Im bowing out

[rogerthat]

I would speculate that the vast majority got pushed to the end of the loan as a balloon payments. No interest paid on that balance, just a free loan for now. So it ultimately comes of sales proceeds/equity. But it probably doesn't matter with the market values increasing. Plus others that simply bought another property without selling won't even give it a second thought until they sell or refinance.

Anyone know anybody that actually did this? Or anyone that successfully quit paying their rent and couldn't be evicted? I heard a lot of stories about this but I don't know anyone that actually experienced it.

 

[ignorethefringes]

Anyone know anybody that actually did this? Or anyone that successfully quit paying their rent and couldn't be evicted? I heard a lot of stories about this but I don't know anyone that actually experienced it.

Yes. More than a few. And we underwrite for several credit unions in NYC where the local government basically told everyone they could stop paying their rent and they wouldn't be evicted. It's evident on the tax returns of the landlords, who where then granted forbearance/assistance/deferral/etc. by their lenders.

 

[rogerthat]

I mean, the final result might be the same, but the circumstances right now are very different than 2008. There are different pillars that might/will come crashing down lol.

Fewer short term ARM's, entirely different secondary market, different underwriting approaches, different buyer strength, etc.

I totally agree. However in the long term markets always revert back to trend. For housing that is 3-4% a year or roughly the long term inflation rate. This will be the case again.

Yes. More than a few. And we underwrite for several credit unions in NYC where the local government basically told everyone they could stop paying their rent and they wouldn't be evicted. It's evident on the tax returns of the landlords, who where then granted forbearance/assistance/deferral/etc. by their lenders.

So the lenders ended up taking the hit?

 

[BigHornRam]

Do you not have to repay those rent or mortgage payments?

Little blast from the past.

 

[ignorethefringes]

I totally agree. However in the long term markets always revert back to trend. For housing that is 3-4% a year or roughly the long term inflation rate. This will be the case again.

So the lenders ended up taking the hit?

And that could take a very long time and would not necessarily need a correction to make that happen. Sure, it might be 30 years at 1% annual appreciation, but it could happen. We're all staring at a crystal ball at this point.

Yes, many of them did. Unfortunately I don't have any back end information on how they sorted that out. I'd bet that after living through 2008 they realized it's better to just take the hit rather than foreclosing or short selling a bunch of houses as REO's and losing even more money as inventory flooded and crashed the market further.

 

[rogerthat]

And that could take a very long time and would not necessarily need a correction to make that happen. Sure, it might be 30 years at 1% annual appreciation, but it could happen. We're all staring at a crystal ball at this point.

Yes, many of them did. Unfortunately I don't have any back end information on how they sorted that out. I'd bet that after living through 2008 they realized it's better to just take the hit rather than foreclosing or short selling a bunch of houses as REO's and losing even more money as inventory flooded and crashed the market further.

Or did they get a PPP grant or some other covid bailout and the government took the hit? Which seems to be the thing nowadays.

The very fact that a 200 bp move in mortgage rates has barely seemed to move the needle in the market definitely is a testament to the amount of helicopter cash propping this whole giant bubblicious mess up. However all things do eventually end. This one will too someday. And you are probably correct, not near soon enough nor as violently as it deserves.

 

[Irrelevant]

I keep seeing people fleeing the coast and buying houses in cash on this side of the mts, for 2x what a house or property should be worth. To the point where i couldn't afford to buy my 3b spec home again (I know you've heard me say that several times, but it's just ridiculous...), then I hear that they're selling their 3d spec home on the westside for 1.5-2.5 mil. And I'm like who the frick is buying those homes?! Well, I talked to couple of friends the other day that I haven't connected with in a while and they informed me that the going rate for a mid level software engineer over there is like 325k to 450k per year! That's so freakin' insane because there are 10s of thousands of those positions over there. That's so much freakin money.

 

[ignorethefringes]

I keep seeing people fleeing the coast and buying houses in cash on this side of the mts, for 2x what a house or property should be worth. To the point where i couldn't afford to buy my 3b spec home again (I know you've heard me say that several times, but it's just ridiculous...), then I hear that they're selling their 3d spec home on the westside for 1.5-2.5 mil. And I'm like who the frick is buying those homes?! Well, I talked to couple of friends the other day that I haven't connected with in a while and they informed me that the going rate for a mid level software engineer over there is like 325k to 450k per year! That's so freakin' insane because there are 10s of thousands of those positions over there. That's so much freakin money.

Company profits are higher than ever (in some sectors), wages are higher than ever (in some sectors), and housing prices are higher than ever (in some markets). So much money everywhere it seems.

I don't think anyone predicted this in March 2019 lol.

 

[BrentD]

Because you can get the house. At the end of the day any time you involve a lender it impedes a sale so cash is preferable even if it's not for the full price.

I've wondered about this. Any serious buyer is walking around with a preapproved mortgage in his or her pocket. So what does the seller care? It will all be as cash to the seller either way.

 

[BigHornRam]

The R word is gaining momentum.

8/9. That's the Fed’s record on triggering a recession while trying to fix inflation.

As the Fed begins a new round of rate increases to combat the worst inflation in 40 years, the central bank is once again sparking concern that it's doing too little too late.

www.politico.com

 

[Deleted member 28227]

I've wondered about this. Any serious buyer is walking around with a preapproved mortgage in his or her pocket. So what does the seller care? It will all be as cash to the seller either way.

The preapproval is for the buyers credit worthiness not the approval of the actual loan.

For instance.

Buyer has a preapproval letter for 500k
Finds a house for 200k that they just love.
They get into a bidding war but the buyer wins at 350k
When they go to get the loan the bank says the value is too high for the house based on comps, and they will only give the buyer 250k.

