patrick.net

This has gotta be a joke...?!

I thought HiThere lives in Marina.

What the hell is a "30 year interest only loan"?

No, Peter P, I live off Sir Francis Drake in fairfax..........that's marin. Do you need more info?

We talked about bail-out plans and how to prevent them. Lenders should eat their own losses, and people in too expensive houses should move out. Based on these two premises, however, I suggest an FHA rescue plans for _some_ borrowers:
The FHA determines market value at a given time and if the borrowers can pay an FHA-insured mortgage of 80%LTV with 50% of their income. Then the lender is offered a short sale to the borrower for 80% of market value - either the lender declines and must deal with a foreclosure, or the lender takes the loss, the borrower must pay for the privilege to stay in the home and gets a black point for short sale on the credit rating, and the FHA assumes some risk for further price decline below 80% (I don't like the last part though). As a compensation for the lender, they might place a lien of the outstanding loan on the house, to be paid at the selling the house or the death of the borrower. What do you think about that?

Bronco...30 Year interest only loan was widely popular during boom time. Generally you pay interest only for the 1st 10 years before it balloons.

Good God. Another troll-- or maybe the same one.

Regarding the whole Modesto thing, only someone who has never been to Modesto could argue that people there are making over $100k. No offense to Mo-Town, but the place is an armpit. The only reason Stockton and Modesto saw major increases in value were due to their proximity to the BA and the fact that people with lower incomes were able to leverage their way (temporarily) into homes there.

No, Peter P, I live off Sir Francis Drake in fairfax……….that’s marin. Do you need more info?

Are you Jack?

Then that is not a 30 year interest only loan; it is a 10 year interest only loan with a balloon payment

Welcome back, SQT. The housing market is unbelievable even in sci-fi's. :)

Hey Peter. That's why I haven't really been by much-- there really isn't much to debate anymore. The only unbelievable part is that there are still trolls like TOS hanging around....

No offense to Mo-Town, but the place is an armpit.

Sorry... I though Mil-PIT-as is an armpit. Mo-Town has to be something worse than that...

Oooh, Mil-PIT is bad. But Modesto is not good.

The only unbelievable part is that there are still trolls like TOS hanging around….

Kudos to their courage and thick-skin. You are so fortunate, there are not too many sci-fi trolls. I wonder what would they be like.

Bronco, you can call it whatever you want but it's marketed as 30 Year interest only loan in the same way 5/1 arm is marketed as 5/1 30 year ARM as it is amortized over 30 years.

I wonder what a sci-fi troll would argue about? .....Kirk or Picard?

HiThere, I really don't know how secure the insurance they use is, but there would have to be a real meltdown for something like that fail. I personally only have my savings and checking money with them and one small CD.

I have actually been moving all my spare cash to my Citibank/SmithBarney trading account, waiting for the right buying opportunity.

I wonder what a sci-fi troll would argue about? …..Kirk or Picard?

They probably root for the Romulans or the Cardassians.

Sir Francis Drake eh? I thought maybe I knew you but I thought she lived in Sleepy Hollow. I won't tell your hubby if you don't tell my wife.

Jimbo, for mortgage accounts I really don't care, if they go under water somebody else will buy it and they will have to honor the original terms. I opened my CDs there as the interest rate (5.85%) they offered that time was far above the market rate. What is the yield on your trading account?

"What the hell is a "30 year interest only loan?"

Well, exactly. Why would I or anyone else take the pains to explore that any further? Especially considering Vegas and PHX (or Scottsdale, or whatever) PEAKED in 2004! Probably should change his name to:

"Hi There, I'm Toast"

Kind of lost on him, but the reason loans like that were even available at the time was BECAUSE of the outrageous appreciation! Now that his 10% down has gone bye-bye (along with ANOTHER 20% to boot) it's sure nothing I'd be bragging about?

Randy, you are mistaking..........you don't know me (and it's not she)........I can't just publish my identity in an open forum but we can definitely meet in Marin brewing Co next time you have a blog party. I don't whether I will be welcomed there or not as I am not a JBR...........

Randy, you wrote if the market goes down more you will look for investment property in midwest. That's good idea but personally I think. Research Triangle, Charlotte area in NC and gulf coast area have better prospects.

I thought by definition an investment was supposed to MAKE money. I suppose you could look at a real estate 'investment' that is 10% down (opportunity costs) and costs money each month as some sort of peculiar offset device. If you are just waiting to cash in on appreciation isn't it just speculating, and not really an 'investment'?

