For almost two years now, there have been serious rumblings and grumblings in San Diego real estate circles about Option ARM and interest-only loans that could put a number of buyers in default–resulting in a big spike in San Diego short sales and foreclosures. We call them bouncing mortgages.
I initially gave the issue detached interest, because our clients tend to be a conservative lot when it comes to borrowing. We deal with few real estate speculators and most of our clients are solid buyers of San Diego primary and secondary homes.
My interest in these instant gratification loans is no longer a detached one, because the fallout from these ARMs is contributing to market weakness. Some of our conservative clients are seeing their San Diego home values stagnate or decline, in part due to these lending practices. It has been reported that 7 out of 10 option arm borrowers are sticking to the minimum payment schedules and in so doing, are stacking up substantial additional debt.
Many now owe more than their homes are worth. In San Diego County, short sale advisories on listings are appearing within our MLS on a daily basis, and will ultimately affect appraisals and valuations. In short sale transactions, the lender agrees to accept less than what is owed on the property (and obviously less than the prior appraised value).
In his Nations Housing column, Kenneth Harney writes that John G. Walsh, senior official at the Federal Comptroller of Currency, is sounding a quiet alarm:
We’ve had consumers tell us they didn’t know after 60 minimum payments on a (payment-option loan), they would owe more than they did when the loan was brand new. They should certainly understand the basic bargain: The price of a low payment now is a much higher one later. I think it goes without saying that someone, at some point, should have explained this to borrowers with these loans.
In defense of lenders, I am sure many did explain the consequences and hazards of these loans. I am also certain that many of these borrowers were counting on their homes appreciation to more-than-cover the accumulated debt on their negative ARM loans. ((Why does this so remind me of the investors who were slaughtered by margin calls during the stock market wipeout just a few years ago? Are these the same people who turned that same mentality to real estate?))
The fallout has begun. Once again, San Diego and Southern California are on the bloody edge of the real estate envelope. There are people getting wiped out in this market, and there will be those who make fortunes. We are advising our clients to sit tight if they do not need to sell and if they do, to price their property aggressively. With buyers, we use the same caution, negotiate strongly, and advise them to stick with blue chip properties and locations (usually coastal San Diego and singular luxury properties). We cant help but remind them of that dictum in the securities market:
Don’t try to catch a falling knife.
Nothing is permanent, except for change.
By the time the masses have turned their real estate investment and speculation dollars to unappreciated geographical markets, smart money will already be moving back to our balmy coastal climes proving once again that nothing can take the place of location, location, location.
2016 Note: There are few short sales, foreclosures or bouncing mortgages in San Diego these days. However, any we can find are listed below. If you have any questions, please feel free to call Roberta or Scott Murphy at either 760-942-9100 or 760-613-6190 or email email@example.com
Great Family Home in Nice Neighborhood, Open Front Room with Fire Place, Oak Kitchen Cabinetry with Front Nook with Views. Fireplace in Master Bedroom. Aluma wood patio cover. Near to La Quinta schools. This is a short sale and will sell fast. Sold as is. Buyer to verify all information. First and second, first is approved at this price. Bank will not pay anything.
This Single Family Residence property is a Very Large home that sits on A Reasonably sized lot. This may be an opportunity that may possibly be within your grasp! This property situated at 24695 Handley Dr is located in the city of Carmel. within the great state of CA. According to tax records this property was built in 1965, offering 4 beds, 3 bath, with 2232 square feet. This is a bank owned property to be sold as-is. Buyer and agent to verify all.
Great opportunity for investors or first time buyers. Corner lot house sits on 7,500 Sq Ft of space. Property currently being rented for $ 875.00 tenants may want to stay with new owner. Short Sale. Still need bank approval. Submit your offers. Detached garage was converted to studio. It is unknown if conversation was permitted or registered with the city. Neighborhoods: Tulare Other Fees: 0 Topography: LL
Here is your chance to get a Short Sale that is a major fixer upper, needs everything inside. Larger wooden deck in rear of house is in poor condition and may need to be rebuilt completely. Neighborhoods: Lakeside Other Fees: 0 Sewer: Sewer Connected Topography: LL
This spacious 2 bedroom / 2 bathroom condo is just a few blocks from the ocean and close to the East Village Arts District. The home has a great layout & a ton of potential with some TLC. Master bedroom has an en suite bathroom and walk in closet. An open concept living and dining area have access to a private deck. Gas range, dishwasher, and refrigerator are all included. Washer and Dryer hookups in unit. Central heating. 1 car garage space. Low monthly HOA's. Corner unit with no neighbors below. Great location close to the beach and shopping & dining destinations. Short sale, as is, seller to make no repairs or credits. Buyer to verify all information.