Mortgage mods are touted by both the government and the so called "help" organizations. But are these mods really helping anyone. I think if you've read this blog for any length of time you know how I feel about this mod business. Mods are helping banks and that's it! All mods do is keep people paying for a an asset that is worth less than they owe on it. They become trapped by this debt.
Here is a perfect example of why loan mods suck for most people. I have one friend that did a short sale in 2008 to get out from under his upside down house. He is now free, happy and his credit score has fully recovered. He could easily buy any house he wanted (and could afford). I have another one that did a mod in 2009. He did the loan mod for a couple of reasons. He liked his house and had spend a fair amount of money upgrading (although he did use a heloc to do these upgrades). He also foolishly believed that prices would rebound enough to where he could sell if he needed to. Over 2 years later he still owes way more than his house is worth. Although he can afford the payments he now needs to sell and move due to an impending divorce. Unfortunately for him this means either a short sale or just letting the house go. The loan mod probably added a year or two to his marriage but it also trapped him in that house. So who is better off? Had he let the house go two years ago he would probably be single and free of debt, possibly able to buy another home already.
To anyone considering a loan mod I would encourage them to consider the possibility that they may want or need to move in a few years. If there is even a remote chance of that then don't do a loan mod. No matter how much you love the house, get the hell out of it. You can rent for a couple of years and then if you desire you can purchase another home that you will not be a thousand feet under water on.
The whole mortgage mod thing is absurd when you stand back and look objectively at it. Someone has sold you something at an inflated price, but because they are willing to change the loan terms slightly you agree to keep paying on that inflated price. That might be reasonable if you bought a TV (although even on TVs most retailers will give you a refund if you find that TV cheaper) but I digress we are talking houses here. We are talking about tens or hundreds of thousands of dollars depending on how long you pay the note for. It's not an insignificant amount of money, yet most people only look at that monthly payment and that's about as far ahead as they look too. No thought is given to next year or 5 years from now.
Mortage mods will only serve to extend this fiasco of a market!
Will 2012 be the "real" year of the short sale?
If you have an underwater house you are thinking about dumping you might want to get off your duff and list the thing. You see normally when you sell a house for less than you owe on it you get a nasty little surprise from Uncle Sam, a tax bill for the difference. During the bust legislation was passed to put this tax on hold to make it easier for people to short sell. However that legislation expires at the end of 2012. Both the Federal government and the California State gov passed these acts so currently there are no tax consequences from a short sale.
Of course the debt forgivness act could be extended. But what if it isn't? This would probably mean fewer short sales and a lot more foreclosures. There are no tax consequences from foreclosure because in Cali most of those loans are non-recourse (but I'm no tax expert so don't listen to me).
The unfortunate thing is that most people have no idea about this tax thing and may not feel the need to hurry up and get out while the gettin's good.
Oz is in denial
Just got back from my vacation to NZ and OZ, and of course I couldn't help but check out the prices of real estate over there. In fact during many of the tours the guides would continually point out how "well" there market was doing. It was incredible, it was like being here in 2006. Nearly all the people I spoke with, if the topic of home prices came up just seemed to say all the stuff we heard 5 years ago. "it's different here", "price might level off, but I doubt they will fall" etc. NZ was by far the worst. The prices of everything over there is unbelievable. I dunno how they live. But the prices of housing was off the charts as compared to incomes.
Median incomes are comparable to the US, yet the cost of nearly everything was higher. Australia was not nearly as bad as NZ in that respect but in the two cities we visited things were quite a bit higher than here. Of course the cost of living in most large cities is higher than living in the burbs but I was not able to really check the costs out in the burbs. We did manage to get out into the burbs in Melbourne and the tour guide would point out housing tracts give us approximate costs. If those were correct they their prices are comparable to ours at the peak of our bubble. We saw shacks in the city that he indicated were well north of a million (and I do mean shacks!), in the burbs we saw small average looking tract homes that were $500k to $800k.
NZ and OZ are beautiful places and well worth a visit. But save your pennies cuz int aint a cheap vacation. Oh, and driving on the opposite side of the road is interesting too!
Happy Holidays
Happy Holiday's ya'll
I'm taking the rest of the year off and heading to New Zealand and Australia.
Subscribe to:
Posts (Atom)