The Pham family
Man, talk about the mortgage crisis affecting families. In the NY Times today, they profiled several families and individuals who have lost massive deposits on real estate purchases in the New York area: Up in Smoke. The Pham family above, for example, put down a deposit of $93,199 for a $956,990 2 bedroom apartment in Hoboken, NJ. They signed the agreement in 2005, but when their closing date came around this past September, they no longer qualified for a mortgage without putting more money down. Since they don’t have the additional funds, they are going to lose their entire $93,199. Even for rich folk, that’s a lot of money. Toll Brothers, the builder, is refusing to give them any of their deposit back.
Normally I’d be angry at the builder, but in this case, Toll Brothers itself is already taking massive losses, even without these contract defaults. They’re the biggest builder of luxury homes in the U.S.–a market that is getting hit hard these days–and I don’t know how much leeway they would have in paying back that money. The Phams are suing Toll Brothers.
I can’t say who is at fault. Part of me says that it’s crazy to put such a large deposit down for a home that takes three years to complete, but maybe that’s just the way it’s done in the New York metro area. Also, who would’ve thought that this credit crisis would’ve erased so many of those loan products that were once available? The contract clearly favors the builder in all of these cases, but really, who would’ve thought that the lending environment would become so bad?
I guess I should probably say something about those loan products since I’m in the industry. Despite what that mortgage broker says in the video feature (and she probably would say something like this since she’s trying to qualify for financing herself), a lot of these loans, including the one that Mr. Andriopolous wants, are risky. The article mentions only briefly that Beitler, Bretl, and Andriopoulos all applied for no-income verified loans. This means that they all applied for loans without submitting any documentation of their income, which means there’s no proof they have the cash flow to cover the mortgage. Since the conforming maximum in New York is $729,000, most, if not all, of these loans are also jumbo. Jumbo no-income loans = very risky. They can blame the banks for initially pre-approving and perhaps unintentionally misleading them, but make no mistake–the banks are right not to offer these risky loans right now.
No related posts.
But here is an...
I agree with everything you said. About #1…I think...
Wow. That would make me cry. I might already be just thinking about it… I’m actually trying to figure out a way to buy real-estate in NY… hmmm… that would kill me though…
It’s difficult for me to feel sorry for the Phams. A family with 2 small children do not need to spend a million dollars on a 2-bedroom apartment. Think about that. A 2-bedroom apartment. A million dollars. 2 small children. Is it just me, or is the financial planning here a bit shoddy on the Phams’ part?
Real estate prices on the East Coast must be insane. I thought people were moving to Hoboken/NJ because it was cheaper than living in The City. The Phams must be pretty rich to put down 90K deposit.
I think I’d live in a hippie commune if I had to pay those prices for housing.
Despite what that mortgage broker says in the video feature (and she probably would say something like this since she’s trying to qualify for financing herself), a lot of these loans, including the one that Mr. Andriopolous wants, are risky.
This is the infamous sub-prime housing loans, right? These banks and other lenders knew exactly what they were doing in lending out money to high risk cases, but they went ahead and lent anyways because they could profit from it. The sub-prime loans were a massive (and indeed criminal) scam.
I think you are all correct. I know for a fact that it’s possible to buy a place in that area for less than a million. They could’ve easily bought a spacious place in Long Island City or Queens for much less. Hell, they could buy a beautiful existing home in an upscale Queens neighborhood for that amount with a 30 day close.
I think the craziness is the long wait period. How much sense does it make to write an offer in 2005 that doesn’t get completed until the end of 2008? Things change, circumstances change. A long contract such as that one which provides guarantees only to the builder is dangerous by any measure. I mean, seriously, what if Pham got disabled or hospitalized in the interim and couldn’t work? He’d be stuck with huge medical bills, plus he’d be out $93 k, with or without the credit crisis.
Larry,
I agree! Ain’t much of a discount there, is there?
Technically it’s an Alt-A loan. The difference between subprime and Alt-A is that Alt-A was geared towards the borrower with good credit. Alt-A covered “good” borrowers who either couldn’t document income or had a small down payment–but as the numbers eventually proved, even borrowers with good credit are risky if they don’t have the money to cover the debts they take on.
The jumbo loan market is probably somewhat local, since Fannie and Freddie don’t create the guidelines for these loans (if anyone wants a longer explanation, feel free to contact me). I don’t know what kind of jumbo loans they have in NY, but my guess is that these people don’t have and maybe never had the income they stated on their original applications. I can’t imagine that every single lender would require 25-30% down on a loan where all income is disclosed, nor can I think of a reason the reporter would mention “no-income” so many times if it weren’t a deciding factor in their loan rejection.