DAVENPORT – Realtor Pete Howlett said he was initially surprised when a neighbor who earns a good living told him he’d made a major decision about his home – to walk away from it.
“I’ve got a neighbor across the street who makes $100,000 a year and he can afford his mortgage,” said Howlett. “But he’s tried to modify his loan, he’s tried to refinance, and the bank has said ‘No, we know you can make the payments.’ “
So his neighbor stopped making those monthly mortgage payments and now expects his home to head into foreclosure. But if he’s worried about it, he’s not showing it, Howlett added.
“He said, ‘So what if my credit is damaged for a couple of years? I’ll be so much more ahead if do this and rent for a couple of years.’ ”
Howlett, who runs Orlando Vacation Reality in Davenport, spoke about this one day after President Obama announced his administration was introducing a new plan to help homeowners who are underwater on their mortgages – paying more than what the house is worth on today’s market, meaning they can’t sell it at a price that recoups what they owe.
The truth, Howlett said, is that more and more homeowners are opting to walk away from mortgages they can no longer afford, or are unable to refinance, because renting is still an option, even if they now have a foreclosure on their credit record.
With so many homeowners trying to rent their properties, Howlett said, few landlords are expecting tenants with perfect credit scores to conveniently walk in the door.
“I’ve got 70 rental properties,” he said. “The number of people who have good credit ratings over 700 is probably 5 percent (of prospective tenants). Everybody’s got bad credit these days, so it’s not the stigma, it’s not the scarlet letter it used to be. Everybody has got bad credit, so you say ‘This guy is better than this guy.’ “
Meeting with distressed homeowners in Las Vegas on Monday – billed as the foreclosure capital of the nation — Obama said he would push for a plan to let “underwater” borrowers refinance their mortgages at today’s low rates near 4 percent. It’s been estimated there are more than 10 million people underwater on their mortgages, owing more than their homes are worth, and this is proving to be a continuous drag on the national economy.
But Howlett said he doubts the administration’s plan will do much to help, since lenders, he said, simply don’t want to renegotiate.
“You’ve got to be delinquent for six months before they even talk to you,” he said. “That’s just ridiculous.”
Howlett also cautioned that the Obama administration has tried to aid financially struggling homeowners in the past, but few people qualified for that assistance.
“Most people don’t qualify for it,” he said. “It’s just like some of the other stimulus, it’s more of the same that isn’t working. I know of banks that kind of put you through the hoops and at the end of the process, you don’t qualify. The last loan modification program, about 95 percent of the people who apply for modifications don’t qualify for one. I’d certainly like someone to assist the problem, but I don’t really have a lot faith in this.”
Howlett markets homes in the Four Corners area, which in the past decade was one of the hottest real estate markets in Central Florida. The area where the counties of Lake, Orange, Osceola and Polk come together experienced a major building boom between 2003 and 2006, although the market has struggled since the bubble burst in 2008.
Although prices are very low and interest rates are the same – usually an irresistible combination for buyers – Howlett said the Four Corners/Northeast Polk County market remains distressed.
“It’s slow,” he said. “There’s not a lot of investors, because investors can’t get financing. There’s not a lot of first time home buyers anymore, because they don’t have the cash. People’s credit isn’t good. Financing is tough to get. The banks went from too loosey goosey to so strict that no one qualifies. I don’t believe the stuff the administration is doing is working.”
Poinciana was one of the hardest hit communities after the crash in 2008. Jeanette Coughenour, manager of the Association of Poinciana Villages, said there have been no programs introduced here to assist local homeowners who are underwater on their mortgage.
“I’m not aware of any,” she said. “Years back, before values slid, there were companies coming in trying to talk to people about reverse mortgages, but that’s kind of a niche market. No one has approached us about holding seminars at the community center with that topic, concerning homeowners who are underwater on their mortgages.”
Brooke Thompson, who runs Premiere Realty, cautioned that walking away from a home and turning to the rental market is not a safe or risk-free strategy.
“I did a rental a little while ago, and they still wanted the same thing – a credit check and to screen your background and a good credit score,” she said.
On the other hand, she acknowledged that the housing market remains in bad shape because too many owners overpaid for their property when the market was still hot.
“There’s just so many people who bought in 2005,” at the height of the market, she said. “I have one client, and he bought this crappy villa that’s 800 square feet. He paid $107,000 for it, and now it’s worth $42,000, and he owes $75,000.”
It’s a shame, she said, because prices have come down so drastically since 2005 that affordability is no longer the biggest challenge for buyers.
“You can buy a decent house for $100,000,” she said. “For a lot of first time home buyers, that’s in their price range — but they can’t get the financing.”
Howlett agreed, saying “What the banks could do is refinance people to current (interest) rates, then not do appraisals, and that would help a lot of people who are underwater. Even if they just refinance the current balance and go to a market rate, that would help a certain number of people.”
But he doubts the Obama administration’s plan will amount to much more than a campaign slogan as the nation heads into an election year.
“The housing market is such a driver for the economy as a whole, but what they’re doing is just lip service,” he said. “It’s re-election crap.”
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According to the Wall Street Journal reports, the new program will allow any mortgage that is currently insured by the Federal Government to be refinanced if the borrower is credit worthy. What that means, according to WSJ is that a borrower can go to another bank and ask that bank to refinance the loan at a lower rate while still keeping the mortgage backed by the government. That’s a net new loan for the new bank and a lost mortgage customer for the bank or investor that holds the original mortgage and refused to negotiate. Good old capitalism at its best.
Time will tell?