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May. 13th, 2005 11:52 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
which_chickFinance, finance, finance. Today's topics: Sheriff Sale of Property, Creative Mortgage Products, and how Chase Freedom Mastercard is enhancing my rewards program!!
I went to the sheriff sale today. There were two properties for sale. The first was at 126 N. Spring Street in Everett. It's a three-story frame victorian house, in town, with some issues (leaking roof, 60-amp electrical service, illegal apartments on 2nd and 3rd floors). It sold at sheriff sale a year ago (7-30-04) for 50,000 or so. There were two bidders for this property. One of the bidders was Jeffrey S. Appel, owner or reputed owner. The other bidder was some attorney type acting on behalf of National City Mortgage Company, the plaintiff. Bidding went to $50,100 and the property was "bought" by the National City Mortgage Company. Now, the property currently has an outstanding mortgage (with the aforementioned bank) against it for $72,000 as well as liens for roughly the same amount. It's basically 140K in debt... and it isn't worth that.
The bank bought the house back because it wasn't going to bring enough at the sale to recoup them for what they had in it. The bank apparently thinks that the house is worth fifty thousand, one hundred dollars. Unfortunately, nobody at the sale agreed with them. Sucks to be the bank.
The other house for sale was at 643 N. Spring Street in Everett. It's a two or three bedroom house (you can't get in to inspect these properties. The best you can do is peer through the windows. There aren't tours or anything.) a bit up the road from the first house. It's also got city water and sewer and it's in rather better shape than the first house as well as being smaller and more sensibly sized for renting. There is a judgment against the house for $106,000. It's probably worth 55K, maybe 60K if the inside isn't horribly fucked. There were two bidders on the property, one of them GMAC Mortgage Company (Plaintiffs). At the close of bidding, the mortgage company "bought" the building for $20,001... they're in roughly the same shitty situation as the first bank. They apparently think the house is worth more than twenty thousand dollars but nobody at the sale agreed with them.
Interestingly, Mike Mortimer was at the sheriff sale and he allowed as how the people who owned the property in between 649 N. Spring and 629 N. Spring might have settled on an owner and might be willing to talk about selling the property to us. We've tried, in the past, to purchase that house because it's a hellhole and it's right next to a property we own, but the heirs were unable to agree on things and refused to sell their extremely valuable house back when it might have been worth something. The house, never all that impressive, has declined substantially during the twenty years it was empty, and it's about worthless now. They should have taken the money when they had the chance. Advice to all potential property heirs: Sell the house while it's still sellable. If you can't agree on who gets the money from the sale, do not let that stop you from selling. Sell and then put the money in a CD while you fight over who gets it... at least that way you won't fritter away everything.
And that was the sheriff sale.
Creative mortgage products were mentioned in the satiric piece I linked to the other day. These are real mortgage products... zero-percent (no down payment) mortgages, interest-only mortgages, negative amortization, and mortgages written for greater than 100% of the value of the home. Now, math is hard, but these are some serious crack-smoking financial instruments if I ever saw them... all of them designed to get people who lack solid financials into mortgages.
Can't afford a down payment? Try a Zero-Down mortgage! Of course, you'll be paying a slightly higher interest rate and PMI because you don't have a down payment, but that'll be okay.
Can't afford the cost of a 30-year amortizing mortgage? Try an Interest-Only mortgage. You won't be paying down the principle at all, but you'll have lower payments. That's good, right?
Can't afford even the interest on your low ARM mortgage? Sign up for one that allows negative amortization at a payment rate below the actual interest rate. That way, if interest rates rise, you can OWE MORE MONEY while continuing to make the same low payments... at least to a point. Most Neg. Am. loans cap the amount of debt you can incur to 125% of the loan's initial value.
Can't afford a home because you have too much other debt? Get a loan for more than the value of the property and pay off your other debt with the extra money.
Honestly, people. Get a fixed rate, 30-year fully amortizing home mortgage and put 20% of the purchase price down. Anything else is bullshit.
Chase Freedom Mastercard is my credit card. On the whole, I'm happy with them. However, today they sent me a mailing that struck me as particularly chuckle-worthy.
Dear account holder,
We're pleased to tell you about an exciting change coming soon to the rewards associated with your Chase Freedom credit card account. These changes will be effective on July 25, 2005.
A summary of the benefits and changes to your account include (sic -- this should read "includes". The deep structure is "A summary [adjectival prepositional phrases] includes...") the following:
- There is no change to your annual program fee.
- Reward dollars earned after July 2005 will expire six months after the date they are earned. Reward dollars earned prior to July 2005 will expire in January 2006.
-There is a $500 monthly limit on the gasoline purchases earning reward dollars.
-For all other purchase made using your card, there is no annual or monthly maximum reward dollar accumulation.
(blah blah blah)
Sincerely, Cardmember Service
Let's read for meaning. A summary of the benefits and changes, you say? And the first thing you give me is "There is no change to your annual program fee." Right. So is that a benefit or a change? It's not a change, so I guess it must be a benefit. Yippee.
