Author Topic: Mortgage paydown vs. Investment  (Read 8384 times)

stevedoug

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Mortgage paydown vs. Investment
« on: April 18, 2012, 12:36:24 PM »
I've been reading MMM for only a few months, and it has already drastically changed my lifestyle (for the better!)
I'm 28, and have a very small car loan (leftover from non MMM days) and mortgage, and am otherwise debt free.

I purchased a condo in South Eastern Michigan suburbs in 2006 for $115,000 with only 3% down (dumb, I know). The 3/1 ARM I got into is currently @ 2.875%.
I've managed to pay down about 5k of that principle, and owe $110,000.  My credit is very good (>800).

My key problem is this: The home is currently valued at around $30,000 (due to foreclosures in the complex, mostly). Yes, the place lost about 70% of it's value in just 6 years.

Since I am extremely underwater, is it valuable to pay down my principle? More specifically, should I put an extra $1000 or more towards the home, or investments (index funds, etc.)? Does being underwater have any impact on the decision?

that interest rate is extremely low, for now, so that complicates the situation a bit.

Thanks a head of time for any support.

(yes, I read http://www.mrmoneymustache.com/2012/02/24/pay-down-the-mortgage-or-invest-more-a-winwin-question/ and landlording seems quite intimidating for me, with a full time job. So, it looks like it may make sense to keep that mortgage balance for a bit, and hope that interest rate doesn't increase too much. Then, toss that surplus money into a Vandguard 500 index fund. Let me know your thoughts!)

James

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Re: Mortgage paydown vs. Investment
« Reply #1 on: April 18, 2012, 01:25:26 PM »
The ARM is what jumped out at me, sure the rate is low now, but long term that could really come back to haunt you.

Because it's an ARM I'd pay it down aggressively as possible and consider it "bad debt" since it has "no collateral" in reality.  If you had $60,000 on credit card at those rates would you consider not paying it down asap?  I'd also be working on ways to lock that rate in if possible, but I don't know that you have many options there.

Mactrader

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Re: Mortgage paydown vs. Investment
« Reply #2 on: April 18, 2012, 01:40:36 PM »
I've been reading MMM for only a few months, and it has already drastically changed my lifestyle (for the better!)
I'm 28, and have a very small car loan (leftover from non MMM days) and mortgage, and am otherwise debt free.

I purchased a condo in South Eastern Michigan suburbs in 2006 for $115,000 with only 3% down (dumb, I know). The 3/1 ARM I got into is currently @ 2.875%.
I've managed to pay down about 5k of that principle, and owe $110,000.  My credit is very good (>800).

My key problem is this: The home is currently valued at around $30,000 (due to foreclosures in the complex, mostly). Yes, the place lost about 70% of it's value in just 6 years.

Since I am extremely underwater, is it valuable to pay down my principle? More specifically, should I put an extra $1000 or more towards the home, or investments (index funds, etc.)? Does being underwater have any impact on the decision?

that interest rate is extremely low, for now, so that complicates the situation a bit.

Thanks a head of time for any support.

(yes, I read http://www.mrmoneymustache.com/2012/02/24/pay-down-the-mortgage-or-invest-more-a-winwin-question/ and landlording seems quite intimidating for me, with a full time job. So, it looks like it may make sense to keep that mortgage balance for a bit, and hope that interest rate doesn't increase too much. Then, toss that surplus money into a Vandguard 500 index fund. Let me know your thoughts!)

What's up fellow SEMI buddy? What part of town are you in? I recently moved from the east side (Northern Sterling Heights) to South Lyon when I received a promotion at my company in Ann Arbor. I (pre-MMM) decided to rent out my home there (valued around 135k now, owe about 155k) and buy another one out here. Fortunately, I am able to receive more cash than my regular outlays and 9 months into the 2 year lease have not had a maintenance call yet. My hope is that in 15 months I'll be able to sell it without writing a check, hopefully to the current tenants who are interested.

Renting out a Condo is difficult in this market, but I have a friend who successfully did a small one in Clinton Township. He hired a company to do everything, and he just collects the check. I tend not to recommend this route (especially for the mustachian) on one home, but if you're timid about it it may be a good course of action. It sounds like you have a generous amount of cash flow so if you take a small burn, or breakeven you could ride out this storm and hopefully see some movement upwards and close that gap. Depending on what part of town you're in, this appears to be a very bullish year season for real estate. A house down my street just sold for $20k more than I paid in June, and it's smaller. My model sold a street over for $40k more and is awaiting appraisal. I did a quick look at listings for the area around my rental home and am seeing similar, but less magnitude, moves.

