patrick.net

tekkierich says

We have moved about 80 miles away to York, PA for a job and a little more “wholesome” atmosphere to raise our children in.

Nothing more wholesome than two stressed out people "mother eph'ing" each other over bills.
That's what you get for not being happy with you got, and for thinking your kid is more precious and special than everyone else.

lurking says

MarkInSF says

lurking says

You rolled the dice and got yourself into this

Since when was buying a home “rolling the dice”? The only reason it became to risky, with the possibility of large losses and large gains, was WALL STREET, that pushed out loans anywhere they could, and ran a casino of derivative side bets on the housing market.

Stop blaming home buyers for “getting themselves into it”.

Only gamblers get 7 year balloon loans. Prudent borrowers get 15 and 30 year fixed. That’s what I mean by he rolled the dice and it didn’t work out. Him and his accountant relative thought they were being clever.

Well, I didn't think I was gambling. Compared to everything else going on in 2006 it seemed safe. Monday morning quarterbacking looks other wise of course but this is how I was looking at it:

#1 Who the hell thought that 10% down and 7 years of typical principle payments (plus I have made an additional 5k or so in principle payments) would mean I would be stuck with not enough equity to sell or refinance at will?
#2 I thought it likely that I would move before 7 years (I did)
#3 I figured if I would continue to live in the place beyond 7 years, I was protected against the issue of bad credit, by the guaranteed refinance.
#4 I watched other friends in their mid twenties get prices out of the market. If I would continue to rent perhaps I would never be able to buy a house.

Do I wish I took the 30 year fixed that I would have with out my uncles advice. Sure, now I do.

My biggest mistake however was being 25 year old newly weds with the means to buy a house in early 2006.

Tenouncetrout says

tekkierich says

We have moved about 80 miles away to York, PA for a job and a little more “wholesome” atmosphere to raise our children in.

Nothing more wholesome than two stressed out people “mother eph’ing” each other over bills.

That’s what you get for not being happy with you got, and for thinking your kid is more precious and special than everyone else.

This is an uncalled for flame.

tekkierich says

Compared to everything else going on in 2006 it seemed safe.

Most sentient beings in 2006 looked at what was going on and thought people like you were out of your fucking minds.

tekkierich says

I watched other friends in their mid twenties get prices out of the market. If I would continue to rent perhaps I would never be able to buy a house.

You fell for that one? NAR is largely responsible for people believing that bullshit. They would rape and kill a person's whole family in front of them if it made them a profit. Instead, they just raped you financially. Seriously, I would firebomb NAR headquarters if I were ever successfully convinced that I could be "priced out".

tekkierich says

My biggest mistake however was being 25 year old newly weds with the means to buy a house in early 2006.

We're roughly the same age and most of my friends got married in 2005/2006 with "the means to buy a house". How do you suppose they all didn't end up in your situation? Many chose to continue renting. Perhaps you're not admitting you made other mistakes such as not doing one second of research and believing every word your shitbag realtor told you.

MarkInSF says

lurking says

You rolled the dice and got yourself into this

Since when was buying a home “rolling the dice”? The only reason it became to risky, with the possibility of large losses and large gains, was WALL STREET, that pushed out loans anywhere they could, and ran a casino of derivative side bets on the housing market.
Stop blaming home buyers for “getting themselves into it”.

Thank-you.

I would have bought the best house I could have bought in 2006 in my price range. It just so happened that I bought a house that would turn out to have a lot less value in coming years. In a market not pumped by stupid government loan programs, and ratings agency's gone amok, I would have bought in a market with much more rational prices.

Basically I could have weathered a 20% decrease in my purchase price and been ok, which based on historical data in my area was unprecedented.

I think a solution to this will be one of the next 'innovations' of the financial market. No bank will give you a loan on an upside down property, because it is not safe for them. For the same reason, holding the current loan is not safe. So, the bank should be willing to pay to get rid of the old loan. How much should they pay? Someone needs to quantify the expected loss from holding the loan.

