It has been 3 years since I did my own loan modification for my own house.

I remember thinking,"If only I can keep this property until the market picks back up then it'll be worth it."

Nationstar gladly modified my loan that was supposed to adjust from 7% interest rate to 9%. They kept my 7% interest rate and I paid the $2,400 every month in the hopes to keep my good credit standing and also keep my property that I was still silently hoping to make money from.

This happened for two years. At that time the property that I bought for $322,000 was valued at $150,000, now my thoughts are (as you can probably imagine): "what was I thinking? Why did I even keep it?." 

Anyways...

I Called Nationstar and started asking about my modification options. They offered the same thing: Keep my 7% interest rate and not let it adjust. I told them that it is no longer helpful because business was slowing down and I was beginning to miss payments. The person on the other line said to short sale the property or they can foreclose the property. Not much help.

Here are the sequence of events that followed:

• Placed the property in short sale

• Got an offer after 2 months

• Sent all the documents to the bank

• They did their due diligence to determine market value

• Waited for their answer for two weeks

• And, and only then, I get a call from the loan modification department.

This is what the representative offered me:

1. Pay $1800.00 (I was behind for 3 months which totals to= $7200) and they will report me as "current" to the credit bureau.

2. They will put the difference from the money I owe ($5400) in "arrears" and add to the current principal balance which makes the total to $ 327,400.00

3. Make my payment to $1400.00 ($1,000 less from my current payment) 5 year fix.

I countered with these terms:

1. I'll give them $1,200 not $1800 for the 3 months I'm behind.

2. Lower the principal to $220,000.00 - $100,000.00 less from my current note.

3. The monthly payment fixed to 30 years.

* They said no to all except number 1. They agreed to lower it down to $1400. *

So here I was thinking (again). Should I keep this property that I am losing money from and will continue to lose money from. Again here are the numbers.

1. Market Value is $150,000.00 vs $322,000.00

2. $2400 x 36 months that I have been paying = $86,400.00

So not only did I lose $172,000.00 with the value but another $86,400.00 the whole time I had the property; for the grand total of $258,000.00.

They now want me to pay $1400 x 60 months which again totals to $84,000.00 and cross my fingers that the Market will pick back up so I can either sell the property in 5 years or refinance or worst, do another loan modification.

Hmm. I know that since 1977, properties in Washoe County only increased in an average of 4.7%

That being said. There is no way that the price of this property will be equal to the principal anytime soon, not even in 10 years, and they won't even fix the loan for 30 years?!

For some people, having their own house is the bottom line that's why they will do a loan modification.

But most of the people that modified their loan, it eventually defaults again. So, with the numbers presented to me and me not caring about my credit situation anymore I said no way unless they lower the principal to $200,000 because of the fact that I know that I will end up paying another $84,000.00 in 5 years and I asked them to fix it for 30 years.  In that scenario I could've taken it.

But they said no.

So we proceeded with the short sale. A buyer offered $150,000.00, they countered to $155,000.00 and offered the buyer that they will hold the note and give him a better interest rate than what he was being offered by another bank. Buyer said yes. DEAL! Closed in 30 days.

My questions are the ff:

1. I offered to keep the property, their current borrower at $200,000.00. $45,000 more than what they agreed to do on the short sale.

2. I have paid them all these money already. I was asking to be fixed for 30 years.

I offered a better deal to them than what they took in the short sale but why did they decide to do the short sale?

Either way, what I have experienced with this whole Loan Modification idea is the fact that I was just basically being offered a "band-aid" to a "huge wound!"

I will continue to lose money if I went with their terms. But yet surprisingly, I had to think first. The hardest part was the "human nature" being factored in by the bank: People not "wanting to lose what is ours."

Again, I believe that for some people, a modification is okay so long as it serves their purpose and forgets all the numbers because the numbers will tell you to "GET OUT!".

Just another piece of my mind that I wanted to share.

Related Posts:

• Short Sales and Loan Modifications: Interview with Shayla Stitser

• A guide to Short sales and foreclosures in Reno

Located in SouthWest part of Reno on the corner of Juniper Hill Road and Mayberry, this is one of the most extravagant homes I've seen in the market.  It has three large ponds that sits on a 4.6 Acre property.   The area has been used by photographers and artists as a backdrop of their work, as well as an ideal place for romantic weddings and lavish parties.

There are three large ponds, a beautiful pavilion, bridges, gorgeous outbuildings, 11 car garage, a beautiful gated entry with stone, iron work and landscaping that looks like a sketch from a Master Artist.

  The home comes with 3 ponds

 The Pavilion overlooking the Koi pond

Recently remodeled, they added a guest house in the property:

One of the best features of this home is the three ponds opens up directly onto the Caughlin Ranch trails:

Did I mention it has eleven car garage?

