Clackamas Short Sale Case Study #10 (Broken) Option Arm
Location: Investment Property in Happy Valley, Oregon
Total owed: $678,890 on Option ARM 1st Mortgage negative Amortization loan
1st Mortgage $607,109 $548,000 original Loan Balance!! – Aurora Home Loans accepted $356,117
2nd Mortgage $71,781 $68,500 original Loan Balance!! – Countrywide accepted $6,000
Home was listed in October of 2008 at $475,000 and dropped steadily all the way to Final Sales Price $380,000. It took us 9 months and 3 buyers to close this short sale nightmare.
LOAN TYPE! LOAN TYPE! LOAN TYPE!
Mark “Mr. Mortgage” Hansen of Field Check Group has one of the most information mortgage blogs out there. For a short while he produced some fantastic videos describing the mortgage meltdown, Government take overs of Fannie Mae and Freddie Mac and he clearly predicted the “ Alt A” Meltdown we are just starting to see a year ago. His California marketplace has seen major damage to real estate values with more Option ARM type loans exploding causes more short sales and foreclosures.
This loan type we shorted was a nasty Option ARM which was used to help make a high loan balance “Cash flow” on a non owner. The original goal in January of 2007 for the homeowners was to ride up the crazy appreciate wave Oregon was having and sell the property two years later. Unfortunately for the home owners they bought at the very top and ran out of reserves.
I am creating a list of common factors that make up long and a tiresome short sale to help those make better choices of which cases to take and which ones to pass to another Realtor or professional and settle for referral fee.
This case has the triple whammy of short sales:
1. Option ARM-In this case the loan was only two years old but in that time period the interest + penalties + fees grew $59,109. Notice how fast and large that balance grows… There was no way possible to modify this loan. I am showing you this to proof the point the only way modifications will work is if the banks start to do massive principal reductions in combination with rate reductions. Extending out the loan term to 40 years and rate reductions show 50 to 70 % failure rates.
2. Investment property – There seems to be little mercy in the mitigation world for non owners. The government has said publicly and printed language on their guidelines that they are favoring owner occupied scenarios. It boils down to the question “Is the net loss more efficient thru short sale or taking it REO Real estate Owned?” The common saying is “Your first Loss is your BEST Loss”.
3. Two different lenders- We are always scrapping with the 2nd trying to get them on the same page as the first. They often want 10% of remaining balance. Bank of America has recently loosened up this guideline. Many deals get blown apart because the 2nd won’t release their lien. They will generally settle for $3000 to $5,000. They got $6,000 in this case. Comically they first wanted $40,000.
5% Commissions Approved with the listing agent paying a flat fee for negotiations as “Serviced Rendered” on the HUD.
So here are the final numbers:
Final Sales Price $380,000 Banks accepted $362,117 ( $316,773 POTENTIAL LOSS) Closed July 7th 2009
Total Discount on the 1st: ($250,992)
Total Discount on the 2nd:( $65,781)
48% of indebtedness… I wonder if also since it was a non owner and took less priority than the owner occupied short sale transaction it took us so long to close this one.
If you are a homeowner and have one of these types of loans on your mortgage, contact us so we can create a plan of action on what to do next.
Follow us on www.twitter.com Search under name Coastalmit.