You have a somewhat risky loan, & that is another issue. Lots of people are in a similar situation with a fixed loan. Lets say they owe $350K on a house worth $300k. They want to sell that house and buy another for $300K. The bank won't let them, because they don't want to initialize a new loan that is 50K underwater. At the same time, they would be getting rid of a loan that is 50K underwater (assuming they hold that one). So, in some sense, the bank should not care. If the bank would let this type of sale / purchase happen, the bank would probably have a lower default rate because the occupants would be happier in their digs, lower commute costs, etc. So, allowing for these 'collateral swaps' could be a money making move for the banks.

If the bank is just a servicer & someone else holds the underwater loan, they just need to put a value on holding the underwater loan, so that they can facilitate the trading of such things.

klarek says

tekkierich says

Compared to everything else going on in 2006 it seemed safe.

Most sentient beings in 2006 looked at what was going on and thought people like you were out of your fucking minds.
tekkierich says

I watched other friends in their mid twenties get prices out of the market. If I would continue to rent perhaps I would never be able to buy a house.

You fell for that one? NAR is largely responsible for people believing that bullshit. They would rape and kill a person’s whole family in front of them if it made them a profit. Instead, they just raped you financially. Seriously, I would firebomb NAR headquarters if I were ever successfully convinced that I could be “priced out”.

Yes I did fall for that one. I fell for it because I saw it happen to friends for two or three years. The smart ones would refuse to buy because they could not afford a house with a reasonable loan. The dumb ones got negative arm 0 down loans.
I fell somewhere in the middle.

lurking says

Only gamblers get 7 year balloon loans. Prudent borrowers get 15 and 30 year fixed. That’s what I mean by he rolled the dice and it didn’t work out. Him and his accountant relative thought they were being clever.

30 year loans are as much of a death trap as a 7 year balloon for most people. But ignoring that...

Other banks refi is unlikely to occur simply because refi means they get the risk on the loan which you are likely to default on anyway. And if you are making payments you can clearly afford it to them, so current holder isn't likely to deal with you either.

OP has at least 3 options here to try.

1) Send a hardship letter and see if your CU responds. This is playing nice.

2) Play hard ball by walking into the branch and talk your way until you get to their executive team to refi.

3) I think this is the most hardball option, I would only suggest this is regular means simply do not work. Move back into the house and stop making payments. This way you get to live rent free for a very long time (at least in CA) and put the pressure on the CU. Because they don't want that wooden box, they want money.

4) You can always walk away, CU will have to sell it at a loss which they rather not and will probably negotiate. Besides it's just the money anyway. My aunt walked away from her balloon and has never been happier ever since.

Here is the sample hardship letter, plenty of those on the internet:

Name: (Your Name)
Address: (Your Address)
Lender Name: (Your Lender)
Loan #: (your Loan #)

To Whom It May Concern:

We are writing this letter to explain the extreme hardship it will be for us when our loan adjusts from a 7.75% interest rate to a 10.75% interest rate in August 2008, thus, bringing up our payment up by approximately $1695.00 per month on top of our 3720.00 payment (not including impounds). A monthly increase of this amount will ruin us financially and we will surely fall into foreclosure. Therefore, we are requesting that our adjustable rate loan be modified to a fixed rate loan at the current rate of 7.75% for the duration of the loan.

We tried to refinance out of this loan but cannot due to the fact that we are slightly upside down.

To date we have made all of our mortgage payments on time and will continue to make all payments in full and on time. We are trying to be proactive because we want to preserve our good credit rating as well as our house.

Please find attached all of the information you need i.e. 2 most recent paystubs, 2 current bank statements and W-2's.

We appreciate your time and consideration in this matter.

Sincerely and Respectfully,

Borrower’s Signature
Date
Co-Borrower’s Signature
Date

Hope this helps.

