Friday, February 29, 2008

Facing Default, Some Walk Out on New Homes

Published: February 29, 2008

When Raymond Zulueta went into default on his mortgage last year, he did what a lot of people do. He worried.

In a declining housing market, he owed more than the house was worth, and his mortgage payments, even on an interest-only loan, had shot up to $2,600, more than he could afford. “I was terrified,” said Mr. Zulueta, who services automated teller machines for an armored car company in the San Francisco area.

Then in January he learned about a new company in San Diego called You Walk Away that does just what its name says. For $995, it helps people walk away from their homes, ceding them to the banks in foreclosure.

Last week he moved into a three-bedroom rental home for $1,200 a month, less than half the cost of his mortgage. The old house is now the lender’s problem. “They took the negativity out of my life,” Mr. Zulueta said of You Walk Away. “I was stressing over nothing.”

You Walk Away is a small sign of broad changes in the way many Americans look at housing. In an era in which new types of loans allowed many home buyers to move in with little or no down payment, and to cash out any equity by refinancing, the meaning of homeownership and foreclosure have changed, economists and housing experts say.

Last year the median down payment on home purchases was 9 percent, down from 20 percent in 1989, according to a survey by the National Association of Realtors. Twenty-nine percent of buyers put no money down. For first-time home buyers, the median was 2 percent. And many borrowed more than the price of the home in order to cover closing costs.

“I think I could make a case that some borrowers were ‘renting’ (with risk), rather than owning,” Nicolas P. Retsinas, director of the Joint Center for Housing Studies at Harvard University, said in an e-mail message.

For some people, then, foreclosure becomes something akin to eviction — a traumatic event, and a blow to one’s credit record, but not one that involves loss of life savings or of years spent scrimping to buy the home.

“There certainly appears to be more willingness on the part of borrowers to walk away from mortgages,” said John Mechem, spokesman for the Mortgage Bankers Association, who noted that in the past, many would try to save their homes.

In recent months top executives from Bank of America, JPMorgan Chase and Wachovia have all described a new willingness by borrowers to walk away from mortgages.

Carrie Newhouse, a real estate agent who also works as a loss mitigation consultant for mortgage lenders in Minneapolis-St. Paul, said she saw many homeowners who looked at foreclosure as a first option, preferable to dealing with their lender. “I’ve had people say to me, ‘My house isn’t worth what I owe, why should I continue to make payments on it?’ ” Mrs. Newhouse said.

“You bought an adjustable rate mortgage and you’re mad the bank is adjusting the rate,” she said. “And sometimes the bank people who call these consumers aren’t really nice. Not that the bank has the responsibility to be your friend, but a lot are just so uncooperative.”

The same sorts of loans that drove the real estate boom now change the nature of foreclosure, giving borrowers incentives to walk away, said Todd Sinai, an associate professor of real estate at the Wharton School of Business at the University of Pennsylvania.

“There’s a whole lot of people who would’ve been stuck as renters without these exotic loan products,” Professor Sinai said. “Now it’s like they can do their renting from the bank, and if house values go up, they become the owner. If they go down, you have the choice to give the house back to the bank. You aren’t any worse off than renting, and you got a chance to do extremely well. If it’s heads I win, tails the bank loses, it’s worth the gamble.”

In the boom market, homeowners took their winnings, withdrawing $800 billion in equity from their homes in 2005 alone, according to RGE Monitor, an online financial research firm.

Since the Depression, American government policy has encouraged homeownership as an absolute good. It protects people from increases in rent and allows them to build equity as they pay off their mortgages. And it creates stability in communities, because owners are invested in their neighbors.

But new types of loans like interest-only mortgages and cash-out refinance loans mean buyers do not pay down their mortgages. And adjustable rate mortgages, which accounted for 39 percent of mortgages written in 2006, expose owners to rent-like rises in their housing costs.

The value of homeownership, then, has increasingly shifted to the home’s likelihood to rise in value, like any other investment. And when investments go bad, people tend to walk away.

“When people don’t have skin in the game, they behave like they don’t have skin in the game,” said Karl E. Case, a professor of economics at Wellesley College, who conducts regular surveys of borrowers as a founding partner of Fiserv Case Shiller Weiss, a real estate research firm.

Though many states give banks recourse to sue borrowers for their losses, Mr. Case said, in practice it’s not often done “It’s tough to do recourse,” he said. “It’s costly, and the amount of people’s nonhousing wealth tends to be pretty slim.”

Christian Menegatti, lead analyst at RGE Monitor, said the firm predicted more homeowners would walk away from their homes if prices continued to drop, regardless of their financial circumstances. If home prices drop an additional 10 percent, Mr. Menegatti said, 20 million households will owe more than the value of their homes.

