On Mar 21, 10:25*pm, Too_Many_Tools wrote:
There is a lesson to be learned here....

TMT

March 20, 2008
The Affluent, Too, Couldn't Resist Adjustable Rates
By JANE BIRNBAUM
They took out adjustable-rate mortgages at the peak of the housing
bubble to buy homes they would otherwise not be able to afford. Or
they refinanced existing mortgages to take cash out. And now, two or
three years later, the day of reckoning is here.

These are not lower- and middle-income borrowers, but more affluent
consumers with annual incomes of $100,000 or more who are increasingly
being ensnared in the home mortgage crisis.

People in all income categories "are facing the shock of new payments
that can be twice as much as previous ones," said Susan M. Wachter,
professor of business and a real estate specialist at the Wharton
School of the University of Pennsylvania.

Nor will falling interest rates help most of these homeowners, as
their low initial payments skyrocket and the worth of their homes
erodes, said Allen Fishbein, director of housing and credit policy at
the Consumer Federation of America.

According to Loan Performance, a unit of First American CoreLogic, a
real estate information company based in Santa Ana, Calif., about
870,000 borrowers took jumbo ARMs -- mortgages of $417,000 or more --
from 2005 to 2007.

In the fourth quarter of 2007, 8.10 percent were two or more payments
late, it found, while 2.62 percent were in the foreclosure process and
1.35 percent had been foreclosed. All the numbers were up from the
third quarter.

Mark Zandi, chief economist for Moody's Economy.com, predicted that
eventually 8 percent of these jumbo ARMs will be foreclosed. In the
first quarter of 2008, "the delinquency and foreclosure rate will
clearly be higher," he said.

Today's ARMs were "designed to fail, so you have to refinance," Ms.
Wachter said. "It shouldn't be surprising that values go up and down
in this kind of situation. And when you most need to refinance you
can't -- the crux of the crunch."

Jeffrey Conner, a San Francisco real estate lawyer, says he regularly
hears from his clients "that lenders assured them they could always
refinance."

So what are these homeowners to do now?

Refinancing requires some equity. Even if homeowners put a substantial
amount of money down, many have no equity because their homes are
worth less than they owe. In real estate parlance, their mortgages are
under water.

Richard Geller, founder of Mortgage Relief Formula, a for-profit
venture based in Fairfax, Va., that counsels troubled ARM borrowers,
said he received calls from affluent consumers in almost every major
metropolitan area. At the moment, Manhattan appears to be the only
exception in the weakening market, Mr. Geller said. "It's really late
in the schedule and will be the last place prices soften," he added.

The first step for distressed homeowners, said Rhonda Porter, a
certified mortgage planning specialist and broker in Seattle, is to
pull out their loan documents and see what they say.

Sean O'Toole, founder of ForeclosureRadar.com, which tracks California
foreclosures, divided borrowers into two camps. "If you have equity,
you have choices," he said. "If you don't, you have to work on a loan
modification with your lender."

Consumers with substantial equity, high credit scores and documented
income should be able to find conventional refinancing, he said.

Homeowners with at least 3 percent equity may qualify for refinancing
through the Federal Housing Administration. On March 6, it began
making loans up to $729,750, a new higher limit that expires Dec. 31
unless Congress extends it. Limits are 125 percent of median home
prices, by county. Consumers can find their local limits athttps://entp.hud.gov/idapp/html/hicost1.cfm.

To find a qualified lender or broker, consumers may call (800) CALL-
FHA, look in the Yellow Pages or visitwww.fha.govfor the four
regional centers.

Loan modifications entail freezing or reducing interest rates and may
also include balance reductions.

"But if your payments are still going to be more than half your gross
income, the lenders won't do it because they figure you're going to
default later," Mr. Geller said. "It's not rational to dedicate your
life to making the next $5,000 monthly payment on an asset declining
in value."

Negotiating a loan modification means understanding that in most cases
"the lenders really don't want to force people into foreclosure
because that virtually guarantees large losses in the market," said
Dean Baker, an economist with the Center for Economic and Policy
Research in Washington.

"It's a game of chicken," Mr. Baker said. "And you can't play it
effectively unless you know what your risks are, including whether
lenders can come after your other assets if you walk away."

Borrowers should determine if they live in a state with nonrecourse
laws. In general, lenders in those states cannot pursue borrowers for
money owed. But these laws are complex and change often, so consulting
with a lawyer may be necessary, Mr. Geller said. He has compiled a
list of nonrecourse states athttp://www.mortgagereliefformula.com/recourse..

Every affluent borrower who took an ARM has a different story.

In Oceanside, Calif., north of San Diego, people paid $650,000 to
$750,000 in 2003 and 2004 for row houses on Cleveland Street, said
Chris McBrearty, certified mortgage planning specialist, in Carlsbad,
Calif., who wrote many mortgages there. When prices for the houses
rose as high as $1.5 million in 2005, many of those people refinanced
with ARMs to take out cash, he said.

But while the borrowers had the best intentions, life -- job losses,
divorces, deaths -- changed their financial circumstances, Mr.
McBrearty said. Now, with a most recent listing at $920,000, "nothing
is selling on the street, and even for those with some equity, the
products needed to refinance such large loans are not out there."

One of those homeowners, a lawyer who spoke only on condition of
anonymity for professional reasons, said he refinanced his mortgage
with an ARM in January 2006 to take $510,000 out to invest in a hotel.
"I planned to run the hotel with my lovely wife," he said.

Their strategy was to sell the house after a couple of years, but when
they put it on the market in April 2007, there were no buyers. The
lawyer, now divorced, calculated that the mortgage payments, now
$6,200 a month, plus taxes consume 96 percent of his net income, which
includes occasional rent from vacationers who use the house. He lives
with relatives and sleeps on the floor.

