Sunday, March 29, 2009

Losing with an ARM in Jefferson

During the housing bubble some strange things occurred. Lenders would lender owners more than 100% of the value of their property. Mortgages for 125% of the property value were common. Now that the bubble has popped and home values are plummeting many are lucky if they can get a mortgage for just 80% of the property value.

The lending practices have changed so dramatically that sometimes it does not even seem that these practices could have ever existed. Until we hear about another person in trouble, losing their property to foreclosure since they can not afford their house or refinance their property with a new, more affordable mortgage.

Speaking of affordable mortgages, that was another bubble phenomenon - the Option ARMs (AKA pick-a-payment loans) or the neg am loans that would give the original appearance of affordability then - bang - the reset or recast occurred and the house would inevitably find themselves in foreclosure. Which is just what happened to our home owners today - a mortgage for well over the property value, ending in foreclosure. Lets take a look -

Here is the property -

Here is the property info -

  • Status: Active
  • County: Morris
  • Year Built: 1984
  • 4 total bedroom(s)
  • 3 total bath(s)
  • 3 total full bath(s)
  • 10 total rooms
  • Style: Colonial
  • Master bedroom
  • Living room
  • Dining room
  • Family room
  • Kitchen
  • Office
  • Basement
  • Laundry room
  • Bathroom(s) on main floor
  • Master bedroom is 21x12
  • Living room is 20x12
  • Dining room is 14x12,Formal Dining Room
  • Family room is 20x14
  • Kitchen is 27x12
  • Basement is Partially Finished, Full
  • 2 car garage
  • Parking features: Built-In Garage, Loft Storage
  • Heating features: Baseboard - Hotwater,Oil
  • Exterior construction: Aluminum Siding
  • Roofing: Asphalt Shingle
  • Waterfront property
  • Approximate lot is 130X150-129X115
  • Lot features: Lake Front, Lake On Lot
  • Approximately 0.45 acre(s)
  • Lot size is less than 1/2 acre
  • Utilities present: Septic, Well Water, Electric Service

Here are the financials -

  • The property was purchased in March 2005 for $489,000.
  • The original mortgage at time of purchase was for $389,600 using an ARM with Ivy Mortgage.
  • At the time of purchase a piggy back (or secondary mortgage) for $97,400 using a balloon payment also with Ivy Mortgage.
  • A new second mortgage opened the following June for $98,961.41 with Fleet National Bank.
  • The property was refinanced for $517,500 using an ARM with New Century Mortgage in May 2006.
  • In November 2007 the foreclosure process started with the filing of a Lis Pendens.
  • The property is currently an REO listed with a realtor for $395,900.
  • The real estate taxes for 2008 were $9141.98.

At time of purchase the property owner put a hefty $2,000 down payment which equated to about 0.4% of the purchase price. That was due to the original mortgage that was just under 80% of the purchase price and the piggyback mortgage which accounted for the rest.

That little bit of equity was not going to last, since just 3 months after purchase a HEL, which after the original $2 grand was pulled out another $96,961.41 was extracted. Funny, even during the peak of the bubble house prices were not increasing by 20% within 3 months, but some things did not matter.

When the property was refinanced again for $517,500 the rest of the mortgages were eventually paid off. The first two right away and the third a bit later. But in the end the owner extracted only $28,500 during the ownership of the property. However the loss, due to deflating housing values was much larger. If the property sells for the full asking price and the realtor receives their standard fees the lender stands to lose $146,200. A substantial loss on a modest property.

For those interested in purchasing the property, purchasing at full price with 20% down would have a monthly payment for a 5.03% fixed 30-year (today's BankRate rate) would have a monthly payment of $1706.03. Add in the property taxes and the monthly payments are $2467.86. May be worth it depending on the lake views and flooding issues.

1 comment:

PIC said...

good investment