My reward dollars now expire in six months? That's definitely a change. I'm not sure it's a benefit.
I can only get credit for five hundred dollars of gasoline purchases per month? So... were some businesses buying too much gasoline so that ya'll had to pay out more rebates than you were expecting? It's only five percent on gasoline purchases. How bad can it be? I guess this is a change because it's not a benefit.
And other purchases still follow the same rules as before. That's not a change, so it must be a benefit.
Er. Right, then. I can see why you listed the benefits and the changes seperately. Ain't no overlap happening there. This word enhance, I do not think that it means what you think it means...
I went to the sheriff sale today. There were two properties for sale. The first was at 126 N. Spring Street in Everett. It's a three-story frame victorian house, in town, with some issues (leaking roof, 60-amp electrical service, illegal apartments on 2nd and 3rd floors). It sold at sheriff sale a year ago (7-30-04) for 50,000 or so. There were two bidders for this property. One of the bidders was Jeffrey S. Appel, owner or reputed owner. The other bidder was some attorney type acting on behalf of National City Mortgage Company, the plaintiff. Bidding went to $50,100 and the property was "bought" by the National City Mortgage Company. Now, the property currently has an outstanding mortgage (with the aforementioned bank) against it for $72,000 as well as liens for roughly the same amount. It's basically 140K in debt... and it isn't worth that.
The bank bought the house back because it wasn't going to bring enough at the sale to recoup them for what they had in it. The bank apparently thinks that the house is worth fifty thousand, one hundred dollars. Unfortunately, nobody at the sale agreed with them. Sucks to be the bank.
The other house for sale was at 643 N. Spring Street in Everett. It's a two or three bedroom house (you can't get in to inspect these properties. The best you can do is peer through the windows. There aren't tours or anything.) a bit up the road from the first house. It's also got city water and sewer and it's in rather better shape than the first house as well as being smaller and more sensibly sized for renting. There is a judgment against the house for $106,000. It's probably worth 55K, maybe 60K if the inside isn't horribly fucked. There were two bidders on the property, one of them GMAC Mortgage Company (Plaintiffs). At the close of bidding, the mortgage company "bought" the building for $20,001... they're in roughly the same shitty situation as the first bank. They apparently think the house is worth more than twenty thousand dollars but nobody at the sale agreed with them.
Interestingly, Mike Mortimer was at the sheriff sale and he allowed as how the people who owned the property in between 649 N. Spring and 629 N. Spring might have settled on an owner and might be willing to talk about selling the property to us. We've tried, in the past, to purchase that house because it's a hellhole and it's right next to a property we own, but the heirs were unable to agree on things and refused to sell their extremely valuable house back when it might have been worth something. The house, never all that impressive, has declined substantially during the twenty years it was empty, and it's about worthless now. They should have taken the money when they had the chance. Advice to all potential property heirs: Sell the house while it's still sellable. If you can't agree on who gets the money from the sale, do not let that stop you from selling. Sell and then put the money in a CD while you fight over who gets it... at least that way you won't fritter away everything.
And that was the sheriff sale.
Creative mortgage products were mentioned in the satiric piece I linked to the other day. These are real mortgage products... zero-percent (no down payment) mortgages, interest-only mortgages, negative amortization, and mortgages written for greater than 100% of the value of the home. Now, math is hard, but these are some serious crack-smoking financial instruments if I ever saw them... all of them designed to get people who lack solid financials into mortgages.
Can't afford a down payment? Try a Zero-Down mortgage! Of course, you'll be paying a slightly higher interest rate and PMI because you don't have a down payment, but that'll be okay.
Can't afford the cost of a 30-year amortizing mortgage? Try an Interest-Only mortgage. You won't be paying down the principle at all, but you'll have lower payments. That's good, right?
Can't afford even the interest on your low ARM mortgage? Sign up for one that allows negative amortization at a payment rate below the actual interest rate. That way, if interest rates rise, you can OWE MORE MONEY while continuing to make the same low payments... at least to a point. Most Neg. Am. loans cap the amount of debt you can incur to 125% of the loan's initial value.
Can't afford a home because you have too much other debt? Get a loan for more than the value of the property and pay off your other debt with the extra money.
Honestly, people. Get a fixed rate, 30-year fully amortizing home mortgage and put 20% of the purchase price down. Anything else is bullshit.
Chase Freedom Mastercard is my credit card. On the whole, I'm happy with them. However, today they sent me a mailing that struck me as particularly chuckle-worthy.
Dear account holder,
We're pleased to tell you about an exciting change coming soon to the rewards associated with your Chase Freedom credit card account. These changes will be effective on July 25, 2005.
A summary of the benefits and changes to your account include (sic -- this should read "includes". The deep structure is "A summary [adjectival prepositional phrases] includes...") the following:
- There is no change to your annual program fee.
- Reward dollars earned after July 2005 will expire six months after the date they are earned. Reward dollars earned prior to July 2005 will expire in January 2006.
-There is a $500 monthly limit on the gasoline purchases earning reward dollars.