If I were in your shoes, I'd sock the money away in a reasonably liquid investment such as a money market. Sit on the sidelines for a year or two and see what happens to property values, they very well may rise in the near term, especially since Detroit entered the recession long before the rest of the nation. If you're looking to move, try to rent it out and continue to sock that money away to cover the maintenance expenses, which can't be that bad on a condo.

Best of luck!

stevedoug

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Re: Mortgage paydown vs. Investment
« Reply #3 on: April 18, 2012, 02:20:06 PM »
What's up fellow SEMI buddy? What part of town are you in? I recently moved from the east side (Northern Sterling Heights) to South Lyon when I received a promotion at my company in Ann Arbor. I (pre-MMM) decided to rent out my home there (valued around 135k now, owe about 155k) and buy another one out here. Fortunately, I am able to receive more cash than my regular outlays and 9 months into the 2 year lease have not had a maintenance call yet. My hope is that in 15 months I'll be able to sell it without writing a check, hopefully to the current tenants who are interested.

Renting out a Condo is difficult in this market, but I have a friend who successfully did a small one in Clinton Township. He hired a company to do everything, and he just collects the check. I tend not to recommend this route (especially for the mustachian) on one home, but if you're timid about it it may be a good course of action. It sounds like you have a generous amount of cash flow so if you take a small burn, or breakeven you could ride out this storm and hopefully see some movement upwards and close that gap. Depending on what part of town you're in, this appears to be a very bullish year season for real estate. A house down my street just sold for $20k more than I paid in June, and it's smaller. My model sold a street over for $40k more and is awaiting appraisal. I did a quick look at listings for the area around my rental home and am seeing similar, but less magnitude, moves.

If I were in your shoes, I'd sock the money away in a reasonably liquid investment such as a money market. Sit on the sidelines for a year or two and see what happens to property values, they very well may rise in the near term, especially since Detroit entered the recession long before the rest of the nation. If you're looking to move, try to rent it out and continue to sock that money away to cover the maintenance expenses, which can't be that bad on a condo.

Best of luck!

Greetings Back! Currently reside in Livonia! And ss a matter of fact, I also grew up as an east-sider (eastern Detroit, and then Warren).
I do know that other Condo owners in the same complex (including neighbors below me with the exact same unit / floorplan) have successfully rented out. I'd be fine with taking a small hit on rent (I'd have to rent out the 2bd 2bath, 1022 sq foot for around 760 to break even), but would that really get me ahead?

I've considered renting, but it it is slightly intimidating due to time spent, liabilities, and dealing with renters.
Financially, would it be better for me to escape the place all together and just rent it out? or pay down the mortgage? or invest in other ways?

@James
Due to the ARM, I'm leaning towards paying down that mortgage. That ARM has some significant potential to bite me in the ass. But is it true that there is no collateral? How much of 'appraised value' impact the perceived value of a mortgage. In reality, I still have a place to stay, with 2 bedrooms and 2 baths, isn't that worth SOMETHING?

   to further complicate things, refinancing is out of the question for a few reasons.
   1) my FHA style loan, never got sent to the government, so now Flagstar Bank owns it. This was due to an error on Flagstar's part, and means I cannot do an FHA streamline.
   2) since my loan is phsyically held by Flagstar, per above, and not backed by Freddie/Fannie, HARP is also out of the question.
   3) since I am so underwater, I'd have to come up with around 80k in capital to do a traditional refinance.

pretty strange, huh?

James

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Re: Mortgage paydown vs. Investment
« Reply #4 on: April 18, 2012, 02:44:32 PM »
@James
Due to the ARM, I'm leaning towards paying down that mortgage. That ARM has some significant potential to bite me in the ass. But is it true that there is no collateral? How much of 'appraised value' impact the perceived value of a mortgage. In reality, I still have a place to stay, with 2 bedrooms and 2 baths, isn't that worth SOMETHING?

