Pointing Fingers

Interesting how no one wants to take responsibility. It's all "pass the buck" all the time. I read an article in the Post that Mayor Bloomberg laid some of the blame for the rise in New York foreclosures on the borrowers themselves for taking out loans they knew they could not pay. Housing and consumer advocates say the Mayor is wrong, that the lenders are to blame.

So if the disclosures are confusing to consumers, and they don't understand the Good Faith Estimate and the Truth-In-Lending Disclosure, is more of the same the answer? Wouldn't it be a better response to try to simplify a document that at more than one closing I've attended has been described by the borrower's attorney as "it's confusing, just sign it."

I guess it's one of the those cases of "it's going to get worse before it gets better."

Condo Conversion Update

Well one thing I could do is get the current mortgage holder to allow the conversion and move the lien to the condo still owned by the original owner of the 2 family.

They are keeping one of the units as their home. Currently they have 2 mortgages totaling more than the value of the remaining condo that they own. However if they payoff the Home Equity Line of Credit the proceeds from the sale of the other side of the house they are making a condo, then the existing first mortgage is less than 75% of the value of the condo they are continuing to live in. Confused yet?

So if I can get the existing lien holder to allow the change in property type and transfer the lien to just one of the units instead of the whole building, that might be a solution. There are, however, complications. First off, the mortgage is being serviced by a different company that the original lender, so that means dealing with 2 entities on the issue.

Also a change a property type effectively puts the mortgage in default and the lender could call in the whole note forcing the payment of the entire mortgage, which is a significant amount of money. More than the sale.

2 units converted to condos in Nantucket

Here's an interesting deal.

A client of mine bought a side by side duplex last year on Nantucket Island where he lives and works. It was a great rental property. Now he has changed the property type to 2 condos and sold one of them for $510,000.

That's less than he owes in total against the house, but the appraisal on the other half, which includes a separate studio/ workshop (meaning, no heat) is $750,000.

Here's the deal. Refinance the half that he still owns keeping the mortgage high enough that he can pocket most of the proceeds from the sale, while paying off the first mortgage (5/1 Interest Only) and the Home Equity Line of Credit against the whole property.

It gets trickier...the borrower's credit score has dropped from 698 to 648 in the last few months.

As a Mortgage Broker who works with investors, this is exactly the kind of deal that turns me on and lights me up.

I'll blog the solution as soon as it's approved, don't want to jinx it.

30 Year Fixed Rate Interest Only

The subprime market is imploding or exploding, depending on which side of the fence you are standing. The rumors circulating among homebuyers are that all interest only mortgages are risky and should be avoided. In many cases that may be true, but I think, more true, is a confusion among buyers about mortgage programs in general.An interest only mortgage is not a subprime mortgage necessarily. In fact, it's generally an option for only the most qualified buyers. It even makes sense for those who plan on prepaying the balance of their mortgage on their own. Why? Payment recast.With a 30 year interest only mortgage, the payment due each month is an interest only payment. So on a $400,000 mortgage at 6%, the monthly interest only payment is $2000, rather than the principal and interest payment of $2398.20, where $2000 is the interest payment and $398.20 is paying back the loan each month at the same 6% interest rate.If a well-qualified, disciplined borrower chooses the interest only option, and continues to pay the same payment as the fully amortizing payment, her payment will be reduced based on the new principal balance each month.Here's an example:Keiko, buys a $500,000 coop here in New York City. The coop requires a 20% down payment, so her mortgage is $400,000. She decides on a 30 year fixed rate interest only mortgage. Her first month's payment is $2000, but she pays $2398, indicating that the additional amount goes directly toward principal on her statement when she mails her payment. The next month, her payment is reduced to $1998.01 based on the new loan balance of $399,601.80. If she continues to pay $398 in addition to the interest only payment each month, at the end of the first year, her interest only payment will be reduced to $1976.11. If she chooses, she may elect to pay the interest only payment giving her the freedom to spend the difference in another manner (hopefully paying down credit card debt that's more expensive).Her payment is reduced to reflect the lower principal balance offering her immediate gratification for her discipline. A well disciplined borrower may welcome the freedom of being to either pay down the principal or put the money to use elsewhere on a month to month basis while having the security of a fixed rate for the life of the loan.

Condo Buyers: The Stats

CondoDomain.com did a 2 month study on internet condo buyers in 33 markets in the US and Canada and found:

46% are young professionals, 20% are first time home buyers
78% are looking for a home for themselves (primary residence), 12% are looking for a second home
45% want to buy in a high rise building, 27% want to purchase in a low rise building
73% want to pay under $450,000, although 1% is willing to pay over $3,000,000 for their home

It seems that the luxury buyers were unwilling to register for this survey, and may be under-counted.

It's not so different than I might have expected, but it's nice to look over the data and establish a marketing plan.

This is what card I am

You are The High Priestess

Science, Wisdom, Knowledge, Education.

The High Priestess is the card of knowledge, instinctual, supernatural, secret knowledge. She holds scrolls of arcane information that she might, or might not reveal to you. The moon crown on her head as well as the crescent by her foot indicates her willingness to illuminate what you otherwise might not see, reveal the secrets you need to know. The High Priestess is also associated with the moon however and can also indicate change or fluxuation, particularily when it comes to your moods.

What Tarot Card are You?
Take the Test to Find Out.

Deductions Explained

Straight from the IRS:

Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home (your main or second home). It also must be secured by that home.

If the amount of your mortgage is more than the cost of the home plus the cost of any substantial improvements, only the debt that is not more than the cost of the home plus improvements qualifies as home acquisition debt. The additional debt may qualify as home equity debt (discussed later).

Home acquisition debt limit. The total amount you can treat as home acquisition debt at any time on your main home and second home cannot be more than $1 million ($500,000 if married filing separately). This limit is reduced (but not below zero) by the amount of your grandfathered debt (discussed later). Debt over this limit may qualify as home equity debt (also discussed later).

Refinanced home acquisition debt. Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. Any additional debt is not home acquisition debt, but may qualify as home equity debt (discussed later).

Mortgage that qualifies later. A mortgage that does not qualify as home acquisition debt because it does not meet all the requirements may qualify at a later time. For example, a debt that you use to buy your home may not qualify as home acquisition debt because it is not secured by the home. However, if the debt is later secured by the home, it may qualify as home acquisition debt after that time. Similarly, a debt that you use to buy property may not qualify because the property is not a qualified home. However, if the property later becomes a qualified home, the debt may qualify after that time.

Mortgage treated as used to buy, build, or improve home. A mortgage secured by a qualified home may be treated as home acquisition debt, even if you do not actually use the proceeds to buy, build, or substantially improve the home. This applies in the following situations.

1. You buy your home within 90 days before or after the date you take out the mortgage. The home acquisition debt is limited to the home's cost, plus the cost of any substantial improvements within the limit described below in (2) or (3). (See Example 1.)

2. You build or improve your home and take out the mortgage before the work is completed. The home acquisition debt is limited to the amount of the expenses incurred within 24 months before the date of the mortgage.

3. You build or improve your home and take out the mortgage within 90 days after the work is completed. The home acquisition debt is limited to the amount of the expenses incurred within the period beginning 24 months before the work is completed and ending on the date of the mortgage.

19% of B and C mortgage in delinquency

Not being an originator of subprime mortgages, I enjoy reading the news about the implosion of the subprime lenders. I just saw an article that Countrywide is saying that 19% of their B and C mortgages are in some sort of delinquency. That's almost 1 in 5 loans that aren't being paid back. That's gonna leave a mark.