patrick.net

_wink_ to gabby

Then the natural question is can you finance a home that you are buying out of foreclosure (presuming it has returned to the bank, as bad debt) or does it have to be cash on the barrelhead?

REO/foreclosures/property auctions are definitely not my area of expertise, but I don't think buying a foreclosed home from a bank or lender means you can't finance it. Otherwise, who would be left to buy --multi-millionaires?

Surely there are some well connected posters out there with broker/lender friends who can contribute more ...anyone?

Strength and honor.

Face Reality - as a non-bubble head, how much higher do you think the market will go?

"I know what bubbleheads think about flippers, but what about people who buy property, rebuild/improve/convert it, and then sell it? These folks are actually adding some value, so it’s not straight speculation."

I'm not particularly sympathetic. From what I've seen in the bay area (or in Menlo/Palo Alto anyway), improvements consist of throwing down cheap hardwood, installing granite counters and shucking in some sub-zero appliances.

I will grant you, Face, the party has gone on far longer than I had imagined that it would. I've been calling bubble for two (nearly thee!) years now. Some humility is definitely in order. On the other hand, I've run the numbers using historical averages, and renting is a far better deal. As you've pointed out, that has made me very, very wrong for the last three years. Perhaps it will make me wrong over the next three (or, _gulp_ 10) years as well. But I am willing to bet on a reversion to the mean.

Arguments similar to yours could have been made during the .com buildup as well. Surely you see similarities between then and now?

Of course, there is also the fact that I'm a very bull-headed man. _smile_

Chewbacca,
prat

So I'm a home owner of a modestly priced 3brm in the East Bay bought a while ago, but we have to move in the next 6 months to either be closer to work in the Sth Bay or we might be moving to LA if my husband takes a new job down there.

We can either sell and rent or buy a new place. To get a 4 brm in either the peninsula or the west side of LA we will be paying up to 1.4. Quite a bit of money. If we wait the market might drop as it feels so high now that my sense is the worst that can happen by not buying is the market won't go up too much more (and yes I was saying this last year so I'm prepared to be wrong:), or it may decline. My only concern is that the market might go down if interest rates rise a lot more - but then it's a bit of a wash as you are paying more on your mortgage % rate.

I feel poised waiting for more information. My only solace is I've seen firsthand the Australian RE market when no-one thought it would ever change and yet it happened. So it's a real question for the non-bubble heads - what do you think will happen? Best guess.

Praetorian - I guess the only thing that can burn the bubble heads is if they haven't bought, interest rates and prices stay this high but people put up rents to cover their costs. Still, I think when people are living close to the edge to meet re-payments on speculation properties as we are seeing now they tend to keep rents low to ensure they always have a tenant.

Bubbleheads also keep contradicting themselves

Face, we're all different people who have different opinions/predictions about what we think will happen and what the timeline might be. We don't all share one brain, any more than you and Troll do. Different people, different answers --get it?

On the one hand, they say that a large price drop is imminent. On the other hand, they agree that buying a house now is ok if you don’t over-extend yourself and if you plan to keep it for the long run (10-15 years). I don’t see how those two positions are consistent.

First off, I PERSONALLY wouldn't buy right now in CA period. And, yes, I think it would be better to wait. However, the poster you're referring to said she had already made up her mind and bought here, and said she didn't mind losing some money if/when the market dropped. What am I supposed to do --berate/insult her over a personal decision she's already made, just because I'd have chosen differently?

Besides, she didn't use an NAAVLP and can handle the payments on her income. I don't see the inconsitency here. Besides CA, there are parts of the country (rural midwest, south) that haven't been much impacted by the bubble, so why NOT buy if you want? Nothing's black-or-white, dude --depends on the particulars.

Banks most certainly will finance the sale of a property that they need to get off their books. They are in the business of lending. Financing the sale gets rid of the property and generates revenue.

However, I have not dealt with this issue for many years, so things could have changed. In the current market the lenders may not want to bother with a retail buyer.

EBR: "My wife and I plan to buy in 2009."

I'm in the *exact* same boat. And I think you mean to say: "My wife plans to buy in 2009, which I meekly accept."

Should be a fun few years... _smile_

Cheers,
prat

The bottom line is that if bubbleheads are saying that people who can’t really afford to buy shouldn’t buy, then I think pretty much everyone agrees. It’s too risky to bet everything on continued appreciation. It seems like most people also agree that if you can afford to buy and plan to keep the place, then go ahead. This makes the whole argument uninteresting because there is no argument.

Just because we agree on some key points (RE speculation bad, live within your means), I don't know that it makes the whole HB debate uninteresting. I've had plenty of fun debating you, Fake & Jack here about all the things we DON'T agree on.

I know what bubbleheads think about flippers, but what about people who buy property, rebuild/improve/convert it, and then sell it? These folks are actually adding some value, so it’s not straight speculation.

