Daily Archives: November 11, 2008

3 Bedroom home in Nelson under $250K – you must be joking!

Yesterday when I was explaining the Shared Equity Scheme with a young, just married couple they said….3 bedroom home in Nelson under $250,000 – you must be joking!

A while back I talked about the new pilot scheme being trialed in 5 NZ cities and how a buyer can get some real assistance from the government. Nelson just happens to be one of those 5 selected cities.  And the reason this scheme exists?

Well, glad you asked, it’s so buyers on modest incomes can buy their first home.

To be sure, you need to qualify first.

So, just to recap, the pre-requisites for Nelson is that the home needs to be no dearer than $240,000, and the buyer needs to contribute a minimum of 5% as a deposit.

Well guess what……look what I found!

A three bedroom home for under that, in fact $230,000 to be precise, and with views!

That means you need to organize a deposit of $11,500.

So it is possible, but yes you have to look, and NO, it will not be a waterfront property.

However if you approach it with the view that for the next 3-5 years it’s really your OWN home and what you would’ve paid in rent is actually now not wasted, then at the very least you get a chance to get a step up onto the property ladder, and that’s got to be a good thing.

To check out things again from a Kiwi perspective go to the calculator on NZ Consumers www site.

And as a last item if you have hear or see “rent – to – buy” just be aware that the NZ Commerce Commission was so concerned about it they urged independent legal advice if you were considering it.

Foreclosures – Part V The Conclusion

Part V

With the previous 4 parts I’ve tried to document the important points relevant for the sub-prime / foreclosure situation in the states, and for a Kiwi or Aussie, the differences aren’t that had to spot. And in so saying, those differences can pretty easily allow any astute individual/investor located in Australasia to make there own mind up.

However now we have the basic ingredients, lets look at a recipe for trouble…..

1.      take so many people employed in a region as a real estate agent (“realtor” in US speak) that there’s bound to be some attempting shortcuts, bound to be some cowboys amongst the ranks, and just as a great trainer once said “if you are only motivated by money, sooner or later you are going to cheat”

2.      have banks, finance companies, including Fannie & Freddie, and brokers falling over themselves to loan potential home buyer’s mortgages, even if current at time of application anecdotal data suggests the figures don’t stack up. And better still pay them ridiculous bonuses for signing up a sub-prime type loan.

And on this point I find it hard to believe that banks in the US for example would have had to wait 1 or 2 quarters to see the differences highlighted above between median incomes, and those reported on mortgage applications.

US Banks, like US finance companies in the “noughties” must surely have some of the most complex and sophisticated financial data tracking programs, financial modeling/prediction, software programs available to man. Goodness me, just plain historical data should of highlighted some inconsistencies. What I mean is even if their data sets/models are a year or 2 old, after taking inflation / CPI into account, how can all the loan applicants for a particular suburb instantly be earning another 20-25% the year they apply than previously.

3.      The ability of a home buyer to buy a property with 100% down, and in many cases 105 or 110% loans, and in the case of a non-recourse loan for those states mentioned, once hard times hit, just give the keys back and walk away.

Just place these in a warm oven for a couple of years, and what do you get…..

….well since September the world has seen what happened……………

However just to show the ole adage about a silver lining in everything is true, because of all this mess there was a multi-billion dollar payday (silver lining) for someone…………

The picture above has another interesting story about inflation if you’re interested?

Foreclosures – Part IV

Summing Up

As Wikipedia points out, foreclosure is practically the last step once all other avenues have failed for a mortgagee to recoup its monies previously loaned out. And much like a bank mortgagee sale here in NZ, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs. And they are also not obligated to pay anything back to the home owner in a case where there are surplus monies left over.

As highlighted above a crucial different is in states like California, Arizona, and some others is that borrowers loans can be of a NON-RECOURSE nature. In fact in California its law. And in this case many homeowners are simply giving back their home keys and walking away. This will generally result in some nasty entries on their credit report that will come back to haunt them for the next 7 years if they apply for credit again.

Once the property has been sold, and the mortgagee has got all the money it can, it is typically said then, that “the lender has foreclosed its mortgage or lien“.

However if a promissory note was made within a recourse clause facility, and if the sale does not bring enough to pay the existing balance of principal and fees, the mortgagee can file a claim for a deficiency judgement. (this is similar to what happens in New Zealand 99.99% of the time)

So you can see in light of these 3 main points in my preceding posts, the “foreclosure” situation is different from what we have in NZ. We can be thankful ( if that is the right term J ) to our own banking system for having more overall stringent criteria and proceedures for loan processing.

Admittedly there will be a percentage of home buyers in NZ who have over stretched themselves. This is a big consideration for anyone who has taken out a 95-100% or higher home loan in the last 24-36 months. If they can maintain their lifestyle and payments then I believe in a place like Nelson they should be ok.

However if they are living in another part of NZ that has suffered a higher change in home prices than we have, then it only needs a change of opinions in a relationship, a loss of a partners job, a new baby, etc for the reality that a financial change in income may bring.

If such an affected home owner were to place their home on today’s market, they may well find the best current price is below the figure required to pay out their mortgage.

If you find yourself in this type of scenario may I suggest, and this is based on recent buyers & home owners experience in Nelson, that you could do worse than to start your line of enquiries with a mortgage broker first to review what options are available, before proceeding to any next step.