Not much has changed since 60 Minutes first broadcast the story last January about the causes of the subprime mortgage mess and its effect on the economy. What’s behind the subprime mortgage mess? Banks loaned hundreds of millions of dollars to homebuyers who otherwise wouldn’t qualify on the assumption that home values would continue to increase. Wall Street packaged these loans as securities and sold them as investments. Those investments collapsed beginning in July 2007 under the weight of the housing market slowdown. Observers say many borrowers who ended up in default or foreclosure got there because they bought without a down payment and borrowed significantly more than the home was worth. Mortgage lenders, meanwhile, readily approved buyers based on their "stated income. According to CBS, "100 of the world’s biggest financial institutions now are on the hook for a reported total of $379 million in bad debt – and counting.
Making Sense of the Story for Consumers:
Homeowners who borrowed against the value of their second home, or who financed the purchase of their second home and subsequent homes by pledging their primary home or other properties as security, may be liable for taxes on the difference in value should they sell any of their properties for a price less than the value owed on the mortgage. Under the Mortgage Forgiveness Debt Relief Act, a homeowner doesn’t have to pay taxes on forgiven debt if the collateral behind the mortgage is owner-occupied. That provision doesn’t apply to a growing number of homeowners renting out their second home or investment property. Of some 7.5 million vacation homes, only about 10 percent are considered owner-occupied, according to the NATIONAL ASSOCIATION of REALTORS® (NAR). Many of these homeowners borrowed against the ever-increasing (or so it seemed) value of these properties to finance improvements or to buy other properties. There may be a way out for some, one bankruptcy lawyer counsels: Get a lender to agree that foreclosure “fully satisfies all obligations under the loan.” That might protect the seller from having to pay taxes on the forgiven debt – although one attorney said, "I sure don’t want to be the one litigating it" in court.
Some Interesting Info about Short Sales:
In a short sale, homesellers ask their lender to accept a buyer’ s offer that is less than the amount needed to pay off the balance of the mortgage. Lenders who agree to a short sale also typically agree to forgive the remaining debt. Many call short sales a win-win for lenders and homeowners. The homeowner avoids foreclosure and banks avoid the cost of carrying the property through the lengthy foreclosure process, not to mention the hassles of selling an empty property in a market saturated with other foreclosures.
On average, lenders lose approximately 19% of a mortgage’s value with a short sale but lose an average of 40% on mortgages that proceed to foreclosure, according to one source. The problem with short sales? Like other foreclosure mitigation efforts, the challenge is in determining which financial entity “owns” the loan and, thus, has the final say on a short sale offer. Banks also have been slow to ramp up internal processes needed to review and approve short sale packages. Delays and last-minute dickering often prolong or even derail transaction closings and creates frustration for potential homebuyers.
Local Monthly Stats for May show that the most activity in the Santa Cruz County market on single family homes was in the $500,000 price range with the listing ratio vs selling ratio at <9.3%>. Not surprising following in second were homes priced over $1M. This area of the market seems to be the one where second home buyers and investors are seeing the most opportunity in getting a great value.
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May Statistical Highlights for Single Family Homes:* Inventory increased 2.2% from April 2008, and up 6.6% compared to May 2007
* Sales increased 15.2% from April 2008, but still down 16.5% compared to May 2007
* Days on the market decreased to 91, month prior 106, prior year 89
* Median home price decreased from prior month to $645,000, and decreased 15.1% from May 2007
* Sales price vs.listing price ratio decreased to 95.51% from April 2008
* 9.8 months of inventory available at the end of May as compared to 7.7 in May 2007
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(These statistics are believed to be accurate but not guaranteed)
For the second straight month The area of the market selling closer to listing price is the $800,000 price range followed closely by the $900,000 price range. Were these properties once priced over a million?
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