My favorite sports teams are (in order of favorite)...
...USC Trojans (ok, I just love the school...I follow the basketball team, I am familiar with the baseball team...would love to get my MBA there - if it weren't for a pesky thing like $150k -, but I am obsessed with the football team)
...Los Angeles Lakers (Kobe Bryant is my favorite player for many reasons - I don't give a damn about what Bill Simmons says...he is a Celtic fan - but if he leaves the Lakers...he no longer is my favorite)
...Detroit Red Wings (I love the Wings and love Steve Yzerman - by far my favorite player in ANY sport)
...Los Angeles Dodgers (I love the Blue...don't really have a favorite player past or present...just love the team - Gibson, Hershiser, and the '88 world series are stuck in my head...mostly because Jason Sharp sat behind me in English class that year and he was a huge Oakland A's fan)
...Jacksonville Jaguars (L.A. has been without a pro football team for many years - in fact, the only pro game I have ever been to was between the L.A. Rams and the Atlanta Falcons [Deion Sanders was on the Falcons at the time] - anyway, the Jags drafted a few Trojans early on {Jeff Kopp, Rob Johnson, Tony Boselli, etc...} so it made sense for me to be a Jags fan. None of those guys are still around and Fred Taylor is my favorite player - I hope he gets a ring with the Pats)
Occasionally, as a fan of sports we are gifted with great days. A few years back me and a couple buddies of mine and my pregnant wife went to San Francisco and saw an entire Dodgers v. Giants series and saw the USC v. Stanford game on the Farm.
Today was one of those days...
...the Wings beat Sid the Kid and took game 1 of the Stanley Cup Finals
...the Magic beat the Cavs - remember I said I was a Kobe fan...thus, I respect LeBron...but love to see him lose. I also love hearing about how great of a guy he is...YET, he decided to skip the part were he congratulates the team that kicked his ass - check out these commercials they are hilarious
...unfortunately, the Dodgers lost today...but they still have the best record in the MLB even without Man-Ram (possibly the most unfortunate nickname in the history of the world)
Updates...
I am still researching the short sales, the loan modifications and the foreclosure processes and consequences. I hope to be posting more about this soon.
Saturday, May 30, 2009
Tuesday, May 26, 2009
More from Homer...
December 2005, I am sitting in the back storeroom of my in-laws. I am pouring over data about the Texas Longhorns. Checking their schedule; checking the yardage for, against; checking the scores for, against; etc... I was looking for a reason to believe that my Trojans would beat the 'Horns. USC had the greatest offense around during that year. They averaged just under 50 points a game. Studs in EVERY department: Sam Baker and Ryan Kalil on the line, Dwayne Jarrett and Steve Smith as receivers, LenDale White and Reggie Bush as backs, and Matt Leinart as the Captain. At this point in his career...Matt was 37-1...the only loss an overtime loss on the road to Cal in his first 4 games. When that game was played Hershel Dennis was the running back - Bush and White were just highly touted recruits. The defense was good but not great...but they didn't have to be. All they had to do was hold the opponent under 35...and they won! It was a good year...scares by Cal and Fresno St kept the fans and the nation interested. On paper...it was a slam dunk...USC would win. The only thing I couldn't account for was Vince Young. Young was without a doubt the most impressive athlete I have ever seen in person (this includes LeBron). He towered over everyone on the field...his body did things that no one's could (just ask Brian Cushing - the young SC linebacker responsible for keeping tabs on Young - a guy who was just drafted in the first round of the NFL draft, but was on his face a lot, diving after Young, while Young had moved in another direction piling up over 200 yards rushing).
May 2009, I am sitting thinking about the Lakers. How will this season end? On paper, no one can touch the Lakers. But, in person they leave a little to be desired...they do not have the drive of Kobe. They play with NO urgency. They play like there is a tomorrow and like there is an infinite number of tomorrows. Vic the Brick says, "they need to play with their hair on fire" and that just isn't who they are.
Kobe Bryant can not impose his will on this team. No matter how much he locks his jaw and stares down his teammates. They play with a chip on their shoulder. However, it is a little bit different than the chip that last years Celtics played with, or the Nuggets play with this year. Their chip is more like "don't you know who we are"...a sense of entitlement. They short arm rebounds. They do not hustle on defense and get lazy on offense. They sit and wait for Kobe to bail them out (maybe Kobe's new nickname should be Obama). I love the Black Mamba...but he can't do it every time. When thugs (I can't believe I agree with Mark Cuban) like Kenyon Martin, JR Smith and Chris "Birdman" Andersen are beating you...things are bad.
Unfortunately, I had a front row seat as the Trojans got rocked by VY. I am hoping this year that I don't catch a case of deja vu.
