Zero Down

post from Irvine Housing Blog on 02 December 2008 03:30:00 PM. © Irvine Housing Blog

Once 100% financing became widely available, it was enthusiastically embraced by all parties: the lenders suddenly had a huge source of new customers to generate high fees, the realtors and builders now had plenty of new customers to buy more homes, and many potential buyers who did not have savings were able to enter the market. It seemed like a panacea; for two or three years, it was. There was a problem with 100% financing (which was masked by the rampant appreciation brought about by its introduction): high default rates. The more money people had to put in to the transaction, the less likely they were to default. It was that simple. The borrowers probably intended to repay the loan when they got it, however they did not feel much of a sense of responsibility to the loan when the going got tough. High loan-to-value loans had high default rates causing 100% financing to all but disappear, and it made other high LTV loans much more expensive, so much so as to render them practically useless. It was all part of the credit tightening cycle.

Maybe I’ll win
Saved by zero

Besides stopping people from saving for downpayments, 100% financing harmed the market by depleting the buyer pool. In a normal real estate market, first-time buyers are saving their money waiting until they can make their first purchase. This usually results in a steady stream of first-time buyers that enter the market each year. When 100% financing eliminated the downpayment requirement, it also eliminated any need to wait. Those who ordinarily would have bought 2-5 years in the future were able to buy immediately. This emptied the queue. This type of financing appears periodically in the auto industry, especially in downturns when it is necessary to liquidate inventory. The term for this is “pulling demand forward,” because it reduces demand for new cars in the next few years. This might not have been a problem if 100% financing would have been made available to everyone forever; however, once downpayment requirements came back those who would have been saving were already homeowners, so there were few new buyers available, and any potential new buyers had to start over saving for the downpayment they thought would never be required. The situation was made worse because those late buyers who were “pulled forward” from the future buyer pool overpaid, and many lost their homes. This eliminated them from the buyer pool for several years due to poor credit and newly tightened credit underwriting standards. Thus, most who thought 100% financing was a dream come true found it to be a nightmare instead.

Today’s featured property is another 100% financing deal, and get this: the lender was Zero Down Mortgage! I wonder if they are still in business…

14 Arbusto Front 14 Arbusto Kitchen

Asking Price: $829,900

Income Requirement: $209,975

Downpayment Needed: $167,990

Monthly Equity Burn: $7,000

Purchase Price: $1,150,000

Purchase Date: 6/21/2006

Address: 14 Arbusto, Irvine, CA 92606

Beds:5Baths:3Sq. Ft.:2,420$/Sq. Ft.:$347Lot Size:4,728 Sq. Ft.Property Type:Single Family ResidenceStyle:ContemporaryYear Built:1997Stories:2Area:WestparkCounty:OrangeMLS#:P666558Source:SoCalMLSStatus:ActiveOn Redfin:2 days

THIS LARGE 5 BEDROOM 3 BATH HOME WITH TILE AND WOOD LAMINATE FLOORING
THROUGH-OUT, UPDATED KICHEN WITH TILE COUNTERS, OPEN FAMILY ROOM WITH
FIREPLACE, DOWNSTAIRS GUEST ROOM, INSIDE LAUNDRY, 3 CAR GARAGE IS
PARTIAL CONVERTED TO STORAGE AREA, GOOD FLOOR PLAN, CORPORATE OWNED.

Corporate owned? It this a new BS realtor ploy to disguise the fact this property is REO?

The Redfin listing is incorrect on the purchase price of this property. It was purchased on 6/21/2006 for $1,150,000. The owner used a $920,000 first mortgage, and a $230,000 HELOC to purchase the property. It was bought at auction by the loan servicer for $1,044,971. As I mentioned above, the loan originator was Zero Down Mortgage. The name tells you all you need to know about the housing bubble.

If this property sells for its asking price, the total loss on the property will be $360,494 after a 6% commission.

This asking price is 27% less than its peak purchase price.

Maybe, someday
Saved by zero
I’ll be more together
stretched by fewer
Thoughts that leave me
Chasing utter
My dreams disown me
Loaded with danger
Maybe I’ll win
Saved by Zero
Holding onto
Wends that teach me
I will conquer
Space around me
Maybe I’ll win
Saved by zero
Maybe I’ll win
Saved by zero

Saved By Zero—The Fixx