Profile picture for klarek the realist

Vultures in the mortgage and housing market

"If one is interested in buying a house today the bidding should start at 50 cents on the dollar and if the seller is not willing to at least counter, then the buyer should move on to the next house. It is a "New Market", the old rules do not apply. "

http://commonsenseforecaster.blogspot.com/2007/10/purpose-of-vulture-in-housing-market.html
http://money.cnn.com/2007/10/29/markets/distressed_debt/index.htm?postversion=2007103005
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October 30 2007 - US
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Replies (38)

Profile picture for Aratinga
We vultures would be very appreciative if you would post this link over on the sellers' side, Klarek! :)
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October 30 2007
Profile picture for klarek the realist
I don't want to put sellers in a worse mood than they're already in. Even in real life I'm trying to keep my mouth shut, especially amongst people that bought circa '05. A lot of my friends bought then and are really screwed.
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October 30 2007
Profile picture for sunnyview
It must not be easy to keep your mouth shut when it is obvious what has happened in the real estate market. People believe what they want to believe and when it doesn't go well they look for someone to blame. Being a seller used to be the bomb. now it's the bust.
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October 30 2007
Profile picture for klarek the realist
I found it doesn't really do much good to share the bad news. By now they're aware, but a few months ago I was rampantly warning people. I found that the ones that were screwed either liked me a bit less, were deeply depressed by the reality, or were in complete nimbot denial.
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October 30 2007
Profile picture for House_Hopeful
My poor neighbors bought last year April '06. Got the Notice of Default taped to their garage door this weekend. They purchased for $465K. Another neighbor has their unit for sale at $359K. Can you imagine??
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October 30 2007
Profile picture for caliguy
Sad story...I unfortunately can imagine because I've seen a lot of this lately around here. I was at a house recently that's $160k below its price in mid 2006. It's now bank owned, vacant and in need of repair.
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October 30 2007
Profile picture for klarek the realist
Something to consider about these foreclosures: these people will not be buying again for a LONG time, if at all. Their credit is screwed and nobody will give them a loan. So with this growth of empty homes we now also have a growth of people ineligible to buy. That really doesn't help the supply/demand balance of the market.
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October 30 2007
Profile picture for caliguy
How dare you klarek...there's "pent-up demand" off the charts! Hordes of buyers are waiting for any positive sign to jump right back into the market. Ha ha.
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October 30 2007
Profile picture for House_Hopeful
Hmm, that's something to consider. I'm refi-ing with a 7/1ARM, maybe I should do a 30 year fixed. That way I can rent out the place and gouge my renters with ridiculous rent fees. I'm all for making a buck, but I don't want to deal with renters. Have no experience with it.

Gosh, now I feel unholy even thinking about taking advantage of someone.
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October 30 2007
Profile picture for CORONA NICK
Im waiting to see blood on the streets.... same here, my neighbor across the street paid 625k for his house, now almost my whole neighborhood is in the low 500k's.... and he got a 10yr int only loan...geez... how depressing.
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October 30 2007
Profile picture for House_Hopeful
I don't like those interest only loans. I do like ARMs though - - only if they pan out! I noticed that you have a 7/1 ARM in another link. How long have you had it, and do you think it'll work itself out?
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October 30 2007
Profile picture for House_Hopeful
Oh, I should note that I had a 5/1 ARM in 2004, will adjust in 2009. Decided to refi with the 7/1 ARM last week. Now, this BETTER pan out for me!!

I thought I'd be out of the house by the time my 5/1 ARM adjusted, now look at me, refinancing and sticking it out for another 2-3 years. Goodness, if I see myself refinancing this in 7 years, I'll hang myself!
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October 30 2007
ARM's only make sense if they are giving you a good discount over 30yr fixed. Today they are not. How much different is the rate on a 5/1 or 7/1 compared to 30yr fixed? What if rates spike to 12 or 15% over the next few years? Will that .375% savings really be enough to compensate for the risk??
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October 30 2007
I said in another post that I was going to do my bidding this winter at 50% and see who bites.
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October 30 2007
Profile picture for LongIslandBubble
ARM's are never a good idea in a rising rate environment unless you are just looking to carry the house a very short term such as to flip; and when prices are clearly falling, even that isn't a good idea.

ARM's are good when interest rates are in the double digits and the facts show that they are and will continue to be falling.
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October 30 2007
LIB:

If I could get a 5yr ARM for say 2% less then 30yr fixed, then I'd bite!

save 10% over the 5 years, and then save all my money to pay it off at the end of 5 years... but thats me, I like to pay mortgages off quickly...

Not gonna buy anything soon anyways
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October 30 2007
Profile picture for House_Hopeful
I got my 7/1 ARM for 5.875%. The 30 year fixed was going for 6.125%. It was a $64 monthly differnece in payment. My sister is nagging me now, saying I should have gone with the 30 year fixed. But if this works out the way it should, I'll be selling and buying in 2-3 years.

My home purchase was 6 years ago, it's my "starter home". Really more of a house, place where I lay my head. Now my next purchase, that's the place I'll call home for the next 30 years.
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October 30 2007
marywin: that would be a PERFECT example of when NOT to get an ARM!!!

you saved $70 a month, IF THINGS WORK OUT!

