Mortgage Forbearance

[daedalus]

If  I follow Streetview to the nearest corner I see a homeless person pushing a shopping cart laden with all manner of plastic bags, and a chicken, in the same frame.  Bars on the window are a strong indicator of the kind of neighborhood it is, and the chicken confirms it.  My first house was in a fringy neighborhood, sandwiched between gritty and richie.  There were decent schools and homeless people, and Irvine prices for very old plaster homes...but at least we didn't have chickens roaming the streets!

 

[OCtoSV]

110 and Florence?? My goodness.

 

[sleepy5136]

FANG stocks have higher valuations, but its not even close to the dot com valuations. I would argue FANG stocks deserve that premium right now since they are reporting killer earnings despite COVID.

As for homes in Inglewood, I don't care how many stadiums and stuff are built if the area has such a high crime rate. I'm seeing new construction homes in Inglewood going for 900k+ along with a 1.5% property tax. With that much money I can buy something pretty decent in Irvine and not have to worry about my safety when I go out.

 

[sleepy5136]

The 2004 to 2008 run up was primarily due to a "no one cares" environment.

Realtors would ask "What's your score", not "Is this affordable for you?", Buyers would say "My lender says it's no problem for a minimum wage worker to buy this $600,000 home in Menifee because no one cares about qualifying any more".

Borrowers would ask "What income should I put on the application" and Lenders would say "Put whatever is needed to qualify. No one cares.".

Lenders would tell borrowers that an Option ARM might "go negative" and the balance might rise. Homeowners would say "Meh, appreciation will take care of that, besides, no one cares.... I can always refinance..." 

Absolutely everyone knew what was going on. Don't believe the stories about how "I was tricked" or "I wasn't told about X, Y, or Z" and "those big banks were to blame". It was willful ignorance by all parties in the transaction. Lenders had to provide to customers multiple disclosures for their loan terms with all the potential problems laid out in black and white. There were 3 days to exercise a borrower's right to cancel a refinance giving plenty of time to review what they were getting into. Closing documents were in the low 100 pages in length to consider before funding, yet none were read. To think that a $4,000 per month income can support a $3,000 payment alone was a huge red flag for home buyer or refinance client in the day. Did that stop anyone? Hardly - because no one cared enough to question why the application says $14,000 of income when it really was $4,000, or how it was possible to get a $1,000 mortgage payment for a $1,000,000 loan amount.

The worst part of that whole era from my perspective was the persistent chant by lenders, realtors, and borrowers: "You can always refinance out of it". No... Sorry to say, but you cannot. Once the music stopped, there weren't enough chairs to park ones behind on. Everything deconstructed from there.  What's different today is the real estate industry is too big to fail. Forbearances are one example, but so are foreclosure and eviction moratoriums. In 2007-2011, consequences for poor judgement were real. Today, the consequences for lack of planning and saving have become the burden now of the Federal Government, and the bill just will never come due.

In many ways the forbearance and eviction moratoriums were the right response but solely within the context of the Pandemic. With employment in a freefall and incomes vanishing due only to an outside event not caused by the individual, the last thing American society needed was a tsunami of newly unhoused people. Now that American society has accepted forbearance and moratoriums as "normal", paying bills is becoming less and less of an obligation and more like a long term can kicking. Just look at what has been done with Student Loans (an ongoing moratorium) and what's ahead (outright forgiveness of debt).

Just as in 2007 when the music ran out and seating became scarce for those dancing throughout those "good times", eventually the music being played today will stop. What then? We'll see....

My mind is blown. I really wished I was old enough to witness this. But I honestly find it hard to believe that people that work in the housing industry at that time wouldn't step back and think this looks like a disaster that will unfold soon. 

 

[nosuchreality]

The 2004 to 2008 run up was primarily due to a "no one cares" environment.

Realtors would ask "What's your score", not "Is this affordable for you?", Buyers would say "My lender says it's no problem for a minimum wage worker to buy this $600,000 home in Menifee because no one cares about qualifying any more".

Borrowers would ask "What income should I put on the application" and Lenders would say "Put whatever is needed to qualify. No one cares.".

Lenders would tell borrowers that an Option ARM might "go negative" and the balance might rise. Homeowners would say "Meh, appreciation will take care of that, besides, no one cares.... I can always refinance..." 

Absolutely everyone knew what was going on. Don't believe the stories about how "I was tricked" or "I wasn't told about X, Y, or Z" and "those big banks were to blame". It was willful ignorance by all parties in the transaction. Lenders had to provide to customers multiple disclosures for their loan terms with all the potential problems laid out in black and white. There were 3 days to exercise a borrower's right to cancel a refinance giving plenty of time to review what they were getting into. Closing documents were in the low 100 pages in length to consider before funding, yet none were read. To think that a $4,000 per month income can support a $3,000 payment alone was a huge red flag for home buyer or refinance client in the day. Did that stop anyone? Hardly - because no one cared enough to question why the application says $14,000 of income when it really was $4,000, or how it was possible to get a $1,000 mortgage payment for a $1,000,000 loan amount.

