Hank Paulson announces Project Lifeline, allows homeowners to stop the foreclosure process for 30 days in order to re-negotiate more affordable terms with a lender…
This is getting interesting. I see a couple of possible outcomes…
This mess is so bad that the goverment is actually putting some programs in place that could slow this run away train down. Whether it’s too little too late will have to be seen.
Or…(my favorite)
The majority of problems with these mortgages stem from the fact that these people purchased wildly over priced homes that they could not afford at the very peak of the market. Nothing is going to help someone who purchased a home for $325K that is now worth $225K.
You know things are really bad when the nations top 10 mortgage lending banks jump on board. The “read between the lines” tells me there is way more to this than any of us know.
I believe that the 30 days gives them extra time to work out either a new rate or a loan modification. From what I have read it seems at best a stopgap for foreclosure for an extra month. The lender that is servicing the note is not forced to accept new terms. What Paulson is hoping for is that banks will rather lose money on a loan modification than take their chances with a foreclosure.
I think the homeowners deserve to lose their house and the lender deserves to lose money on the house that isn’t worth today what it was before. If the banks didn’t want to have houses in their inventory, they should’ve been more careful with their lending. That’s what happens when lenders and borrowers get greedy and enter into a risky deal. It’s risky when you lend a lot of money to someone with sub-par credit, high debt to income, etc… It’s risky when when the borrower doesn’t have the common sense to realize that he can’t afford the house or have the nerve to look suprised that his rate is about to go up… I look at sub-prime lending like an investor who purchases high risk stocks. The only difference is that the investor doesn’t go crying to uncle sam when the stocks lose money…
This mess is so bad that the goverment is actually putting some programs in place that could slow this run away train down.
I think that’s your answer. I believe that the government is seeing things that they are simply not passing on to the public. They rushed the stimulus package through, saying that it MUST be done quickly. They now on the second bailout program for foreclosures. In my opinion, they KNOW that the consumer (2/3 of our economy) is tapped out and the ecomony is on the brink of a crash and burn event.
This could’ve easily been seen by the decline of savings in recent years. I think I remember seeing that the savings percentage was actually in the negative the last few years. Anyone who has ignored all these signs and continues to deny a recession is being purposely ignorant.
Does this whole crisis bring massive buying opportunities or is the worst yet to come? Sadly, I have a public RE background and it is a classic case of being too smart for ones own good. I was a real estate analyst and felt that real estate was grossly over-valued and refused to get mixed up in the hype. Meanwhile, my friends were all buying property and I thought they were all crazy and would all be upside down on their mortgages eventually. Well, I cont’d to think this way for 7 years and missed out on the great real estate bubble.
With that said, I totally understand the paralysis by analysis mentality. I know how hard it is to time the market and as long as you do your math correctly, a good value is a good value.
So, for all you seasoned REI’s, are you jumping in now with both feet or is it way too early???
It depends on what you’re buying. If you’re buying a rental, the numbers have to make sense in good times and bad from day one. The same holds true for a SFH that you flip. You may be forced to rent it out until the market changes. I’m sure you know that RE is cyclical. But as a REI or any other investor, you wan to sell when everyone is buying and buy when everyone is selling (if the numbers work). If you can get property cheaply and rent it out until the next wave comes, you do well.
I’ll be honest… I’ve slowed my buying a little here. When I can’t understand what is going on in a market my experience tells me it’s hard to get hurt sitting on the sidelines for a little while with a pile of money.
I see this potential scenerio…These programs are too little, too late. The economy IS IN RECCESSION NOW and it will get worse as more and more people either… a) realize this for a fact or b) are directly affected by it.
As already pointed out, the consumer has kept this old ship afloat far longer than it should have. We have a .06 NEGATIVE savings rate in this country (we spend more than we make) and the $100+billion stimulus rebate package we’ll all get soon will put our country further in debt. From people I’ve talked with…the only thing they’ll be spending that money on is a full tank of heating oil for the winter or a few months credit card payments. Neither of which will do anything to stimulate an economy that should have been left alone after the 2000 dot com bust. Instead, we traded one bubble for another. The difference this time being…not many people LIVED IN their stock portfolios in 1999. We all know how we got here…Greenspan dumps interest rates and creates a real estate boom not seen since an entire generation returned from a world war.
My market hasn’t decided what it is going to do, yet. So I am waiting and watching.