“Will everyone walk out?” he said. “No. But there’s been a cultural shift. Buying a house used to be like entering a marriage, a commitment for life. Now, if you see something better, you go back into the dating market.”

When homeowners see houses identical to their own selling for much less than they owe, Mr. Menegatti said, “I wouldn’t be surprised to see five or six million homeowners walk away.”

For Raymond Zulueta, the decision to go into foreclosure, and to hire You Walk Away, brought him peace of mind. The company assured him that in California he was not liable for his debt, and provided sessions with a lawyer and an accountant, as well as enrollment with a credit repair agency. He stopped paying his mortgage and used the money to pay down other debts.

Consumer advocates and others question the value of You Walk Away’s service.

“We are more interested in servicers and borrowers coming to mutual resolutions through loan remediation,” said Kevin Stein, associate director of the nonprofit California Reinvestment Coalition. “Even though we are not seeing good outcomes, we’re not willing to throw up our hands and say people should walk away from their homes based on the advice of a company that stands to profit from foreclosure.”

Jon Maddux, a founder of You Walk Away, said the company’s services were not for everybody and were meant as a last resort. The company opened for business in January and says it has just over 200 clients in six states.

“It’s not a moral decision,” Mr. Maddux said of foreclosure. “The moral decision is, ‘I need to pay my kids’ health insurance or my car payment so I can get to work.’ They made a bad decision, but they shouldn’t make more bad ones just because they have this loan.”

Mr. Zulueta said he felt he had let down the lender, himself, and his family.

“But you got to move on,” he said. “I know in a few years my credit’s going to be fine. If I want to get another house, it’s going to be there. I’m not the only one who went through this. I know I’m working the system, but you got to do what you got to do. There’s always loopholes.”

See our other websites for Albuquerque Real Estate, Pet Friendly Condos in Myrtle Beach, and Virginia Beach Attractions.

Saturday, February 23, 2008

Knowing When to Hold and When to Fold with Real Estate

As 2008 begins, the mortgage problems grow worse, beach foreclosures are predicted to escalate, and now the interest rates on mortgages is rising. Many realtors say it's going to get better later in the year or at least by 2009, and just as many of the doom-sayers are saying we're on the verge of a recession and it's going to get alot worse before it gets better.

Through the end of the year I've had many investors and buyers talking about WAITING, and so sure the prices of homes are going to continue to drop. I don't agree with this in most cases, at least as it pertains to Myrtle Beach real estate. Our listings in the heart of Myrtle to the outskirts of Little River and Pawleys Island condos and homes are just about at rock bottom. They can't be sold for less than what's owed on them, and in many cases, it's to that point.

And now mortgage interest rates are rising.

In order to save a few thousand dollars, buyers are apt to cost themselves alot more when the interest rate on a 30 year mortgage jumps several percent points, and it's very likely to do just that.

Bond markets have gone down while yields have risen. With mortgage rates tied to the sale of the mortgage bonds and securities that are backed by them, they go up with the yields.

Economy gurus have reported that mortgage applications went down over 22%, purchases sank to almost 12%, and there was a drop of nearly 28% in refinancing in the last week or so. All this results in a considerable increase in the amount of your monthly payment as well as what you will eventually have to pay in full.

When the preconstruction condo market was so hot, the ones who got into it early on made HUGE profits. Another large group waited and waited, and by the time they finally did buy, it was too late, and many ended up stuck with the property they hoped to "flip". Between having to close on mortgages they were given when they really couldn't afford the payments, and the mis-use of ARM loans, thereare many, many people in a pile of trouble right now.

Why? Because they waited too long to buy. Trying to "time the market" is just like playing the roulette wheel. Not only does it not usually work, but when you lose, you lose in a big way.

This is the time. In our area especially, real estate and condos sales are very seasonal. With the spring, vacation home sales increase, and so do prices if you get the best properties. Tourists that are here on vacation fall in love with a condo and are primed to buy, and tax refunds help sales along, too. This time between winter and Easter should be best negotiation time, and may well be the lowest mortgage rates for the year.

Don't be standing on the beach wishing you had kept the pair instead of tossing them in for the flush that didn't show.

Tuesday, February 19, 2008

Time to buy that vacation home in Myrtle Beach

What may not be good for the investors who bought condos intending to "flip" over the past couple of years, has turned into good news for buyers and investors who waited.

Condominium and home prices in Myrtle Beach have dropped considerably during 2007, although it's still higher than it was before the condo boom of 2005. Prices of real estate along Myrtle Beach's sandy coastline nearly doubled at that time, and condo sales reminded me of our twice a year run of "spots", a local small fish that migrates through and permeates our waters in October and March.

When the spots run, you can throw in an un-baited hook and pull up a fish as fast as you can take it off and throw it back again. Such was the way condo buyers hit the beaches and resorts during the 2005 craze. If you had a preconstruction condo project, and you announced it publicly, you had sales... or at least deposits for them.

