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Glen,
Your commentary on deficiency judgments is interesting. While CA law allows deficiency judgments in certain circumstances, I expect that the terms of the loan contract must provide for a deficiency judgment in order for the lender to pursue such recourse. Most states do allow for deficiency judgments, and my loans on properties outside CA have all included a provision explicitly stating that the lender has this right. None of the loans on my CA properties have ever had any such reference. Therefore I assume that the lender has no such right under the contract terms of these loans. This is an academic point for me, as my LTVs are mostly under 25% of value now. However, I wonder if lenders are placing the needed contractual wording in their loan documents to allow them to seek a deficiency judgment, and whether it is even worth the bother for them (prolonged process of foreclosure if a deficiency is enabled). It seems that for most borrowers there are no other assets of consequence to pursue – so the legal right to seek a deficiency judgment would be a moot point, and the lenders would be better served to just take the write-off and move on.
What do you see? Is this evolving?
This week's Barron's has an article titled "The No-Money-Down Disaster" that pretty much parallels what people have been predicting on this blog for years.
I cannot find an online copy, not being a subscriber, or I would excerpt portions. If anyone has a subscription, they should review it here. I think you would all be pleased.
It is in the "Other Voices" section, so doesn't count as an endorsement by a major financial publisher, but the fear is there, or they wouldn't run it.
Barron's website is down for now, I will post some excerpts when it is back up.
If, like Japan, we fail to act, the coming decade could be very bleak indeed.
Prop 1300: Save Homeownership Act
To sustain the American Dream and save the children, the State of California will guarantee that those who buy homes will be able to sell them at a minimum of the original purchase price. Funding for this act will come from converting most public schools to fireworks factories, and to charge all new residents to this state a naturalization fee of 25% of their net worth.
When I was a teenager, I thought tire spikes on all the roads crossing the state line might help slow the population influx. The Population of CA has almost doubled since then.
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August 17th: CAR (California Association of Realt-whores) announces it’s “new-and-improved†Housing Affordability Index (which they had ceased reporting in December, 2005 after it hit an historic low of 14% statewide).
According to the release (written by our old friend, Leslie Appleton-Young?):
So how much has the HAI changed?
So, assumptions include:
1. Amortizing ARM rate of 6.48%.
2. 10% downpayment.
3. House price = 85% of median price.
4. A monthly nut (PITI) equal to roughly ~50-60% of the FB’s take-home pay. (They didn’t specifically provide this figure, but just do the math based on the mortgage & income assumptions above.)
Tragically, even after torturing the numbers thusly, CAR was only able to produce an affordability figure of 23%. This is just NOT acceptable! Clearly, they ought to keep on torturing those numbers until they confess 100%!
Your assignment: Play with the HAI assumptions and help LAY juice those numbers up as close to the magic 100% mark as possible. possible new assumptions:
--only stated-income, option-ARM/NAAVLP financing
--calculate PITI using only neg-am “teaser†rates
--assume FBs purchase a home equal to .001% of the median price
--assume 99% down payment (makes loan payments much smaller)
--assume FBs will serially refi before any loan adjusts
Please help LAY --she really needs it!
HARM
#housing