That's why I put the "no collateral" in quotes, since you do have the value of the house, it's just not value enough to cover the whole loan.  You have a $110k loan based on $30k collateral value.  Have you talked to the bank and put the screws to them?  Wouldn't they be in a position to loose a good part of $60,000 if you walk away?  Might be worth pushing some of their buttons and seeing what they might compromise on, doesn't hurt to let them think your situation is desperate.  Maybe they could lock you in at some middle ground that gave them more interest than you are paying currently but would be locked in for a longer duration.

I'm out $150k in my house I'm trying to sell, it definitely sucks big time!

stevedoug

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Re: Mortgage paydown vs. Investment
« Reply #5 on: April 18, 2012, 02:53:54 PM »
@James
Due to the ARM, I'm leaning towards paying down that mortgage. That ARM has some significant potential to bite me in the ass. But is it true that there is no collateral? How much of 'appraised value' impact the perceived value of a mortgage. In reality, I still have a place to stay, with 2 bedrooms and 2 baths, isn't that worth SOMETHING?

That's why I put the "no collateral" in quotes, since you do have the value of the house, it's just not value enough to cover the whole loan.  You have a $110k loan based on $30k collateral value.  Have you talked to the bank and put the screws to them?  Wouldn't they be in a position to loose a good part of $60,000 if you walk away?  Might be worth pushing some of their buttons and seeing what they might compromise on, doesn't hurt to let them think your situation is desperate.  Maybe they could lock you in at some middle ground that gave them more interest than you are paying currently but would be locked in for a longer duration.

I'm out $150k in my house I'm trying to sell, it definitely sucks big time!

Regarding the screws to the bank, there have been some discussions. They said they would consider... "something", after I fill out a stack of paperwork.

Before that is done, I will be speaking with a real estate lawyer to decide best next actions / have him complete paperwork.
The walk-away option is very very tempting. But, I haven't considered the full range of possible outcomes on that one.

I hope the real estate lawyer can work some magic, since much of this is due to a bank side (they even admitted) error.

It's interesting how, previously, buying a home was the best thing ever. In 2006, everyone told me... why rent, when you can buy! Listening to these people cost me around $80k, and will therefore ignore the "GP" (General Public) from now on.

Very, Very valuable lesson though! my own "big mistake!"

James

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Re: Mortgage paydown vs. Investment
« Reply #6 on: April 18, 2012, 05:52:54 PM »
Yeah, I laugh now when I think about how many people told me I couldn't lose with my house on a lake...  "They don't make any more of it", and "It will only get more desirable"...

Even my dad who lost his shirt on a house in Montana when he was my age encouraged me to buy.  I searched high and low for a wealth of advice and no one had any other advice than buy a 4400 sq ft house on a lake just because it was nice and I could.  I've promised my kids that I won't enable them with my advice, I'll always be willing to shoot down their dreams when needed.  It's what I'm here for.

I wouldn't take the first few "NO's" you get for an answer, they have no incentive to compromise if they think you are going to pay it off eventually at the current terms.  Definitely follow all leads and put the screws to them.  Walking away might make sense financially, but if you can work them into something that you can live with then I think you will be glad you stuck with it in the long run.

Mactrader

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Re: Mortgage paydown vs. Investment
« Reply #7 on: April 19, 2012, 06:52:53 AM »
@James
Due to the ARM, I'm leaning towards paying down that mortgage. That ARM has some significant potential to bite me in the ass. But is it true that there is no collateral? How much of 'appraised value' impact the perceived value of a mortgage. In reality, I still have a place to stay, with 2 bedrooms and 2 baths, isn't that worth SOMETHING?

That's why I put the "no collateral" in quotes, since you do have the value of the house, it's just not value enough to cover the whole loan.  You have a $110k loan based on $30k collateral value.  Have you talked to the bank and put the screws to them?  Wouldn't they be in a position to loose a good part of $60,000 if you walk away?  Might be worth pushing some of their buttons and seeing what they might compromise on, doesn't hurt to let them think your situation is desperate.  Maybe they could lock you in at some middle ground that gave them more interest than you are paying currently but would be locked in for a longer duration.

I'm out $150k in my house I'm trying to sell, it definitely sucks big time!

Regarding the screws to the bank, there have been some discussions. They said they would consider... "something", after I fill out a stack of paperwork.

Before that is done, I will be speaking with a real estate lawyer to decide best next actions / have him complete paperwork.
The walk-away option is very very tempting. But, I haven't considered the full range of possible outcomes on that one.

