On the Market: Homeowners reducing principle loan amount
Sunday, February 13, 2011
Steamboat Springs — Freddie Mac reports that a growing number of homeowners refinancing their mortgages are choosing to take the occasion to reduce their principle balance.
In the fourth quarter of 2010, 46 percent of homeowners who refinanced their first-lien home mortgage lowered their principal balance by paying-in additional money at the closing table, according to Freddie Mac. This is the highest “cash-in” share since Freddie Mac began keeping records on refinancing patterns in 1985.
“Cash-out” borrowers, those that increased their loan balance by at least 5 percent, represented 16 percent of all refinance loans — the lowest cash-out share since the analysis began in 1985. The average cash-out share in the past 25 years has been 62 percent.
Alpine Bank of Colorado reports $48 million loss
The Aspen Times
Alpine Banks of Colorado lost $48.18 million in 2010 as it continued to shed bad loans and other assets that went sour during the recession, President and Vice Chairman Glen Jammaron said.
Alpine Bank, like many banks in the country, saw its non-performing loans soar in 2009 and last year as the wrath of the recession was felt. Some loans made for real estate acquisition and development couldn’t be paid off by borrowers. Loans often were secured by property, which ended up back in the hands of the bank through foreclosures and other steps.
Jammaron said the bank isn’t in the real estate business, so it tries to clear the troubled assets off its books as quickly as possible. Alpine has sold some property at a loss and held auctions for other properties.
The bank’s strategy was to respond to the problem as quickly as possible rather than spread the financial pain out throughout several years. So in 2010, the bank wrote off nearly $90 million in loans, he said.
“We wanted to put the bad year behind us in one year,” Jammaron said. “We want to make sure we make money in 2011.”
It is inevitable that more loans will have to be written off in 2011 and even in 2012 as some borrowers struggling to make payments find they cannot do it. “We know we’re not done,” he said.
Comments
Scott Wedel 2 years, 3 months ago
"Freddie Mac reports that a growing number of homeowners refinancing their mortgages are choosing to take the occasion to reduce their principle balance."
Now that is spin on steroids. "Choosing" as in when a robber puts a gun to your head then you choose to hand over your valuables.
Real world situation is that for most all that bought in past 5 years that if they want to qualify for refinance then the owner must bring cash to the table as a belated down payment. And with all of the creative loans of recent years, there is no shortage of people with balloons or other variants that require refinancing. So the option is for owner to either bring cash to the table for a refinance or allow the property to be foreclosed.
Just like people are not suddenly financially responsible and declining to do cash out refinancing, the real world situation is that is not an option for almost everyone.
ybul 2 years, 3 months ago
Maybe people are getting financially responsible. People see in insanity of our federal governments spending, they realize that they need to save in order to retire. As opposed to saving by investing in a CD earning a paltry 1% interest rate, they can pay down their mortgage and earn 4 fold that in savings.
The governments social engineering scheme of mortgage interest deductions and IRA savings schemes may not pay as well as simply getting out of debt. Yes people do change behaviors, they learn from their errors, when using their own money and understand the financial consequences of their ways.
Scott Wedel 2 years, 3 months ago
ybul, People can almost always pay additional principle and do not need to refi to pay down their mortgage faster. The reason to bring cash to a refi is because that is what was required to qualify.
I think you greatly over estimate how much people have changed their financial habits out of choice vs having no other choice. Looks to me like property buyers very much still want minimum down payments, but find it very hard to find anyone willing to make those loans.
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