Thursday, April 26, 2007

One is a tragedy, a million is a statistic

With a coworkers permission, I'm going to blog about his mother-in-law. No, it has nothing to do with my wedding (soon), but instead real estate.

Let's head down to Oceanside to a near ocean condo.
The statistics:

Year of purchase: 1995
Purchase price $64,000
Current mortgage: $350,000 (after 7 cash our refi's)

It was purchased to fix future housing expenses at 1995 rent levels at her son-in-laws request. It also had the benifit of moving the mother-in-law closer to retail, nicer location than her previous apartment, and get her into a slightly larger place of her own back when price/rent screamed BUY!

The other details really don't matter. What does is this woman called her daughter to see about getting some help with a new cash our mortgage. Since the daughter is a Realtor (tm), she helped mom by arranging to have a good appraiser sent over to the place to do a really quick look at the properties values. Daughter even got in touch with a mortgage broker who could set up the mom with a good and fair cash our refi. They check the mother's income (mother-in-law of co-worker) and its fine for this level of loan (not my standards, the mortgage company's).

The appraisal came back: $284,000.
In other words, LTV is currently at: 123%

Even a subprime Heloc will max out at 125%

Once refinancing fees are considered, there is no-equity to extract in any form from this property. None.

The daughter freaks out. Not at the appraisal (she knows it is fair), but at her mom's debt. She daughter also knows the place appraised for much more a year ago. (I'm unsure of the past appraisal, so we'll leave it at "more" for now.)

My coworker is resigned to having the mother in law move in.

The mother in law? She's livid! "My place will be worth $1million one day and they have to give me my money!" "How am I supposed to pay for X, Y, and Z without my money?"

I loved the mother-in-laws exit strategy. "Oh, I'll just sell the place and rent again."

I'm serious folks... this isn't made up.

Its sad... someone will lose their home due to "buy it now" greed. Not a bad person... Just someone who didn't watch their spending and was caught up in this mania.

Got popcorn?
Neil

12 comments:

tj & the bear said...

What? No details on how said MIL spent nearly $300K???

wannabuy said...

TJ,

The son in law couldn't tell me. There is nothing to show for it. He and his wife were surprised to find out she had extracted that much.

Got popcorn?
Neil

baddriver said...

7 refi's? How much do you think all the transaction fees were to facilitate that?

wannabuy said...

How much do you think all the transaction fees were to facilitate that?

Unknown. Obviously a lot.

My coworker is still a bit shocked to find his MIL in such a state...

Got popcorn?
Neil

Anonymous said...

Very sad & funny - always thought that the older generation was much more careful with their $s.

Anonymous said...

Neal,

for some reason my comments do not show up on the HousingBubbleBlog so I leave them here with hope you can relay. Tnx.

Watched the blog for a while.

very similar stories but we need something NEW

Is the "slope getting steeper" as this comment suggests ?


We need evidence that the sitruation is getting worse while the FED sais that things are "improving in the 2nd half of 2007"

wannabuy said...

Anon,

Unfortunately, we'll know the slope has become steeper after the fact.

One thing I like to blog, because it is tied to home appreciation rates, is the investment emotions. We're still in Denial in most of the nation. But I have a feeling it will go to fear quickly.

Since it won't be until 2010 until builders need to build again... we have time. In fact, patience is key.

Got popcorn?
Neil

tj & the bear said...

Neil, you are absolutely right in that psychology is the key. When that turns, look out below.

Dr Housing Bubble said...

Neil,
You mention that she had 7 refis? This person has some issues managing her finances. At this point, she should be getting close to paying off the mortgage; at $64,000 with a 15 year this is where she should be at.

But fast forward 12 years and a whopping amount of debt. $284,000 value and $350,000 mortgage does not equate to sitting pretty. My frustration is how in the world can lenders be so financially irresponsible. They say that accountability is needed from the buyer. I agree. She will lose her home and need to make up additional fees from the foreclosure, short-sale, or whatever the path happens to be.

But lenders flowing up to Wall Street expect to be bailed out by tax payers like yourself. Now how fair is that? Just because you can do something doesn't mean you should; for example refi 7 times. We all have the ability to lick wall sockets but do we do it? NO. It is common sense.

Fascinating insight and Neil, I know many stories like this and wish this was isolated. I like the personal touch of the blog.

Cheers,

Doctor Housing Bubble

wannabuy said...

Dr.,
"Fascinating insight and Neil, I know many stories like this and wish this was isolated. I like the personal touch of the blog. "

Thank you. This is the first, of many I'm sure, that has come out of the woodwork.

Oh, I've blooged about coworkers and friends with 5+ flips (ghad...).

When the mood changes, this will be bad. I know people who will *never* NEED to sell their flips, but will when its obvious the ROI is higher elsewhere. But for everyone of those, I know three wanna be Trumps who are about to be taken to the cleaners.

And Dr., you are right, she has a personal finance issue... Her son-in-law didn't know... He thought she was about to pay it off. (No reason it shouldn't have been...)

We all have the ability to lick wall sockets but do we do it? NO. It is common sense.

For most... my brother only stuck keys in a wall socket once before he figured out that was a bad idea... In fact, the next time he would plug in anything to a wall socket he was age ten...

"Neil, you are absolutely right in that psychology is the key. When that turns, look out below."

TJ,
Its almost ready to turn. So close... but after waiting this long to see more signs, I know to wait and watch it happen.

It will. Just look at the inventory... the psychology will get ugly. At that point don't be anywhere near the door.

Got popcorn?
Neil

Anonymous said...

Neil,

Any evidence that the slope is getting more "slopy" ?

that prices are going down ? that things are worse than they were 2 month ago.

ABX are higher.
AHM say that condition in the selling of mortgagages improve.

biz here: http://www.brokeruniverse.com/grapevine/ are booming . many Loan rquest and most get 2-3 answers.

100% LTV is gone but with a small fraud one can "show" that they put 5% down and the party continue.

wannabuy said...

Anon,

The slope isn't getting stepper. I expect credit to slowly tighten until MBS buyers know they'll get a decent return after defaults.

I'm not expecting anything until August.

What I know is that for me to buy a home would be dicey... I also know that unless those I manage can afford a home, my job is at risk. Doing a quick statistical analysis, that means that those with an income about 1/3rd less than mine and my fiancee' must either be able to buy... or my job will move to where its more affordable.

With price/income down from 11.4X to 11.0X... its the last suckers who are buying. Most markets are lagging indicators of the fundamentals.

We're not done yet.

Got popcorn?
Neil