Where Do I Send The Keys?

It's tough to pick up a paper today without some kind of article about the sub-prime meltdown story on the front page. I have been writing about the idiotic practices in that segment of the mortgage business for two years. Like many things in life, the anticipation was more interesting than the reality. Bottom line, we still don't know what’s going to happen long term, particularly the extent to which lenders are going to go to help some distraught borrowers.

The most recent stories are about the outlying areas around the core of Southern California, areas like the Riverside and San Bernardino and the Antelope Valley area of Los Angeles County. These have been "overflow" areas where builders have been able to buy cheaper land and deliver less expensive housing. Their market has been people who have been frozen out of the areas closer to the Coast where values are higher. 

Because these areas are 40 or 50 or 60 miles from where the jobs are, you are talking about buyers who have said, "I'll endure a longer commute if I can just buy a home." That commute gets less fun when travel times approach 2 hours each way and gasoline is over $3 per gallon. In some cases, it has caused people to throw in the towel and move back closer to their jobs. Knowing that, you'd have to conclude that these were the weakest markets in the area.

If the owners bought early enough their home may have gone up enough in value so that they can sell and walk away with some of their equity. But there are others who got 100% financing. Their homes would have to have gone up at least 6% in value just to pay the real estate commission and that's just not the case with many homeowners.

Those who are facing imminent reset to a high rate that they can't afford should immediately talk with their lender. Seriously, more than half of people in trouble don't ever bother to call.  That's a mistake because in many cases they'd find out that the lender is willing to work with them, assuming that there is some prospect of a reasonable long term solution.

Other buyers found homes that were under construction and bought them well before completion. They closed upon them, anticipating a quick re-sale and profit. That is not likely these days and sometimes there are no renters available or they can't handle the negative cash flow.  Not seeing any other solution, some of those people have called the lenders and asked, "Where do I send the keys?"