Fantastic post. You are definitely right when you said that Rain City Guide gets responses to their posts. I am been reading them for awhile and complete enjoy their topics, but I also enjoy their readers responses.

It’s amazing how many short plats are going on in Kenmore. Sometimes a single new home in an existing neighborhood where the lot became available due to short platting, is better than a larger piece of land for many houses, that was deemed to be “unworthy” of building on before the market heated up.

Robert, you make my point – we are dividing what we have into smaller pieces, not making more of it.

Jessie, good comments. You and Tim might enjoy the following article on folks who are biting the bullet now to get themselves out of variable-rate danger: http://realtytimes.com/rtcpages/20060509_refinancestorm.htm

As an example take an ever popular 2/28 interest-only piggy back loan with a HELOC second, the first time buyers loan of choice in many areas. Assuming they had an interest rate of 5% to start with a few years ago, they are coming up on an adjustment on the first mortgage. The first adjustment will be up to 7%, fully amortized for 28 years.

Assume the loan was $300,000 – at 5% I/O payment was $1,250, new payment = $2,039 a 63% increase in payments ($789). This also does not include the increase in their HELOC second rates.
(For calculations: http://www.forsalebyownercenter.com/tools/228adjustableratemortgagecalculator.aspx )

The simple solution of refinancing is not that easy. Unless they are saving money, most lenders will not refinance the loan to a new increased payment, so they cannot refinance pre-adjustment. The second issue. Since they have a HELOC 2nd, which allows them to pull out money, the refinance is considered a “cash-out” refinance, which is more difficult to obtain and more expensive, especially if over 80% LTV. If they wait until the loan adjusts, they may not be able to afford the first payment. If they make a late payment on the mortgage because of the increased payment, then they are screwed because no lender will touch them with a 30 day late. Finally, if they go with a fully amortized loan assuming current rates, say 6.5% on a 40 year loan = $1,756 and 50 years = $1,691 both of which still $500 a month more than previously paying.

If they are normal jobs getting standard 2-5% raises a year, there is no way they can afford the payments, much less even qualify for a mortgage since most lenders are taking away the “stated income” loan for salaried employee’s.

So what’s the end result if they can’t refinance, can’t sell and can’t afford?

P.s in California there is not Type 1 or Type 2 because you ask “anyone” why they want to buy a home and tell will instantly tell you… “it’s a great investment”.

Seattle 1950 5,057 pers/sq mi. 1990 2,966. 2000 2,843

Seattle’s (City) 85 square miles have a population density of 6,400. By comparison, the central 250 square miles of Los Angeles (three times as large a geographic area as the city of Seattle) has a population density of 15,600 — nearly 2.5 times that of Seattle. Indeed, the 80 square mile core of suburban Orange County is more than 50 percent more dense than Seattle, at 10,300.

An excerpt from the King County Growth Management Plan:

residential land, with the largest acreages in South King County (11,500 acres) and the Eastside (7,300 acres). No new data on land supply acreage have been measured this year. A buildable lands update will be prepared in 2007.

Residential Capacity: Capacity refers to the number of additional housing units that can be accommodated on vacant and redevelopable land. Land capacity was calculated by each jurisdiction on a zone by zone basis, and then summarized into single family and multifamily categories. Each jurisdiction studied its recent development history, and determined the densities likely to be actually achieved in each zone classification in the future.

An update of estimated land capacity is provided on the next page. In 2001, the Urban Growth Area of King County had the capacity for more than 263,000 additional residential units. King County jurisdictions have permitted more than 30,000 housing units in Urban areas in the first three years of the new planning period. That amount is 20% of the 22-year Urban growth target of 151,900 households, so we are somewhat ahead of the forecast track. At the end of 2003, the capacity is still more than 232,000 units, nearly twice the capacity needed to accommodate the remaining 2022 target of 121,200 units.

Almost half of this housing capacity is in the Sea-Shore subarea, which can accommodate at least 112,000 units.

Declining urban area densities, increasing urban area extents. Seattle is not running out of room and is not even being constrained in any meaningful fashion. The large builders will claim otherwise but suprise, they are lying. Imagine that. This is nothing more than the development industry and their parasitical real estate industry attempt to turn repetition into fact. Put 2.5 people where every single person one now lives and get back to me about infill. You don’t know how good you have it and instead of leveraging these distinct advantages everything the Seattle (and Portland) region is doing is pushing the people into Los Angeles style hyperurbanism.

I’m sorry if I sound terse and lectury but as you can see I’m really up on the situation and “not making any more of it” is one of those Big Lies® that needs to be quashed.

1. Many of these loans have 24 to 36 month pre-payment penalties that, when you calculate, approach several thousand dollars in interest accrued, depending upon the loan amount. This wipes out potential equity and/or severely pinches those who need to refinance. I distinctly remember a couple times where this suprise nearly derailed a couple refinance transactions and made a seller irate when I let them know that they were “short” about $6K in proceeds due to this issue.

2. Many of these loans were originated allowing the borrower to pay their own property taxes. This is a recipe for pain. Therefore, there are no impound escrow funds for taxes as part of their monthly payment. When qualifying and a creative way to make a loan work, the devil is in the details. This scenario saves the borrower each month anywhere from $200-400 month (depending on the taxes)in mortgage payments when qualifying, but is still an expense that they are to budget for. But, will the borrower budget for it? If this was the only route/program in which to qualify for a home purchase, it makes you wonder? For exampple, just this past Feb., the Orange County Register (California) reported that over 40,000 Orange County single family homeowners were dilinquent after the 1st tax bill this year. Do any of you remember when the Orange County government went bankrupt just a few years ago?

PS. to all the Realtors/Loan Officers who frequent this blog…..

please ask your sellers if they have a pre-payment penalty on an existing loan. In addition, don’t forget to ask sellers if they have an underlying FHA loan–they must be paid off by the 1st of the month or FHA will charge an entire months interest. Conventional payoff’s are different. This FHA scenario in which an agent told their client to close sometime within the 1st week of the month cost their seller roughly $1500.00 in interest which is entirely avoidable.

Your friendly escrow advocate,
Tim

Look at the amoritization chart for a 50 year loan and it’s easy to tell it’s just an Interest Only loan in disguise. You end up paying a lot more interest to qualify for just a little more house. Anyone who decides to take out a 50 year loan to afford a house is stretching their budget too far. If everyone stretches to buy a house sooner or later consumer spending will have to go down in the area. When that happens our economy could also go south too.

It seems many home buyers have had trouble thinking in the long term lately. Sure maybe some people think they will only own their house for 5 years and then move, but if property values don’t grow in the next 5 years and you have an interest only loan they you have no equity. How can they move then?