Clackamas Short Sale Case #12-More Option ARM Destruction
Location: Investment Property in Clackamas, Oregon
Total owed: $386,693 on Option ARM 1st Mortgage negative Amortization loan and 2nd
1st Mortgage $343,109 $324,000 original Loan Balance!! – Bank of America accepted $268,550
2nd Mortgage $43,584 $40,500 original Loan Balance!! – Bank of America accepted $3,000
Home was listed in October of 2008 at $315,000 and dropped steadily all the way to Final Sales Price $285,000. It took us 10 months and 3 buyers to close this short sale nightmare.
LOAN TYPE! LOAN TYPE! LOAN TYPE!
Mark “Mr. Mortgage” Hanson of Hanson Advisors 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 “More Affordable” on a cash out refinance owner occupied. Its was later converted to a non owner. The original goal in January of 2007 for the homeowners was to ride up the crazy appreciate wave Oregon and pulled cash out for other investments. However they refinanced at the very top of the market and ran out of reserves after feeding other housing Option ARMS non owners.
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. Nasty Investor Behinds the Scenes- We always ask Who is the investor holding the paper or making the short sale decision? The more information we gather the better our future short sale packages will be. Our phase 3 negotiator claimed that this particular investor says maximum real estate agent commissions are 4% as non (G.S.E.) Government Sponsored Enterprises loan. this right here almost killed the deal. If we had known that up front we would have never had any agent show that property.
So here are the final numbers:
Final Sales Price $285,000 Banks accepted $271,550 ( $115,143 LOSS) Closed August 31st 2009
Total Discount on the 1st: $74,559
Total Discount on the 2nd: $40,584
Banks Received 70% 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. It doesn’t fit any HAMP guideline I’ve seen.
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. Our new PRO report will help determine where you are at so you can make a better decision.
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