Copyright National Association of REALTORS®, Reprinted with permission
Economist's Commentary: September 22, 2008
$700 Billion for What?
By Lawrence Yun, Chief Economist
A massive $700 billion bill will be fast-tracked through Congress this week to give the U.S. government the authority to buy bad mortgages off the books of Wall Street firms. People are calling it the 'mother of all bailouts' and the 'biggest bailout in the history of mankind.' I am inclined to view it as the biggest sovereign wealth fund investment to date.
Several sovereign wealth funds - essentially a mutual fund run by a government for the government (or its taxpaying citizens) - have been investing in Wall Street firms and mortgage-related debts since late last year. Singapore, South Korea, United Arab Emirates, Saudi Arabia, and China were among the countries putting up a few billion dollars in the hopes of turning a big profit once the housing market recovers. Treasury Hank Paulson, a former CEO of the top U.S. investment bank Goldman Sachs and perhaps missing his old job, has now created a U.S. sovereign wealth fund that outstrips in size all other sovereign funds put together. Some may even view it simplistically as the Treasury Department going "all-in" in this $700 billion Texas Hold 'Em poker bet.
The principal goal of this new Treasury authorization is not to make money but to unclog the financial pipelines. Worries about capital inadequacy, further mortgage debt write-downs, and margin calls have hemorrhaged the movement of capital. The overnight borrowing rate has been skyrocketing, as any firm with excess cash was unwilling to lend that precious dough should it face the fate of Lehman Brothers. The very essence of capitalism - of allocating capital to its most productive use - was collapsing before our very eyes last week. The whole economy and Main Street civilians would have eventually suffered greatly from the mistakes of Wall Street.
The way to unclog the system is to buy certain mortgage backed securities off the books of financial firms. Because of illiquidity many mortgage securities, even those performing reasonably well, are being valued at pennies on the dollar if forced to sell. Let's say, for example, that you as a bank hold 100 mortgages and half of your clients are paying mortgages on time. At worst, these 100 mortgages would get at least 50 cents on the dollar. However, if you need to raise capital because of margin calls in the current panic, you would not get 50 cents but only few pennies on the dollar. These unrealistically low valuations are paralyzing the balance sheets of financial institutions and hindering the liquidity flow.
Treasury intervention will help restore the proper valuation of these illiquid assets. However, Treasury should not reward the mistakes of Wall Street by bailing out at an unreasonably high price and handing out "free money." Buying at a deeply discounted price could potentially lead to huge revenue benefits for Treasury on the behalf of taxpayers once the housing market and mortgage debt valuation recovers, but the financial firms may be unwilling to sell at unreasonably low prices. If this happens, we are back to square one. Subsequently, a delicate balance must be pursued with the goal of helping unclog the financial pipeline, but also protecting taxpayers' money.
Understandably, there will be anger and outcries from the Main Street public of this massive Wall Street 'bailout.' Politicians will feel the heat in this election year. But those same politicians have no choice: if the bill does not pass, the acute financial pain will quickly trickle down to Main Street.
The Main Street disgust of executive pay is also understandable. I will defend the '$700 billion bailout' to help stabilize the housing market and economy, but not the golden parachutes of fallen Wall Street executives. How is it that failed managers are able to get away with a fistful of dollars? The same can be said of Fannie Mae (FNMA) and Freddie Mac (FHLMC) executives. Many past managers of these government sponsored enterprises were paid a gigantic sum for running the very simple business of borrowing cheap and lending high. It was possible for Fannie and Freddie to borrow cheap on the backs of government (i.e. U.S. taxpayer) guarantees. Most of this borrowing cost advantage should have been passed onto consumers and not kept by Fannie/Freddie managers.
Hank Paulson has a tough task. He must permit capital to move around. That is the essence of capitalism. He must at the same time also protect taxpayer money. The return on the taxpayer gamble depends on two things: at what price the Treasury will buy bad mortgage debts off Wall Street books, and the future mortgage default rate. The default rate, in turn, will depend on the housing market recovery. Knowingly or not, the 75 million homeowners and 100 million taxpayers have now become the key stakeholders on the side of housing market recovery. In the end, if all goes better than anticipated, Mr. Paulson may perhaps get his own super hero figure made for returning a healthy rate of investment to taxpayers on this $700 billion gambit.