The worst part of that whole era from my perspective was the persistent chant by lenders, realtors, and borrowers: "You can always refinance out of it". No... Sorry to say, but you cannot. Once the music stopped, there weren't enough chairs to park ones behind on. Everything deconstructed from there.  What's different today is the real estate industry is too big to fail. Forbearances are one example, but so are foreclosure and eviction moratoriums. In 2007-2011, consequences for poor judgement were real. Today, the consequences for lack of planning and saving have become the burden now of the Federal Government, and the bill just will never come due.

In many ways the forbearance and eviction moratoriums were the right response but solely within the context of the Pandemic. With employment in a freefall and incomes vanishing due only to an outside event not caused by the individual, the last thing American society needed was a tsunami of newly unhoused people. Now that American society has accepted forbearance and moratoriums as "normal", paying bills is becoming less and less of an obligation and more like a long term can kicking. Just look at what has been done with Student Loans (an ongoing moratorium) and what's ahead (outright forgiveness of debt).

Just as in 2007 when the music ran out and seating became scarce for those dancing throughout those "good times", eventually the music being played today will stop. What then? We'll see....

My mind is blown. I really wished I was old enough to witness this. But I honestly find it hard to believe that people that work in the housing industry at that time wouldn't step back and think this looks like a disaster that will unfold soon. 

You think you do.  I was actively trying to buy.  I remember a $1.5 million two story in HB. The most memorable feature?  The three kids bedrooms door frames and baseboard were gnawed to sh*t from the pet guinea pigs that had the run of the house.

Not just a tiny little gnaw because I?m super anal retentive about that kind of stuff because I am, but gnawed up like it was desperately trying to escape the Guinea Pig version of Pinhead coming to pick it up.

Ocean breezes, panoramic views of the turd herder plant and walking distance to the beach for your average 40,000 steps a day kind of guy.

 

[sleepy5136]

I heard the 2006-2009 home prices were at record highs. So how much would a 3bed/bath 1500-2000 sqft be if it was 2007 now? 1.5m? 2m?

 

[nosuchreality]

I heard the 2006-2009 home prices were at record highs. So how much would a 3bed/bath 1500-2000 sqft be if it was 2007 now? 1.5m? 2m?

Which month?  2007 in March was a lot lower than 2007 in Sept.

I remember another 3/2 1400sf in the central Costa Mesa neighborhood.  Open house, just on the market.  We were 20 couples deep in the line outside waiting to tour as we it was tertiary stop for us and it was about noon.

Once we got inside it was a mediocre flip grade iand the kitchen counter was covered in agent cards and the attendant proudly announce they already had twenty offers so write your best one.

I think it was listed at $590K.  Today if fixed up, probably worth $800k?  It was an SFR. Keep in mind, a ?real? mortgage was 6.8%.  Giving you a PiTA of $3600.  You?re PITA today is a lower.

That again though isn?t really the point.  Today, if you go to a new builder or even most open houses, the listed price may be smoking weed, but in general it?s on the playing field.

The houses then, weren?t.  There was no playing field. The price was listed for a get 100+ buyers through and collect 20 offers, or off the charts and they just waiting for the market to walk to them in the next three months.  If it wasn?t in escrow in 36 hours it was because the sellers were asking too much and not even the nobody cares could get the appraisers to fudge the comps enough to float the loan and they just waited for the comps to catch up.

Trying to figure out an offer had nothing to do it?s the value of the house and only to do with how much were you willing to give up to get it because everybody else was bidding with Monopoly money.

And you?d walk in with your agent the day before listing and the seller already has a half dozen sight unseen cash flipper offers.  They rarely panned out for the seller but filled their heads with visions sugar plums dancing to fatten their bank account.

 

[nosuchreality]

The other thing to keep in mind was back then, the bubble appreciation burned through not yet gentrified neighborhoods like a wild fire.

 

[sleepy5136]

I heard the 2006-2009 home prices were at record highs. So how much would a 3bed/bath 1500-2000 sqft be if it was 2007 now? 1.5m? 2m?

Which month?  2007 in March was a lot lower than 2007 in Sept.

I remember another 3/2 1400sf in the central Costa Mesa neighborhood.  Open house, just on the market.  We were 20 couples deep in the line outside waiting to tour as we it was tertiary stop for us and it was about noon.

Once we got inside it was a mediocre flip grade iand the kitchen counter was covered in agent cards and the attendant proudly announce they already had twenty offers so write your best one.

