Hi folks. I've been trying to get my head around the proposed rate freeze. Rosemary Brooks wrote a post yesterday expressing her concerns about this program and how it will exclude too many folks. After going back and forth with her in the comments we both agreed that if you can't help everyone then don't help anyone. Here are my thoughts.
I closed on 60 properties in 2005. I don't know the exact number but my guess would be 90% of these were sub-prime 100% deals with the seller contributing 6% towards closing costs.
Being as how I am in the thick of the mortgage crisis, I talk with sellers everyday that are in dire straights. This is what I hear:
Mostly, "I bought my house in late 2005 and was planning to move into it but my situation changed with my job and now I need to sell" Ok first, they bought to flip and probably lied on their loan application to say it would be their primary residence. Now they are trying to cover their asses. They paid $225,000 for a house now worth $170,000 if they are lucky. They've been trying to sell at $299,000 for a year. Still holding on to the dream while they use the equity from their homestead to carry a losing "investment". Now they feel they are entitled to a short sale. I cannot help them and neither should "Big Gov".
The second scenario, is the young couple who bought their house in 2003 for $85,000. They have refinanced three times since then and now owe $200,000 on a house worth $170,000. They do however have beautiful furniture, plasma TVs and new cars. These folks may very well want to stay in their house. Where else would they keep their TVs? These folks need to sit tight and try to keep up with their payments. I can't help them and they should not be "bailed out".
The third seller I speak with is the family who purchased in 2000 for $95,000. They did refinance in 2005 but only pulled out $30,000 to pay some medical bills and do some improvements on their home so the kids would have a little more room. Their house is now worth $150,000 but will be very difficult to sell because it's "old". Homes built before 2004 in Poinciana are now "old" because of all the vacant new homes that are just sitting. These folks I want to help desperately. Unfortunately, with the saturation of homes on the market from the first two scenarios, we may have to reduce to the $130s to have a shot at getting it sold. This would be enough to cover their mortgages but won't give them any money to move forward, so we leave it at $150,000 and hope we get lucky. These folks really need to decide if they need to move or not. If they need to move I may be able to help but "Big Gov." should not.
Now my favorite Sellers and the ones I look for, have lived in Poinciana for many years and either have no mortgage or a very small mortgage. They are looking to downsize or move out of State. These folks can sell because they are in a position to price low enough to beat out the competition. Most understand the market and are willing to price it right. Together we will be able to get their homes sold.
So my questions are, who exactly is this "rate freeze" designed to help and why should these folks be helped? Does declining property values have any effect on the payments they agreed to make when they purchased their home? If folks bought using an ARM, with the hope that they would be able to refinance out of it before it adjusted, then didn't they take a risk? And if they took a risk and lost why should they now be bailed out?
Am I missing something here? If so please clue me in.