Comments on: A new type of foreclosure http://www.findhomesinorangecounty.com/a-new-type-of-foreclosure/ Orange County Luxury Real Estate Thu, 12 Jan 2012 03:37:56 +0000 hourly 1 http://wordpress.org/?v=3.0.1 By: Jay Kunkle, CMPS http://www.findhomesinorangecounty.com/a-new-type-of-foreclosure/comment-page-1/#comment-17 Jay Kunkle, CMPS Wed, 23 Dec 2009 15:52:40 +0000 http://realestatetwit.wordpress.com/?p=72#comment-17 I have also seen this situation with a couple of my own Clients. Besides pointing out the obvious, long-lasting credit impact that a foreclosure will have, I have a couple of comments. One. Whatever happened to your house being your "home"...where you lived and raised your family, where you displayed a "pride of ownership" and became part of a neighborhood? Or those days gone forever? Is a house now only an investment vehicle? Unlike California, in many parts of the Country, real estate appreciation is and has always been in the low single digits...so it does take years to see a significant rise in a home's value. In these places, a house is viewed as a home, not an investment. Two. This situation has a name...it is now called "Buy and Bail". Because of the number of homeowners doing exactly this, Fannie Mae, Freddie Mac and FHA have all implemented "Buy and Bail" policies to try and stop this behavior which is exacerbating the already depressed real estate market. Most major Banks have adopted the same "Buy and Bail" policy for their non-conforming/jumbo loans as well. In general terms the buy and bail policy requires that the homeowner have at least 30% equity in the departure residence and have a signed lease in place before any rental income can be used to offset the debt service on the departure residence. Otherwise, the Buyer would have to qualify for the debt on both homes. Unfortunately, I have had several Clients who had legitimately intended to retain their prior home as a rental (not walking away from it) but were unable to obtain financing on a new home because they did not have 30% equity and could not qualify for the debt service on both properties without including offsetting rental income on their prior home. There are a great many people who have sadly lost their homes to foreclosure because of the financial crisis - lost jobs, dramatic reductions in income etc. It is unfortunate to see others voluntarily walk away from a home that they can otherwise afford because they do not see a financial benefit in keeping it. This has a negative impact on neighborhoods. This will hurt the already unstable real estate market and will likely have a long lasting impact on the future of lending - making it harder to obtain financing in the future. I have also seen this situation with a couple of my own Clients. Besides pointing out the obvious, long-lasting credit impact that a foreclosure will have, I have a couple of comments.

One. Whatever happened to your house being your “home”…where you lived and raised your family, where you displayed a “pride of ownership” and became part of a neighborhood? Or those days gone forever? Is a house now only an investment vehicle? Unlike California, in many parts of the Country, real estate appreciation is and has always been in the low single digits…so it does take years to see a significant rise in a home’s value. In these places, a house is viewed as a home, not an investment.

Two. This situation has a name…it is now called “Buy and Bail”. Because of the number of homeowners doing exactly this, Fannie Mae, Freddie Mac and FHA have all implemented “Buy and Bail” policies to try and stop this behavior which is exacerbating the already depressed real estate market. Most major Banks have adopted the same “Buy and Bail” policy for their non-conforming/jumbo loans as well. In general terms the buy and bail policy requires that the homeowner have at least 30% equity in the departure residence and have a signed lease in place before any rental income can be used to offset the debt service on the departure residence. Otherwise, the Buyer would have to qualify for the debt on both homes. Unfortunately, I have had several Clients who had legitimately intended to retain their prior home as a rental (not walking away from it) but were unable to obtain financing on a new home because they did not have 30% equity and could not qualify for the debt service on both properties without including offsetting rental income on their prior home.

There are a great many people who have sadly lost their homes to foreclosure because of the financial crisis – lost jobs, dramatic reductions in income etc. It is unfortunate to see others voluntarily walk away from a home that they can otherwise afford because they do not see a financial benefit in keeping it. This has a negative impact on neighborhoods. This will hurt the already unstable real estate market and will likely have a long lasting impact on the future of lending – making it harder to obtain financing in the future.

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