The current government loan modifications programs offer borrowers true payment affordability — if borrowers want to take advantage.
Irvine Home Address … 111 HILLCREST Irvine, CA 92603
Resale Home Price …… $3,188,000
I watch the ripples change their size
But never leave the stream
Of warm impermanence and
So the days float through my eyes
But still the days seem the sameAnd these children that you spit on
As they try to change their worlds
Are immune to your consultations
They’re quite aware of what they’re going through
(Turn and face the strain)
Changes — David Bowie
Changes. Borrowers and lenders both want changes; borrowers want payments they can afford, and lenders want borrowers to make payments. There is supposed to be a meeting-of-minds before a loan is funded, but now in our era of retroactive loan qualification, lenders are forced to cope with lax underwriting standards of the bubble through loan modifications.
“The loan modifications in the news and brought forth as the second coming are government sponsored loan mods. The government wrote the qualifications and the government wrote the terms and the government is paying both the lenders and the borrowers to modify their loan according the terms the government has decided is best. HARP is government sponsored loan mods for Fannie and Freddie guaranteed loans. HAMP is for non Fannie/Freddie loans. But there are qualifications. The loan must have originated before January 1, 2009. The borrower must be able to prove they are having difficulty making their payments. The amount owed on the first mortgage must be equal to or less than $729,750. The loan must be for your primary residence. DTI must be more than 31%.
There are three terms that HARP or HAMP may modify and those three terms are approached in a specific order. The second term will only be modified if the first modified term does not bring the DTI equal to or below 31%. And the third term will only be modified if the second term mod does not bring DTI below 31%. The first term is the interest rate which will be lowered to bring DTI to 31% with a minimum rate of 2%. Not bad, eh? Wouldn’t you like you have your interest rate lowered to 2%. If the modified interest rate is below the market rate, the modified rate will be fixed for a minimum of five years as specified in the modification agreement. Beginning in year six, the rate may increase no more than one percentage point per year until it reaches the rate cap indicated in the modification agreement. The cap is equal to the prevailing market interest rate on the date the modification is finalized as published by Freddie Mac based on a survey of its customers. This cap means that your rate can never be higher than the market rate on the day your loan was modified. If the modified rate is at or above the prevailing market rate, the modified rate will be fixed for the life of the loan. Simply, after five years, the interest rate will increase 1% per year until it gets to about 5.2%. …
The 2nd term that can modified is the length of the loan, and it can be extended up to 40 years to bring the borrowers DTI under 31%. …
The 3rd term that can modified is the principal, although under the conditions of HARP and HAMP, the principal may be foreborne, that is, the principal can be reduced for the period of the loan, but must be paid back when the house is sold, or foreclosed on, or borrowed on. … It changes a non-recourse portion of the loan into recourse.
Borrowers are enrolled in a three month trial period paying an amount equal to or less than the amount agreed upon in their loan modification agreement. If the borrowers do not make their new payments on time during the trial period, their trial period is extended. If the borrowers do not turn in the appropriate documentation necessary to qualify for the loan mod, the trial period is extended. If the borrower fails to meet the requirements of the trial period is any way, the trial period is extended. Currently, no borrower who is enrolled in the loan modification program may fail. On January 31, some of the trial loan modification extensions will end, unless they are extended again. If the maximum time period for a foreclosure proceeding is reached while a trial loan mod is in effect, the foreclosure is canceled.”
I appears that amend, extend, pretend is an integral part of the system.
Notice that the first loan amount must be under $729,750. That means every loan in Irvine in excess of $729,750 is ineligible, and since our median peaked above this number in 2006, it is fair to assume many loans in Irvine are over this threshold.
If you have a loan under $729,750, the 2% interest rate is a sweetheart deal. In 2006 at 6.5% interest, the payment on $729,750 is $4,612 per month, but at 2%, the payment falls to $2,697 — the ridiculous payment of 2006 is affordable. However, if this is not affordable enough, the term can be extended to 40 years which takes the payment down to $2,210 — less than half the original payment. If that is not enough, principal forbearance can lower payments to whatever level is necessary for a few years (sounds like an Option ARM).
When you look at how the terms can be modified and how significant the reductions in payments really are, it is surprising that everyone is not successfully modifying loans. Of course, if you are 30% underwater, you probably don’t see the point, but payment affordability is not a legitimate borrower excuse.
Irvine Home Address … 111 HILLCREST Irvine, CA 92603
Resale Home Price … $3,188,000
Income Requirement ……. $668,398
Downpayment Needed … $637,600
20% Down Conventional
Home Purchase Price … $2,150,000
Home Purchase Date …. 4/12/2008
Net Gain (Loss) ………. $846,720
Percent Change ………. 48.3%
Annual Appreciation … 21.7%
Mortgage Interest Rate ………. 5.11%
Monthly Mortgage Payment … $13,863
Monthly Cash Outlays ………… $17,770
Monthly Cost of Ownership … $12,650
Baths 3 full 2 part baths
Home Size 5,475 sq ft
($582 / sq ft)
Lot Size 15,023 sq ft
Year Built 1987
Days on Market 5
Listing Updated 1/20/2010
MLS Number U10000273
Property Type Single Family, Residential
Community Turtle Rock
Exquisite family home perched on an oversized double lot at the top of Turtle Rock Crest featuring sweeping views from Catalina Island to the San Bernardino mountains. Recently completed remodel offering customized finishes and quality craftsmanship throughout. Dramatic entry with soaring cathedral ceilings leading to formal living and dining rooms, each with their own fireplace. Gourmet kitchen with dual island work stations with granite counters, custom cabinetry, walk-in butler’s pantry, built-in refrigerators and top of the line stainless steel appliances. Extensive use of hardwood and stone flooring, custom wainscoting and moulding throughout. Large family room with French doors opening to side courtyard with cascading fountain.Upstairs bonus room with panoramic views, balcony, custom built-ins and private bath. Gracious master suite with dual walk-in closets, exercise room and luxurious master bath. This is truly a rare offering and must be seen firsthand to appreciate.
First, I want to recognize the excellence in photography shown in these listing pictures. The photographer would probably lament the poor lighting caused by the gray sky outside, but the photos themselves are outstanding. These were obviously taken with a wide angle lens, but there is barely a hint of distortion. The angles the photographer selected took advantages of interesting reflections and shadows making for beautiful photographs that display the property very well.
Second, I have to wonder WTF the owner was thinking when he (1) overpaid in 2008 and (2) over-improved a property he overpaid for. If someone steps up and pays $3,188,000, then Orange County must have infinite capacity for supporting high end real estate, and everyone should start flipping those.