Where To Now Martha's Vineyard?

Are you upside down? Did you know one in four home owners in America with a mortgage are under water? By that I mean their home is worth less than what they owe. The beginning of 2010 will see more Option ARM’s coming to term. In many cases where home prices have fallen drastically borrowers are so deeply under water that they can't refinance their mortgage in order to take advantage of take advantage of the current lower rates. "We're declining hundreds of loans each month," said Steve Walsh, a mortgage broker in Scottsdale, Ariz. "The only way we will make headway is if we allow for a streamlined refinance where the appraisal is irrelevant."

5.3 million homeowners have mortgages that are at least 120% of their homes’ value. According to Mark Fleming, chief economist of First American Core Logic, homeowners whose loan to value ratio is greater than 120% are more likely to default and 520,000 of these borrowers have received default notices. Even if they want to sell (Short Sale), they can’t afford to --- they’re stuck. Sanjiv Das, head of Citigroup's mortgage unit said "Beyond 120%, the most effective modification is a complete loan restructuring, including a principal reduction. Mr. Das goes on to say “Borrowers who are less than 20% under water are likely to maintain their mortgage if their loan is modified and the payments reduced”.

As financial institutions continue to struggle with how they are going to solve the mess they have created, about 588,000 borrowers defaulted on mortgages last year even though they had employment and could afford to pay. That is more than double the number in 2007, according to a study by Experian and consulting firm Oliver Wyman. "The American consumer has had a long-held taboo against walking away from the home, and this crisis seems to be eroding that," the study said. Previously the advice to borrowers has been, only by defaulting on their loans will lenders pay attention and consider adjusting rates and principals in line with today’s market. However, lenders have been reluctant to reduce mortgage principal over worries about "moral contagion, with people not paying their mortgage or re-defaulting because they believed the bank would reduce their principal," Mr. Das said.

I expect that we will see more loan defaults on Martha’s Vineyard and more foreclosure auctions at the beginning of 2010 despite the fact that we have leveled out in our market. In the early 90’s we called this moment in the market a “trough”. I also think the Martha’s Vineyard recovery will slow down because; with the optimistic forecast more less-motivated homeowners have placed their properties back on the market at overly optimistic prices. I believe the result will be a stall in the market because everyone is confused. However, I still maintain that this is a great time to buy. Look at what you have going for you. Interest rates hit an all time record low this week averaging 4.78% on a 30-year fixed-rate mortgage --- this has never happened before in all the time Freddie Mac has been keeping records. For comparison sake, the interest rate last year was 5.97%. "Interest rates for 30-year fixed-rate loans are currently 0.8 percentage points below this year's peak set in mid-June, which shaves roughly $100 off the monthly payments on a $200,000 mortgage," said Frank Nothaft, Freddie Mac chief economist. Interest rates will only go in one direction from here, and don’t forget the extended and broadened home buyer tax credit; it no longer applies only to first time home buyers.

I want to urge you, if you see something you like take a run at it. You will never know what you can negotiate until you engage, but be patient, realistic and resolute in your objective. $20,000 one way or the other today is not going to make a difference ten years from now.