I HAVE recently been following this website called, SellYourHome.com it has a lot of interesting topics about the real estate industry including a certain topics about homeowners in need of Mortgage Salvation thru Loan Modification.
Now days, here are my thoughts on how our housing crisis is unfolding. To observe the crisis we have been going thru, I believe to see problem setting unfolding in three stages. In my opinion, the first stages of the housing debacle of course started in the late 07 to early 08’s with homeowners realizing that the bubbles burst and they need to plan out an exit strategy. These homeowners however might have felt the hurt even just within the first few months of their new mortgage loans. I thought that these homeowners actually bought home “Just because” and really could afford them. From 2007-2008, home prices were the highest and you’re paying an average of 5-15 percent appreciation in a very over heated market. Here are the charts based on this website http://www.laalmanac.com/economy/ec37.htm:
Based on LA county medium home prices, 2006 was the peak and it dropped by 15 percent from 2006-2007 and another 10 percent from 2007-2008. If you were to buy a home in the $500K price range back then, especially if you only put either minimum to no money down. Your mortgage payments including all taxes and insurance would run you close to $3,500 a month.
Let’s do the arithmetic, assuming you have a family of two children and your minimum living expenses were to be around $1000 a month. Back then everyone had a car loan to be about another $400 a month. Your total net expenses that are realized at a minimum would be EST. $ 5,000.00 a month that is not including the possible repairs, maintenances and improvements you will borrower from plastic to keep the little house you bought.
To be able to afford $ 5,000 a month in minimal expenses my calculator tells me that your gross income has to be at around $ 8,000 a month or $ 96000 a year. As far as a lender is concern a real qualifying ratio today you need to gross around $ 11,111 a month or $ 133,332 a year to qualify.
Back in those days, I pre-qualified and honestly declined a lot of buyers who wanted to get a free ride with all the easy qualifying loans that is available. If you have been following me, you will see that I have been really a promoting for homebuyers to be very careful and buy wisely.
Here is the problem why a lot of them let go these homes in that first stage I am talking about. First obvious reason is because these buyers really “Can’t afford” these payments. Also, they settled for these homes and then realized after the market turning that the house is not worth it.
The second phase I saw where homeowners who really got in trouble, they were the borderline buyers who work for their mortgages only and basically are slaves to their new huge and large obligation of a house. They soon then also realize that the house is an investment and it’s not looking good. So a lot of them let go or walked away.
The maybe last phases of these homeowners that are supposedly struggling that I noticed are the homeowners that really want to keep their homes. Most of them I notice can make the payments and are qualified for these loans. The government HARP refinance program that allows homeowners without equity or with negative equity to apply for home loan to redo their rates have actually assisted and approved a lot of consumers to pay much lower interest rates.
As I mentioned before I strongly believe that banks are going to be willing to negotiate better terms of payments with still the struggling homeowners. Because I think that we are almost at the tail end of this problem, lenders will want to fast track these loan modification so they can move on.
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Thanks for your interesting comments and inquiries please call Ken Go of 1st Innovative Finance Group at (562)508-7048 or write to [email protected] for your RE related questions or needs.