YesYNot says

If the bank is just a servicer & someone else holds the underwater loan, they just need to put a value on holding the underwater loan, so that they can facilitate the trading of such things

You sir summarize, and have a seemingly reasonable solution for my whole chain of reluctant landlords. This is exactly what I need to do.

tekkierich says

#2 I thought it likely that I would move before 7 years (I did)

that's your first problem. you shouldn't be buying if you reasonably plan to move in less than 10 years.

your second problem is you were playing this as an "investment" (buy now or be priced out forever, don't want the property now that price has dropped, short time horizon, trying to optimize the situation by using an ARM instead of a 30 year fixed, etc, etc).

i was in the same position as you in 2005/2006 but i didn't buy.
i still won't buy until i find a house i like at a price i like.

if you're smart you'll learn a good lesson and hopefully it informs your future investments. you're lucky you have time to recover from your mistake. if you're not smart, you'll continue to make risky bets, thinking they are sure things (like housing) and continue to lose money.

tekkierich says

Yes I did fall for that one. I fell for it because I saw it happen to friends for two or three years.

When prices double in three years, that's when you get out while you still can (or suck it up and take some serious losses). I look at Baltimore prices today and I wonder why they haven't fallen more already. I live in DC, so it's the same thing here. When prices started increasing at 10 and 20 percent a year, homes had doubled while income only rose 20%, I was screaming at the top of my lungs for my friends/associates to not buy. "But my realtor told me I will be priced out forever" was the most common rationalization.

tekkierich says

The smart ones would refuse to buy because they could not afford a house with a reasonable loan. The dumb ones got negative arm 0 down loans.
I fell somewhere in the middle.

At least that's not a complete abdication.

As harsh as my words are towards people that bought into the madness, I do think there was a certain trust that was violated. Not as much with the lenders - as responsible as they certainly are - but with the realtors. How was it that my barber saw an inevitable decline in home prices yet every realtor in the business was out there scoring massive profits urging people to jump in and bid up lest they be financially fucked renters for the rest of their lives? How can an industry have such incompetent and dishonest fraudsters with direct and undocumented/unrecorded influence on individuals doing this? There was no real mainstream contrary evidence on display, and realtors preyed on people that were too gullible and lazy to figure it out. No Morgan Spurlock out there with a movie showing what's going on. I wonder why everybody that's underwater and blaming their banks doesn't take their pitchform and ram it through the skull of their agent who urged them to buy.

klarek says

I live in DC, so it’s the same thing here. When prices started increasing at 10 and 20 percent a year, homes had doubled while income only rose 20%, I was screaming at the top of my lungs for my friends/associates to not buy. “But my realtor told me I will be priced out forever” was the most common rationalization.

Mine was every senior relative who's opinion I respect telling me that.

The focus of my post that is perhaps getting lost here. I am figuring out what is the smartest way to get out of a bad situation that has already happened.
I also wanted to highlight the chain of reluctant landlords that I am a part of. I feel this is an important phenomena that is increasingly common.

tekkierich says

Mine was every senior relative who’s opinion I respect telling me that.

That's the problem with baby boomers: real estate and stocks have been very good to them. As 30 year mortgages became more popular, home values have skyrocketed over the past 30 years. Thus it's easy for them to flippantly assume that there's no real risk in any of it (or, just as likely, they want to believe that somebody making $50k today can actually pay the $400k that they're trying to sell their house for). I had an issue with some immediate family members three years ago when one of them wanted to buy and a senior relative who was traditionally conservative cheered him on. My advice was viewed as unhelpful and interfering with their plans to buy a house whose value was about to nose-dive.

I think it's soon becoming my own rule of thumb to ignore all boomers' financial advice since they have enjoyed an undue largess at the expense of those of us who will pay for it later.

tekkierich says

The focus of my post that is perhaps getting lost here. I am figuring out what is the smartest way to get out of a bad situation that has already happened.