So the buyer can 1. take the 250k loan and make up the difference with cash if they have it or 2. the deal falls apart even those they are preapproved for way over the sale price.

Given how hard it is to price property in this market this scenario occurs fairly often, and therefore if you have to identical bids, one from someone with 5% cash and one with 30% cash you probably want to side with the higher cash.

Side note it leaves you in this weird spot where you might have PMI because per your bank you only have 5% down, but per the paid price of the house you put down 35%. Buyer basically gives the market a year to catch up to his sale, refinances and then the PMI goes away because his loan basis is now on a 350k value rather than 250K.

 

[VikingsGuy]

I've wondered about this. Any serious buyer is walking around with a preapproved mortgage in his or her pocket. So what does the seller care? It will all be as cash to the seller either way.

Risk of financing falling through prior to close (which does happen with some percentage of pre-approvals) or not getting the right appraisal for inflated sales price are two reasons cash offers win over financed.

 

[VikingsGuy]

Risk of financing falling through prior to close (which does happen with some percentage of pre-approvals) or not getting the right appraisal for inflated sales price are two reasons cash offers win over financed.

I've wondered about this. Any serious buyer is walking around with a preapproved mortgage in his or her pocket. So what does the seller care? It will all be as cash to the seller either way.

@wllm1313 referenced the choices of buyer when financing hits the wall - not ideal but one way to bridge the "risk difference" if you have a bunch of cash but not enough for the full price is to pledge cash (and provide some evidence of cash in a liquid account) to cover any financing shortfalls formally in the offer vs just leaving the issue open. You can also add significant "at-risk" earnest money to the offer that seller can keep if deal falls through. Again, all choices come with risk, but there are ways to bolster an offer that needs financing.

 

[Nick87]

@wllm1313 referenced the choices of buyer when financing hits the wall - not ideal but one way to bridge the "risk difference" if you have a bunch of cash but not enough for the full price is to pledge cash (and provide some evidence of cash in a liquid account) to cover any financing shortfalls formally in the offer vs just leaving the issue open. You can also add significant "at-risk" earnest money to the offer that seller can keep if deal falls through. Again, all choices come with risk, but there are ways to bolster an offer that needs financing.

Traditionally I don't believe you lose your earnest if your financing falls through. I guess you could add that to the contract though.

 

[VikingsGuy]

Traditionally I don't believe you lose your earnest if your financing falls through. I guess you could add that to the contract though.

You are correct - but you can make it "risk of loss" if you write it that way - again - seek your own advice or counsel before making $$ choices.

 

[westbranch]

I don't think there is much of a chance to buy a house with contingencies locally. Better have funds to make up the appraisal difference and inspections are "for buyers information only". Will be interesting to see if that changes with the interest rates. But still a lot of pent up demand that it likely won't change in the short-term.

 

[Dougfirtree]

The preapproval is for the buyers credit worthiness not the approval of the actual loan.

For instance.

Buyer has a preapproval letter for 500k
Finds a house for 200k that they just love.
They get into a bidding war but the buyer wins at 350k
When they go to get the loan the bank says the value is too high for the house based on comps, and they will only give the buyer 250k.

So the buyer can 1. take the 250k loan and make up the difference with cash if they have it or 2. the deal falls apart even those they are preapproved for way over the sale price.

Given how hard it is to price property in this market this scenario occurs fairly often, and therefore if you have to identical bids, one from someone with 5% cash and one with 30% cash you probably want to side with the higher cash.

Side note it leaves you in this weird spot where you might have PMI because per your bank you only have 5% down, but per the paid price of the house you put down 35%. Buyer basically gives the market a year to catch up to his sale, refinances and then the PMI goes away because his loan basis is now on a 350k value rather than 250K.

The cash thing is playing out right now, in my neighborhood. Amish families are moving in and they buy land with cash. There are some hard feelings from local folks who wanted to buy the same land and were willing to even pay more, but lost to the bag full of greenbacks.

 

[Deleted member 28227]

Traditionally I don't believe you lose your earnest if your financing falls through. I guess you could add that to the contract though.

Agree with @VikingsGuy, I removed the appraisal and financing objections in our sale, therefore neither were grounds for getting earnest money back.

This is the specific wording I added and the buyer agreed to in our contract.

7. Section 6: In the event the property does not appraise for the purchase price agreed to in
this Contract then the buyer will pay any differential between the appraisal and the purchase
price in cash. A revised lender letter will be provided by [date] clarifying that the loan
will be made to Buyer in the amount of [amount] regardless of the appraised price of the
Property.

 

[VikingsGuy]

The cash thing is playing out right now, in my neighborhood. Amish families are moving in and they buy land with cash. There are some hard feelings from local folks who wanted to buy the same land and were willing to even pay more, but lost to the bag full of greenbacks.

Reminds me of my days in rural ND, a “conservative” place with a love for free markets, except for ag inputs, crop prices and land sales.

 

[Wind Gypsy]

No, no, you missed the first part which was the big one. 6 - 12 months of not paying your rent or mortgage can easily equal $40K+ in some places. And imagine the investors that had several properties in this scenario.

Then the stimulus on top, then the reduced expenses, etc. If you were already saving for a move you've just padded your savings in a hurry. If not, well, then you sell your current house with the highest price/equity you've ever seen, and add that to your savings from the last year. Next thing you know you're moving across the country, retaining your big city wages, with $450K in cash to buy in a market where house were going for $200K - $300K last year. You buy what you want, pay what it costs, and screw the next guy by creating a new sales comp for the appraisers.

Mind blowing. I never considered that impact. Across maybe 15 rental properties owned by a group of friends I’m not aware of anyone who stopped getting their rent. Can’t imaging how messed up things would be if everyone were selfish enough to just stop paying without having any income changes to justify it.

How does it work with rent? Wouldn’t they have to pay it in a balloon payment?