home value. No program can bring every struggling borrower into the counseling and evaluation process, and we cannot help those who choose not to honor their obligations. But Project Lifeline has the potential to offer new solutions to responsible, able homeowners who want to keep their homes.

So essentially, six major lenders are offering to delay some foreclosures for 30 days to try to work out a more affordable mortgage for those delinquent on their mortgage payments for more than 90 days.

Bank of America, Citigroup, Countrywide Financial, JP Morgan Chase, Washington Mutual, and Wells Fargo are participating lenders.

Now, why won’t this work? For a couple key reasons.

1) By Day 90, Foreclosure Has Too Much Momentum

For many people, a mortgage is their first bill they worry about paying. Many will get behind on the electric or water bill, perhaps even an HOA due or two. But few will miss a mortgage payment unless they truly are unable to pay or doing so would not allow them to pay other “serious” bills (car, daycare, etc). After you get to the point where you’re looking at missing a second payment, you realize that you may be in deep water all alone. Now, not only are you TWO months behind, but now you still have your next payment. After three months, hopelessness sets in. You’ve maxed out your credit cards, lines of credit, and can’t get approved for any more loans.

You realize that “getting good” with your lender requires thousands and thousands of dollars you don’t have. In addition to still staying current on normal payments thereafter. Even if you could get enough to pay for one or two months, you’re still behind and have to pay it all in full. To successfully pull yourself out and get current, you need to not only afford your monthly living costs, but also find a way that doesn’t put you in ADDITIONAL debt. Save for free money or forgiveness, that ain’t happening.

2) You Can’t Relax Lending Standards To Fix A Problem CAUSED By Relaxed Lending Standards

Most folks facing foreclosure are locked in a tricky loan package. One that allowed them to own initially before things like property taxes got re-evaluated and interest rates were re-adjusted. Ignoring stated income loans, which simply qualified the unqualified through either consumer or lender fraud, the remaining homeowners stuck in other adjustable rate or interest only loans still won’t qualify. They qualified initially because of relaxed standards.

As it turns out, they shouldn’t have and are now facing losing their home. Even if you eat a little of the cost as a lender, you simply can’t relax standards enough to re-qualify a majority of these people into a new mortgage. I see lenders willing to risk a bit more, but I do not see them willing to give up thousands or tens of thousands of dollars per homeowner to help get them into a better package. It’s not profitable and the lenders aren’t required to do so. They’re going to skim the cream, call it a day, and put out a press release. Foreign investors are already seeing huge losses caused by exploding subprime debt packages sold to them so even that well is now drying up.

3) Housing Values Have Crashed – You Can’t Convert Imaginary Equity Into Real Money

Even for homeowners who did NOT buy at the peak, they’re still most likely upside down tens of thousands of dollars. They likely bought a tad beyond their means, imagined that even if the market crashed they’d STILL have some appreciation, even if at a lower and more realistic percentage. However when prices fell like they did, those homeowners began to realize that they owe money on an “asset” that is worth LESS than they owe!

Now that they can’t run to the bank for a home equity loan to help weather the future financial costs, they’re at a loss. Most folks can gather a couple thousand dollars by some means, but dealing with several months of house payments and negative equity in a house requires tens of thousands of dollars. There’s just no place to grab that money from.

But What About The Stimulus Package?

The sad truth is that the money people in these situations will get to help stimulate the economy will often be spent trying to catch up to their mortgage. As a result, they’ll be a little less behind, but will have done nothing to stimulate the economy.

This isn’t a problem you can throw money at. Growing inflation has caused every one of those dollars to be worth less every year and growing national debt is forcing into financial slavery. Until we attack those problems first, we can’t expect to throw money at the struggling and hope it will magically fix the problems they’re in.

Tags: government, inflation, foreclosure, loans

This is why it was so surprising to hear this from the NAR forecast:

“The median resale price probably will slip 1.7 percent to $218,200 this year, the Realtors’ said. That would be the first national decline since the Great Depression in the 1930s, according to Yun. The new-home median selling price probably will fall 2.2 percent to $241,100, the report said.”

With increasing amounts of inventory, stale days on market times for listed properties, and continued inability for most Americans to dependably find 100% financing – I don’t see this coming to a quick close in 2008 either.

Here’s more from Bloomberg: “The National Association of Realtors reduced its home sales forecast for the ninth time this year and said the housing slump will extend into 2008.

Existing home sales will fall 8.6 percent in 2007, exceeding the 6.8 percent drop estimated a month ago. New-home sales probably will decline 24 percent on top of an 18 percent fall in 2006, the Chicago-based trade group for 1.3 million real estate brokers said today in a statement.”

