June 02, 2008
The "F" Word
Foreclosure tours are cropping up from coast to coast. An entrepeneurial realtor hires out a bus and takes prospective homebuyers on a sightseeing mission of the wreckage caused by missed payments and speculation gone wrong.
No doubt about it, there are good deals to be found for the diligent and the patient. But for every action (thanks, Sir Isaac), there is an equal and opposite reaction. For every homebuyer that gets a screamin' good deal and saves $100K on the purchase price, some bank or mortgage company is taking a $100K hit to its bottom line. Not your problem? Oh, contrare...
First, let's say that great deal was had on the house just down the street from you. Do you realize the sales price on that house just set a new benchmark for your neighborhood? How can an appraiser say your house is worth $100K more than the one that just sold three houses down? "But that's not fair!", you say...well, let me assure you the bank that sold the house under market value doesn't really care if you think it's fair. Which gets to my second point...
One year ago the Federal Reserve's Discount Rate (the rate at which banks can borrow money from the Fed) stood at 6.25% and the average rate on a 30-year fixed rate mortgage was 6.42%. Today the Discount Rate is 2.25%, and the average rate on a 30-year fixed rate mortgage is 5.93%. Wait a minute...the banks are paying 4% less for their money than from a year ago, yet there's only about 1/2 of a percent difference in the interest rate for the highest credit-quality borrowers? Why wouldn't the banks pass on the savings to the consumer?
Well, to keep it short, simple, and brutally honest...somebody has to pay for all those bad decisions that resulted in bad loans and repossessed houses, and it sure isn't going to be the bank. Yep, they'll just pad their margins on the backs of you, me, and every other U.S. citizen who pays their bills on time. So...that foreclosure that looks to be such a great deal for the first time homebuyer is a raw deal to a whole lot of other people.
If you currently receive payments on a note, do you have a plan of action if your borrowers stop paying? Can you afford to take it through the foreclosure process and have it sit months on the market, waiting to sell?
Maybe you'd feel more confident if you knew what you could sell your note for right now. After all, cash in hand is better than cash promised at some date in the future. Give us a call - we're happy to provide some options in a world where the "F" word is becoming more and more common.
Our efforts stay focused on note holders. If you are a note finder, a note
broker, or anyone other than the actual note holder, please do not contact