I think it was listed at $590K.  Today if fixed up, probably worth $800k?  It was an SFR. Keep in mind, a ?real? mortgage was 6.8%.  Giving you a PiTA of $3600.  You?re PITA today is a lower.

That again though isn?t really the point.  Today, if you go to a new builder or even most open houses, the listed price may be smoking weed, but in general it?s on the playing field.

The houses then, weren?t.  There was no playing field. The price was listed for a get 100+ buyers through and collect 20 offers, or off the charts and they just waiting for the market to walk to them in the next three months.  If it wasn?t in escrow in 36 hours it was because the sellers were asking too much and not even the nobody cares could get the appraisers to fudge the comps enough to float the loan and they just waited for the comps to catch up.

Trying to figure out an offer had nothing to do it?s the value of the house and only to do with how much were you willing to give up to get it because everybody else was bidding with Monopoly money.

And you?d walk in with your agent the day before listing and the seller already has a half dozen sight unseen cash flipper offers.  They rarely panned out for the seller but filled their heads with visions sugar plums dancing to fatten their bank account.

If interest rates were 6.8%, what caused the huge demand in buying a home at that time? Was it simply the fact that home owners would buy homes expecting to pay the interest only for the first couple of years and by then the price of the home would have gone up enough to sell it for a gain before the principal kicks in? Did you end up buying during that time? Or did you get scared after they said you can write whatever income you want in the mortgage application?

 

[usctrojancpa]

I heard the 2006-2009 home prices were at record highs. So how much would a 3bed/bath 1500-2000 sqft be if it was 2007 now? 1.5m? 2m?

Which month?  2007 in March was a lot lower than 2007 in Sept.

I remember another 3/2 1400sf in the central Costa Mesa neighborhood.  Open house, just on the market.  We were 20 couples deep in the line outside waiting to tour as we it was tertiary stop for us and it was about noon.

Once we got inside it was a mediocre flip grade iand the kitchen counter was covered in agent cards and the attendant proudly announce they already had twenty offers so write your best one.

I think it was listed at $590K.  Today if fixed up, probably worth $800k?  It was an SFR. Keep in mind, a ?real? mortgage was 6.8%.  Giving you a PiTA of $3600.  You?re PITA today is a lower.

That again though isn?t really the point.  Today, if you go to a new builder or even most open houses, the listed price may be smoking weed, but in general it?s on the playing field.

The houses then, weren?t.  There was no playing field. The price was listed for a get 100+ buyers through and collect 20 offers, or off the charts and they just waiting for the market to walk to them in the next three months.  If it wasn?t in escrow in 36 hours it was because the sellers were asking too much and not even the nobody cares could get the appraisers to fudge the comps enough to float the loan and they just waited for the comps to catch up.

Trying to figure out an offer had nothing to do it?s the value of the house and only to do with how much were you willing to give up to get it because everybody else was bidding with Monopoly money.

And you?d walk in with your agent the day before listing and the seller already has a half dozen sight unseen cash flipper offers.  They rarely panned out for the seller but filled their heads with visions sugar plums dancing to fatten their bank account.

If interest rates were 6.8%, what caused the huge demand in buying a home at that time? Was it simply the fact that home owners would buy homes expecting to pay the interest only for the first couple of years and by then the price of the home would have gone up enough to sell it for a gain before the principal kicks in? Did you end up buying during that time? Or did you get scared after they said you can write whatever income you want in the mortgage application?

The huge demand was driven by 2 things back then...first was the super loose lending standards (basically if you could breathe and sign you were approved) and second, it was rising prices that kept feeding the demand as buyers thought that real estate prices would go to the moon.  Buyers were the crack addicts chasing a higher high and lenders were like the drug dealers providing the smack to the buyers.

 

[usctrojancpa]

The can gets kicked further down the road. Biden has extended the moratorium on foreclosures of federally guaranteed mortgages from March 31st to June 30th. I think we all know now that anyone looking for a material pullback in prices might be waiting for a long, long time.

 

[sleepy5136]

The can gets kicked further down the road. Biden has extended the moratorium on foreclosures of federally guaranteed mortgages from March 31st to June 30th. I think we all know now that anyone looking for a material pullback in prices might be waiting for a long, long time.

I think it will be kicked till 12/31/2021. 2022 will be interesting to say the least.

 

[usctrojancpa]

The can gets kicked further down the road. Biden has extended the moratorium on foreclosures of federally guaranteed mortgages from March 31st to June 30th. I think we all know now that anyone looking for a material pullback in prices might be waiting for a long, long time.

I think it will be kicked till 12/31/2021. 2022 will be interesting to say the least.

That's a good bet.  The gov't loves kicking cans down the road infinitely.