” The two-year housing decline is worsening amid a surge in credit costs and the collapse of more than 100 mortgage companies after defaults by homeowners. Federal Reserve policy makers, who meet next week, said at their last session “tighter” credit is putting the U.S. economy at risk.

“There’s been an unusual hit to home sales, starting in March when subprime problems emerged and more recently when problems spread to jumbo loans,” Lawrence Yun, an economist for the group, said in the forecast. Jumbo loans are those over the $417,000 limit guaranteed by Fannie Mae and Freddie Mac and are typically given to borrowers with good credit. ”

““To say home prices are going to go up next year, you have to wonder what the NAR is thinking,” said Alex Barron, an analyst who follows homebuilders for Wayzata, Minnesota-based Agency Trading Group Inc. “We’re going to see a drop in volume and prices.””

” The U.S. housing decline may last as long as four years until 2009, Moody’s Investors Service said in a report yesterday. That would match the length of the downturn that ended in 1991. Home sales will take a “substantial hit” in the next several months, Moody’s said.

“Even prime-qualified borrowers have found it harder to get a mortgage,” Joseph Snider, Moody’s senior credit officer, said in the report.

About 14 percent of domestic banks have raised standards for mortgages to their best-rated customers and 56 percent have made it more difficult for people with limited or poor credit to get loans, according to a Federal Reserve survey of senior loan officers in mid-July. ”

“The housing decline is taking a toll on homebuilders. Five of the largest companies reported combined losses of $1.85 billion and took charges of $2.9 billion to write down land values and abandon property options in their most recent quarters.

A Standard & Poor’s index of the 16 biggest homebuilders dropped 49 percent this year through yesterday, led by Beazer Homes USA Inc. and Hovnanian Enterprises Inc.”

Tags: arizona housing bubble, real estate, depression, interest rate, mortgage, credit

Yves Smith – Naked Capitalism

It suggests that many of the people who took out subprimes weren’t people who bought more housing than they could afford. It says they were already overstressed and overstretched financially. Using their home as a source of cash was a gamble to keep themselves out of bankruptcy, but in many cases, that bet didn’t work out.

Arizona Mortgage Guru

Having worked with borrowers during the frenzy I disagree with the analysis that cash-out refinances may have caused the meltdown. To begin with lenders still had debt to income ratio limits that would have prevented too much of a stretch. Even at the height of the frenzy very few lenders went above 50% DTI (debt to income) and many stayed at 45%. Additionally, this argument implies that had the cash-out refinance not occurred the borrower would have defaulted on their existing mortgages anyway. So, in essence these cash out re-finances only postponed the inevitable.

I don’t buy into the possibility that bankruptcy reform had anything to do with this mess either.The subprime boom was well under way when the actual reform occurred. I would think very few individuals in early 2005 looked ahead to bankruptcy reform stated for later that year and decided to get a subprime loan to avert disaster. I don’t have exact data on this so I can’t say for sure, but this is not a plausible argument in my mind.

Working in the mortgage industry during this time my view is that the entire mess started in Wall Street and their fixation on greater return for idle cash. Foreign purchase of American debt created way too much cash for investors. They needed to do something with this cash. They pushed it on the best debt out there: home mortgages.

I don’t know who or what caused the rise in home values during the same period but higher home values made this proposition even sweeter. It is telling that over the past five calendar years (2002-2006), the average home appreciated by 9.2% per year, while the S&P 500 was up only 6.2% per year*. In this climate the lender thought they had very little to lose. I guess their only error was in thinking this kind of market would last forever. It’s a pretty basic error to make consider historical home appreciation rate is in the low six percentage range.

During this frenzy I could always find a lender for any borrower with a credit score higher than 540. Even on a stated income loan at this score all that changed was the loan to value limit (how much the lender was willing to lend). The interest rate differential was manageable for the borrower, so at the end of the day it didn’t prevent them from going this route.

What was more surprising to me was the loan interest rate differential between a prime and subprime borrower. In most instances I saw rates were only 1.25% or so higher for a subprime borrower. The main knock on the subprime loan was the pre-payment penalty and some even offered a buyout it out for an additional 0.5%.

Even a guy like me wondered why there didn’t appear to be a risk premium in these situations. I am learning now that this is a sign of an oversupply in the market. So with these ground realities, I can pretty much say neither bankruptcy reform nor cash out re-finances caused the meltdown. There simply was too much money to burn and boy did it burn.

