Sunday, February 22, 2009

Housing Bubble Pain in Mount Olive

During the bubble people often paid much more than houses were really worth. The prices were inflated and the bubble intoxication persuaded people to pay much more than the real value. After a few years of double digit increases lenders forgot that home prices do not increase perpetually. Post bubble we can see that house prices do not just stagnate like in late 80's they can actually fall.

After the bubble burst people found that they had bought houses they could not afford. Took out equity that they did not have or could never pay back. And lenders were stuck with much bigger loans than the property would ever be worth. The wealth illusion of the bubble was gone. People lost, and are still losing, unaffordable properties. Lenders are writing off hundreds of thousands of dollars per property. Financial pain that will be felt for a long, long time took the bubble's place.

Today's featured property fits all of these descriptions - an owner bought too much house, extracted everything they could, and the lender is forced to write off over a hundred thousand after foreclosing on the property. All the bad aspects of the bubble rolled into one featured property found in Mount Olive. Lets take a look -

Here is the property -

Here is the property info -

  • Status: Active
  • County: Morris
  • Year Built: 1953
  • 4 total bedroom(s)
  • 2.5 total bath(s)
  • 2 total full bath(s)
  • 1 total half bath(s)
  • 9 total rooms
  • Style: Colonial
  • Master bedroom
  • Living room
  • Dining room
  • Family room
  • Kitchen
  • Den
  • Basement
  • Laundry room
  • Master bedroom is 20x17,Includes: Walk-In Closet
  • Living room is 15x14
  • Dining room is 14x10,Formal Dining Room
  • Family room is 19x11
  • Kitchen is 16x15
  • Den is 18x09
  • Basement is Partial, Unfinished
  • Hardwood floors
  • Fireplace(s)
  • Fireplace features: Family Room, Wood Burning
  • 2 car garage
  • Attached parking
  • Parking features: Oversize Garage
  • Heating features: 1 Unit, Baseboard - Hotwater,Oil
  • Central air conditioning
  • Cooling features: 1 Unit, Ceiling Fan
  • Exterior construction: Vinyl Siding
  • Roofing: Asphalt Shingle
  • Pets allowed
  • Lot features: Open Lot
  • Corner lot
  • Approximately 0.27 acre(s)
  • Lot size is less than 1/2 acre
  • Utilities present: Public Sewer, Public Water, Electric Service

Here are the financials -

  • The property was purchased in July 2005 for $405,000.
  • The original mortgage at the time of purchase was for $359,000 with a 30 year fixed with Well Fargo.
  • On the same day of purchase in July 2005 a HELOC was opened also with Wells Fargo for $11,000.
  • In October of 2005 another HELOC was opened for $86,500 with Wachovia.
  • The foreclosure process started in August 2007 with the filing of a Lis Pendens.
  • The property is currently an REO and listed with a realtor for $370,000.
  • The taxes for 2008 were $9,734.11.
The property was purchased at the peak of the bubble with what looks like over 11% down payment of $46,000. If the HELOC taken the same day was actually a piggyback loan the down payment would have been $35,000 or about 8.6% down. Notice that the amount taken at the time of purchase, $370,000, is the same as the current sale price.

After just three months the owners went elsewhere (Wachovia) to possibly extract all the equity from the down payment as well as any new accumulated in the property plus another $51,500. If all the HELOC was extracted in the two years of ownership before the foreclosure process started the property was paying the owner about $25,750 in equity, housing ATM, or second income. Not a bad second income. Actually since it was Wells that filed the foreclosure papers and Wells purchased Wachovia, and subsequently their loans, Wells may have been paying this owner over $25,000 per year to own the property.

Now the property is for sale with a realtor, if it sells for full asking price and the realtor receives their standard commission Wells stands to lose approximately $108,700 on this loan.

For those looking to pick up this property, paying full price with 20% down and today's Bankrate 5.26% with a fixed 30-year loan the payments with taxes would be about $2,447.54 per month. But future owners need to remember that the bubble has popped and the property will not be paying future owners any second income, let alone over $25,000 a year.

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