-For all other purchase made using your card, there is no annual or monthly maximum reward dollar accumulation.
(blah blah blah)
Sincerely, Cardmember Service
Let's read for meaning. A summary of the benefits and changes, you say? And the first thing you give me is "There is no change to your annual program fee." Right. So is that a benefit or a change? It's not a change, so I guess it must be a benefit. Yippee.
My reward dollars now expire in six months? That's definitely a change. I'm not sure it's a benefit.
I can only get credit for five hundred dollars of gasoline purchases per month? So... were some businesses buying too much gasoline so that ya'll had to pay out more rebates than you were expecting? It's only five percent on gasoline purchases. How bad can it be? I guess this is a change because it's not a benefit.
And other purchases still follow the same rules as before. That's not a change, so it must be a benefit.
Er. Right, then. I can see why you listed the benefits and the changes seperately. Ain't no overlap happening there. This word enhance, I do not think that it means what you think it means...
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Date: 2005-05-13 07:30 pm (UTC)no subject
Date: 2005-05-13 11:09 pm (UTC)Damn. You DO REALIZE that I had a lovely post involving Fibonacci numbers and pictures of assorted pine cones and NOW instead of doing that, I'm reading up on how to take the mortgage deduction? I don't even HAVE a mortgage, damn it. Most of my information on this came from here (http://www.irs.gov/publications/p936/index.html), as cheering and delightful a piece of pre-dinner reading as I've seen in a long time. I couldn't find jack shit about interest-only mortgages, so I guess they're allowed.
Also, going that route would give you the downside of home ownership, namely home-fixerupper-ship, without the upside (equity). You'd have insurance and Private Mortgage Insurance (because you'd have less than 10% of the mortgage principle paid off) to boot.
Finally, I am not entirely sure that lenders will write pure interest-only mortgages. Generally they're offered as a five-year or ten-year introductory thing (to make the home affordable to first-time buyers), after which time you've gotten your financial house in order, climbed the corporate ladder, and have to start paying on the principle like a real mortgage holder. Or, y'know, you could sell the house and take out whatever equity you've accumulated as the house appreciated in the ever-rising real estate market... and that's the vision that I guarantee many, many interest-only buyers are seeing these days. It's rosy, all right... but now picture this: What happens if the house sells for LESS than the amount you owe on your interest-only mortgage?
interest only, leverage, some additional thoughts
Date: 2005-05-16 01:44 pm (UTC)Ahhh...but you benefit from the powers of leverage when you go "no money down". You may also suffer from leverage as well if prices decline.
To wit:
A friend of mine just sold his house in Columbia, MD for about $250,000.00, having paid about $165,000.00 for it five years ago. His downpayment was negligible. So, investing (more or less) nothing, he turned it into $85,000.00, which he will be able to pocket without paying taxes. His return was huge. If he'd paid 100% cash at the front end (165,000), his rate of return would have been a little under 8.67% per year. If he'd paid 20% down, it would have been about 20% a year (turning a $33,000 investment into $85,000)(I'm swagging here, so forgive the math). Paying nothing down? Well, that's a nice denominator....
This only works if prices are rising and if you hold the property for a few years. Also, you need to be able to make your payments.
The downside is what happened in So. California in the early 90's during the RTC's liquidation of S&L assets and during a period of tighter credit by the Fed -- you get upside-down on your property. Say my friend had bought a house in San Diego in 1988 for $200,000.00. Prices dropped by about 20% in some markets. If he had no money down (i.e. no equity), he would have sold the house a few years later for $160,000.00, and he would have needed some way to come up with the $40,000.00 to pay off the bank when he sold the house. Plus the broker's commission of 6%, or another $6,400. You can do the math on his loss if he paid all cash, 20% down, etc. Obviously, it hurts less if you have more cash in the property, but you're still out the same number of dollars under any scenario.
Right now, "no money down" people are making money like bandits, but there will be a reckoning. They are perhaps mistaking their luck in timing for brains, sort of like bond traders in the early eighties -- it always helps to be in the right place at the right time. The timing and the extent of the reckoning will depend on the local real estate market conditions. The real estate market is cyclical, and the people who haven't been invested through a full cycle may be really, really hurt as rates continue to climb.
FWIW, just paying 20% down and having a 30 year fixed mortgage does not guarantee that you will not lose money on your house. You can still lose money on your house. You'll just be losing money that you actually have as opposed to losing money that you don't now have and never had in the first place. Generally, losing money that you have is less painful than losing money that you never had, because your hole is much deeper in the second scenario. Bankrupcy beckons in the latter. Losing money is never fun, but I'd rather be at zero than at less than zero. Also, believe it or not, housing prices can decline by more than 20%, so even paying 20% down does not insulate you from owing more on your house than it is worth.
It'll be an interesting next three years in residential real estate. Keep a close eye on your local labor market and population growth. If both of those continue to trend positively, the effect of interest rates going up will not be as severe. If your local population and employment markets are stagnant or worse, the effects on local real estate prices will be more pronounced as rates rise, since lower rates were likely the primary driver of increased housing prices in your area.