Tags: arizona real estate, housing bubble, subprime, mortgage, lending, meltdown, bankruptcy, reform, fico score

Case in point, the below three victims this Foreclosure Friday:

A Great Life… And Then, Divorce

Life happened fast for Kerry and his wife.

In just five months starting in late 2003, Kerry, a computer technician for a nationwide bank, got married and bought a house in St. Paul, Minn. His wife gave birth to a baby boy. The next summer they dove into a complete remodel of the two-story home built in 1911 that they’d bought for $129,000. With the help of professional friends, they began to tear out walls, remodel bathrooms and replace windows. And Kerry’s wife, who worked for a local college, started graduate school.

Despite the zaniness, life was pretty good and the couple was financially stable, says Kerry, who asked that his last name not be used. They had an annual income of $105,000.

Everything changed in December 2005. After just two-and-a-half years of marriage, “she came to me and said she wanted a divorce. It kind of threw me for a loop,” says Kerry, now 33.

Kerry’s grief soon was compounded by financial trouble.

The couple had bought the house together for well under market value, but in order to fix it up, they had refinanced to withdraw some of the equity. Kerry’s credit was much stronger, he says, so the couple refinanced for $145,000 in his name alone. “I didn’t even think twice about it. We’d given our word to each other that we were together for the rest or our lives.” Similarly, he says, because he had better credit, other bills — credit cards, auto loans — were solely in his name.

“She moved out and washed her hands of everything,” he says. “She left me with 40% of the household income and 100% of the household debt.”

Unable to handle the $1,089 monthly mortgage, Kerry put the home on the market in April 2006. The timing wasn’t good. “In my neighborhood in St. Paul, that week I put my home on the market, in a five-block radius there were 13 homes for sale.”

Worse, Kerry’s home was only halfway remodeled. “Most of the material was already purchased,” he says, but “anybody who wanted to buy a house immediately knew they would have to put a lot of time into it.”

Unwilling to miss any child-support payments, Kerry began to slip on his mortgage. He called his lender, Wells Fargo. But with his reduced income, the options the bank offered didn’t help. “They couldn’t get me a payment at which I could live.” And still, the house didn’t sell.

In the span of just eight months, Kerry saw his life go from wonderful to disastrous. “I was really overwhelmed,” he says. “It got to the point in June where I started seeing a therapist” and started taking antidepressants, he says.

In July, Kerry received a foreclosure letter. In September, Wells Fargo bought back his house at auction for $157,000 — $10,000 more than he owed on the mortgage. He’s still not sure how that works. “I don’t get to see any of it,” he says. He’ll be evicted in March, with only his possessions. (The difference between the paid auction price and the amount owed is often used toward the costs of the foreclosure, along with any fines and late fees, says Rick Sharga, vice president of marketing at foreclosure listings company RealtyTrac).

Sadly, Kerry will take something else with him, too: a notice on his credit report that Wells Fargo officially foreclosed on his home. “In December 2005, I had pulled my credit report . . . and I was 738 (out of 800). That’s really good. When I ran my credit report a few months ago I was at a 580. It’s only gone down since then.”

But there is almost a strange relief to the eviction, as Kerry sees it. “It closes a bad chapter in my life.”

Struggling To Keep The Family Home

Ericela Bolin’s grandfather built the three-bedroom, one-story home in the Imperial Valley, about 20 minutes from California’s border with Mexico. After he died in 1989, the family planned to sell it, but the idea saddened Bolin, who’s lived in the valley since age five. So she bought it in the early 1990s for about $75,000, at what she recalls as a very high interest rate — “10-point-something.”

But home ownership has always proven a struggle for Bolin, now 36, who admits that managing money is not her strength. “At the time, my parents were helping me to make the payments, since I wasn’t married yet” and had a son, she recalls.

She faced foreclosure several times. “Every time I was able to save it,” she says of the family home, often by swallowing her pride and asking family for help.

Bolin later married and had two more sons (now, the children are ages 13, eight and six). Both adults had jobs — she ran a plant-and-soil lab, he worked for the county. But keeping the house continued to be a challenge.

For one thing, the home was so old the couple had to constantly make improvements. “We have invested more than $20,000 into this house,” she says, rattling off examples from new fixtures and toilets to a new redwood fence. “We have poured our hearts into this house.”

Appraised for about $70,000 when she bought it, the house was reappraised for about $130,000 a few years ago, she says.

But “basically it comes down to, I wasn’t able to afford the house, and even when my husband moved in with me, I wasn’t making my payments regularly. And I basically ruined my credit and his as well.”