Copyright National Association of REALTORS®, Reprinted with permission
Wednesday, September 24, 2008
Tuesday, September 16, 2008
NAR Commentary on Fannie Mae, Freddie Mac takeover
Copyright National Association of REALTORS®, Reprinted with permission
Economist's Commentary: September 8, 2008
Government Takes Over Fannie and Freddie
By Lawrence Yun, Chief Economist
You wake up one Monday morning to find Fannie (FNMA) and Freddie (FHLMC) no longer exist - that was a scenario that NAR staff have been contemplating over the past month. Well, the government has in effect taken over Fannie and Freddie this weekend and it is in fact Monday morning. The federal government had no choice because the capital situation of two organizations was insufficient to face the upcoming realities of rising mortgage defaults. Now what?
Mortgage rates will trend down over the short run. But how much of a decline will depend on how actively the government - more specifically the Treasury Department and the FHFA - loosens their mortgage liquidity spigot. For over the next 12 months at least, the FHFA has the authority to purchase more than the normal amount of mortgages from lenders to put into their portfolio holdings. That means all conforming loans, including the newly conforming jumbo loans up to $625,000, will qualify for purchase by the FHFA. That will help drive down mortgage rates. In about two year time, when the housing recovery is assumed to be well underway, the government will trim its mortgage portfolio. Then Fannie and Freddie will be completely restructured. It will be up to the next administration and Congress to determine that structure in for which NAR will make our 1.3 million voices heard.
The credit spread between the 10-year Treasury and the 30-year mortgage rates has greatly widened in recent past months due to uncertainties surround the fate of Fannie and Freddie. The typical historic spread has been about 150 to 180 basis points. That means if the 10-year Treasury yield is 4%, then the 30-year mortgage would be about 5.5% to 5.8%. Rather, we have seen the spread at 250 to 300 basis points in recent months. With the government takeover, the spread will surely narrow and hence result in lower mortgage rates.
One legitimate concern is over taxpayer bailout. It is certainly possible that the Treasury will be forking over federal dollars if the default situation worsens. It is also possible for the Treasury and the taxpayers to come out ahead if the mortgage defaults slow down. The defaults will depend heavily on the direction of home prices and the home prices, in turn, are driven heavily by whether or not housing inventory gets trimmed. Assuming there are notable declines in mortgage rates from the federal takeover, then the demand for homebuying will return to the market place and help lower inventory. Therefore, it is very possible that this unprecedented move by the federal government may not cost the taxpayer a dime.
We should also be mindful that even if some taxpayer funds are used in the end, it was just not permissible to have Fannie and/or Freddie go under without any government backstop. The global economy would no doubt have entered one of the harshest recessions in recent memory. Loss of income and jobs would have been brutal, unnecessary collateral damage to ordinary people from the mistakes of the flawed mortgage lending model (which included no down-payment, no documentation, unloading the risk to the secondary market after originations, exuberant credit ratings by Moody's and Standard and Poor's, etc.)
Over the long term, after the above time-out phase of government activism, we need to ensure continuous flow of capital into the mortgage market to help consumers. The restructuring of Fannie and Freddie must meet this important criterion. The final restructuring will combine many innovative ideas, including:
Counter-cyclical mortgage intervention which loosens the liquidity spigot in times of need and tightens when the housing market heats up.
Covered bond market - which is the European way of funding mortgages
Sound underwriting standards to assure a sustainable, healthy housing market (it is in no one's interest to have an unprepared homebuyer that ultimately leads to a foreclosure) Clearly separating out the public and private mission of the Fannie/Freddie or new entities. A model of private profits for the shareholders and losses for the taxpayers does not pass any common sense test.
Copyright National Association of REALTORS®, Reprinted with permission
Economist's Commentary: September 8, 2008
Government Takes Over Fannie and Freddie
By Lawrence Yun, Chief Economist
You wake up one Monday morning to find Fannie (FNMA) and Freddie (FHLMC) no longer exist - that was a scenario that NAR staff have been contemplating over the past month. Well, the government has in effect taken over Fannie and Freddie this weekend and it is in fact Monday morning. The federal government had no choice because the capital situation of two organizations was insufficient to face the upcoming realities of rising mortgage defaults. Now what?
Mortgage rates will trend down over the short run. But how much of a decline will depend on how actively the government - more specifically the Treasury Department and the FHFA - loosens their mortgage liquidity spigot. For over the next 12 months at least, the FHFA has the authority to purchase more than the normal amount of mortgages from lenders to put into their portfolio holdings. That means all conforming loans, including the newly conforming jumbo loans up to $625,000, will qualify for purchase by the FHFA. That will help drive down mortgage rates. In about two year time, when the housing recovery is assumed to be well underway, the government will trim its mortgage portfolio. Then Fannie and Freddie will be completely restructured. It will be up to the next administration and Congress to determine that structure in for which NAR will make our 1.3 million voices heard.
