Luxury homes see a big jump in foreclosures

This is just for the Dallas-Fort Worth area but the number of foreclosures filed against $1-million-plus homes more than doubled this past year. One hundred twelve percent higher for the first six months of this year compared to last year, to be exact.

As for slightly less-expensive homes, the increases in foreclosure filings were still daunting: 53% for houses $500k to just under $1 million, and 39% for houses $300k to just under $500k.

It’s still the case that most foreclosures are on lower-priced homes. The mean price of a home posted for foreclosure in the area during the first half of this year was $140,000.

I guess it stands to reason that since there were more high-priced homes purchased over the past few years at low, or even teaser, interest rates, and with less down, that the foreclosure rate for these high-priced homes should be going up. The overextended borrower will have the hardest time making the payments when variable rate mortgages reset, or when the economy turns and they lose their jobs.

To be continued … 😉

Albany’s “foreclosure intervention” bill confuses me

There’s legislation ongoing in Albany, NY, that will allow judges to postpone foreclosure proceeding and modify interest rates on mortgage notes of subprime borrowers. The Wall Street Journal contends in an editorial that this is “pols … taking a whack at bank balance sheets” by giving judges the authority to put off foreclosure proceedings for up to a year and lower the interest rate on the note.  Then, this may be repeated: the proceedings can be stopped for up to three more years.

The piece also suggests that this undermines the value of mortgage-backed securities, and raises the costs to new borrowers since banks can be made to hold onto non-performing assets.

Forcing the banks to keep the notes and accept lower rates of return doesn’t seem really to be the worst that could happen to these banks, though.  It’s rarely a good time for banks to foreclose, but now it’s especially bad.  These homes will be vacant and will be thrown onto a market that already has too much inventory.  It seems much better instead to hold onto the notes for up to four more years, get some more payments from the homeowner who now has some more hope that things will turn around, post any late fees that the homeowner might have incurred and might continue to incur, sit out the slump (which may turn around in the meantime) and then be able to foreclose in more of a seller’s market.

In short, this legislation helps the banks more than it hurts them, if for no other reason than the legislation’s timing.

What do you think? Am I missing something big?

You may already have won a foreclosure!

Who would’ve thought it? Ed McMahon is in default on his Beverly Hills home. Star searches these days reveal rich-and-famous folks getting behind on their payments.

I’ve watched lots of shows with Mr. McMahon, including TV’s Bloopers and Practical Jokes, Star Search, and of course The Tonight Show and it is a bit sad to see him in this situation, if for no other reason than he seemed to be a jolly guy on those shows and gave away lots of money for PCH sweepstakes. And it’s not as if the guy wasn’t working: he had the house on the market for two years, and had a neck injury that put him out of work for a year and a half. (Most people would be thrilled to be able to work into their eighties.)

Still though, $644k behind in payments? That’s a lot of money. Crazy money. It’s probably a year’s worth of payments or more. The bank finally cried uncle and is trying to take what it can get.

I can’t say that I’d handle my finances differently if I had that much money rolling in, including a $7.2 million settlement for mold. If the house is on the market now for $6.25 million, why didn’t he pay down the mortgage and refinance instead of take out more money? That kind of crazy income should make it a piece of cake to live comfortably for the rest of your life, but I imagine there’s enormous social pressures in those circles to live beyond your means. (“What?! Ed McMahon has only a 2,500 square-foot house?!”) Or maybe he ended up living a bit longer than he had thought. Who knows?

Foreclosure happens to famous people, too.

HUD tips for avoiding foreclosure: Part 3

The US Department of Housing and Urban Development has some good advice for people that are in danger of losing their home through foreclosure. Here are the last three tips from that list, with some discussion.

  • Use your assets. “Do you have assets-a second car, jewelry, a whole life insurance policy-that you can sell for cash to help reinstate your loan? Can anyone in your household get an extra job to bring in additional income? Even if these efforts don’t significantly increase your available cash or your income, they demonstrate to your lender that you are willing to make sacrifices to keep your home.” This can be good advice if the setback that’s gotten the homeowner into hot water is temporary — that is, there’s a light at the end of the tunnel. People will go to great lengths to keep their homes. The flip side of this is that the lenders, unfortunately perhaps, are more willing to deal with you if you’re upside-down on your mortgage because they will take a really big loss if they end up foreclosing. If you have equity, staying on the defensive and paying however you can is the best way to go because you stand to lose more, because the lender is probably a bit more likely to foreclose if they have a cushion.
  • Avoid foreclosure prevention companies. “You don’t need to pay fees for foreclosure prevention help-use that money to pay the mortgage instead.” Just like companies are beginning to see the market in helping people to walk away from their homes, companies are also well aware of the market to take some of the scare factor away from dealing with a lender and charging for things that could be done for free.
  • Watch out for foreclosure recovery scams! “If any firm claims they can stop your foreclosure immediately if you sign a document appointing them to act on your behalf, you may well be signing over the title to your property and becoming a renter in your own home! Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney.” If it sounds too good to be true, well then it probably is! Facing foreclosure is disheartening and likely makes people feel more vulnerable and more willing to consider offers that would be disadvantageous under more normal circumstances.