(big garage)

  (small garage)

Throwing a party in the backyard has never looked this good:

 The main house:

DETAILS:

Address: 680 Juniper Hill Road Reno, NV 89509

Area: 161 Reno-West Southwest

Asking Price: $3,800,000

Bedrooms: 3

Baths: 4

#Garage:  6+

Stories: 1 Story

Total living space: 5495

Price Per SQFT:  $691.54

Year Built: 1954

Acreage: 4.26

Selling Agent: Allie Lecky of Keller Williams

 It’s been five years now since the Reno-Sparks real estate market fell off the cliff.

The market reached it’s peak in July 2005, and It’s been downhill ever since.  Just when I was starting to feel that our market was making progress, and perhaps hit a bottom of some sort (lower end); inventory balloons.

No bottom in sight, unemployment is pretty high, foreclosures in Reno-Sparks are up and people don’t have much room for spending.

Yet I feel hopeful.

I don’t think it’s some manufactured-out-of-touch-reality-think-positive type of premature hope.  But I feel a calming jilt of renewed hope and faith—that even though the worst might yet to come, we’re going to be alright. I don’t know exactly how but we’re going to be alright.

A friend of mine once told her son, “I can’t control the hurt others can inflict on you, but I do have control on the pain I can cause you.”

This financial recession is beginning to wipe away my sometimes relationship-dimmed-eyes; where I’m 15 minutes early to a short sale consulation meeting but 30 minutes late for my “Costco date” with my wife.

It taught me that the process is equally important as the end. Yes, to provide but also to be there—physically AND emotionally. And not surprisingly, being in those rare moments is more rewarding than a $700,000 closing.

That sometimes, scraping together to make the family budget can draw us closer than swiping away the card to a new bedroom set.

I guess it’s not all bad with this financial crisis.

Downtown Reno: Beside Century Theaters Riverside and SIlver Peek Grill

Summary: The tide has shifted.  It's a buyer's market for people looking into buying a home in Reno-Sparks.  "But that's old news, Joe!" Yes and no.  Not for lower end homes until recently.  In this post I share how you can benefit from it.

Back in 2008 the Reno-Sparks market slowly turned into a seller's market for starter homes $170,000 and below.

Many questioned my "theory".  I told them they didn't have to look far; They just needed to open their MLS (multiple listing service) and see that supply of homes in Reno-Sparks were at a five year low.  This was unexpected because the whole Country was experiencing high inventory of homes.

"The housing problem does not get fixed until we clear the inventory," said Nicolas Retsinas, director of the Harvard Joint Center for Housing Studies

Last summer, I was bidding above asking price for some lower priced homes--especially foreclosures. There just wasn't enough homes:

While demand was soaring to a five year high! : 

How can that happen? Investors and first time home buyers wanted the same thing.  While Banks (foreclosures) gently unloaded their foreclosures in the market--so as not to plunge the value of homes, regular sellers were hoping for the market to recover--they didn't want to sell, banks made it hard to borrow loans and locals can finally afford buying a home.  All these factors created GREAT demand. 

But the tide has shifted.

Yes, supply is still low.  Demand hasn't gone down drastically.  But there seems to be more choices out there even in starter homes.  I don't know the exact cause--could be a mixture of the expiration of the $8,000 tax credit and Banks unloading foreclosures at a faster rate.

Reno foreclosures continue to go up, creating more choices for buyers:

I discovered this when I took my buyers out last week.  Here's what they were looking for:

• $200,000 and below
• South Meadows/ Damonte Ranch Area--MLS area 143
• 3+ bedrooms/ 2 bathrooms

Guess how many homes showed up? 45 available homes. 9 foreclosures. 29 short sales. 6 regular sales ('equity sales').

That's a lot of homes.  Last summer, I'd be semi-lucky to be the first offer among the 10 available homes.  Take note that this area is one of the most sought after areas in Reno.

 What this means for you as a buyer:

• You can be more aggressive with your offers.

• Avoid getting attached to an area that may not have enough supply of homes (remember supply in general, is still low).  There are other areas that can accomodate what you are specifically looking for.  

Example: if you can't find enough homes you really like in Northwest Reno, it may be a good idea looking at some homes in South Reno.  You may be paying $20,000-$60,000 more but the benefits could outweigh the higher price tag. 

• Competition for foreclosures is not as strong.  If you don't want to wait, you don't have to.  Short sales still take a while.

• Less likely to have multple offers situation.  No rush in making a decision.

 Downtown Reno:  Corner West and 1st St.

