As Congress began debating a $700-billion bailout plan for institutions stung by loose lending practices, C.P. Morgan sent
this e-mail last week: 
And in a separate offer, builder Estridge Companies has a program that "pays all of a buyer's home ownership costs, including mortgage, taxes, utilities and insurance" until January 2010. "Builders who listen to their customers, and creatively work with potential homebuyers without gimmicks, are the builders who are recovering from the national slump most quickly," Estridge CEO Paul Estridge Jr. said in a statement. What do you think?
And in a separate offer, builder Estridge Companies has a program that "pays all of a buyer's home ownership costs, including mortgage, taxes, utilities and insurance" until January 2010. "Builders who listen to their customers, and creatively work with potential homebuyers without gimmicks, are the builders who are recovering from the national slump most quickly," Estridge CEO Paul Estridge Jr. said in a statement. What do you think?
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Let's just say you are your own bank. You want to loan money to a potential homebuyer. And you do so with no financial commitment from the buyer, no down payment! You only have their signature. And on top of that you agree to pay their taxes, utilities, and insurance. Would you do that? Of course not.
Common sense has been thrown under the bus. We see it everywhere, our legal system, our judicial system, our public schools, our political system, and now our banking system. How much longer can we survive with the inmates running the asylum?
Isn't Countrywide one of the companies asking for a taxpayer bail out?
I think it is a huge mistake to have no moral hazard for the production builders and financial institutions that created this mess.
Personally I think these companies should be allowed to fail and that the government should just insure that their liquidations are completed in an orderly fashion. U.S. taxpayers should not be on the hook for all this bad mortgage debt, that responsibility lies with the institutions around the world that bought this stuff.
The Chinese loaded up on bad debts accumulated over the years by Communist party officials overriding basic business decisions in favor of state run companies.
What prevents our newly nationalized mortgage industry in the U.S. from making even worse mistakes than the private sector bankers?
JANUARY 26, 2004
Will China's Bank Bailout Do The Trick?
http://www.businessweek.com/magazine/content/04_04/b3867133_mz035.htm
What not allow the bankruptcy process to work, providing for the orderly liquidation of assets?
It's not your human or any other given right to own a new home, large home, etc. You have to earn it and be responsible enough to take care of your finances!
when i can buy an interesting and low maintenance house for 100k in a neighborhood where someone isn't murdered every other day, i'll buy one of those houses. in the meantime i guess i'll just have to make due.
But your comment about someone being murdered every other day kinda rubbed me the wrong way. For example, take commuter traffic fatalities into account, and it may be that 15 deaths a month (which is a highly exaggerated number on your part) might start to seem like a low number.
People have different opinions on what level of risk they are willing to live with, just as people have different attitudes towards what is interesting and low maintenance. Different strokes, you know?
Also, SE Guy: excellent point re: gimmickiness!
You have to know it's not just George Bush. It's the entire Washington corruption circus. And, yes, everyone should or needs to know that Congress actually put pressure on banks to make loans to people that couldn't make down payments and likely couldn't afford their homes. Following the edict: home ownership is a right not a privilage.
So if you want to play the blame game, start with the U S Senate. They are the bad guys here. And, none of them deserve a promotion, including the two running for President. They need to be turned out of office - ALL OF THEM!!
Not making excuses for President Bush, because I'm no fan of his either, but he was just doing what he had to do to prevent the US from sliding into a depression.
1. CP Morgan. More square feet. Less wood.
2. We'll help you buy them. Just don't call us to help you sell them.
If what you’ve stated is the case than it would not be as much of a gimmick. They are still allowing someone into home ownership without all of the costs associated with that investment. The cost of homeownership is much higher than just P&I. Taxes, insurance, and ongoing maintenance represent in many cases hundreds of dollars more per month in expenses. My modest home alone costs me at least $650 per month in taxes, insurance and maintenance. My guess is that one of the root causes of our current problems is that buyers are not aware of these expenses. Starting off with no equity makes it difficult to borrow for the first big repair; so many buyers just walk away. Thus Estridge is still feeding the problem. We need to learn that giving things away with no obligation is what has caused our problem. Folks need to feel as though they have something to loose, or they will not plan ahead, and the cycle will continue.
The unfortunate thing about this dialogue is the fact that a local reporter for the IBJ has done NO reporting on the subject of his post. No fact-checking, no added information he has garnered from talking to the parties involved, no analysis of data relevant to all of us living in Central Indiana. The local media regurgitates the national news and provides NO value. Central Indiana's real estate market is actually better than most of the country, relatively speaking. I wish the media would spend more time finding relevant information through in-depth reporting, and less time implying that local companies are to be blamed for a national financial crisis that NOBODY seems to be able to explain the cause. I would expect this on a social blog or something unrelated to business or real estate. It is a shame that the IBJ has really fallen to this level!! No matter what your opinion of CP Morgan or Estridge might be, there's no excuse for publishing destructive accusations without any background reporting, especially from the city's business journal.