I hope the real estate lawyer can work some magic, since much of this is due to a bank side (they even admitted) error.

It's interesting how, previously, buying a home was the best thing ever. In 2006, everyone told me... why rent, when you can buy! Listening to these people cost me around $80k, and will therefore ignore the "GP" (General Public) from now on.

Very, Very valuable lesson though! my own "big mistake!"

As someone who spent a lot of time researching what the real impacts of a foreclosure (or short sale) would be, IN MICHIGAN, I'll boil it down the salient points for you.

We live in a recourse state, meaning that when you bought your house they secured the loan through the property AND through a Promissory note to you, personally. If you let your house slip into foreclosure, they will take the house and sell it. The remaining balance on your mortgage (and late fees/interest) will then be owed by you. Now the bank has to make a decision. Do they write off the balance (and thus get to have some earnings benefit for doing so) or seek "deficiency" by suing you for the remainder balance. If they write it off, you'll receive a 1099 in the mail, and I BELIEVE that's not a taxable event under the Bush debt forgiveness act, but that may have expired. Otherwise, you'll pay taxes on the forgiven amount. If they seek deficiency, they will take you to court and try to either settle or receive a judgment for the balance. They can put a lien on any existing properties, or any other nasty court-ordered things like wage garnishment and such.

The same goes for a short sale, except it's a bit more predictable/in your control as it's all in the negotiation. While you're going through the process you can back out and pay the delinquent balance and only take the credit hit. In the negotiations you can request for them to waive the right to seek deficiency, which they typically want you to sign another Promissory note for some settled amount.

Flagstar is a pretty big bank, that may not be that difficult to deal with. My rental property's mortgage is through a small portfolio lender that still holds the loan and isn't as fast and loose with their standards. This is bad for me, in that they won't play much ball in the short sale front. Give them a call and find out if they'll give you any information on their criteria for seeking deficiency and such. Just be frank with them and tell them you're having a difficult time paying the mortgage and are considering foreclosure or a short sale and want to understand your options.

twinge

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Re: Mortgage paydown vs. Investment
« Reply #8 on: April 19, 2012, 08:19:19 AM »
The talk with the real estate lawyer is key due to the complexities with both MI state laws and the bank error.  I would have the frank conversation with Flagstar and tell them you are working with a real estate lawyer. Personally, I wouldn't add any extra to the mortgage until this is all worked out.  The less you have to lose through giving up the house the more the bank may be willing to negotiate--esp. given their error.

BUT I would save super aggressively--perhaps keeping some in a "safe" place  (the new inflation rate on I-bonds will be set May 1--they are currently running 3.06% which would be even with your mortgage rate--but you have to keep them 1 yr and if you sell before 5 yrs you sacrifice 3 mos of interest and the max you can buy electronically is 10K per year) and another portion in investment--I would make sure to max out a Roth IRA too, as you can withdraw the contributions if you need to, but they are tax protected --and have some protections against court-ordered liens etc. if it comes to that).  I would treat these savings as an utter emergency as you are on a race against the interest rate clock--you're trying to save up as much capital as you can to plop into the mortgage if the negotiations don't work out and the interest rates rise a bunch.

Good luck!

Mactrader

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Re: Mortgage paydown vs. Investment
« Reply #9 on: April 19, 2012, 08:59:18 AM »
The talk with the real estate lawyer is key due to the complexities with both MI state laws and the bank error.  I would have the frank conversation with Flagstar and tell them you are working with a real estate lawyer. Personally, I wouldn't add any extra to the mortgage until this is all worked out.  The less you have to lose through giving up the house the more the bank may be willing to negotiate--esp. given their error.

BUT I would save super aggressively--perhaps keeping some in a "safe" place  (the new inflation rate on I-bonds will be set May 1--they are currently running 3.06% which would be even with your mortgage rate--but you have to keep them 1 yr and if you sell before 5 yrs you sacrifice 3 mos of interest and the max you can buy electronically is 10K per year) and another portion in investment--I would make sure to max out a Roth IRA too, as you can withdraw the contributions if you need to, but they are tax protected --and have some protections against court-ordered liens etc. if it comes to that).  I would treat these savings as an utter emergency as you are on a race against the interest rate clock--you're trying to save up as much capital as you can to plop into the mortgage if the negotiations don't work out and the interest rates rise a bunch.

Good luck!

