Miami and Phoenix head back toward pre-2005 house prices

Am I being too simplistic if I feel that a market readjustment is good as a reality check for would-be house flippers? Probably.

In a different vein, I can't help but feel a tad suspicious about Sebastian Mallaby's post yesterday. Especially the statement: "It is too easy to sidestep regulations designed to bring the amount of leverage down." By that argument, should we just......?

The preamble of a Foreclosure
Earl L. Huse JD

As you are well aware, Real Estate affects us all – profoundly and now, thousands are losing their homes due to foreclosures because of creative interest rates afforded to buyers without the full explanation of all alternatives available to them by many lenders, and yes, there is help for them. At some stage of our lives almost all of us are buying, selling, or mortgaging a house - or just wondering how the heck to do all of the above.

Most loan officers (I can speak professionally about the education, professionalism, etc. of loan officers) do not have the proper education is respect to loans, types of loans, processing, underwriting and so forth. Their main goal (because of upper management of mortgage companies) is to generate and fund as many loans as possible. (Yes, they make a pretty good living from funding loans) Let's sat a loan officer closes a loan for $250,000 and charges 2 points (that is 2%of 250,000) the total commission is $5,000 for the company, and the loan officer receives his split (his percentage of the commission which is usually 50% of the “Gross” commission).

I am sure you have seen advertisement (and perhaps you even got suckered into one) on loans as low as 3.99% fixed for 30 years, and the loan officer confirmed the rate to you. He was correct confirming the rate, but he may have left out a few details such as it is a 3 month adjustable rate mortgage (ARM), or a 30/1 (30 year mortgage with the balance all due and payable in 29 years), or even an interest only loan, convertible (converts to a fixed rate at some pre-determined date in the future) at 4.00% fixed for 1,2 or 3 years. The problem is the loan officer may not have informed you that if the current conforming interest rat at the time of your loan funding was, let's say, 7.5%, then there is a difference of 3.50%. The unpaid interest, therefore, will be added to your principal balance at the time your loan is due and payable, therefore resulting in a loan amount greater then you started with.

As an example:
Purchase price: $277,780
Down payment: $ 27,780
Loan amount: $250,000
Actual interest rate: 7.50% 30 years amortized)
Proposed interest rate 4.00% (interest only) 36 months
Monthly interest only payment: $ 833.00
Amortized payment (7.5%): $1,784.00
Monthly difference: $ 951.00 X 36 months = $34,236.00

Original loan amount: $250,000
Monthly difference: $ 34,236
New unpaid loan balance: $284,236 (at the end of 36 months)

Original purchase price: $277,780
Assume negative
appreciation of 1% over 3 years: $ 2,778

Current value: $275,000
New unpaid loan balance: $284,236
Negative: $ 9,236 buyer would need, plus closing costs to refinance home (closing costs approximately 3.75% of loan amount)

The fact the equity and loan balance is insufficient for the homeowner to refinance in this
example does not mean he will lose his home through foreclosure.

Should owner elect to list and sell with a realtor, then the following is an example of the
Transaction:

Sale price: $284,000
Realtor's commission (6%): $ 17,040
Approximate seller closing costs: $ 8,520 (approximately 3% of sales price)
Negative due on loan balance: $ 9,236

Seller would be required to
have at closing: $34,796 To sell his own home. This would be an example for the owner to go into foreclosure.

Even if the seller tried to sell his own property, he would still have to come up with seller
closing costs and the negative loan balance difference. (Approximately $17,756)

What then, are some possible solution to this increasing problem of foreclosures?

There is a partnership program called equity share, or equity participation whereby an
Investor puts up a certain amount of cash for a certain amount of equity in your property,
thereby alleviating the possibility of foreclosure. In the above example, an investor could
invest the approximate $17,756 required to refinance the home to a fifed rate mortgage for
a percentage of future equity in your property. (This can be any percentage amount agreed
upon by you and the investor. (Visit http://www.howtohavezeromortgagepayments.net to purchase
An e-book called “Equity Participation”)

There are, of course, other solutions to prevent a foreclosure, one is listed below:

Deeds In Lieu Of Foreclosure: An Alternative To Foreclosure

In the silent movies, the villainous banker was always foreclosing on the ranch by thrusting a paper boldly labeled "deed" into the face of the fair maiden, and asking her to sign over the property to him. What he was asking for was a deed in lieu of foreclosure in which the mortgagor (or the owner and borrower on the land) voluntarily tenders title to the lender to avoid a foreclosure lawsuit. Deeds in lieu of foreclosure are relatively well known, but are rarely used properly to the advantage of the property owner.

Advantages to you
Think about it: You've signed a mortgage, promising to pay, and you can't. You're indebted to your lender. And the lender then lets you out of the mortgage. Indeed, in some cases the lender even pays you to get out of the transaction--forgiving your debt in the process, and not obtaining a deficiency judgment. Would you jump at the chance?

Advantages to your lender
A deed in lieu of foreclosure tendered by the owner of the parcel saves the lender a great deal of expense and time--often tens of thousands of dollars in hard cash and as much as a year or more before the lender obtains possession, and then additional time to sell or resell to regain the money lost on the mortgage.

By visiting http://www.howtohavezeromortgagepayments.net you can purchase many e-books dealing with creative finance options that may assist you in your financial needs.

Earl Huses' Real Estate Series
http://www.howtohavezeromortgagepayments.net