Note: This post is targeted at investors.  Other type of buyers have different needs.  Homeowners, especially first time home buyers, are a different breed just because they would live in the house for at least five years.  But it won't hurt you to also have an "investor's point of view".  Hope it helps..

Average down: The process of buying a property at a lower price than you originally purchased. This brings the average price you've paid for all your other properties down.

I also define it as as having premature hope that the real estate market has already reached a bottom. In effect saying, "the market can't go any lower."

In 2008, two years after the Reno real estate market started to go down, two of my close friends decided it was time to invest in the Reno market. With the help of an investor, they bought six homes in Reno and Sparks priced between $200,000-$270,000.

They offered these homes as a rent-to-own program to potential home owners who couldn't buy a home because of bad credit. They reasoned that after five years (around 2012) they would hit the jackpot through the equity of the six homes which will have a "sure" buyer through the rent-to-own program (their current renters who'll turn buyers).

I told them of three potential problems (click on the graphs below to enlarge):

1.  The Reno-Sparks real estate market hasn't reached a bottom and it was clear that it was still going to go down.

Reno Homes Median Price 2007-2009 (graph below):

I showed them this graph--the average home in Reno was still falling, fast.  I asked them why not wait another year or two to see what happens in the market.  And if they wait, and prices fall, their mortgage would go down and they could also pull the rent down, thereby attracting more renters who would more likely afford the homes when they're ready to buy. I told them their strategy was solid, but the timing and execution was not good.  They told me that their strategy was for the "long haul" and they would weather the storm and that the market was not far from reaching a bottom.

Reno Homes Sold (demand) Dec 2008:

Demand, on average, was still going down.  I also remember back in 2008, people already felt the sting of the real estate market downfall.  Media was already reporting massive real estate problems happening all over the Country.  Fear was prevalent. 

My friends told me that the time to invest was when people were fearful.  Reiterating that this was "the time".  I understod where they were coming from--"buy-when-it's-not-popular-contrarian thinking".  This was the hard argument to reason with them, because in their eyes I sounded like the "negative doomsayer".  And that they were warned by their investor gurus that people would actually discourage them from investing and pursuing their dreams.  I told them that I'm just showing the facts to them and ultimately, I would respect their decision.

Reno Homes Supply:

Inventory of homes in Reno was down as well.  Many sellers were not confident in putting their homes in the market.  They were afraid to cut down their losses. Instead, they reasoned that the market will eventually bounce back and they can sell their homes back to 2005 levels. 

A classic example of a real estate depression is when buyers AND sellers are afraid.  Little activity in the market. 

2.  Foreclosures in Reno-Sparks were just starting:

As you can see in the graph,  Reno foreclosures significantly went up at the start of 2008.  This was the result of the rapid decline of homes that started in mid 2005.  More and more home owners struggled with paying their mortgage.  They started to miss on their payments, and at that time many people were still not properly informed about short sales.  Many just foreclosed.  This in effect pulled down the prices of homes in their respective neighborhoods.  Those were very uncertain times. 

 Once foreclosure goes up, median prices of homes goes down...

3.  Banks did not want to lend money.

As the financial turmoil were starting in 2008 (Bear Sterns going through a "crisis of confidence"),with the public's perception on banks at an all time low, sub prime mortgages continued to ravish the economy---most financial institutions decided to stand pat on their cash.  People were afraid.  Banks, more so. It was tough to get a loan that wasn't FHA.

As a disclaimer, there have been times in the past where I prematurely called a market bottom.  I called a bottom for the price range of under $200,000 more than a year ago, primarily because the numbers and demand for Reno homes were showing consistent positive signs. To my surprise, many homes still are going down even though demand is already up even in the starter home market.  Which just proves that we can't be smarter than the market--avoid averaging down. 

Does that mean that all home buyers should just completely ignore the market until a bottom is reached? No.  Every buyer has different needs and ultimately your role is to know the real estate facts and from there you can decide what's best for you and your family.  My job is to show you what's happening in the market--to show you the truth.

Just last summer, my sister in law asked me if it's a good time to buy.  Their budget was $120,000.  At this price, their monthly mortgage would be $900.  Their rent at that time was $675 for a one bedroom apartment.  We looked at some homes up North and they found a gorgeous 3-bedroom home that was still available at their desired price.  It had $20,000 worth of upgrades with a beautiful back yard, covered patio.  I told them this was their home. 

They knew that home prices may still go down but because they could afford the monthly mortgage and that they also wanted to move to a home (they had a 3 yr. old son and planned on having another baby), and planned on staying at the house for at least 10 years, not to mention the $8,000 tax credit.  I told them this was a good decision. 

They've been there going six months.  So far so good.  Two weeks ago, they received the $8,000 dollar check =).