My comments on the other tips are here and here.

Losing one home is bad enough

How about losing nine homes to foreclosure?

Ouch. It must be harsh to go from $800k in stock options to losing that, your home, your car, and your credit rating. And having a newborn on top of that.

Shawn Forgaard went in full steam to real estate hot spots, financed them with a lot of money down and negative-amortization financing, and missed the signs that the market was turning against him.

So there was that side of the equation: a speculator that got in over his head after greed got the better of him. On the other side were the banks that lent him the money to fuel his speculation. Greed got the better of them, too.

This downturn is going to humiliate a lot of people. It sounds as if Mr. Forgaard is a bit wiser now. The School of Hard Knocks is a rough teacher, but an effective one, probably.

“And on your right we have this beautiful three-bedroom…”

Banks are hurting as foreclosures turn into non-performing and expensive real estate owned. Homeowners are hurting because they’re losing equity, or losing their homes and their credit rating. Neighbors are hurting because their property values are getting dinged, even though they’re paying their mortgage on time. Cities are hurting because vacant homes don’t usually attract the best of society.

Foreclosure bus tours, though, are doing just fine, thank you very much.

Someone was on the ball here. Why not do a little bit of leg work, assemble a list of foreclosed properties in a city, get a tour bus, and drive around would-be real estate investors so that they can check them out? Pretty clever, actually.

This kind of experience is a pretty low-priced introduction to foreclosed properties. The tour participants get to see them first hand, inspect them, and judge the kind of work and money that would be necessary to fix them up. It’s probably a very pleasant way to spend a few hours — in a slightly morbid kind of way.

These tours are for interested bargain-hunters. They’re an annoyance for the neighbors, and they poke at the soft underbelly of a huge real-estate boom. But is that bad? I don’t really think so. A foreclosure that’s bought is a problem that’s solved, even if just temporarily. I think the really successful and respected real estate investors will be the ones who will help the previous owners at the same time they make a profit. And if these bus tours alert them to houses that they didn’t already know about, they help to solve the problems of foreclosed homes.

Interview with Larry Winget on the foreclosure flood

JLP of All Financial Matters had a six-question interview on the housing crisis with reality TV host, speaker, and author Larry Winget. Mr. Winget hosts the A&E show Big Spender and has written several books on personal finance, the latest of which is You’re Broke Because You Want to Be.

Mr. Winget maintains that the blame for the massive foreclosure flood rests on the borrowers:

I think the primary cause of the crisis is that people were irresponsible and bought more house than they could afford. Money was easy to get and they took it and didn’t give much thought to the FACTS. And the facts were that their mortgage was going to go up at some point. “But no one told me that!” Bull. It was in the paperwork. If you didn’t read it or understand it, that is your own fault.

Here he’s referring to adjustable-rate mortgages. Harsh words, but that’s his style, and I think he’s largely right. (This isn’t the story you’ll hear from prominent political leaders, because it’s just about guaranteed to turn off voters. It’s much more palatable to believe that it’s someone else’s fault.) Buying a house is definitely something where the timing can be controlled. The prospective buyer can sign the contract or not. The buyer can look for affordable houses with a low, fixed-rate payment or an unaffordable house with payments that are low now, but which rise far beyond their ability to pay later.

Check out the rest of the interview over at All Financial Matters.

Carnival participation for this past week

Living After Foreclosure was featured in last week’s Carnival of Personal Finance, which was held over at Lazy Man and Money. The article submitted discussed how we now have to worry about our neighbor’s finances now that foreclosures are getting more common, because a sinking tide lowers all ships.

Thanks Lazy Man for including my article!

Conseco was foreclosed on

There will be more celebrities losing their homes. I’m sure of it.

Jose Conseco lost his 7,300 square-foot home yesterday, owing about $2.5 million on it. The home currently on his plate is smaller.

It’s all a matter of cash flow: trying to support more house than you can easily afford. If a person’s income is bigger, their expenses can be bigger, but not infinitely bigger.

I imagine that earning as much as Conseco does carries its own set of problems, but everyone has to work through their problems one way or another. His foreclosure is getting air time because he’s a celebrity and a personality, but lots of other foreclosures from “ordinary” folks occur all the time without much notice, and the effects of the foreclosures on their lives is a bit more devastating.

This is a reminder that celebrities aren’t entitled to a house any more than the rest of us. They have to pay back the bank, too.