May 2009, I am sitting thinking about the Lakers. How will this season end? On paper, no one can touch the Lakers. But, in person they leave a little to be desired...they do not have the drive of Kobe. They play with NO urgency. They play like there is a tomorrow and like there is an infinite number of tomorrows. Vic the Brick says, "they need to play with their hair on fire" and that just isn't who they are.
Kobe Bryant can not impose his will on this team. No matter how much he locks his jaw and stares down his teammates. They play with a chip on their shoulder. However, it is a little bit different than the chip that last years Celtics played with, or the Nuggets play with this year. Their chip is more like "don't you know who we are"...a sense of entitlement. They short arm rebounds. They do not hustle on defense and get lazy on offense. They sit and wait for Kobe to bail them out (maybe Kobe's new nickname should be Obama). I love the Black Mamba...but he can't do it every time. When thugs (I can't believe I agree with Mark Cuban) like Kenyon Martin, JR Smith and Chris "Birdman" Andersen are beating you...things are bad.
Unfortunately, I had a front row seat as the Trojans got rocked by VY. I am hoping this year that I don't catch a case of deja vu.
Thursday, May 21, 2009
Ticking Time Bomb
So we left John and Mary with the imploding, soon to be exploding, mortgage. Things to remember about the Option ARM loan:
1. There is a minimum payment (which in this case would be based on a 2% amortized payment schedule - usually this loan has a 1% start rate, but because of the loan amount the bank required 2%)
2. The payment is based on LIBOR plus a margin (hypothetically 3% - since that is what my buddy who is a mortgage officer said they charged on ALL Option ARM loans)
3. The payment goes up 7.5% each year
4. The difference between the minimum payment and the interest only payment is added to the balance of the mortgage
Now these are very rough numbers, but here is their mortgage situation.
1st - $625,000 (5.8%)
2nd - $60,000 (8.25%)
Payment
1st - $3,020.83 (I/O)
2nd - $450.76
Taxes - $572.92 (1.1%)
Insurance - $97.51
DTI: 49.7%
John and Mary would not qualify for this home if it were not for the Option ARM loan. Because of the 2% start rate...they get a qualifying payment of $3,431.31 (PITI) which leaves them with a much more manageable DTI of 41.1%.
Here is a breakdown of the yearly payments:
Year - Payment (deferred interest) - DTI
2006 - $3,431.31 (8,528.56) - 41.1%
2007 - $3,604.57 (6,449.44) - 43.3%
2008 - $3,790.82 (4,218.04) - 45.5%
2009 - $3,991.04 (1,811.68) - 47.9%
2010 - $4,206.28 (-771.08) - 50.5%
After deferring the interest, John and Mary are looking at a mortgage amount of $645.236.64 on the 1st. Don't forget that the mortgage is amortized over 25 years...because the first 5 years are gone. So, here is the payment that is sitting out in front of them.
2011 - $5,199.93 - 62.4%
The second is slightly better because they have been paying this loan down. The balance is $56,451.09. The total owed on the house is $701,687.74.
The payment is already pushing what they can afford. They no longer eat out, go on vacation, etc... If they called their mortgage company they would know that the payment in 18 months is going to be way over what they can afford.
Options
They have 4 options sitting in front of them. The first is pretty simple. They can re-fi their home and hope to take advantage of the unbelievable interest rates. A commercial on the radio is boasting of incredible rates...4.5% to be exact. John and Mary have been faithful to make all of their payments on time...their credit rating is over 750...they are great candidates.
However, re-financing the 1st mortgage is going to give them a payment of $4,363.99 (DTI of 52.4%). The result is that their payment actually goes up $157.71 per month. They will get relief of $835.94 per month over the 2011 fully amortized payment. John and Mary can probably suck it up and cover the additional payment. Except, the home is worth $375,000.
The second option is they can try to modify their loan. They can take part in President Obama's plan to help homeowners and re-structure their debt.
The third option is they can sell their home. Unfortunately, the issue of the homes worth crops up and this appears to be a dead-end for John and Mary.
The last option is to "walk away". They can stop making payments all together. They can save their money and start their life over.
Options 2, 3, and 4 need further unpacking...check back for the next post!
1. There is a minimum payment (which in this case would be based on a 2% amortized payment schedule - usually this loan has a 1% start rate, but because of the loan amount the bank required 2%)
2. The payment is based on LIBOR plus a margin (hypothetically 3% - since that is what my buddy who is a mortgage officer said they charged on ALL Option ARM loans)
3. The payment goes up 7.5% each year
4. The difference between the minimum payment and the interest only payment is added to the balance of the mortgage
Now these are very rough numbers, but here is their mortgage situation.
