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
Fabulous Short Sale Opportunity! Ventana on Mountain View's premier street bordering The Polo Estates! Panoramic mountain, fairway and lake views. Entertainer's backyard with palm groves, pool, spa, waterfalls, firepit and BBQ kitchen island. The courtyard entry leads into the 18' high, skylit rotunda foyer, huge 43' Great Room, huge 35' Master, big 17' office/den/library - 4449 sf. of spacious luxury. Courtyard casita plus two guest rooms with their own sitting room (or media room or family room). Highly upgraded, this elegant home is move-in ready! Dramatic 12' soffited ceilings in the living areas, sound systems, custom european cabinets including a wine cellar center, granite counters, gourmet kitchen, elegant window treatments, Jacuzzi whirlpool tub and huge walk-in dual shower in master bath, recirculating hot water, eight-foot high patio doors, security system with smoke, fire and motion sensors. This home is truly feature rich.
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.
This large estate is located on a prime cul-de-sac in Nellie Gail Ranch. The home has 5 bedrooms, 5 full baths, and 2 half baths. This elegant floor plan is over 6000 square feet, with a grand entryway and 2 story high ceilings leading to a sweeping staircase. The gourmet kitchen has granite counters, large center island,and top-of- the- line appliances. It sits adjacent to the sun room that has built-in nook seating. The family room has a grand fireplace and entertainment center. The master suite has coffered ceilings, fireplace and balcony, which looks over private rear yard which has pool.spa, and waterfalls. A covered patio with barbecue center, fire pit, and nice lawn area, makes this the perfect home for entertaining. Buyer to contribute up to $60,000 towards additional liens not covered in the Short Sale.
This property is a unique 3 bedroom 2 bath, upper unit in Catalina Grove, on fee land. Upper floor is laminate flooring in the living area and carpet in the bedrooms. Kitchen has granite counters and the refrigerator included. The large balcony, of which accompanies the living room is the perfect setting to enjoy outdoor living. Water and trash paid. The complex has 3 pools, a clubhouse and fitness center. Catalina Grove is contained within beautiful grounds and is located close to downtown Palm Springs. Resident is assigned their own carport parking space.Short sale subject to bank approval.Unit is located in building 4.
LENDER IS READY TO RECEIVE YOUR BEST OFFER::: BACK ON THE MARKET APPROVES SHORT SALE: DON'T MISS THIS ONE. GATED COMMUNITY TWO BEDROOMS WITH TWO FULL BATHROOMS. BACK YARD FOR IS A DREAM. Large rooms nice, in a cul-de-sac , with Three car garage, No need to invest money in the back yard is ready for your enjoyment. COME and View this DREAM . All terms are subject to lender approval.