The Collected Works of Author and Blogger Larry Roberts

Archive for June, 2015

Many delinquent mortgage squatters game the system to enjoy free housing for as long as they can. It's no secret that banks are willing to modify any delinquent loan if the borrower merely asks. Since nearly all the outstanding delinquent loans are properties worth less than the outstanding loan balance, banks are unwilling to foreclose and record the losses, so they will cut any deal possible to get some repayment until the value of the house rises high enough the bank can make a full recovery in foreclosure. Since banks are willing to give any delinquent borrower a loan modification, any borrowers who are still delinquent are delinquent by choice -- they would rather squat than pay anything. It's difficult…[READ MORE]

The next generation of entry-level housing won't be built if lenders burden the available land with bad bubble-era loans. The valuation of land used for residential housing is mysterious and often misunderstood. The valuation of lots and raw land requires a detailed knowledge of construction and marketing costs as well as a good estimate of the sales price of the final product: a residential housing unit. In short, the value of a lot is the total revenue (sales price of the home) minus the costs of production and the necessary profit. Land value is a residual calculation. The value of a piece of land is whatever is “left over” after all the other costs of production and profits are subtracted…[READ MORE]

Do Millennials reject the American dream of home Ownership, or does it reject them? If you are over 40, when you entered the workforce, you had little or no debt, there was a job waiting for you, and house prices were affordable. All you needed to do was save a few bucks, and you could buy your own home and live the American Dream. If you are under 35, that isn't your reality. For those over 40, I want to perform a though experiment. Imagine you graduated college in the last 10 years, and in order to get the degree that qualified you for a high-paying job, you must give 10% or more of your gross income to a lender…[READ MORE]

Voters warm to the idea of reforming Proposition 13, but large financial interests would vigorously oppose any attempts to curtail their subsidy. As we discussed yesterday, California is limited in its ability to tax real estate by Proposition 13. Proposition 13 limits the tax rate to 1% of purchase price with a small inflation multiplier allowing yearly increases. Ostensibly put in place to prevent government profligacy during periods of rising real estate values, it's devolved into a tax-shifting mechanism that greatly benefits owners of commercial real estate. Proposition 13 tends to limit move-up trading because it requires owners to increase their property tax bill, sometimes dramatically. There are basis transfers and ways around this problem for certain people who qualify,…[READ MORE]

Other necessary costs of ownership consume a quarter to half the amount borrowers could potentially put toward loan payments. When lenders calculate how much they are willing to loan to any particular borrower, they measure the borrowers income from wages and other sources and calculate how much of that monthly income is available to pay the debt. One limitation on borrowing is the front-end ratio, generally 31% of verifiable gross income. Lenders assume that a borrower can afford to spend 31% of their gross income on all housing related expenses and still have enough money left over to pay all other obligations and have a life. This 31% is called PITI, or principal, interest, taxes, and insurance. The lender is primarily…[READ MORE]

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