Depends on what you mean by "improvements" (_nod_ to Prat). There are people who made a good living on fixing up truly distressed RE even before the Bubble, and I have nothing against them --they do add value. If you're short-term flipping/buying on spec without really doing anything but driving up prices for people who want a place to live, then you're profiteering scum.

gabby,

Good point about the foreclosure seminars. A lot of the same people who are pushing those no-money down NAAVLP seminars right now will no doubt move into that, if they feel there's a profit to be made. I've heard that you can really get burned on REOs if you don't know what you're doing --especially at auctions (where you're often bidding against pros). Maybe the thing to do is focus on pre-foreclosure property (again, assuming the pros aren't all over that too).

at: "Don’t feel bad about being wrong for 2-3 years."

2 or 3 years? I met my wife 7 years ago, and I've been wrong in every argument since. I've become quite comfortable with it.

_smile_

What's funny is I remember very specifically having a moment of crisis in at the end of the .com boom where I nearly broke. I was living in downtown SF, working at a tech consulting firm where most people were true believers. And here is where I break into a *very* hetrosexual rendition of "You Gotta Be" by Des'ree...

Cheers,
prat

Veritas: Banks can own property but they take a capital charge to support the asset. They all want to be free of “Other Real Estate Owned” by December 31st of each year. They can and will finance a direct sale to you. This was quite common during the real estate depression of the early 1990s. Not so likely today because the banks have so little troubled property on their hands and it is easily sold. During the 1990s they were selling for real cheap as December rolled around.

Zephyr, this presents an interesting question: When a bank/lender/GSE sells off a mortgage to investors as an MBS, and the buyer walks away, who takes possession of it? Even the GSEs seem to be unloading as many MBSs to private investors as possible lately (at the Fed's direction).

I’ve heard people say that the end of a bubble is near when the bears start wondering, “maybe prices have acheived a permanently high plateau.” I think this will be my new early indicator. Any doubters yet?

Now I think that prices have entered a permanently high plateau. ;)

Harm: When a bank or original lender sells the loan it is gone. They have no interest in the loan anymore. It would not be on their REO list, and they would not be selling it. Most loans go into the MBS market and are not going to be as easily accessed. The loans are typically serviced by professional servicing organizations. They are sometimes independent of the lenders and sometimes subsidiaries or affiliates of the lenders. Whoever has the servicing is likely to dispose of the property. Many banks do still hold and service their own loans.

The GSEs are intended to package and sell their loans. That they have been keeping more than expected has been a point of controversy.

Prat - ha! I am the same bear on both RE and Google for the last three years. I work at Yahoo! now and watch the stock price difference between our companies with some dismay. Google is trading on a cool brand but I wonder how long that will last? I hope you were one of the early googler's so at least you could cash in a bit.

My solace is that I was severely criticized for being bearish in the Aus. market for 3 years before it started declining and feel somewhat smug that at least one of my predictions was correct. Actually, I have said to my husband that I thought the market might keep creeping up until the end of this year but it would topple. If it keeps going into next year I will put away my crystal ball forever.

Still on my personal RE crisis, if we can afford it and sit on the property long term then I suppose we can cope with some declines. My husband made about 300k on his current house so I figure that's paper money that if he really wants to buy desperately then he has that as his own cushion. I'm an understanding wife, worst case the market pops and I get to say I told you so for the rest of his married life. Revenge will be sweet:)

Prat
You sound like a smart husband who understands the finer points of married life. :D

Veritas

I don't know that much about foreclosures but I would be a little cautious. Years ago my parents went to purchase a home that was being sold by the owner, not through a broker. Fortunately, my Mom sensed something was a little off and decided to do some research (I would have to ask her where she looked to give you more detail) on the house. Long story short, the house was in foreclosure and the "owner" was trying to sell the house. Turns out the "owner" had done this before and had taken off with several down payments from previous would be buyers.

I also have looked online at sites that advertise foreclosures, and have noticed that several are listed by the "owners" and not the banks. As far as I know, if a house is foreclosed on, it is owned by the bank and not the previous owner. I have known some realtors who do deal in foreclosures, or at the very least can get actual foreclosure listings. My husband has also had realtor friends who occasionally tip him if they hear of a local forclosure going up, so they must have some source of information handy to them. I'll have to look into it a bit more.

"I’m an understanding wife, worst case the market pops and I get to say I told you so for the rest of his married life. Revenge will be sweet:)"

Gabby has just discovered the *perfect* housing hedge. Peter, HARM, take note.

Cheers,
prat

The loans are typically serviced by professional servicing organizations. They are sometimes independent of the lenders and sometimes subsidiaries or affiliates of the lenders. Whoever has the servicing is likely to dispose of the property.

