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
Cash offers only for a quick sale. Need offer immediately for this short sale. House needs new kitchen, new bathrooms, air conditioning. Pool filter does not work. Jacuzzi is also not operational. Great opportunity for a contractor. 3 bedrooms, 2 bath, on cul-de-sac street. Home backs to shopping center on Thousand Oaks Blvd.
Fixer Upper. Good location on the fairway of the Westin Mission Hills golf course. 3 bedrooms, 1 3/4 bathrooms, 1620 square feet, three car garage. Private gated front courtyard which faces the south. Community pools and spas. This is a reverse mortgage short sale.
This Short Sale Property is Located in the city of Perris, CA 92571. This 3,485 square foot house sits on a 7,405 square foot lot and features 3 bedrooms and 2.5 bathrooms. This property was built in 2006 This House is Located Nearby schools: Avalon Elementary School, Sierra Vista Elementary School and Lakeside Middle School. Shopping Centers, Restaurants, Gas Stations, Coffee Shops all very close by. 1498 Peppermint Dr is near Frank Eaton Park, Morgan Street Park and Lake Perris State Recreation Area.
Great (Short Sale) Opportunity. This home has Lots of Space, 3 Bedrooms, a large family room and it is on a permanent foundation, with a 433A, for financing. The kitchen has skylight, and opens to eating area. Long driveway with plenty of parking. Lush front yard with beautiful lawn and the back yard has lemon and grapefruit trees. Master has large walk in closet, master bath has dual sinks. Situated in the heart of Palm Desert this 55+ Gated Golf Community has great curb appeal, very affordable, and you OWN the Land. Low HOA dues ($335/mo.) which includes: FREE Unlimited Golf for 2, free cable TV & Internet, free Trash Removal. Tennis, Exercise Room, 3 commnity pools with spas. A very social community, offering activities such as Pickle & Bocce ball, bingo, community dinners with events, cafe and Pub, Clubhouse with Library, Pool Table. Minutes from freeway, McCallum Theatre, El Paseo shopping, restaurants and grocery stores. Come in enjoy living in the desert.
3 Bedroom Home with 3 bath, Home in need of Exterior and Interior Care. Pool with Fence, in need of Maintenance. Fantastic Location North of Upland ! Great opportunity to own a Large Home. Short Sale Subject to Lender Approval. Multiple Lien holders.
Quaint 3 bedroom 2 bath single family residence. This home does need some TLC. Only has had 1 owner since being built in 1995. Contains 2 full baths, separate laundry room and attached two car garage. Has a comfortable sized backyard that can accommodate a small shed for storage. Close to shops (Costco!), banks, and 99 freeway. Centrally located within elementary, jr. high and high schools. Don't miss this charming little place. Great starter home for first time homebuyers. This is a short sale. Sales price and commission is subject to Lenders' approval.