If you go the short-sale route you'll have to disclose all your finances. So the 'safe' place may need to be a mattress. :-D

twinge

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Re: Mortgage paydown vs. Investment
« Reply #10 on: April 19, 2012, 09:29:42 AM »
Quote
If you go the short-sale route you'll have to disclose all your finances. So the 'safe' place may need to be a mattress. :-D

yeah, I *thought* about suggesting "safely" with a friend/relative but figured we should keep it legal...

Make sure you look closely at the current terms of the 3/1 ARM--how much can it go up each year, is there a cap etc., what Flagstar is currently willing to do, what their procedure on deficiency etc. is,  and have all that info handy for the lawyer so you can spend his/her expensive time on strategy rather than info. gathering

bdub

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Re: Mortgage paydown vs. Investment
« Reply #11 on: April 19, 2012, 12:03:31 PM »
.... and tell them you are working with a real estate lawyer.

I would caution against doing this.  As soon as you make this known to them, they are likely to get their legal department involved as well.  Ideally, your lawyer will contact them for you when the time is right.

I agree with others, do not make any extra payments until you have resolution on if they will write-down your principal.

stevedoug

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Re: Mortgage paydown vs. Investment
« Reply #12 on: April 20, 2012, 12:29:54 PM »
Quote
If you go the short-sale route you'll have to disclose all your finances. So the 'safe' place may need to be a mattress. :-D

yeah, I *thought* about suggesting "safely" with a friend/relative but figured we should keep it legal...

Make sure you look closely at the current terms of the 3/1 ARM--how much can it go up each year, is there a cap etc., what Flagstar is currently willing to do, what their procedure on deficiency etc. is,  and have all that info handy for the lawyer so you can spend his/her expensive time on strategy rather than info. gathering

I did re-review my ARM rate. It's fairly standard:
2 points about index, (index is based on Daily Treasury Yield Rate, over a year)
http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
and can change by 1 point each year
and maxes out at +5 points above initial (5.875).

So, it started at 5.875 in 2006 , fixed for 3 years.
down to 4.875 in 2009
down to 3.875 in 2010
down to 2.875 in 2011
and as best as I can estimate, it will hit rock bottom this year, 2.125% in July

So I have a year or 2 MINIMUM at a reasonable rate to figure stuff out. Depending on where the Daily Treasury Yield goes, this ARM may work in my favor over the next 15 years (gotta be positive!)

stevedoug

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Re: Mortgage paydown vs. Investment
« Reply #13 on: April 20, 2012, 12:35:35 PM »
.... and tell them you are working with a real estate lawyer.

I would caution against doing this.  As soon as you make this known to them, they are likely to get their legal department involved as well.  Ideally, your lawyer will contact them for you when the time is right.

I agree with others, do not make any extra payments until you have resolution on if they will write-down your principal.

Yes, I concur.

I did loosely bring it up with Flagstar in a previous conversation with the "workout" department:
Me: so, you guys made an error, and it's preventing me from changing any of the terms on my loan
Flagstar: that is correct, and we cannot help you out, until you are unable to make payments
Me: well, what would you do in my shoes? Should I speak with a real estate lawyer?
Flagtar: yes, you can, you may have a case.

For now, I will not make the extra payments, but save like crazy!and hopefully, I can stick it to Flagstar!

My offer to them:
Let's drop this mortgage all together, and give me a NEW mortgage based on current value of the home. :)

I'm sure they will NOT accept that, but a man can dream, right? Gotta go for the most badass option. Maybe they will meet halfway?

stevedoug

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Re: Mortgage paydown vs. Investment
« Reply #14 on: April 20, 2012, 12:39:01 PM »
As someone who spent a lot of time researching what the real impacts of a foreclosure (or short sale) would be, IN MICHIGAN, I'll boil it down the salient points for you.

We live in a recourse state, meaning that when you bought your house they secured the loan through the property AND through a Promissory note to you, personally. If you let your house slip into foreclosure, they will take the house and sell it. The remaining balance on your mortgage (and late fees/interest) will then be owed by you. Now the bank has to make a decision. Do they write off the balance (and thus get to have some earnings benefit for doing so) or seek "deficiency" by suing you for the remainder balance. If they write it off, you'll receive a 1099 in the mail, and I BELIEVE that's not a taxable event under the Bush debt forgiveness act, but that may have expired. Otherwise, you'll pay taxes on the forgiven amount. If they seek deficiency, they will take you to court and try to either settle or receive a judgment for the balance. They can put a lien on any existing properties, or any other nasty court-ordered things like wage garnishment and such.