The credit spread between the 10-year Treasury and the 30-year mortgage rates has greatly widened in recent past months due to uncertainties surround the fate of Fannie and Freddie. The typical historic spread has been about 150 to 180 basis points. That means if the 10-year Treasury yield is 4%, then the 30-year mortgage would be about 5.5% to 5.8%. Rather, we have seen the spread at 250 to 300 basis points in recent months. With the government takeover, the spread will surely narrow and hence result in lower mortgage rates.
One legitimate concern is over taxpayer bailout. It is certainly possible that the Treasury will be forking over federal dollars if the default situation worsens. It is also possible for the Treasury and the taxpayers to come out ahead if the mortgage defaults slow down. The defaults will depend heavily on the direction of home prices and the home prices, in turn, are driven heavily by whether or not housing inventory gets trimmed. Assuming there are notable declines in mortgage rates from the federal takeover, then the demand for homebuying will return to the market place and help lower inventory. Therefore, it is very possible that this unprecedented move by the federal government may not cost the taxpayer a dime.
We should also be mindful that even if some taxpayer funds are used in the end, it was just not permissible to have Fannie and/or Freddie go under without any government backstop. The global economy would no doubt have entered one of the harshest recessions in recent memory. Loss of income and jobs would have been brutal, unnecessary collateral damage to ordinary people from the mistakes of the flawed mortgage lending model (which included no down-payment, no documentation, unloading the risk to the secondary market after originations, exuberant credit ratings by Moody's and Standard and Poor's, etc.)
Over the long term, after the above time-out phase of government activism, we need to ensure continuous flow of capital into the mortgage market to help consumers. The restructuring of Fannie and Freddie must meet this important criterion. The final restructuring will combine many innovative ideas, including:
Counter-cyclical mortgage intervention which loosens the liquidity spigot in times of need and tightens when the housing market heats up.
Covered bond market - which is the European way of funding mortgages
Sound underwriting standards to assure a sustainable, healthy housing market (it is in no one's interest to have an unprepared homebuyer that ultimately leads to a foreclosure) Clearly separating out the public and private mission of the Fannie/Freddie or new entities. A model of private profits for the shareholders and losses for the taxpayers does not pass any common sense test.
Copyright National Association of REALTORS®, Reprinted with permission
Sunday, June 22, 2008
Energy-Pricing Your House For Sale
You know, there is a lot of talk going on in today’s market about what will move one house vs. another, but one thing for sure is that if the house is priced right, it will sell. There is a saying in real estate like that which has been around forever. Unfortunately, homeowners and many others have interpreted those words to mean that the home has to be given away. Nothing could be farther from the truth. What homeowner is going to recommend a real estate agent to one of their friends if they have just “given their house away”? Why would a homeowner even want an agent like that? The agent’s goal should be to help the homeowner get the best possible deal, and they should be able to show the homeowner a strategy for how that goal could be accomplished.
In many markets in Tampa Bay, there are still very large inventories of homes for sale on the market. Often, only a small percentage of those homes are being sold each month. Generally, the longer a home sits on the market, the more ominous the signs become for the seller. The best time to measure the interest in your home is during the first two weeks it is on the market. The highest price your home will sell for in a declining market is usually within the first three months, and generally the best time to sell is the first month.
During the first two weeks your home is on the market, serious buyers will have seen your house advertised in the local Realtors’ MLS, they will have grouped it with similar ads that have peaked their interest and will have discussed it with their realtor. (Why do buyers use realtors? Because their services are often free to the buyer. They are usually paid their commission at closing as a percentage of proceeds from the sale of the house). If your house is previewed by the buyers’ agent or the buyers themselves, it is usually during this time. Therefore, the house needs to be priced to sell (unless of course you really don’t want to sell it, in which case, you can take it off the market and save everyone the trouble of trying to sell a house which you are not ready to sell yet). If you play with the pricing of the house from the time it is rolled out onto the market, it could very well be a move you might regret later. So price the house as fairly as you can determine from the start.
In a depreciating market, the comparison of your house to a similar house sold in today’s market, is a technique used to help come up with an initial list price on your house, (which will be sold in tomorrow’s market). Remember, the price you start with needs to be arrived at with the intention of arousing excitement in buyers, and causing multiple offers to be made. When multiple offers are made, the final selling price can end up being even higher than your original listed price. But multiple offers will not occur without doing your homework and pricing the house fairly and smartly from the start.