Many people made a lot of money in the very early days of the rush. Building was slow and the first developments that sold out were built and skyrocketed in price. The problems began after things continued to boom. Construction companies and builders were unable to handle the business load, and began to double the building costs to get a piece of the action. Eventually their prices made it nearly impossible to finish the projects that sold originally for lower prices.

The doom-sayers started predicting bubbles long before there were any, and after a while the investors grew scared so sales began to slow. Developers who could have afforded the padded building costs became unable to sell the last few units required to obtain the bank funding. Although North and South Carolina never did have a "bubble", per se, the condo rush slowed to a trickle, and many of the projects never materialized.

Over the past 6 or 7 months, prices have dropped somewhat on Myrtle Beach condos. A 2 bedroom that was originally $70,000, and had jumped to $130-$150,000, have now leveled off to $110-$120 instead. Many of the oceanfront condos that had climbed over a half-million are back into the 400's now.

But for buyers right now, this is a great time to pick up that perfect vacation home for a solid coastal real estate will start to increase in price when summer kicks in. Most folks say in about 17 months the crunch will be over, myrtle beach real estate sales will be hot, and prices will start to climb once again.

There won't be a better time to buy than right now. Just be prepared to hold on and enjoy it for a couple of years, and you'll have an investment to take pride in.

Contact Myrtle Beach CondoLux  for your vacation condo needs. They specialize in the best Myrtle Beach condo rentals.

Sunday, February 10, 2008

Celebrity Real Estate Losers

From Forbes

Dorothy Pomerantz 02.06.08, 6:00 AM ET

LOS ANGELES - Even Hollywood's rich and famous can't avoid the housing downturn that's sweeping the nation. In Los Angeles, only 4,430 homes were sold in December, down 48% from the previous year. And prices fell 11% to an average $470,000.

Of course, celebrity homes cost much more than that. An entry-level house for an up-and-coming star costs at least $1.4 million in L.A., say experts. Realtor Barry Sloane of Sotheby's International Realty says it's the owners trying to sell homes in the $3 million to $6 million range that are having the most trouble.

"A lot of those people are involved, in one way or another, with the strike," says Sloane. "They're upgrading from lesser houses that they're having trouble selling because of the market, so it's like a domino effect."

Young rocker Avril Lavigne has had to reduce the price on her five-bedroom, six-bath house in Beverly Hills from $6.9 million to $5.8 million. The property is currently in escrow. The Hollywood Hills home is in a gated community just off Mulholland Drive, and includes a tennis court and pool. Since she put the house on the market in February 2007, two offers have fallen through. In the public listing, her agent calls the house "One of the best values on the market today."

When it comes to real estate, stars generally aren't treated any differently than other rich people.

Mark David, who runs the celebrity real estate site The Real Estalker says homes generally don't demand a premium just because a celebrity was living there. At the same time, famous buyers are unlikely to get any kind of a bargain, since sellers often push famous folks to pay full price.
Former Guns N' Roses guitarist Slash (also known as Saul Hudson) feels he overpaid for his Spanish-style Hollywood Hills home, which has a pool, a separate gym and stunning views. He bought the house in January 2006 for $6.2 million. He sold it last December for $5.7 million.

Slash is suing his former real estate agent, claiming the house was neither as big nor as private as the agent claimed. The case is ongoing in California Superior Court.

Television star Wilmer Valderrama had to accept $200,000 less for his five-bedroom home in the relatively unfashionable Valley neighborhood of Tarzana. He sold the house in January for $1.75 million.

Johnny Carson sidekick Ed McMahon is also having real estate troubles. He put his 7,000-square-foot Beverly Hills home on the market In July 2006 for $7.7 million. He has since reduced the price three times, and the house is now selling for $5.7 million.

At the $20 million-plus end, it's not unusual for houses to stay on the market for months at a time, because there are so few potential buyers. Sloane was originally trying to privately sell a historic Neutra home on Mulholland Drive, owned by Vidal Sassoon, for $25 million. When an offer fell through, he lowered the listing to $20 million. That was a year ago.

"There's usually a waiting list for homes over $20 million," says Sloane. "Now, it's slowing down a tiny bit--for the first time in years."

Avril LavigneAsked For: $6.9 million Selling For: $5.8 million
The 23-year-old rocker may have finally sold her five-bedroom house in Beverly Hills. She listed the property almost a year ago for $6.9 million. After reducing the price by $1.1 million, the 6,900-square-foot home is now in escrow.

In Pictures: Homes of Celebrity Real Estate Losers

Myrtle Beach real estate came to a near complete halt in December. It must be a normal thing. The 2nd day of January, it's like a flood gate opens, and lasts for about 2 weeks. Then it slows a little and goes back to normal.