Make personal sacrifices to pay down that principal as much as possible. You're not nearly as badly underwater as most people I know that bought at that time, people who won't be able to sell for at least ten more years.

lurking says

Only gamblers get 7 year balloon loans. Prudent borrowers get 15 and 30 year fixed. That’s what I mean by he rolled the dice and it didn’t work out. Him and his accountant relative thought they were being clever.

I don't believe you. The 7 year loan has little to do with why "it didn't work out".

With a 15 or 30 year fixed, he'd still be in nearly the same predicament:

1) underwater
2) unable to sell
3) unable to refinance

The only variable is what interest the interest rate will be reset to, and that is not set to happen for a few years.

By the way, think about this from the lenders point of view. If a lender gives a 15 of 30 year fixed, then they are "rolling the dice" that interest rates and/or inflation will not go up. By lending for shorter periods, they significantly lower their risk. Before the Goverment Sponsored Entities of Fannie Mae, etc. 30 year fixed loans did not exist because they were too risky.

MarkInSF says

I don’t believe you. The 7 year loan has little to do with why “it didn’t work out”.

Actually, if you look at where he says "I want to present the following question to the forum", that's precisely why it won't work out and why he's trying to resolve the issue.

klarek says

Actually, if you look at where he says “I want to present the following question to the forum”, that’s precisely why it won’t work out and why he’s trying to resolve the issue.

It makes no sense for lurking to say something "didn't work out" when it hasn't even happened yet.

No, I think he, just like you, want to be vindictive toward people that bought homes and found themselves in a bad situation that had nothing to do with them.

MarkInSF says

It makes no sense to say something “didn’t work out” when it hasn’t even happened yet.

Hence I used the language "it won’t work out".

Mr.Fantastic says

Is it me, or in every topic does MarkInSF not understand how a bank actually works? Lenders are “rolling the dice” on inflation?

That is a statement of fact. Lenders to not want to lend long term for precisely that reason. Again, 30 year loans did not exist until the GSEs were created, and had implicit government backing. Lending long term at fixed rate is risky for banks. If interest rates go up they can find themselves having to pay out more in interest to finance the loan than they're taking in on the loan.

klarek says

MarkInSF says

I don’t believe you. The 7 year loan has little to do with why “it didn’t work out”.

Actually, if you look at where he says “I want to present the following question to the forum”, that’s precisely why it won’t work out and why he’s trying to resolve the issue.

Actually what has "not worked out" is buying a house that has lost so much equity. I have been a responsible party here so far, and plan to stay that way. What is a little different than the standard situation is that I do not have a loan with terms that span the entirety of the principle pay down. My bank may not want to talk to me unless I have hardship, or miss payments, but after seven years, the bank and I must talk and come to agreement. I want the bank to keep the same deal that has allowed me to stay a responsible lender. If they can give me that same deal, then a 50k loss stays off their books.

I have not seen precedent of others attempting to negotiate from this position. I appreciate the advice given, even if a little harsh, but I really want to hear if anyone has done what I am proposing, with a 5 or 7 year balloon situation.

I have already gone though a process to attempt to refi this into a 15 year loan when rates where very low (3.75) so I could pay down principle faster and climb out of the hole a little easier. That was a no go due to the principle owed.

We tried to sell for 11 months before we moved, and chased the market down and missed it. The last price was had it up for was $274,999 FSBO last October, which would have had me bring 5k to the table after buyer agent commission and fees.

I am paying down principle, with an extra $100 - $500 every month. However this thing is taking on water faster than I can bail it out. At some point it is prudent to let it go. I have a long road before I get there, but I will get there eventually.

Moral of the story? You can't use greed as a means to tame the financial system and come out ahead of it. Greed is a malice and cannot be used to benefit you in any way. :)

>#1 Who the hell thought that 10% down and 7 years of typical principle payments (plus I have made an additional 5k or so in principle payments) would mean I would be stuck with not enough equity to sell or refinance at will?