Zephyr,

Names, websites? Any you'd personally recommend?

SactoQt: A foreclosure is a forced sale. Ideally the bank is successful in finding a buyer via the foreclosure “auction” or process. If that fails the bank could get stuck with the property on its books.

I never bother with foreclosures because I only buy properties in preferred locations with what I believe will be improving demographics and quality. Foreclosures are usually dogs in sub-par areas.

Gabby has just discovered the *perfect* housing hedge. Peter, HARM, take note.

Prat, I hear you, buddy. But sitting around watching the crash play out doesn't have anywhere near the moral satisfaction of taking profiteering scum's "investment property" off their hands for pennies on the dollar. Preferably with them standing right there.

Wamu, Countrywide, wellsfargo/norwest, sun trust, lots of lenders who service…

Why do you ask?

Zephyr
I'd have to disagree a little. The home my parents bought is considered to be in one of the best areas around. It's now valued at $1.5 million. Buuuut, this may be atypical.

Do you think with all the NAAVLP's out there the foreclosure picture may change from your previous experience and we may see more of them in all areas?

SactoQt: I said usually…

Yes. But we had negative amortization loans back in the 1970s. This is not as new as most people think.

Were the loans in the 70's as prevalent as now?

I have an “option” ARM on one or two of my properties. I always pay the full interest. I never borrow for consumption. In fact, I am a big net saver. No need to borrow to spend.

I was always a saver, even when I was young and made very little money. At the end of the day it’s how much you keep, not how much you make that matters most.

Obviously, the more you make the better positioned you are to save – if you have the discipline.

GAbby, don't let another year knock you down. It could still be going in a year, but I'm now convinced that oil is going to strangle the remaining life out of the economy. It's inevitable. When oil is jumping around based on whether Emily or Duncan is taking a left turn or right in the gulf, then you know the queens are gone and it's time for the end game.

The Negative amortization loans were not as widely used, and they were not as severely negative as today.

Zephyr

I very much agree with you that saving is key. My Mom used to tell me that I was so tight I squeaked. Call me Minnie. But it's always been my nature to save and all the NAAVLP's make me very uncomfortable. I'd rather rent than take a chance that I'm overextended in buying a home. Regardless of what this market does, I do think being frugal will pay off in the long run.

I believe negative amortization has been around for a while but it was meant to be a sophisticated money management tool. But only now do we have unsophisticated people using it to afford more house.

It is a rather complicated product with lots of if's and but's and risks can remain dormant until the worst possible time if it is not used correctly.

Zephyr Says:
Why do you ask?

See note to Prat ;-)

Zephyr/SactoQt:

I obviously have no direct experience in neg-ams (a.k.a "reverse mortgages"), but what I've heard & read from others who do tells me that prior to the current cycle, they used to be reserved primarily for 2 types of buyers:

1. Elderly owners who had paid off the mortgage & were "equity-rich" but income poor.
2. Financially saavy and stable long-term owner/investors (as opposed to flipper/speculators) such as Zephyr.

Nowadays, if you can fog a mirror...

Gabby has just discovered the *perfect* housing hedge. Peter, HARM, take note.

It is not a perfect housing hedge for the husband. Instead, it would be a "double whammy" if the market goes down. ;)

PeterP: The negative amortization loans of the 1970s were designed for the purpose of enabling young first-time homebuyers to be able to better afford their starter home. The idea was that their income would be growing so it made sense to offer depressed initial payments that would increase later when they could better afford it. In other words the entire purpose was really to get them into a house that they otherwise could not afford. That was in the 1970s.

Harm: Reverse mortgages are a full step beyond negative amortization. They actually pay you… one big growing credit line.

Sometimes all the information can be so confusing to the poor befuddled beginner........ I thought neg-am's were intended for the wealthier buyers back in the 70's.

HARM: "Preferably with them standing right there."

Coldblooded man. Coldblooded.

Cheers,
prat

Harm: “Nowadays, if you can fog a mirror…”

Credit does go in cycles and we are at the liberal part of the cycle. It does seem more liberal today than in prior cycles.. even at the top.

SactoQt: I was a loan officer in the mid 1970s. I never saw these loans used for anyone but younger, marginal buyers. That I did not see them does not mean that they were not used for sophisticated borrowers.

The negative amortization loans of the 1970s were designed for the purpose of enabling young first-time homebuyers to be able to better afford their starter home.

Perhaps I should call my loan broker and get approved for NAAVLP. Let me see... yep, I can fog a mirror. :)

Inflation was so high in the late 1970's and early 1980's that even with high interest rate it was not uncommon to have a mortgage completely paid off in under 10 years.

Zephyr
It's good to have someone with your knowlege because the various articles in the papers don't have much real expertise about these loans and seem to rely on opinion from unbiased sources like realtors, mortgage brokers, sellers, etc.