In response, Ronda Cooper Director of Sales for CPM aka ReportTruth, why don't you spend your time figuring out how to sell a home without DPA or building a home that would appeal to someone who doesn't need DPA. It's hard to defend CPM. And finally please don't include a quality builder like Estridge in your rebuttle with CHEAP PEE MORGAN.
That's why we are looking at a $700 billion bank bail out and a government take over of the mortgage industry.
ReportTruth: You're absolutely right that Indiana's market has held up substantially better than the hardest-hit areas. But if it was strong, why would builders still be pushing zero-down loans and offering to pay all homeownership costs for two years? Aren't these the kind of incentives that got us in trouble? By the way, I've done quite a bit of reporting on the housing market. I look at housing numbers every week, and the numbers here just aren't pretty, particularly for homebuilders. I don't just write the bad news: Read this.
:lol:
WHAT!?!?! You have got to be kidding me. NOBODY seems to be able to explain that poorly-built McHouses all over the nation being sluffed off onto homebuyers in the name of keeping a sprawl-based economy churning along nicely and ignoring that these people couldn't actually AFFORD these houses is the root cause of this meltdown? NOBODY can explain that? I just did in one sentence, albeit a long one. Get your head out of your derriere and open your eyes. My god, where on earth have you been (assuming you've been on earth)?
For sure there have been builders and mortgage companies who have had a direct hand in creating the housing problems we are facing as a nation today. Many of the country's big public builders or giant regional builders preyed on the greed of the buyers to own big and cheap homes without having any money. Buyers were seduced by reckless mortgage plans, careless underwriting standards and aggressive sales techniques. Today it is clear home financing deals were done with minimal underwriting, with fraudulent documentation and those involved turning their heads the other way. And to top it off, the buyer was putting no money down on the home! In many parts of the country, the housing market was artificially inflated by speculators, creating a false market. Tens of thousands of homes were sold to speculators, not real home buyers. Home sales were not really homes sales and those builders and realtors and mortgage brokers involved all knew they were apart of this residential ponzi scheme.
Every builder who played this game, and every mortgage company who facilitated these loans, and even fraudulently reported lending documents in an effort to get the deal done, is an accomplice to one of our nation’s greatest scams on the American consumer. It was simply too much money chasing too few buyers. Money Pushers. People were lent money the original lender, builders and realtors involved knew would never be able to pay back. This would never have happened had the banks retained the risk. When lenders can separate themselves from the risk, this is what happens.
At Estridge, we are very proud that these practices have never been the business of our company. Over the last 200 sales, the average credit score of an Estridge buyer is exceeds 720. The average down payment is 17%, in excess of $50,000. Less than 3% of all the homes we have sold would be considered sub-prime. This is why Estridge customers & neighborhoods are not part of the problem America is experiencing. Estridge buyers are not sub-prime buyers. Estridge neighborhoods are not lined with bank owned homes.
Our latest Live Free & Easy Program, may appear on the surface to be a too good to be true deal. But to anyone taking the time to research and understand the truth and facts of the Live Free & Easy Program, it is clear that what we are actually offering is an authentic an genuine opportunity for buyers to own a Estridge home in a responsible manner. In this program, the customer must put up their own money, typically in excess of $20,000. The mortgage is a fully amortized 30 year fixed mortgage in the buyer’s name. There is no negative amortization, no game, no gimmick. Estridge is paying into escrow the all the first year’s ownership . Estridge bears the full cost of this incentive; the buyer completely wins.
I would hope that the next time you attempt to throw all home builders into the same “gimmick†box, you would take the time to know the facts and the truth about those builder. We need people who are willing to report the truth and what is really happening in our Indiana real estate market. Some of us are actually creating tremendous opportunities for our buyers, truly building better lives.
Paul Estridge Jr.
????? It looks like a gimmick, has a gimmicky name, and seems to operate like a gimmic, but because Paul Estridge posts on here and says it's not, we're supposed to somehow be convinced? I'm not.
...the list goes on and on. Call it what you want to but BillyBob, I am guessing you have been burned by the 90 days same as cash gimmick and now every marketing strategy out there is under your watchful eye. I am also guessing that you are not even in the market for a new house, but this ad got your attention so now there is no convincing you otherwise that it is truely a gimmick because it roped you in, just like it was intended to do.
If you are not in the market for a new house then leave it alone. But, if you are looking then do your homework and ask questions. Stop blaming all of the builders and lenders for your mistakes. Yes they are pushy and yes SOME of them promise gold and produce silver, but all home ownership has expenses. Figure out what they are and determine if you can afford it.
You are correct that I am not in the market to buy a house, but my tax money is being used for the bail-out; therefore, I am 100% an interested party.
I say it comes down to dumbazz buyers buying into shady financial deals - and that includes buying cheap houses in former cornfields. But White flight is a very powerful drug, and I would think in retrospect that staying in Marion County and taking care of what you had in the first place was/is more important than your feeble minded rush to HamCo and other such points, E, W and Greenwood.
