Wednesday, June 25, 2008

All ARMed Out

It is always nice when sellers are realistic.

[Pat Sheridan] posted an ad on Craigslist, headlined: "$999,000 Elephant Rock For Sale - House comes with it!"

Own a famous landmark for under one millions - sounds like a great deal. What is it really worth?

He admits the price is a bit unrealistic. The appraiser he recently hired told him his spread was worth $285,000, elephant "trunk" included.

So the property is worth less than a third than the asking price. Why would the owner want to sell it?

He had a fixed rate when he refinanced two years ago to cash in the home's equity to pay off about $25,000 in bills. He said it seemed like a good idea at the time.

"I was foolish when I signed up for an adjustablerate mortgage, like a lot of other fools," he said. "I did it to myself. I can't blame anybody else."

If he refinances now on the $263,000 balance, he said he'd have to pay a prepayment penalty of about $15,000, which he refuses to pay, even for his sacred elephant.

He was single in 2002 when, after renting the place for several years, he paid $208,000 for the fixerupper. He later married his artist wife, Nikki, under the Elephant Rock arch. They have done extensive landscaping and renovating to the one-story frame home. It has exposed wood and timbers, thick wood floors, stained and leaded glass windows, a bank cashier's cage pantry, jetted tub and Elephant Rock paintings by Nikki. The exterior has a turret, decks and patios.
Hopefully owner, featured in he Colorado Springs Gazette, is able to negotiate with the lender and is able to refinance without paying the high prepayment penalty. The prepayment fees often written into the ARMs are what really hurts the homeowners. Are there provisions that the bank still collects the fees if the house is sold? The loan is then prepaid earlier as well. Do the loans basically lock people into their debt? The house can basically become one's own prison - a new twist on the debtor's prison.

At least the owner is trying to sell himself. If he ends up with a realtor he will be paying that $15,000, maybe a bit more maybe a bit less depending on the percent, to a someone other than the bank.

Interesting story about a homeowner that signed for a terrible loan. But remember during the Great Housing Bubble lenders and government figures were pushing the benefits of ARMs. They could save you money. As long as rates stayed low they were wonderful. But ARMs were gambling that the rates would always stay low - or at least long enough to get a good deal.

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