The same goes for a short sale, except it's a bit more predictable/in your control as it's all in the negotiation. While you're going through the process you can back out and pay the delinquent balance and only take the credit hit. In the negotiations you can request for them to waive the right to seek deficiency, which they typically want you to sign another Promissory note for some settled amount.

Flagstar is a pretty big bank, that may not be that difficult to deal with. My rental property's mortgage is through a small portfolio lender that still holds the loan and isn't as fast and loose with their standards. This is bad for me, in that they won't play much ball in the short sale front. Give them a call and find out if they'll give you any information on their criteria for seeking deficiency and such. Just be frank with them and tell them you're having a difficult time paying the mortgage and are considering foreclosure or a short sale and want to understand your options.

Any tips on pushing the bank to agree to a short sale?
It seems that since I'm NOT having difficulties paying the mortgage, my options are extremely limited.
AKA, I was smart and bought a home within my means, and am now being punished for it. The banks aren't willing to work with me, generally, until I am unable to make payments.

Thank you all, for the great advice and discussion

Mactrader

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Re: Mortgage paydown vs. Investment
« Reply #15 on: April 20, 2012, 12:58:11 PM »
As someone who spent a lot of time researching what the real impacts of a foreclosure (or short sale) would be, IN MICHIGAN, I'll boil it down the salient points for you.

We live in a recourse state, meaning that when you bought your house they secured the loan through the property AND through a Promissory note to you, personally. If you let your house slip into foreclosure, they will take the house and sell it. The remaining balance on your mortgage (and late fees/interest) will then be owed by you. Now the bank has to make a decision. Do they write off the balance (and thus get to have some earnings benefit for doing so) or seek "deficiency" by suing you for the remainder balance. If they write it off, you'll receive a 1099 in the mail, and I BELIEVE that's not a taxable event under the Bush debt forgiveness act, but that may have expired. Otherwise, you'll pay taxes on the forgiven amount. If they seek deficiency, they will take you to court and try to either settle or receive a judgment for the balance. They can put a lien on any existing properties, or any other nasty court-ordered things like wage garnishment and such.

The same goes for a short sale, except it's a bit more predictable/in your control as it's all in the negotiation. While you're going through the process you can back out and pay the delinquent balance and only take the credit hit. In the negotiations you can request for them to waive the right to seek deficiency, which they typically want you to sign another Promissory note for some settled amount.

Flagstar is a pretty big bank, that may not be that difficult to deal with. My rental property's mortgage is through a small portfolio lender that still holds the loan and isn't as fast and loose with their standards. This is bad for me, in that they won't play much ball in the short sale front. Give them a call and find out if they'll give you any information on their criteria for seeking deficiency and such. Just be frank with them and tell them you're having a difficult time paying the mortgage and are considering foreclosure or a short sale and want to understand your options.

Any tips on pushing the bank to agree to a short sale?
It seems that since I'm NOT having difficulties paying the mortgage, my options are extremely limited.
AKA, I was smart and bought a home within my means, and am now being punished for it. The banks aren't willing to work with me, generally, until I am unable to make payments.

Thank you all, for the great advice and discussion

I decided not to pursue the short sale, so I don't know what is the best way to 'push' the bank. It seems that missing payments are the best way, but the banks seem to punish the strategic defaulters that have income/assets and are choosing to let the mortgage slip due to values. You'll likely hear the statement that they don't ask for more money when you sell the house for more than you bought it for, why should they have to eat the loss...

Unfortunately, your prudent decision making up front will likely be a reason why it'll be difficult for you to exit this situation. I'm in the same boat as my income is enough to support two houses. It may feel like us 'honest and prudent' people are the ones getting the shaft, but in the grand scheme of things we are much better off than those who bought on total leverage and lost what they never really had. Their behaviors are unchanged and when they do get presented with wealth again, they will likely piss it away again.

