Sunday, April 26, 2009

Option ARM and Underwater In Dover

Dover currently has one of the highest foreclosure rates in the state. We came across a house for sale that is not in foreclosure but definitely has foreclosure potential all over it. The homeowners are extremely underwater and have an Option ARM to boot. Hopefully the owner has negotiated a short sale to leave the property with the least amount of economic and credit score harm. The Lis Pendens on this property has not been filed, but it definitely will be a contender once the loan recasts. Now the owner may be playing beat the clock - sell the property with a loss before losing it too the bank in a town filled with foreclosures. It will be a nail-bitter and one to keep an eye on. Let's take a look at today's featured example -

Here is the property -

The Front of the House.

The non-updated kitchen.

A bedroom with Hard Wood Floors and Crown Molding.

The back yard with a large driveway.

Here is the property info -

Property Features

  • Single Family Property

  • Status: Active
  • County: Morris
  • Year Built: 1957
  • 4 total bedroom(s)
  • 2 total bath(s)
  • 2 total full bath(s)
  • 7 total rooms
  • Style: CapeCod
  • Master bedroom
  • Kitchen
  • Basement
  • Bathroom(s) on main floor
  • Bedroom(s) on main floor
  • Master bedroom is 19x15
  • Living room is 16x11
  • Kitchen is 13x11
  • Basement is Finished
  • Hardwood floors
  • Fireplace(s)
  • Fireplace features: Living Room, Wood Stove-Freestanding
  • 1 car garage
  • Attached parking
  • Heating features: 1 Unit, Baseboard - Cast Iron, Multi-Zone,Gas Water Heater,Gas-Natural
  • Cooling features: House Exhaust Fan
  • Inclusions: Home Warranty
  • Exterior construction: Vinyl Siding
  • Roofing: Asphalt Shingle
  • Pets allowed
  • Approximate lot is 50X112
  • Corner lot
  • Approximately 0.13 acre(s)
  • Lot size is less than 1/2 acre
  • Utilities present: Cable TV Available, Garbage Service Included, Public Sewer, Public Water, Gas-Natural
  • Elementary School: Academy St
  • Middle School: Dover M.S.
  • High School: Dover H.S.

Here are the financials -

  • The property was purchased just as the housing bubble in December 2005 for $370,800.
  • The first mortgage at time of purchase was made using the wonderful Option Arm with First Magnus was for $296,640.
  • At the same time a second mortgage (AKA piggyback mortgage) was also made with First Magnus for $74,160.
  • The property is currently for sale with a realtor for $265,000.
  • The property taxes were $5556.62 for 2008.

This property was bought at the height of the bubble with some of the best bubble products of the time - zero percent down, a piggy back mortgage and and an Option ARM. The only thing missing to make this purchase a perfect bubble purchase would be a no doc loan - which it may be but we can not tell from the public records.

Since it was an Option ARM chances are that the loan is now bigger than at the time of purchase so our projected losses may be on the low side - as much as 10% to 25% under due to recasts levels. Now the property is selling for $105,800 less than the purchase price. We are going to guess that the current owner will not be making up the difference between purchase price and amount due on their mortgages. So whoever is holding these notes will be losing at least $121,700 if the property sells for the full asking price and the realtor receives the standard commission.

For those interest in purchasing the property, if they are able to put 20% down and received a 30-year fixed at today's Bankrate rate of 4.90% the monthly payments would be $1125.14. Adding in the property taxes and the monthly payments would be about $1588.19 per month - plus utilities and insurance.

For the other interested in parties that are unable to put even close to 20% down lets look at some other numbers. Using our new calculator that includes the PMI charges and the new rate, a potential new buyer is only able to put down 5% or $13,250. The monthly mortgage payment would be $1336.10, plus a PMI of $163.64, and the taxes of $463.05 totaling $1962.79. And for a buyer who puts only 3% down - the mortgage would be $1364.23, PMI now $222.78, the taxes stay at $463.05 for a total monthly payment of $2050.06.

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