If you miss the mark during the first month on market, things can become more difficult. But don’t give up, and don’t put a list price on your house “just because”. Remember, you want to attract multiple offers during the early days on market. With the proper approach, good research in your market area, and trustworthy guidance, you can sell your home in a depreciating market. Your sale is not guaranteed, but when approached from the proper perspective, using a strategic plan whose foundation is based upon proven results, your home can be one that sells in the first days on market – even in a depreciating market.
In many markets in Tampa Bay, there are still very large inventories of homes for sale on the market. Often, only a small percentage of those homes are being sold each month. Generally, the longer a home sits on the market, the more ominous the signs become for the seller. The best time to measure the interest in your home is during the first two weeks it is on the market. The highest price your home will sell for in a declining market is usually within the first three months, and generally the best time to sell is the first month.
During the first two weeks your home is on the market, serious buyers will have seen your house advertised in the local Realtors’ MLS, they will have grouped it with similar ads that have peaked their interest and will have discussed it with their realtor. (Why do buyers use realtors? Because their services are often free to the buyer. They are usually paid their commission at closing as a percentage of proceeds from the sale of the house). If your house is previewed by the buyers’ agent or the buyers themselves, it is usually during this time. Therefore, the house needs to be priced to sell (unless of course you really don’t want to sell it, in which case, you can take it off the market and save everyone the trouble of trying to sell a house which you are not ready to sell yet). If you play with the pricing of the house from the time it is rolled out onto the market, it could very well be a move you might regret later. So price the house as fairly as you can determine from the start.
In a depreciating market, the comparison of your house to a similar house sold in today’s market, is a technique used to help come up with an initial list price on your house, (which will be sold in tomorrow’s market). Remember, the price you start with needs to be arrived at with the intention of arousing excitement in buyers, and causing multiple offers to be made. When multiple offers are made, the final selling price can end up being even higher than your original listed price. But multiple offers will not occur without doing your homework and pricing the house fairly and smartly from the start.
If you miss the mark during the first month on market, things can become more difficult. But don’t give up, and don’t put a list price on your house “just because”. Remember, you want to attract multiple offers during the early days on market. With the proper approach, good research in your market area, and trustworthy guidance, you can sell your home in a depreciating market. Your sale is not guaranteed, but when approached from the proper perspective, using a strategic plan whose foundation is based upon proven results, your home can be one that sells in the first days on market – even in a depreciating market.
Tuesday, May 20, 2008
HOME SELLING IN TODAY'S MARKET
Whenever I talk with homeowners about selling their homes, one question I get that I think is particularly relevant is – “What can I do to improve the desirability of my home?” Since there are many things that can be done to a home to make it more desirable to a buyer, the important follow-up question is, “Which of these would be the most appropriate for my situation?” Not all “improvements” are created equal. Part of a thorough answer to this question lies in analyzing the needs and circumstances of the seller, and part in analyzing what is important to buyers in your market; then arriving at what will be a wise merging of the two. There really is no answer that is a one size fits all. I could name 10 things that would improve desirability of your home (at least commonly, in general terms) but they might not be appropriate for you and your home for any number of reasons. But now that I have just cautioned you against the “one size fits all” approach to the physical presentation of your home, let me offer at least a couple of ideas that really should help most home sales. The specifics of “how much is done” and “how much is spent” are the variables that will set the stage for the opportunity to make some pretty important decisions right from the beginning of your home-selling experience.
What would happen if you made the house appealing from the outside with some beautiful indigenous shrubbery; presented the walls (interior and exterior) with a nice clean look; and even reduced the “clutter” (what makes a house a home for most of us)? All that personal stuff that can sometimes occupy too much space for a buyer to traverse, and not leave enough room for them to imagine what their own “clutter” would look like in place of yours. How far would that go? Actually, curb appeal and a house that is neat, clean and uncluttered can get the most bang for the buck. Striking landscaping can have an even greater effect on value and perceived value of a home than many other attributes. If at least part of the landscaping for the area is natural to the local environment, it could turn out to be not only an interesting look, given that many other landscapes are designed on a mass production basis with uniformity the goal, it could even turn out to be less costly to maintain. Now wouldn’t that be a pleasant surprise to a new buyer amid today’s rising gas and food prices? How about an energy conservation or “green” inspection of the house? And then implement at least some of the more cost-saving suggestions. Cost savings that can be attained in maintaining a house these days will go a long way in achieving greater desirability, but you have to also make sure the buyer is aware of the improvements that have been made to achieve those savings, and if possible, how much savings they might expect to realize from the improvements. One way to do this is to provide the “before” and “after” costs of ongoing maintenance after having implemented the improvements.
