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Here is a submission from one of the boombustbloggers in the California real estate biz.

A little something from the front lines (San Diego Real Estate).  We just got word from one of our few reputable loan agents that ALL PMI companies are dropping coverage of any loan with less than 10% down.  We did a quick review of deals in escrow and the count was that 4 out of 50 escrows were conventional and less than 10% down along with 6 that are going 3% FHA.

This just knocked an important part of the market out of the game or at least into the arms of GinnieMae.  Here is an unintended consequence.  Lets say that if someone wants to get an FHA loan on an entry-level condo (we have boatloads of them) if the condo project doesn't meet FHA requirements than... no loan.  The only buyer is 10% down or more (if the lender will go for it).  Unfortunately, the most likely buyer for most of these houses is still an owner occupant but with this catch-22, there is more fuel for the price-drop fire. 

 

Here's another new term that we are using... Broken Condo.  Which means a condo-conversion project that was partially sold out before the crash and the developer still owns a considerable amount of them.  B-T-W FHA will not make a loan if one owner owns more that 10%!  So the project is Broken.  The developer can't sell, the bank can't get repaid on their development loan and the poor schmos who bought have to ultimately face a loss of value along with a loss of homeowner's association fees.

 

Short Sale Case in Point

 

Condo (beach neighborhood, very upscale area), Purchased in 2004 for $434,000 financed with a 80% 1st (CFC) fo $347,200 and 20% 2nd (WFC) for $86,800.  Closed escrow 2 weeks ago for $375,000 which require CFC to throw WFC a $3,000 bone to go away.  Near the end, WFC declined (after accepting the deal) and demanding $18,000.  After some haggling and commission cuts we got them to take $10,000.  So they got about 10 cents on the dollar when you factor in lost interest etc.  They damn near blew that chance also, if CFC had foreclosed they would have netted zippity-do-dah.   Anyway, I thought you might like to see an up-close and personal version of the very MICRO economics.