In July 2006, another foreclosure process began and the mortgage company required double payments totaling about $1,600 a month. Bolin was told not to be late, but she couldn’t keep up. “Our expenses were more than what we were both bringing in,” Bolin says. “And so we were short probably $400 every month.”

Stressed out, Bolin says she would lie to her husband when he asked if she’d paid the mortgage.

Then, at the end of October 2006, Bolin was laid off from her job — one that paid “peanuts,” she says, but was in the field she’d trained for in college. Losing her job, she says, has caused not only loss of self-esteem but “unbearable sadness.”

“But they never told me they could auction (the house) without me knowing about it,” she says. “It just seemed too quick. Why didn’t they send me a letter, telling me that this is your last chance?”

(In some states like California, where Bolin resides, the foreclosure process doesn’t go through the courts. Instead, foreclosure sales simply must be advertised publicly, as in a local newspaper. This process usually moves faster, catching stressed-out homeowners even more by surprise.)

The house was sold at auction to an out-of-county real-estate speculator, who bought it for $73,000. He’s now trying to sell it for $190,000.

Bolin didn’t say anything to her husband for several weeks, finally telling him just before Christmas. He was furious — “and he still is,” she says.

Now, the Bolins have until Jan. 17 to come up with the money to buy back their house — or the new owner will begin the eviction process. Bolin said she still hopes to buy her home back, but since her and her husband’s credit is so poor, she’ll need to get her mother-in-law to co-sign for them. And she also must convince the buyer that the house will never sell for $190,000 and get him to reduce the price dramatically.

It seems a long shot, but “I’m optimistic that I might be able to get the house back,” she says.

“We have never asked for any state help. We have earned our own money. And for this to happen to us — for us to work so hard, to have this taken from us . . .”

She adds of losing the house: “This will affect my children. This will affect my marriage. This will just cut my throat.”

A Spouse’s Death – And A Downward Spiral

Mary Adamson remembers being caught off-guard in 2000 when her husband suddenly got the strong desire to buy a house. “At the time I did not know why,” says Adamson, now 56. In August of that year, the couple bought a three-bedroom Cape-style home in Boston’s Hyde Park neighborhood and moved in, bringing with them with the last of the five children between them from previous relationships.

The following spring, Adamson’s husband entered the hospital, complaining of back pain. And in late April, she got a call from the hospital saying he was dying. “A week later he was gone,” Adamson says. He had shielded everyone from the news that he had lung cancer.

At first, Adamson managed fine. She had a job as an administrative assistant at Children’s Hospital Boston. She took some of the life insurance money and paid up some of the bills, put a deck on the house and did “quite a few things to make it functional and safe. She had the house rewired, put a new heater in and had the facing of the fireplace re-done.

She also met her second husband, Fred Adamson, in September 2002. “I was finally happy,” she says. But unexpected financial troubles soon raised their heads. First, Fred Adamson got hurt on his job as a truck driver. Then, later in the fall of 2002, Mary Adamson was laid off from her job.

Other jobs were hard to find. She received some unemployment pay. “It basically carried us through, put a little food on the table, a little gas in the car while I was looking for a job,” she says. She transcribed medical dictation at home for eight cents a line. She gradually sucked all the money from her retirement savings that the government allowed her to withdraw. But that only lasted a few months.

“When I looked into the cabinet one day to feed my family,” she recalls, “there was nothing there.” But when she went to get help, she was denied food stamps because she owned a house. Churches helped out with food baskets. “For me, that was the lowest point that a mother and wife can get to — that she’s unable to feed her family,” she says.

About this time, in spring 2003, the bank began to threaten foreclosure because the Adamsons had fallen behind on their $1,235 monthly payments. “When I lost my job and my husband lost his job, we had no money coming in, so we were not able to make any payments at all,” she recalls. The only money coming in went for food, so the mortgage interest piled up and the couple fell more and more in debt. “I had been in touch with (the bank) from the beginning to let them know that I was trying every avenue I could think of to get a job, because this is not me. And they worked with me as long as they could.”

To avoid foreclosure, she called a Realtor and put the house on the market. But it didn’t immediately attract much interest. Only one offer came in after about two months, and it had lots of demands attached, such as leaving all the big appliances and the lawn mower, she says. The couple tried to hold out for a more reasonable offer by holding an open house the next weekend, but the aggressive would-be buyer made life miserable for them: In the coming days she placed a lien on the house, claiming her offer was a contract and that Mary and her husband were violating the contract. The case got tied up in the courts.