"I don't regret what I did," he said. But a foreclosure would hurt his
career and finances, he said. "And I was raised to pay back what I
borrow."

His strategy now is to sell when prices revive. But that could take
time, because a bank just sold a neighbor's foreclosed home for
$850,000.

Elizabeth Hamilton, the maiden name of a Los Angeles real estate
consultant who did not want to be identified for professional reasons,
said she turned to a nonprofit housing counseling agency when she was
making no progress in persuading her lender to reduce the interest
rate for the ARM she took on her $1.5 million home. The introductory
rate was 7.9 percent for two years and payments were $6,541.

Now the interest rate is 10.25 percent and payments are $8,013. She
cannot afford the payments, she said, because her husband has died and
her income has fallen. "I need an interest rate reduction so I can get
myself and children back on track," she said.

A housing counselor, certified by the federal Department of Housing
and Urban Development, quickly got through to her servicer's loss
mitigation department, where loan modifications are made. Now Ms.
Hamilton needs to provide more personal financial information.

The best no- or low-cost housing advisers have contacts with lenders'
decision makers. "Our view is you need counselors who will negotiate
for you," said Bruce Dorpalen, director of counseling for Acorn
Housing, a nonprofit counseling group.

Mr. Geller said he had heard of just one loan balance reduction won by
a borrower.

That borrower, a real estate consultant in California who did not want
to be identified because he feared angering his lender, said he used
his understanding of state law to negotiate the refinancing. He bought
a condominium two years ago for $450,000 and invested another $50,000
for improvements. His ARM had a 5.5 percent initial rate that was soon
resetting to 7.25 percent. But his condo is now worth only about
$350,000.

His lender agreed to give him a 6 percent fixed-rate mortgage and, he
said, to knock $135,000 off the principal.

The agreement came only after he stopped paying his mortgage for two
months. "I am very happy and grateful to the lender because what I owe
on my condo now is in line with its worth," he said. "I'm ecstatic."

As the carnage continues....

Strange how this never shows up in the conservative talk shows.....

TMT

Foreclosures come to McMansion country By Andy Sullivan

Million-dollar fixer-upper for sale: five bedrooms, four baths, three-
car garage, cavernous living room. Big holes above fireplace where
flat-screen TV used to hang.

The U.S. housing crisis has come to McMansion country.

Just as the foreclosure crisis has hollowed out poorer neighborhoods,
"for sale" signs are sprouting in upscale developments so new they
don't show up on GPS navigation screens.

Poor people weren't the only ones who took out risky, high-interest
loans during the housing boom. The sharp increase in housing costs --
and the desire to live in brand-new, spacious houses with modern
features -- led many affluent buyers to take out loans they couldn't
afford.

"People had in their head, 'I need a mud room, I need giant columns, I
need a media room, and I'm going to do anything to get it,"' said
Robert Lang, co-director of Virginia Tech's Metropolitan Institute, a
research organization that focuses on real estate and development.

The crisis has hit especially hard here in Loudoun County, Virginia,
where upscale developments have supplanted horse farms over the past
fifteen years.

About an hour's drive from Washington, Loudoun is one of the nation's
most affluent counties, with a median household income of $98,000,
more than double the national figure.

The county has also ranked as one of the nation's fastest growing in
recent years as developers built thousands of super-sized, amenity-
laden houses to keep pace with the booming high-tech economy.

These houses are sometimes nicknamed "McMansions," disparaging both
their extravagance and their look of mass production -- like
hamburgers from a McDonald's restaurant.

Between 1990 and 2005, the county's population tripled to 272,000.
Many of those moving here relied on risky, high-interest loans to buy
the house of their dreams.

"People pushed the limits to be able to buy. They couldn't afford to
buy there otherwise," said Virginia Tech consumer-affairs professor
Irene Leach.

High-interest loans accounted for 16 percent of the total during the
height of the mortgage boom in 2005, less than other outer-ring
suburban counties in the region but more than neighboring counties
closer to Washington.

Now the bill has come due. One out of every 69 households in the
county was in foreclosure in the last three months of 2008, well above
the national average of one filing for every 555 households, according
to RealtyTrac.

Most of these have been concentrated in the county's poorer
neighborhoods, but local realtor Danilo Bogdanovic says he is
increasingly seeing more foreclosures on properties worth more than
$800,000 as affluent borrowers burn through savings in a vain attempt
to stay in houses they can't afford.

"They've just prolonged the pain," Bogdanovic said. "I don't think
they're immune to it."

At the end of 2007, 20 of the 25 houses for sale for more than
$850,000 in Loudoun County appeared to be foreclosures, according to
Tony Arko, his partner.

These can take years to sell, as they must compete with brand-new
developments still coming online.

Housing prices in the county plummeted 8 percent in 2007, the sharpest
drop in the region, according to the Washington Post. New home starts
plummeted by 50 percent.

Bogdanovic and Arko have sold many foreclosed properties to investors
looking to rent them out. But there's no market for a million-dollar
rental property, they say.

In the Beacon Hill development, a golf course snakes among large
houses and gazebos set on rolling hills. Residents keep their horses
at an equestrian center.

A 7,300-square-foot mansion on Spectacular Bid Place features three
chandeliers, a spiral staircase and a state-of-the-art kitchen. The
owner offered it at $1.35 million in January 2006, before foreclosing
in August 2007. The house found a buyer in January 2008 -- for
$963,000.

Several miles away, the million-dollar fixer-upper with the holes in
the walls has been on the market since December. It is still unsold.

(Reporting by Andy Sullivan; Editing by Eddie Evans)