I have 2 different plans. I know what I am going to do if prices drop. I also know what I am going to do if prices stay stable or start back up. Either way, I am coming out of it happy and richer.
Winter is traditionally slow here. Spring will tell us what is going to happen.
This is similar to my area. We didn’t see prices skyrocket a few years ago, and we aren’t really seeing them drop a whole lot now either. We may have lost 2-3% on home prices max. All of the local real estate agent associations are predicting that prices will rebound this year in our area - although I don’t fully agree, I’m waiting to see what happens come second and third quarter.
Most of the subprime mortgages were written 2006 with a first adjustment this year. This mess is nowhere near rock bottom. There’s not a lot of equity, at least where I am, and prices for median range houses are dropping, in some cases 35-40%, making SSales a nice option. 30 days longer to negotiate with lenders just drags out the inevitable unless the owners have hit the jackpot and can reasonably expect to pay off the debt. The economic stimulus package will have taxpayers making a car payment not a mortgage payment. Forget about buying ‘durable’ goods. The rate of savings in this country is in negative numbers and there’s no real indication to expect that to change now or with the next administration.
this program will only be a finger in the dike. the lenders are starting to realize that many of these loans/housing will end up in their lap (inventory) becuase no one will buy them on the courthouse step as they are completely under water.
thus I see we have a ways to go before this completely unwinds. I think there will be better buying opportunties with lower risk in the future.
Yes, I am hearing that we are going to spiral into a massive recession and RE prices will drop further by as much as 40% in some markets and then there are those that say we will have a soft rebound and the market will look better by the end of the year and into 2009.
The fundamentals say we are headed deep into something bad due to years of consumer overconsumption, terrible monetary and fiscal policy, war, and just greed and unrealistic consumer confidence and expectations.
Still, if RE prices were based on fundamentals, no one would have bought within the last 7 years. So, is it wise to base today’s RE market on fundamentals and continue to sit on the sidelines? Goes back to paralysis by analysis. I have not been through enough “cycles” to use previous experience. For those who have been through the whole cycle, will RE purchased at the right price point produce value over time? Honestly though, doesn’t any appreciating asset seem expensive at the time?
I started out building homes in 1985. We had a boom very similar to this one. It ended badly just as this one will.
The difference then was the basic system established to fund housing in this country was not broken, as it is now.
In 1991 our economy entered a deep recession and prices of homes pulled back up to 50% in some areas. If you had purchased a home when that market was at a 25% discount to it’s eventual bottom, it would have taken you over 10 years before you’d be able to sell for what you paid. Based on that experience and 20+ years investing, I believe this is a VERY dangerous time to buy UNLESS you are getting a property at a 50% discount minimum, preferably more.
In my market we still have more and more inventory to work through and the spring is going to bring something all right… MORE INVENTORY!! A lot of people will not list their homes in the dead of winter or at the holiday season. They will, once the weather breaks and so will everyone else. It’s the crowd mentality. People do this thinking they’re being clever, when in fact, the entire herd is thinking the same way. That herd mentality has a lot to do with this mess. Remember…just a few years ago the herd thought that buying ANYTHING would assure a profitable future. I’m not talking about idiots here… Look no further than the geniuses on Wall St. who thought housing was a no lose proposition.
Without the infusion of cash, (checks being mailed out), we’d be in deep doo doo as a country.
I don’t know how to spell it…but Paulson and the greedy bankers of the last 5 years now are facing a tidal wave of foreclosures…(massive tidal wave…suuuuuunnnaaaaammmmmeeeee).
Crap savings as a country. And now we get excited about the next big IPO of the decade…VISA.
If I were better at currencies…I’d be moving more to them.
Their Project Lifeline is for THEM. They’re the ones that are hemorraging…Keys being mailed in like never before.
Romney would have been my choice.
With all that said…still PLENTY of opportunity out there.
-Mike <looking more and more beyond our boundaries
It is nearly impossible to pick a bottom in either the stock market or real estate market. Even if you can pick the bottom, do you have enough money to buy an entire portfolio at the exact bottom? If you’re buying a property to flip, how will buying at the exact bottom keep you in business more than a short period of time?
My point is that if you’re going to be in BUSINESS, you’ve got to be able to make money all the time (not just when the market is at a bottom). I have been buying rentals at a BIG discount over the past 4 + years: on the way up; during the peak of the boom; and on the way down. All of these properties have significant equity, with many over 50%. Unless there is a total collapse in the economy with widespread homelessness, I should be in good shape.