I can finally say it: Things are getting better in the L.A. residential market.
But not for everyone. In fact, in many cases, not even for those who are fiscally responsible.
It’s true that compared with a few years ago there are less foreclosures on high-end luxury homes on the Westside. Most troubled sellers have sold or otherwise restructured their mortgages, making troubled homes scarce as foreclosures reach their bottom.
But today, after spending 35 years in L.A. residential real estate, – I’ve learned that numbers don’t tell the whole story. Unfortunately, in an election year, numbers are also motivating poorly conceived public policy that rewards the bubble’s most irresponsible borrowers while honest homeowners suffer the consequences.
In fact, one example of a fiscally responsible person who is bearing the brunt of the market with no way out is my son, a successful Realtor who understands the complex local market, who is being strangled by a high-interest loan on an underwater condo.
At the height of the market, armed with a deep understanding of the local market’s property values and financing options, he purchased a $1.25 million condominium. His $340,000 cash down payment and $910,000 loan at 6.125 percent interest gave him a monthly payment around $4,650.
The condominium market, which is still seeing a high rate of foreclosures, is traditionally the first to crash and the last to recover when the market returns. He has watched the value of the condo go down dramatically to about $850,000. Though he’s never missed a payment, he can’t qualify to refinance since the value is less than the current loan. If he were able to get current rates of about 3 percent, his payment would be cut in half.
Though his business is diminished due to the economy, he keeps making payments on a condo that’s worth less than the loan. There is no relief available and none being proposed.
With eight months until Election Day, lawmakers in Sacramento and Washington, D.C., are focusing on those who are already facing foreclosure. A huge percentage of these borrowers were not technically homeowners at all. Rather they were the beneficiaries of “pulse” lending, a product of the skyrocketing property values that allowed them to buy a home with no money down and no viable credit with a loan of up to 110 percent of the purchase price.
All they needed was a pulse.
When they couldn’t make their monthly payments due to job loss or the realization that their loans were greater than the value of their houses, they stopped making mortgage payments and went into foreclosure.
The foreclosure process starts with a notice giving the borrower 90 days to bring their payments current. Once that 90-day period expires, the lender can cause a trustee’s sale after a 30-day period wherein the borrower has to pay off the loan in full or the home is sold to the highest bidder at auction.
Problem is, the lenders were waiting way beyond 90 days to start the process (in New York, the average foreclosure process was taking more than 19 months prior to the procedure starting). Then, even after the 90-day period expired, the lenders were lax in actually going to auction promptly.
So what this tells me is that if someone bought a house with no money down (or even money back), they could live there for up to two years – or longer – without making a single payment or out-of-pocket expense. For this group, more help is on the way in the form of financial assistance from the government.
And who will pay for it? My son and all the other homeowners who are honoring their obligation to the lenders, as well as the portion of excessively high interests rates that can’t be refinanced. And, of course, our tax dollars are supporting this as well.
Something’s rotten here, don’t you think?
Stephen Shapiro is chairman of the Westside Estate Agency, a residential real estate brokerage with offices in Beverly Hills and Malibu.