The Mortgage Mess: Part 1...

We are renting a 2000+ sq ft house in Mountain House,CA which was intended as a foothold to get to know the areas before deciding where we wanted to settle down. We checked out new construction in Livermore last year where they wanted over $600,000 for a condo. We looked at the numbers and then at the Shea representative and questioned how anybody can afford this. If you haven't been following the news the past six months -- the answer is not many people could.

This past Sunday Carolyn Said in the SF Chronicle reports:

The lending debacle, which wiped out hundreds of billions on Wall Street, made the stock market tank, triggered hundreds of thousands of foreclosures and led the nation to the brink of recession, may be the biggest financial mess of all time.

According to the San Jose Mercury News:

Some 316,769 California borrows received subprime loans in 2006, the study said. The foundation said that in 2006, more than 90 percent of subprime mortgages in California were adjustable-rate mortgages and the "dominant type" of subprime loan was one that reset in two years. In 2006 there were 12,672 foreclosures in California according to DataQuick Information Systems. In 2007 there were 84,375, an increase of 565.8 percent.

The Tracy Press reports on Mountain House that there have been

50 * homes that have fallen into some stage of foreclosure in the past six months

There are only around 2000 rooftops in Mountain House.

The other day we got a business card in the door. Written on the back was the owners name with a note "I'd like to help you with your situation". The other side of the card identified it was from a risk mitigation real estate company. I called up the property manager who was able to confirm that the home we are renting has had a first notice of default.

What we know so far:

• The owner owns more than one property in foreclosure
• The owner stopped paying the mortgage, but the property management company informed them they must put our rent toward the mortgage or face criminal penalties
• It usually takes a minimum of 120 days to reach the point of foreclosure
  
• The property management company has our deposit so the owners can't run away with it
• Banks can only have some percentage of homes in foreclosure at a time or risk losing access to federal funds -- so we are probably in a queue of homes until the bank can get to it so we might have as long as 6 months
  
• We haven't received it in writing yet, but are being given 60 day notice from the owners, after which we can stay as long as we pay rent up until the bank tells us to get out, and we can leave at will without giving notice
  
• The bank must give us at least 30 days, but we might be able to argue for 60 days since we've lived in the house for more than a year

This means we need to find RJ a new bedroom sooner than we had anticipated. We have started weighing our options which we'll discuss in the next post.