I'm not a JBR but I'm going to a blog party when I can. I am merely a bear.

Exactly right, SFWoman: an investment is supposed to make money. But being cashflow positive is not even enough, this "investment" better to a whole lot better than the risk free rate of return (5-6%) given the precarious state of RE.

... better DO a whole lot better...

It's settled then, we'll have a Marin Brewing Co bash. I've yet to meet most of you anyway.

I'm not a JBR either. Just an impatient bubblesitter with way too many people living in my rented, crappy McMansion. I am bitter sometimes, but not because of people who own homes. Because of all the things I regularly bitch about.

I won't buy investment property in the Midwest anytime in the next decade. There's a lot left to that terrible cycle before it comes back. I won't buy anywhere I don't know intimately, so The Triangle is out.

It’s settled then, we’ll have a Marin Brewing Co bash. I’ve yet to meet most of you anyway.

When? We can also do Sushi Ran.

Randy H,

Can we wait a couple of weeks until Hell Week (city charity fundraisers) and school re-entry coffees are over? September is the month from hell in the city (but has great weather at least).

and I am sure by then FED will decrease it lower enough for me to re-finance…..

Hi There,

You might want to double check and make sure your ARMs are not tied to Libor, rather than the Fed rate.

SFWoman, to answer the question you raised about investment, I need to explain a little farther.

In real estate let's say you are buying a 300k investment property with a 10% down...that's 30k....with 30k you are leveraging 300k. In no other investment you have that flexibility.....in stocks you could buy in margin but the interest rate there is much higher and you could not borrow 10 times.

Now, you can do the maths.........if you take historical standard of 5% appreciation...that's an appreciation on 300k but you invested 30k.....you return will be many folds. So if I lose 200 a month......that's $2400 a year. For simplicity let's make the rent and expenditure constants. Now in 20 years I will lose $48000......... where as if I take 5% appreciation that 300k property will be much more than 600k due to compounding effect. And the best part is I started with 30K.

This is a very simple maths without getting into details. I think staying power and patience are keys here. I would definitely call this an investment.

SFWoman/Bronco,

Additionally our friend hasn't read the fine print. Even during the height of the insanity, these "loans" (actually are work-out loans) in sheep's clothing. They will only allow for you to go maybe 10% neg. equity before they instantly move you to an amoritizing schedule. So once you've gone over your allowable arrears... the pain, the pain. :(

30 Year interest only loan was widely popular during boom time. Generally you pay interest only for the 1st 10 years before it balloons.

That's called a hybrid loan. If you only pay interest for 30 years, it's called RENTING from the bank.

I'm Toast,

Did you get that right out of the RE investment seminar audio tapes, (or did you get the CD's?)

The only difference between you and Casey Serin is that he couldn't find a renter.

HiThere,

But you didn't buy during historical periods of 5% average annual appreciation. You purchased at the top of the market in two highly speculative markets. You have both your down payment and carrying costs, but no upside as far as I can see.

I am not anti-ownership, I have two properties in the Bay Area and investments in Japanese real estate. I am anti-speculation and anti-frenzy. I do not see the financial upside to fairly recently purchased real estate in bubble markets.

where as if I take 5% appreciation that 300k property will be much more than 600k due to compounding effect. And the best part is I started with 30K.

Sooooo, you assume your "investments" will not depreciate, or at the very least stay flat over those 20 years? An impossibility? Who knew.

Also, your assumed 5% appreciation is in nominal terms - inflation will wipe out most of that.

Exactly right, SFWoman: an investment is supposed to make money.

It's probably doing very well in HiThere's "mark to model" fantasy land.

I feel like I am the uberlogical Doctor Spock to some emotional being from planet RealEstateInvestor. And I'm not even a numbers person.

Glossary suggestion:

INVESTMENT. A feel-good term used to describe a money pit.

HiThere:
> In real estate let’s say you are buying a 300k investment property with a 10% down…that’s 30k….with 30k you are leveraging 300k. In no other investment you have that flexibility

Leverage goes both ways, faster up and faster down. Right now it's going down, wiping people out who are, without flexibiltiy, caught in their homes, now their prisons.

> Now, you can do the maths………if you take historical standard of 5% appreciation

Yes, except it's not a standard, it's a long-term average, and it hasn't been 5% but inflation plus 1%. Bonds give you better return.

> I would definitely call this an investment.

So would I. Being your own landlord can have financial advantages, just not at the peak of the bubble. People should calculate before making the biggest investment of their life. Randy's spreadsheet can help.