Finally, selling a home without a warranty is do-able, but I believe a more prudent approach is to sell it with a one year warranty on major appliances, etc. If you extend the warranty a bit, you will set yourself apart from other sellers who are selling with the basic warranty. If something happens after you’ve sold the home, you will be glad you sold it with a warranty. The last thing a seller needs is a problem with the sale of a house after it has already been sold. Better that you help the buyer get through that trying moment in their new home with an insurance policy in place than to hear from them after the sale. Insure the home while it is on the market too. That way, if problems arise that are covered by the warranty during the selling process, things will go much more smoothly and the transaction will be lass apt to be disrupted; and it will be less costly to the seller than having to make repairs without insurance. The cost from some companies who provide this type of insurance is nominal, and can even be paid for at closing.
I hope these tips help make your home-selling experience a rewarding one.
What would happen if you made the house appealing from the outside with some beautiful indigenous shrubbery; presented the walls (interior and exterior) with a nice clean look; and even reduced the “clutter” (what makes a house a home for most of us)? All that personal stuff that can sometimes occupy too much space for a buyer to traverse, and not leave enough room for them to imagine what their own “clutter” would look like in place of yours. How far would that go? Actually, curb appeal and a house that is neat, clean and uncluttered can get the most bang for the buck. Striking landscaping can have an even greater effect on value and perceived value of a home than many other attributes. If at least part of the landscaping for the area is natural to the local environment, it could turn out to be not only an interesting look, given that many other landscapes are designed on a mass production basis with uniformity the goal, it could even turn out to be less costly to maintain. Now wouldn’t that be a pleasant surprise to a new buyer amid today’s rising gas and food prices? How about an energy conservation or “green” inspection of the house? And then implement at least some of the more cost-saving suggestions. Cost savings that can be attained in maintaining a house these days will go a long way in achieving greater desirability, but you have to also make sure the buyer is aware of the improvements that have been made to achieve those savings, and if possible, how much savings they might expect to realize from the improvements. One way to do this is to provide the “before” and “after” costs of ongoing maintenance after having implemented the improvements.
Finally, selling a home without a warranty is do-able, but I believe a more prudent approach is to sell it with a one year warranty on major appliances, etc. If you extend the warranty a bit, you will set yourself apart from other sellers who are selling with the basic warranty. If something happens after you’ve sold the home, you will be glad you sold it with a warranty. The last thing a seller needs is a problem with the sale of a house after it has already been sold. Better that you help the buyer get through that trying moment in their new home with an insurance policy in place than to hear from them after the sale. Insure the home while it is on the market too. That way, if problems arise that are covered by the warranty during the selling process, things will go much more smoothly and the transaction will be lass apt to be disrupted; and it will be less costly to the seller than having to make repairs without insurance. The cost from some companies who provide this type of insurance is nominal, and can even be paid for at closing.
I hope these tips help make your home-selling experience a rewarding one.
Thursday, May 1, 2008
Tommy Lee Lovett, Disabled Vet Says, "Doors Wired Shut"
Recently I had the pleasure of meeting Tommy Lee Lovett, Real Estate Agent and author of the book, “Doors Wired Shut – The Truth about Discrimination and Disabled Veterans”. He was one of a panel of speakers talking about Fair Housing at a GTAR (Greater Tampa Association of Realtors) symposium. It was obvious after only a few minutes of listening to Mr. Lovett speak that he carried this topic close to his heart. You see, Tommy is a disabled vet himself. So he knows a lot from first-hand experience about hurdles encountered while trying to exercise rights for fair housing.
The book is about events involved in the purchase of a single family home. More than just recounting incidents of the purchase and putting his finger on problems that currently exist, Lovett offers suggestions for change – ideas whose purpose it is to make fair housing a reality for the disabled.
Included in the appendix are the Specially Adapted Housing (Veteran using wheelchair) Construction Guidelines for New and Existing Homes. Also, part of the book is reserved for “Discrimination Studies” by, Ellen Pader and David Winsor with James Palma. This is a detailed piece describing the problem of housing discrimination in Massachusetts. It was included in its entirety because it is such a complete and extensive narration on the subject of housing discrimination.