A lawyer eventually told her to declare bankruptcy, which would forestall the foreclosure. Mary did, and kept the case alive after lawyers said they couldn’t, until it was finally thrown out. She lost her home in the spring of 2005.

Now the couple rents an apartment in Roslindale, another Boston neighborhood. “My husband and I are very slowly getting back on our feet,” Mary says. Fred has job as a counselor at a homeless shelter. Mary is a receptionist and books appointments at a used car dealership. But life remains a struggle. “We pay $1,200 plus utilities,” she says, nearly as much as their previous house payment. “It is not easy. There is nothing left over.” They aren’t considering trying to buy again. “Our credit is completely ruined. And right now I don’t trust anyone.”

But there is a bright side to all this trouble, she says.

“When you lose everything that you’ve worked hard for years to have, and are basically down on your knees, you start to look at everything and say, well, I’m still alive, and I still have my loved ones,” she says. “(My husband) gives me love that I’ve never had before, and there’s nothing in this world material-wise that can match that.”

Source: MSN Real Estate

Tags: arizona, real estate, housing bubble, foreclosure, marriage, divorce, death

However, as the housing bubble bursts open, it gets everything wet. We’ve been watching the effects creep closer and closer into other markets, and now it’s pushing the minimum requirements up even higher for non-subprime buyers.

According to Pioneer Press:

If you think you’re exempt from the current credit crunch because you have a decent credit score, think again.

Things are tightening up for folks looking for a mortgage or to refinance, even those not in the subprime category.

Lenders now expect borrowers to have solid proof of their income, more money down and higher credit scores than in the past.

For example, consumers with a FICO score in the 640 range that once qualified for 100 percent financing and a decent interest rate will see that rate go up a quarter of a percent or so, said Mark Teteris, CEO of Lakeland Mortgage, a residential mortgage lender in Bloomington. Such borrowers should also expect to scrape together a down payment of at least 5 percent, he said.

The changes for new borrowers stem from a tightening in standards by government-sponsored entities like Fannie Mae and Freddie Mac and by other investors that buy pools of mortgages.

During the mortgage boom of the past several years, some pools of loans that were rated “investment-grade” turned out to be loaded with high-risk borrowers. When these borrowers began to default on their mortgages, investors who bought the loan pools as mortgage-backed securities got burned and banks and GSEs holding the mortgages were hit by steep credit losses.

Now investors and GSEs are raising their standards in hopes of lowering their risk in the future.

This is no temporary blip, bankers and other lenders say. “I’d say this is going to be long term,” said Jim Miley, president of residential real estate for Bremer Financial Corp. in St. Paul. Miley said he has seen a definite upward migration in desired FICO scores. “I think we will continue to tighten until the investors are satisfied that the mortgage pools are basically ‘what you see is what you get.’ ”

The changes and stricter standards don’t mean that borrowers are locked out of the housing market altogether.

“Today you can go out and get a very rock-solid purchase price on a home and a very good mortgage,” Miley said. “You are going to be processed in a more prudent manner and you should be expecting to have a down payment.”

While a year ago, a plethora of 100 percent financing products existed, such options could be nearing extinction. Bremer and Lakeland both have pulled back on such offers, Miley and Teteris said. But what if you don’t have 5 percent to put down?

…

Still, some borrowers may be out of luck.

Mary Wetterlin, general manager of the first mortgage division at TopLine Federal Credit Union in Maple Grove said she’s met with several customers hoping to refinance before the interest rates on their adjustable rate mortgages go up this fall.

She’s having to say no more frequently than she would like.

For some homeowners, the value of their house has gone down as the inventory of unsold houses in their area has risen. Others don’t have enough equity to refinance, because they’ve already refinanced or borrowed some of the equity they had in their home to pay for improvements, discretionary items or debts.

Try as she might, Wetterlin just can’t make refinancings work for borrowers like these.

TopLine sells its loans to Fannie Mae, and “The Fannie Maes and Freddie Macs of the world are not so willing to take that debt,” Wetterlin said. “Maybe a few years ago they would have been willing to do that … but that has gone away.”

…

“We just can’t help people, even if we wanted to,” Wetterlin said. “I feel like I am sounding like Ebenezer Scrooge. … On the one hand I don’t want to see these neighborhoods blow up and end up (with) rows of foreclosed homes. … But it’s a struggle.”

Tags: arizona, housing bubble, credit, FICO, subprime, real estate, mortgage, lending, FHA, credit score