1st - $625,000 (5.8%)
2nd - $60,000 (8.25%)
Payment
1st - $3,020.83 (I/O)
2nd - $450.76
Taxes - $572.92 (1.1%)
Insurance - $97.51
DTI: 49.7%
John and Mary would not qualify for this home if it were not for the Option ARM loan. Because of the 2% start rate...they get a qualifying payment of $3,431.31 (PITI) which leaves them with a much more manageable DTI of 41.1%.
Here is a breakdown of the yearly payments:
Year - Payment (deferred interest) - DTI
2006 - $3,431.31 (8,528.56) - 41.1%
2007 - $3,604.57 (6,449.44) - 43.3%
2008 - $3,790.82 (4,218.04) - 45.5%
2009 - $3,991.04 (1,811.68) - 47.9%
2010 - $4,206.28 (-771.08) - 50.5%
After deferring the interest, John and Mary are looking at a mortgage amount of $645.236.64 on the 1st. Don't forget that the mortgage is amortized over 25 years...because the first 5 years are gone. So, here is the payment that is sitting out in front of them.
2011 - $5,199.93 - 62.4%
The second is slightly better because they have been paying this loan down. The balance is $56,451.09. The total owed on the house is $701,687.74.
The payment is already pushing what they can afford. They no longer eat out, go on vacation, etc... If they called their mortgage company they would know that the payment in 18 months is going to be way over what they can afford.
Options
They have 4 options sitting in front of them. The first is pretty simple. They can re-fi their home and hope to take advantage of the unbelievable interest rates. A commercial on the radio is boasting of incredible rates...4.5% to be exact. John and Mary have been faithful to make all of their payments on time...their credit rating is over 750...they are great candidates.
However, re-financing the 1st mortgage is going to give them a payment of $4,363.99 (DTI of 52.4%). The result is that their payment actually goes up $157.71 per month. They will get relief of $835.94 per month over the 2011 fully amortized payment. John and Mary can probably suck it up and cover the additional payment. Except, the home is worth $375,000.
The second option is they can try to modify their loan. They can take part in President Obama's plan to help homeowners and re-structure their debt.
The third option is they can sell their home. Unfortunately, the issue of the homes worth crops up and this appears to be a dead-end for John and Mary.
The last option is to "walk away". They can stop making payments all together. They can save their money and start their life over.
Options 2, 3, and 4 need further unpacking...check back for the next post!
Thursday, May 14, 2009
Thursday, May 7, 2009
Distressed Properties
The downturn in the economy has been incredibly hard on homeowners. The real estate bubble has burst in Southern California (actually across the nation, but I am familiar with So Cal). The stock market bubble has burst (not just a dot.com burst, but a wide spreading burst). The effects has been incredible. The average home in Corona has dropped under $350,000. Just three years ago this number was nearly $600,000.
Where does this leave us?
This is where we meet John and Mary...they bought a home in Corona in 2006. They paid $625,000 for their home. It is the house of their dreams - 3,000 square feet, enough room for all of their kids. John and Mary were living the American dream...just maybe a little in fast forward. They have 3 kids between the ages of 5 and 13...soccer, little league, etc...occupy their weekends. He drives a Cadillac CTS and she drives a Chevy Tahoe. They make over $100k per year...and probably overpaid for their home. However, the hot summers of Corona caused them to take out a second mortgage to put in a swimming pool in the summer '07.
John and Mary could not see what (most American citizens could see this coming, but all data points to the fact that our government KNEW) was coming. John's 401(k) has taken a beating...Mary's 403(b) has been likewise taking a beating. What's worse is that they owe well over $700,000 for an asset that is worth approximately $400,000. Wait, it is about to get worse...Mary and John bought their home with an option ARM mortgage. Their monthly payment is manageable now, but it is consistently ratcheting up.
Later - I am going to explain the options that Mary and John have, then we will see if we can do anything to help them.
Where does this leave us?
This is where we meet John and Mary...they bought a home in Corona in 2006. They paid $625,000 for their home. It is the house of their dreams - 3,000 square feet, enough room for all of their kids. John and Mary were living the American dream...just maybe a little in fast forward. They have 3 kids between the ages of 5 and 13...soccer, little league, etc...occupy their weekends. He drives a Cadillac CTS and she drives a Chevy Tahoe. They make over $100k per year...and probably overpaid for their home. However, the hot summers of Corona caused them to take out a second mortgage to put in a swimming pool in the summer '07.
John and Mary could not see what (most American citizens could see this coming, but all data points to the fact that our government KNEW) was coming. John's 401(k) has taken a beating...Mary's 403(b) has been likewise taking a beating. What's worse is that they owe well over $700,000 for an asset that is worth approximately $400,000. Wait, it is about to get worse...Mary and John bought their home with an option ARM mortgage. Their monthly payment is manageable now, but it is consistently ratcheting up.
Later - I am going to explain the options that Mary and John have, then we will see if we can do anything to help them.
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