Besides the transcript of the deposition of Mr. Lovett in the Fair Housing Case described in this book, there is also a section from the US Department of Justice, Civil Rights Division, Housing and Civil Enforcement Section, Frequently Asked Questions. This section includes about a dozen commonly asked questions and answers to help readers with questions about the Fair Housing Act, enforcement of the act, the Equal Credit Opportunity Act and more.
Lastly, the Bibliography includes excellent sources of information for those eager to learn more.
I encourage all readers interested in housing rights of the disabled to pick up a copy of the book, “Doors Wired Shut – The Truth about Discrimination and Disabled Veterans” by, Tommy Lee Lovett.
The book is about events involved in the purchase of a single family home. More than just recounting incidents of the purchase and putting his finger on problems that currently exist, Lovett offers suggestions for change – ideas whose purpose it is to make fair housing a reality for the disabled.
Included in the appendix are the Specially Adapted Housing (Veteran using wheelchair) Construction Guidelines for New and Existing Homes. Also, part of the book is reserved for “Discrimination Studies” by, Ellen Pader and David Winsor with James Palma. This is a detailed piece describing the problem of housing discrimination in Massachusetts. It was included in its entirety because it is such a complete and extensive narration on the subject of housing discrimination.
Besides the transcript of the deposition of Mr. Lovett in the Fair Housing Case described in this book, there is also a section from the US Department of Justice, Civil Rights Division, Housing and Civil Enforcement Section, Frequently Asked Questions. This section includes about a dozen commonly asked questions and answers to help readers with questions about the Fair Housing Act, enforcement of the act, the Equal Credit Opportunity Act and more.
Lastly, the Bibliography includes excellent sources of information for those eager to learn more.
I encourage all readers interested in housing rights of the disabled to pick up a copy of the book, “Doors Wired Shut – The Truth about Discrimination and Disabled Veterans” by, Tommy Lee Lovett.
Tuesday, April 22, 2008
CONDO OWNERS IN WRONG PLACE AT WRONG TIME
It looks like my first blog is going to be concerning one of the more interesting quagmires of the recent real estate condition, and it is going to be about some folks very close to where I live. In fact, they live just down the street from me.
The Tampa Tribune published an article by Karen Branch-Brioso on Saturday 4/19/2008 about the Portofino Condos in New Tampa having recently been purchased, and the new owner planning on converting the development back to an apartment complex, which will make things as it was when it was originally built in 1998. Problem with that is, the current market values of the units are less than what they were when they were purchased during the past 18-24 months. So with the popularity of high LTV loans in recent years, it could mean that the mortgage owed on an owner’s unit is greater than the current market value of their property. That would mean that if the new owner pays close to current market value, the current owner may still be short of what they owe the lender on the property. Without much equity in their properties, these current owners will be facing the difficult challenge of having to make up a possibly significant difference between what they could expect to receive in fair market value for their home and what they owe on their current mortgage. Even if they are not “upside-down” on their mortgage, thanks to considerable equity already in the home, they could likely lose a good chunk of any equity as a result of the sale.
To me, this story is gut-wrenching because any financial misfortunes that manifest themselves with these homeowners as a result of these sales will not be because of their own financial mismanagement, rather, more directly from being in the wrong place at the wrong time.
It is my understanding that everything is not all said and done yet. Hopefully, there still exist some compromises and remedies that have yet to make their appearance.
The Tampa Tribune published an article by Karen Branch-Brioso on Saturday 4/19/2008 about the Portofino Condos in New Tampa having recently been purchased, and the new owner planning on converting the development back to an apartment complex, which will make things as it was when it was originally built in 1998. Problem with that is, the current market values of the units are less than what they were when they were purchased during the past 18-24 months. So with the popularity of high LTV loans in recent years, it could mean that the mortgage owed on an owner’s unit is greater than the current market value of their property. That would mean that if the new owner pays close to current market value, the current owner may still be short of what they owe the lender on the property. Without much equity in their properties, these current owners will be facing the difficult challenge of having to make up a possibly significant difference between what they could expect to receive in fair market value for their home and what they owe on their current mortgage. Even if they are not “upside-down” on their mortgage, thanks to considerable equity already in the home, they could likely lose a good chunk of any equity as a result of the sale.
To me, this story is gut-wrenching because any financial misfortunes that manifest themselves with these homeowners as a result of these sales will not be because of their own financial mismanagement, rather, more directly from being in the wrong place at the wrong time.
It is my understanding that everything is not all said and done yet. Hopefully, there still exist some compromises and remedies that have yet to make their appearance.
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