Lender as landlord
House Keys
By Marcie Geffner, Tuesday, April 28, 2009.
Flickr image by dimator.Do you own your own home or do you just pay rent to a lender instead of a landlord?
The question isn't frivolous. Rather, it speaks to whether your house is a place to live or an investment, a temporary abode or a more permanent living space, real property or just a roof over your head.
There are 75 million owner-occupied housing units in the United States, and of those, nearly 24 million don't have a mortgage, according to U.S. Census Bureau estimates. These homeowners are mortgage-free because they paid cash for their home or paid off their housing debt over time.
On the flip side, there are millions of homeowners who've made little or no progress toward owning their home free and clear. Some bought their home in 2005 or 2006 with little or no down payment and a mortgage that didn't actually pay off the debt. Others made substantial down payments that have since evaporated as house values have fallen. And still others extracted all of their equity through refinancing and spent the money on fancy remodels that rarely recouped the costs; first-class vacations; big-ticket purchases; or inflated standards of living that were well beyond their true means.
It's no wonder, really, that so many people, wowed by the big numbers on their personal balance sheets, made the decision to cash out. We all felt so much richer during the housing boom, even if our wealth was only on paper. And for many, the easy opportunity to convert that wealth into ready cash must have seemed the height of good financial sense. After all, cash-out meant money that could be spent immediately instead of on some distant day in the all-too-unpredictable future.
Now that house prices have declined -- modestly in some places and precipitously in others -- the cash is gone and the houses aren't worth enough to justify those second mortgages and home equity lines of credit. This scenario has become so commonplace that we've resurrected two terms to describe people who owe more on their mortgage than their home is worth. We say they are "upside down" or "underwater," neither of which sounds very pleasant.
Add to the equation one of life's inevitable hardships -- a job loss, crippling disability, life-threatening illness or other financial emergency -- and a fair number of these folks will find a foreclosure notice in their mailbox. ...CONTINUED
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Submitted by Ted Jernigan on April 28, 2009 - 1:39pm.
Where were you when all these people needed to be told that they were only sliding further into debt? I refinanced a couple of times, but the last time was five or more years ago. I shortened the term to 15 years and got a 4.75% loan. From the very first payment the priciple amount I was paying was greater than the interest payment. I am almost half way through the term of the loan and it is amazing to see how fast the loan amount shrinks. I am looking forward to the day when I can quit making those payments.
Ted Jernigan
Ebby Halliday REALTORS
McKinney, Texas 75071
Jernigan@ebby.com
972-489-6173
Submitted by Marcie Geffner on April 28, 2009 - 3:46pm.
Thanks for your comment, Ted, and congratulations on your choice to pay off your mortgage more quickly.
Marcie Geffner
www.marciegeffner.blogspot.com
P.S. Where was I way back when? Hmmm....I think I was managing editor of Inman News. : )
Submitted by Brad Yzermans on April 28, 2009 - 3:47pm.
I know in most of California a 15 year mortgage just isn't an option. If everyone who owned a home tried to refinance into a 15 year mortgage they would literaly have to move out of state due to inability to afford the payment. Can you imagine 5-10 million homeowners picking up and moving out of state because a 15 year mtg. isn't feasable on a two earner family income?
I agree with everything said in the article...yes, most are renting with a mortgage that gives most a nice tax deduction.
I do feel sorry for the people getting loan modifications...what a joke....most modifications are 3-5 year adjustables....rates ranging from 3-4.5%. What kind of administration even allows that type of modification to happen knowing that the people won't be able to afford the new payment when it adjusts higher? And where do you think rates will be in 3-5 years with inflation kicking in by then? Yikes!
intogourdSeems hypocritical of the decision makers to even let that be an option. My guess is politicians allow this in hopes that the problem goes away for a few years until they can get re-elected.
Submitted by J. Craig Anderson on April 28, 2009 - 4:47pm.
Marcie, I could not agree more. These "homeowners" (I mean HOWLs) own little more than an inescapable financial obligation.
Sure, they get a tax break, as Brad pointed out. But what happens when they need to move? What about the elderly widow who needs to relocate to an assisted living community? What about the active-duty soldier who is transferred to another base in another state -- or country?
We need to forget about the false promise of loan mods and focus all our collective resources on the mass facilitation of short sales. Short sales are the only reasonable way out of this mess that doesn't cause grave economic injury to all parties involved. The government has now added second-lien mortgages to its loan mod program. Now they just need to take it one step further and give second-mortgage lenders a reason -- be it stick or carrot -- to subordinate more seconds, so these HOWLs can someday aspire to true homeownership.
Submitted by Marcie Geffner on April 28, 2009 - 6:41pm.
The tax break is valuable, especially in California, where a 15-year loan is unthinkable for most people. (Though we do tend to overlook that there are a lot of inexpensive housing markets in our state.)
I have to suspect the unsustainable loan modifications are another bet on home prices. The thinking may be that if-when-maybe prices recover, these HOWLs should be able to sell. But I have to doubt whether they fully realize that's the hidden outcome. And those who have to move (many for good reasons) do have to make some very tough choices.
Thanks for your comments, Brad and Craig -- good points, all round.
Marcie Geffner
www.marciegeffner.com
Submitted by Deborah Saffell on April 28, 2009 - 6:51pm.
I can tell you where I was when all the people were getting their butts in the sling....I was pleading with them to get a thirty-year fixed mortgage loan. Did they heed my advice? A few but not all.
As far as the loan mods go, that is like putting a band aid on a broken leg. The loan needs to be for the full amount of the principal, If it takes the owner 60 years to pay it back, then it does. Keep the payments extremely low for the owner, but keep the full principal for the lender. That way, both the lender and the homeowners are left to clean up the mess they made.
I think they call it being accountable.
The people I feel bad for are the renters who are thrown out on the street after paying their rent. Then, to add insult to injury, they lose their deposit. Now, brace yourself for the huge slap in the face.... they may have an eviction put on their credit (after they paid their rent).
Submitted by Linda Hutchinson on April 28, 2009 - 8:47pm.
Personally, I am weary of people playing the blame game. This was a massive screw-up by all parties.
However, what we need are NEW LOANS - not modification of existing loans...I'm talking actual loans to new buyers who want to purchase homes listed for sale. Everyone is concerned about short sales and foreclosures but we keep forgetting that to get a mortgage loan, in today's marketplace, is darn near impossible unless you are getting an FHA insured loan. Anyone try to get a jumbo loan lately? It's absolutely ridiculous. The "new" appraisal process - basically a joke. We need bold lenders willing to give "credit-worthy" borrowers a mortgage loan. It's that simple.
As the housing market goes - so goes the economy.
Linda Hutchinson, REALTOR
Stirling Sotheby's International Realty
Orlando, FL 32801
407-898-9090 Direct
www.OrlandoNest.com
www.LindaHutchinson.com