Many people on this site did in 2005 and 2006.

American in Japan says

>#1 Who the hell thought that 10% down and 7 years of typical principle payments (plus I have made an additional 5k or so in principle payments) would mean I would be stuck with not enough equity to sell or refinance at will?
Many people on this site did in 2005 and 2006.

fair enough... It seemed safe to me at the time though. Hind sight is 20/20 obviously.

I would figure out if the bank holds your loan and if it is insured. If they have it insured, then they probably do not care if you default. If they do hold it, then maybe in your game of chicken, you could offer some concession, like taking an auto loan and giving them a lien on the car. That way you are giving them something and showing you are serious.

dude

you are underwater.

Navy Fed holds lots of high cards.

no chance you can move back into the place?

YesYNot says

I would figure out if the bank holds your loan and if it is insured. If they have it insured, then they probably do not care if you default. If they do hold it, then maybe in your game of chicken, you could offer some concession, like taking an auto loan and giving them a lien on the car. That way you are giving them something and showing you are serious.

I do know that it is not a Fanny, Freddy loan. I do not pay PMI, and they do service it. My assumption with that is that it is on their books.

I don't really want to buy another car, but I guess they could hold my 2008 Camry's title. Now we are talking really creative.

Mr.Fantastic says

MarkInSF says

That is a statement of fact.

It’s only a fact to you because you are an idiot. You don’t understand how Banks deal with mortgages, which ones they sell, which ones they keep, the system is inherently setup for them to always win, bubble economics aside. You need to stop commenting on banks and how they do business because you simply don’t know enough about the topic to help inform people.

According to bankers interest rate risk is a reality.

For example, a long-term, fixed-rate loan entered into when interest rates were low and refunded more recently with liabilities bearing a higher rate of interest will, over its remaining life, represent a drain on the bank's resources.

http://www.bis.org/publ/bcbs108.pdf

tekkierich says

The dumb ones got negative arm 0 down loans.

Wrong...those were the smart ones. They let the bank assume over 100% of the loss. You lost your 10% downpayment + are continuing to lose $200 per month right now.

Don't you wish you would've made "less than interest-only" payments on an Option (pick-a-pay) ARM loan? You would've paid less than what the house would rent for, then if the value of the house goes down, you hand the bank the keys. And if the value of the home would have gone up...well then you could've just sold it or refinanced into a fixed rate if you wanted to stay longer. There would've been no need to play chicken...just hand them the keys & tell them to never be so stupid in the future by ever handing out Option ARM loans.

Instead, with your 10% downpayment and interest payments so far, the credit union will lose very little on this transaction.

tekkierich says

Actually what has “not worked out” is buying a house that has lost so much equity.

Even if prices remained exactly flat since you bought it, the costs of selling are so great that you'd barely break even after seven years. Like all other lessons learned, planning to own for the short term is not a wise strategy. Planning to own in the short term after continual double-digit percentage increases? No comment.

Mark_LA says

tekkierich says

The dumb ones got negative arm 0 down loans.

Wrong…those were the smart ones. They let the bank assume over 100% of the loss. You lost your 10% downpayment + are continuing to lose $200 per month right now.

I don't think I would call them "smart" for doing that, just passing the entire risk off to someone else either out of greed, stupidity, or both.

lurking says

The banker will probably laugh and tell you that you’re in a bank, not a used car lot finance department cubicle. This is especially true since a small credit union like Navy Federal doesn’t want the word to get out that you can just roll over him or play Let’s-Make-a-Deal because everyone else in town will want the same deal. I think you’ll end up with whatever the prevailing interest rate is in 2013. You rolled the dice and got yourself into this so unless you want to lose the house you will have to pay the going rate at that time.

I agree to this. It ist the bank discretion, but most likely, if you want to keep, you have to
follow the rule set by your loan.

toothfairy says

I just checked and Maryland is a recourse state so the bank will call your bluff.
If you hand them the keys they can probably garnish your wages for the amount owed.

