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They Created the Problem… and Now They’re Making it Worse!

January 26th, 2009 by Temple City Tribune

Let me see if I have this story correct.  Banks, lenders and such decided to allow those who could least afford to purchase a property the opportunity of doing so, knowing full well that eventually the buyer could lose that property.  They gave interest only loans that would increase to normal financing within a couple of years, meaning that those who got those type of loans would be unable to make the new payment.
Banks, lenders and such, gave other unqualified buyers those one-percent loans, again knowing that after a year or two the loans would return to current rates. Again making it impossible for those who obtained such loans to be able to make payments when the interest rate is adjusted.
Adjustable rate mortgages were the big thing; low payments for a couple of years and when the rate goes up, another group of people find themselves in trouble, and now will be looking for a place to live.  There are a lot more of those loans out there, and we can expect even more people to find themselves in trouble.
You would think that these visionaries of impossible dreams would have created enough problems, but the answer to that is also no, as they are still creating problems.  Not only for themselves, but also for other property owners that were not involved with those crazy types of loans.
Instead of punishing these banks/lenders, some of which were taken over by other banks, the government put together a package that would infuse money into their systems without any over-sight.  Instead of using those funds to assist or correct the situation, the banks are just holding on to it, with very new loans being given.  In other words, those of us that are paying our monthly mortgages are now assisting to help those that created the problem in the first place.  Do I sound a little angry?
This is what really is bothering me!  The banks have a large number of bank owned properties that they must move, and are doing so by ruining the market for all other property owners.  Instead of pricing those properties at or fairly close to current market prices, these banks are selling properties for considerably less making it extremely difficult for others to sell their homes at fair market values.
By placing properties on the market at prices that the average home seller cannot meet or match, they are forcing others that normally were able to make those monthly payments, to give up. It is forcing them to just allow their property to go into foreclosure.
When there are non-foreclosed homes listed for sale, and having bank owned properties, in the same or immediate area, offered at or below what the general public is trying to sell their homes for, why should they even try?  In a good number of cases the families trying to sell their homes are doing so with the idea of either upgrading or downsizing based on their family needs.  Now these people are taken off the market, or may even find themselves losing their properties as well.
Certainly, prices during the hey-day went out of line.  High sales, during those hectic times, created shortages, and that meant higher prices for properties that were still available for sale.  There was a need for prices to adjust to fair market values and that has happened – but, with prices of bank owned properties that are now being offered, the banks have taken away what was to be the security of the elderly.   Good example as to what the banks have done with their method of pricing can be felt by those seniors that are attempting to obtain a Reverse Mortgage.
Sales of homes during the month of October 2008 were up dramatically over the like period in 2007, with most of those sales being bank owned or short sales.  If there are bank owned properties for sale in your immediate area, and you are trying to sell you property in the same area, chances are very good that the bank well under sell you.  It just may be smart to hold off from placing your property on the market until the government finally does something to correct the foreclosure situation.
One of my very best friends is the Chairman of the Board of a moderately size bank with a number of branches in and out of California.  He refused to participate in those crazy loan programs, had very few foreclosures, and is now planning on expanding the number branch offices. I have a great deal of respect for this man, as he predicted the problems that we are now facing, and spoke out against those frivolous loan programs.
Let me make one more suggestion, a new suggestion that the banks may wish to consider, in order to get things turned around.   If you are a long time reader of my articles, long ago I suggested that people who were in trouble contact the Mediation Department of their lender. Now the lenders are required to talk to their clients before filing any foreclosure notice.  What if the lender agreed to adjust the value of the property to current fair market value, and adjust the interest rate to “let’s say” five-percent, with the only other proviso being that if the property owner sells the property within 10 years, one-third of any profits made would be repaid to the bank?  If the property were sold after ten years, the bank would not be entitled to any other compensation.
Your monthly payments, on $220,000 home at 5% interest is approximately $1,200 per month, with about $300.00 going toward the equity (approximately 25% of total payment), and $900.00 going towards interest payments.  Multiply that $900 per month by twelve, then by ten years and the bank has recovered $108,000 while only $36,000 has been applied to your equity.  Just who is getting hurt?

Louis Perlin CRS, GRI is a Syndicated Writer, Author, Professional Real Estate Witness and Mediator.  Lou can be reached by calling Marilyn Perlin Realtors, Inc. at (760) 327-8401 or by e-mail: mprltr@aol.com.

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