If you have to change plans, the market heads south, you decide to stay in the home, or are forced to rent it, you will be exposed to potentially climbing rates, and all you got out of it was a few thousand....

risk/reward is quite high on that one

Lets say the probability that things work out as planned is 80%, and 20% due to unseen circumstances, you have to keep th house for much longer.

your expected savings on this loan are .8*(call it $4000) or $3200

however, if rates climb to 10% (still much lower then what happened after the last deficit spending war) Your monthly payments will rise by several hundred after the readjustment... I don't have your numbers but lets say it costs $100000 more over the remaining 23 years of the loan.

(.20) (100000) = $20000 expected loss...

Of course I have guessed at many numbers in here, but I think you get the picture. A small chance of a very big negative event outways a high probability of a very minor savings... Kinda like buying insurance in reverse!

In your shoes, I would actively save a lot of money over the next few years, to give yourself the opportunity to pay the loan down quickly if your plans are forced to change and rates rise... (if not, you will just have a nice big savgings anyways)
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October 30 2007
Profile picture for House_Hopeful
Gosh, now I'm really regretting my decision. I paid $200 for my application fee to B of A. I could do the 30 year fixed, but rates will be what they were last Thursday when I originally locked my 7/1 ARM. Now, I know the feds are meeting tomorrow, and I expect a .25% cut.

So I could either lose my $200 with B of A, and start fresh tomorrow. Or go with B of A, and use last weeks 30 year fixed rate of 6.125%.
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October 30 2007
Profile picture for Alan May
I have to agree with azrob... the potential $64/month savings is by no means enough of a savings to outweigh the possible loss you might incur should the market move against you.

If $64/month is enough to "tempt" you in the direction of accepting such a risky path, I'd suggest that you're not ready to take on the ongoing expenses of home ownership.
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October 30 2007
"My sister is nagging me now, saying I should have gone with the 30 year fixed"

Mary, I have to agree with the posters. You are only saving $70 a month and betting the market will turn around in 2 years to trade up? That's why I asked on the finance board 'why are you jumping from one ARM to another?". Yet i got attacked by the mortgage peddler freaks there. Did you sign the loan docs yet? You have 3 days to cancel afterwards. How do I know? I just refied. After seeing your previous posts I said hmmm..maybe I should considering that 7/1 arm myself instead of the 30 year fixed but my wife said I was nuts if I wanted to do it to just save myself peanuts per month. Consider the 30 year fixed. 6.125 is a good rate. BTW, that's what we got ;-) Good luck!
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October 30 2007
Profile picture for House_Hopeful
Last week, I saw $64 a month as $768 a year, times 3 years = $2304. I was certain I'd be out in 7 years or sooner. Now, I'm reading all these posts and I'm pertifried of the market.

These boards are soo addicting, too many doomsayers - - scares the pants off me!
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October 30 2007
Mary,


Let's be realistic. You are in Corona. Go read the thread on the sellers forum titled 'trying to sell and homes on the street foreclosed for under 100k less' or something like that. That lady is also in Corona. The Inland Empire is going to be under water for many many years. I am already seeing 2003 prices in some pockets. 2001 prices next year is a good possibility.
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October 30 2007
But, if you already signed away and the 3 day cancellation period came and went...please don't torture yourself reading the boards. Be happy with your decision.
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October 30 2007
Profile picture for House_Hopeful
Socal, you're right! I do remember your posts on the Finance board. And last week hubby and I thought 7/1 ARM made sense for us. Now today, it just doesn't seem right to me anymore. My neighbor purchased last year for $465K and now today that same model is selling for $359K.

Wish I had your wife's common sense!! She's right, it is peanuts when you look at it long term.
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October 30 2007
Profile picture for SusiP
With the 30 yr fixed you would have the peace of mind of knowing you are locked into a good rate that you can live with for an extended period of time. And you would avoid the refi expenses & requalifying hassles (particularly after the mtg qualifications restrictions have been more firmly locked in place than they have been).

You are looking at less than $20 a week difference in exchange for a much better long term loan in case you get stuck with it much longer than planned especially in such an uncertain market as exists now & is predicted to get much worse. You could then take your time to make the best decision for you with a mtg pymt that won't be changing until YOU decide it will by either getting a better refi in place or paying it off when you move.

So yeah, I'd vote for the fixed rate loan in your situation too... :)
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October 30 2007
BofA? Two wks ago I got a bid from BofA and Wamu, both at 6.875 for fixed. Mortgage brokers said 6.25 fixed, with equal fees. Chase was 6.25 with lower fees than all of them! Needless to say, Chase won. Also, I got a bid from Quicken, but since they were not in writing, we didn't consider them serious. They were about the same as Chase, though.

All these quotes were for 30-yr fixed. I guess there's a big diff out there in interest rates.
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October 30 2007
you pre-paid a $200 application fee? -wow--I haven't ever seen that!
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October 30 2007
Profile picture for plarusa
Im waiting to see blood on the streets.... same here, my neighbor across the street paid 625k for his house, now almost my whole neighborhood is in the low 500k's.... and he got a 10yr int only loan...geez... how depressing.

How do you know so much about your neighbor's finances? I don't even know my neighbor's name.
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October 30 2007
you look them up on public records... I can map the neighborhood and click on each house... easily get the deed, and then use their name to find all of their public records such as refinances etc.... In my county it is all free and extremely easy...
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October 30 2007
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