Mortgage foreclosures

For a while now I have wondered what’s going to happen when all these idiots that mortgaged themselves to death with adjustable rate mortgages end up foreclosing. Well the new tax law is an interesting one. The mortgage company will forgive the debt and take over the loan. Generally however depending on the way the title guarantee is written it can be different. But the mortgage difference is sent to the IRS as taxable income. So now these people end up tax bills for that year that are actually in the tens of thousands potentially.

Interesting read check it out. Note how the bank sold the property to a different bank which then turned a 30 profit and resold it.

Sadly probably so some fool who financed themselves into a hole using an ARM.

http://www.signonsandiego.com/uniontrib/20070821/news_1b21taxes.html

 

What they fail to mention is that as interest rates dropped, the prices of the houses went up, people wanted a monthly 'payment', not worrying about what the house cost. Sure we can put you in that 300k house for 900 a month. No, no problem. I know it sounds funny, but there is a good reason, and a profitable one, to using an ARM, or interest only, loan. If you are buying a house at a good deal, or a great deal, put it on a 2 year arm or interest only loan. Make sure that there is no penalty for early payoff, if you have a mortgage broker in your pocket it makes it easier, plus they can help you out with any incentives you might qualify for. Move your bills to the house, weather you live in it or not, make it your 'primary' address. Fix the house up, if needed, in 20 months put it on the market at the adjusted price. You paid 80,000 for it, spent 10,000 fixing it up, and sell it for 125,000. You wait the 2 years, you avoid capital gains taxes, and walk away with a cool 35k. When you do that a couple of times you can pay cash for your flip house.

The banks take out insurance, so they get paid regardless of you making payments or not. They also shirk on the interest rate. If a lender can get you to sign at 7% when you qualified at 5.75% the lending company keeps the 1.25% you agreed to, just like car dealers, thats why they only care about what monthly payment you want. They will put you in a loan for 8 years if the payment is where you want it.... thats why I always say, what do you want for yours, what are you giving me for mine, what is the interest rate?

 

Oh there is no doubt you are correct Phat. It's just that a lot of people plan on doing one thing and then get lazy and comfortable and do not follow through.

Done right it can work. It is the general misconception that interests me and how it effects the long term. You see in the scenario referred to in the link it looks like the banks win both ways. More and more these good deal homes are becoming an insider business.

For example and this is going off the subject somewhat. To turn homes for a profit efficiently and consistently what you really need is leads on homes that can be purchased below market value. No-one saw that house below market it went from one mortgage co. to another. Which is perfectly fine to a point. But the regular Joe scouring through the home listings and utilizing resources available to him misses the opportunity for the deal of the year to the professional investment group with a team of people dedicated just to the task of locating homes. They have their web of connections. 20 years ago I seriously considered getting into the appraisal business. I wish I had those guys have a leg up on getting to those home out there listed at 40k below market.

 

Think of all the mortgage lenders that will go under... Citibank already had a bank run with a lot of people worried that the giant mortgage lender/bank would go bankrupt. It borrowed 11.5 billion dollars from over 40 different European banks. About a half trillion dollars have been pushed through various U.S. businesses in the past 2 months to bail out ailing businesses.

I'm telling you the big economic downfall is coming.

http://www.markswatson.com

 

Yeah Willy Clinton certianly doomed us when he took this country down the financial path he took.

 

The funny thing is that with the property values dropping, people that bought new homes, with the expectation of their value rising, are going to be in for a rude awakening if the market doesnt shift. But it cant. The prices are already astronomical in some areas. 300k here will get you a very nice house, but who wants a 2500.00 a month house payment? I am quite content with my 380 a month.....

 

In 91 I was looking at a new Condo in a great area of "The Woodlands" a development North of Houston for 28k. My first home was in Nashville however for 57 and was sold for 110. I spent a lot on it though. New windows. Every appliance including AC and hot water heater, carpet, total kitchen remod, fence. And lived there 10 years. Second home I lost money on because I only lived there two or three years and a new developement of shit houses was developed by the son or other close relation of Tennessee congressmen Stratton Bone(D). We initially were not going to get it because it was on a great quiet dead end street. A developer was trying to get a permit to put some 500 crap ass homes on a few acres attached to the end of the street. The local zoning board ruled it out for several reasons.

1. No adequate drainage
2. No adequate entry and exit for emergency vehicles.
Those were the two big reasons. there were others.

The developer ended up loosing his ass and the Bone familty got the property cheep and made a big fat ass profit cause all the code regulations seemed to dissapear. My Home ended up on a busy ass street with shitty <1/8 acre lots and homes you can jump roof to roof taller than they were wide and 15 million cars parked in the streets cause most driveways would only fit one car.

Now I'm back in Texas and the housing prices here seem to be outside of the bubble. You can find 50.00 a sq ft without having to be beside a railroad station or some other crazy reason. Mine is 2400 ft sq for 175k I'm in a middle class area and convenient to everything worth while in Dallas. The reason the housing prices are supressed in an area with tons of great jobs has to do with the tax system here. My property tax is ~ 3.5k a year. But the overall cost of living is low. This in my opinion makes my market more stabil. The ones at risk are thos areas of the North East, West Coast, and those little niche areas where the prices are in the 2-300.00+ per square ft.

You're one of the few Phat even if real estate takes a huge hit and so does your wifes salary you on the other hand are in a stabil field and its those 300k plus homes that are gonna take the hit.