I don't have a good answer for you, or one that will make you feel warm and fuzzy. That's a shitty valuation compared to the debt that you have on it. The only way I could accept it is to drop the notion of the current value, and try to extract value out of the property based on my initial purchase (less time spent there as residence) and worry about it's value down the road. If you can get even $1,000 a month, you'll be earning roughly 0% on your down payment before depreciation and such. Instead of a loss, now you simply have a poor performing illiquid investment. Shift your thinking into landlord mode and convert that place into a full time rental, I'm talking 20 years here, or at least until values rise to where you can safely exit. If you can earn more than $1,000 and are able to start having money put aside for vacancies, credit, repairs, etc than you will be in an even better place, but still just a poor performing asset. Over time that profile may shift and you may have something that will yield $12-15k/year in passive income.

Longish rant there, lost my common theme and point, but just take the info dump as you will! I'm focusing more on the way you can best frame the situation rather than the tactics.

stevedoug

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Re: Mortgage paydown vs. Investment
« Reply #16 on: April 20, 2012, 01:07:30 PM »
It seems your comments mirror what I've mostly heard.
Us honest ones are getting the shaft... but it will pay off in the long run!

Turning it into a rental property is really the only option (well, besides continuing the live there).
Unfortunately, considering Association Dues + mortgage, I'd be curious on what the breakeven point would be? (considering management costs, repairs, etc)

Currently the condo Mortgage is @ $605 (will change, depending on ARM and tax assessments) and Association dues @ $156 (water, snow removal, landscape, pool, etc).
What kind of other numbers should I consider? is there some rule for how much I can expect in normal repairs for a rental property?

Mactrader

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Re: Mortgage paydown vs. Investment
« Reply #17 on: April 20, 2012, 01:23:37 PM »
The fact that it is a condo really plays in your favor as all of the external maintenance is covered by the association. The opposite side of that is that if they decide to do all the roofs in the complex they may levy a special assessment. I'd yield the question on specific dollars to the more professional landlords. I simply make sure I have enough money to cover repairs if necessary and live as lean as I can to absorb any vacancies and such. I've been a landlord for all of 9 months, with the same tenants and one $45 repair so far, that arguably could be taken out of their deposit. My goals are to offload the home as soon as I can without bringing any, or much, money to the table. I'm only about 20-30k underwater though. If you're not too worried about knowing the % return, just make sure you have money to take care of anything that could come up (vacancies, repairs, etc) and don't sweat it. It's not like you have an investment decision to make such as offloading, or purchasing another property to rent out. You're locked into this investment, the thing you need to be worried about is solvency, not maximizing return.

Just my $.02.

stevedoug

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Re: Mortgage paydown vs. Investment
« Reply #18 on: April 20, 2012, 02:01:02 PM »
The fact that it is a condo really plays in your favor as all of the external maintenance is covered by the association. The opposite side of that is that if they decide to do all the roofs in the complex they may levy a special assessment. I'd yield the question on specific dollars to the more professional landlords. I simply make sure I have enough money to cover repairs if necessary and live as lean as I can to absorb any vacancies and such. I've been a landlord for all of 9 months, with the same tenants and one $45 repair so far, that arguably could be taken out of their deposit. My goals are to offload the home as soon as I can without bringing any, or much, money to the table. I'm only about 20-30k underwater though. If you're not too worried about knowing the % return, just make sure you have money to take care of anything that could come up (vacancies, repairs, etc) and don't sweat it. It's not like you have an investment decision to make such as offloading, or purchasing another property to rent out. You're locked into this investment, the thing you need to be worried about is solvency, not maximizing return.

Just my $.02.

Great points. I'm stuck with it no matter what, my focus now is just doing my best to maximize my output.
Realistically I will probably stay there for a bit longer, while I do some basic remodeling to up my mustache cred

stevedoug

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Re: Mortgage paydown vs. Investment
« Reply #19 on: April 30, 2012, 11:01:41 AM »
For anyone curious / keeping up @ home...

I spoke to a real estate lawyer regarding the earlier mentioned bank error. (FHA loan not sold back to FHA)
1. Speak directly to FHA and get their opinion
2. Request formal loan modification to flagstar (with his document review)

His overall position was that even if a legal case was brought forward (breach of contract) we would only be able to turn my current loan into an loan with FHA terms.  and I may not even qualify for an FHA streamline.

Luckily I'm @ a 2.875%, and July it should shift down one more notch to a 2.125%. So I have a year or so to figure it out.
For now, I can pay some principle to get out of PMI.

Thanks for advice all, this thread can be considered closed.