This looks to be true and makes the rest of the conversation moot. Looks like the money pit will continue to swallow cash for a long time.

MarkInSF says

lurking says

You rolled the dice and got yourself into this

Since when was buying a home “rolling the dice”? The only reason it became to risky, with the possibility of large losses and large gains, was WALL STREET, that pushed out loans anywhere they could, and ran a casino of derivative side bets on the housing market.
Stop blaming home buyers for “getting themselves into it”.

the home buyer was the last person in the chain to push the buy button. He/she was given a chance to review all the docs, to analyze his/her current financial position, and judge by him/herself the future prospect/risks.

Wall Street banks, like any service/product provider , they are always in the mind of what can they do to sell more. BUt ultimately the sale will lie in the customer. The Wall street banks were too greedy, but the customer or the home buyers were the ones who agreed to the seller's sale speech.

the home buyer was the last person in the chain to push the buy button. He/she was given a chance to review all the docs, to analyze his/her current financial position, and judge by him/herself the future prospect/risks.

Wall Street banks, like any service/product provider , they are always in the mind of what can they do to sell more. BUt ultimately the sale will lie in the customer. The Wall street banks were too greedy, but the customer or the home buyers were the ones who agreed to the seller’s sale speech.

Mr.Fantastic says

You really are a dumb ass.

I provided a sound argument for why lending long term at fixed rate is risky to lenders, and provided a reference to a paper that elaborates the reasoning.

You call me an idiot and a dumb ass and provide no sound reasoning.

I'll leave it up to readers to decide who knows what their talking about.

It's really not that hard. Somebody has to assume the interest rate risk, either the lender or the borrower. If a loan originator sells a long term fixed loan, the purchaser is taking on that risk (e.g. Fannie Mae)

MarkInSF says

It’s really not that hard. Somebody has to assume the interest rate risk, either the lender or the borrower. If a loan originator sells a long term fixed loan, the purchaser is taking on that risk (e.g. Fannie Mae)

The thing is that virtually all long-term loans are effectively owned by the govt. (which is why they didn't exist till the govt. started to buy them). So the govt. assumes the interest rate "risk", which is no risk then because the govt. needs not really borrow from anyone to cover the loan. It could borrow if possible at a profit (that is at a lower rate than it gets from the loan, e.g., 3.3% for 10-yr treasuries vs. 4.75% on the mortgage). If not, simply print. Which is what they did (called QE) to sell the 30-yr t-bills offsetting the rate risk on 30-yr mortgages.

Mr.Fantastic says

Finally, someone who gets it.
I really wish guys like Mark would just admit they know nothing about how banks actually work, and just not give any input.

So, how come all the banks are insolvent then? Didn't they sell all their loans to the government?

Fisk says

So the govt. assumes the interest rate “risk”, which is no risk

If there is no interest rate risk, they you're going to have to explain why Fannie Mae requires a higher interest rate on a 30 year fixed than on a 5/1 ARM.

MarkInSF says

Fisk says

So the govt. assumes the interest rate “risk”, which is no risk

If there is no interest rate risk, they you’re going to have to explain why Fannie Mae requires a higher interest rate on a 30 year fixed than on a 5/1 ARM.

Because the interest rate on offsetting t-bills increases with maturity
(roughly 4% on 30 yr., 3% on 10 yr., and 2% on short-term).
If you will, the buyers of treasuries assume that risk.

BTW, tekkierich, you may not think this discussion about interest rate risk is relevant to you, but it is.

You are afraid your rate will reset at 7%, but that's unlikely. Intererest rates will be held low for a long time for the simple reason that if borrowing costs go up, the GSE's (and other financial institutions) will be forced into much greater insolvency than they already are.

Mr.Fantastic says

Look, it’s two guys who know nothing about banks, the finance industry, or anything about micro economics at all.

Look it's a troll