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Wednesday, August 29, 2007

Short Pay-Offs?

An interesting thread on one of the broker's forums about a guy who says he's negotiating short payoffs. The lender supposedly agrees to accept less than the principal, fees and interest due, in return for being paid off through another refi. The idea is that the lender forgives enough to bring the new CLTV down to the point at which a refinancing can be done:
The states that I get the most business from are California and Florida. I have received several calls from brokers in Michigan and Georgia, but nobody sending any business from those two states yet. If you don't include the clients that come to me with 48 hours before a sheriff sale or the clients that have Option One as their current lender (Option One will allow a short-sale, but not a short-refi), my success rate has been around 80%-85%. If you include the rest I am more like 70%-75%. Like I have said before, these lenders that are foreclosing on these people do not want to go through a foreclosure. It cost them a lot more money to foreclose, than taking a cut in payment on a short-payoff (whether it be a short-sale or a short-refi). Most of the time, especially in a declining market area, these houses are sold at auction and nobody shows up. which in turn, just creates another problem for them, by having an empty house sitting on their books, that they have to maintain and try to sell through a realtor. It's a lot easier for them to work a short-payoff and be done with the property. Last, you asked why would any lender do a foreclosure bailout in a declining market? I really don't have an answer for you. But, if you look at where probably 90% of the hard money lenders do business, it is California and Florida.
I don't know anything about this guy and I am not recommending him, but I have heard of many types of unusual accommodations for buyers. Most borrowers who did not commit fraud will likely have success talking to the lender themselves, as the person posting writes himself.

The bailout proposals are all flawed. The reality is that lenders have to work this stuff out themselves, and they will for most loans that have some rational relationship to the the borrower's income.

This has been a year ago, but at that time First Horizon did not seem interested in working with me. I had the house up for sale, had several offers and yet they still seemed to want to foreclose. I finally just stopped communicating with them as the folks at Fannie Mae told me the house was mine to sell up till it went to sheriff's auction. Finally had a buyer able to close and unloaded it before things got any uglier. So I can't say I feel a lot of sympathy for banks stuck with a lot of foreclosures.
Me neither. Right now they are stuck with the losses, and those piggy-backs are worth jack all.

The real effect of rapid price drops is to put more bargaining power back in the hands of the borrowers.
This doesn't describe the real pain. Everybody with the 20 of an 80/20 is looking at a loss of their most profitable product and 100% or more of principal. And let's face it. Everybody doing the 80s is also the guy doing somebody elses' 20.
I don't see this working in sonoma county.we are realistically at least 15% below the peak already,and poised to drop like a rock.to bring an '05 house to a 90% ltv you would have to shave a big chunk off,and your borrower is going to be underwater again PDQ.you might have a performing loan again for 6 months to a year...but you now have someone paying attention,and they are likely to figure out that owing $450k on a $200 k house is not optimal.The sf chronicle has had a daily feature for several weeks called "mortgage meltdown" and i suspect this might have an effect if other papers pick it up.
Rob and Tom - can't argue with you about the nature of the losses, but those losses are forcing lenders to make massive accommodations.

We seem to be looking at a nominal 25-28% average loss by mid 2008, if you have to sell. According to listing prices, the average pace of loss in CA has moved up past 1% a month.

But remember, a lot of people were moving up, and did have money to put down. So it's the FTHB of the last few years who likely will walk away. Another floor in CA is that you have a sharply lower homeownership percentage than the norm - signficantly below 60%. So there are quite a few potential buyers when that $400,000 house becomes a $300,000 house, and at that point the tax benefits of owning begin to outweigh the next 5% down.

The market won't recover until after 2010, though.
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