Shame on the developers who scammed, shame on the banks that financed and let it happen - but most importantly, shame on YOU if you bought into these crappy deals.
Parse and spin all you want, sign me:
Happy as Hell in Washington Township.
:Wave:
I hate that this has happened to an industry that has been a very important part of the America that I love. The promise of affordable homeownership is one of the wonderful things about or country. I hope we have not messed it up irreversibly. Both of the companies we have discussed in this post are at the core good organizations that are desperately trying to survive a horrible time. That industry now more than ever needs to instill confidence in its stakeholders, and I think continuing this marketing practice is counterproductive. Let’s get back to the concept of delivering a good product for a reasonable price. Whatever happened to selling someone a solidly built home for their family in a neighborhood that they could love? Why does it have to be some kind of bargain?
Home sales were not really homes sales and those builders and realtors and mortgage brokers involved all knew they were apart of this residential ponzi scheme.
I'll cut anyone a little slack who is willing to call a spade a spade.
You ask, Why does it have to be some kind of bargain? I think you answered your own question. You said that the two builders mentioned are trying desperately to survive a horrible time. Bargains are what Builders are using to try and bring potential homeowners to their store front. The right question to ask is what bargains are ethical and also good for current homeowners? Many builders are using gimmicks and huge discounts on contract and inventory homes to bring in potential homeowners. These potential homeowners are looking for a bargain and are pulled into these unfortunate sales tatics. Many of them do not understand that when they purchase a house at a discount (free basement, 40k off, etc.) they are actually hurting themselves and the neighborhood. I praise Paul and other good builders for weathering this storm ethically. Keep in mind that greed has brought this crisis upon us and one great thing will come of it. The builders that are making decisions based on their customers well being will make it through.
You also stated that folks need to plan ahead as if they have something to loose. Think about your comment. That is a very negative way to live life. I believe the first part of your sentence is true. Plan. I feel that a person with a 720 credit score and 20K to put down on a house has planned and will have no problem with the extra future expenses.
When you look at the Indianapolis market (which is relatively stable) you’ll find that there are 15 builders that put 15 or more homes in the ground each year. Yet there are 303 builder members registered with the Builders Association of Greater Indianapolis. That means that the average builder will build between 1.5 and 2.7 homes this year.
So how do builders stay competitive? What makes one builder stand out from the others?
Every homebuilder in town builds a top-quality home at an affordable price (just ask them). Some are more affordable than others…but they all adhere to published standards.
Many builders have tried to differentiate through price. Every homebuyer wants to feel like they’re getting a deal. That’s why many builders provide a free basement or $20,000 in free designer upgrades as a sign-today bonus. But this ‘gimmick’ kills home values in the neighborhoods. If I buy a house today and get $10,000 in free options and you buy next week and get $20,000 my home instantly loses $10,000 in value. Inexperienced new home buyers may not realize this at the time of purchase but it’s been an industry standard for years.
I applaud companies like Estridge for creating a valuable program to move spec homes in an oversaturated market while not discounting to harm the values for existing homeowners.
But the program only works because the buyer has to put ’skin-in-the-game.’
Paul posted “the customer must put up their own money, typically in excess of $20,000.â€
I think as a Indianapolis homeowner and concerned citizen that there are some companies that are trying to do the right thing in a difficult market. I only wish more builders tried to build value into their homes and not discount to make a quick buck.
What happened to personal responsibility? If I am not mistaken, everyone purchasing a home with a mortgage is an adult. You need to have sound mental capacity to enter into a binding agreement. The name adjustable rate mortgage implies that the rate is going to change. People were speculating hoping to get rich with their home. (greed)
Yet no one is pointing the finger of blame at the buyers either.
The problem now is so big it affects all of us. It is not the time to look for someone to blame, it's time to fix the problem.
I find it funny that neither C.P. Morgan or Estridge Homes are builders known for discounting their homes. In fact both are well known for not discounting their pricing.
Neither C.P. Morgans 0 down lending program nor Estridges Live free program have been sited as contributing to the current credit crisis. Neither program can be considered as a 'loose' lending practice either.
So I guess my real question for Cory is... Whats your point?
But could I ask Mr. Estridge, Paul, Jr. a question? From what he's saying, if I agree to buy a house from him for say, $300,000, and he then agrees to pay the first year's payments, well let's say that's maybe $25,000...in that case, could I just pay $275,000? Which is what he would net?
Can we stop artificially inflating the value of the house? Mr. Estridge, that's where us folks see the gimmick.
You missed the point many of us are trying to make. The house next door to the one you bought for $275,000 and the several around you just lost $25,000 in value. The value of the house stays the same when you purchase it for $300,000. Paul is out $25,000 from his bottom line. He has to stay competitive with the other builders that are giving away basements and options.
Rob and Jayson, thank you for your comments.
My question of why does it have to be a bargain was rhetorical, and you misquoted me. Here is what I said in the first post, “Folks need to feel as though they have something to loose, or they will not plan ahead, and the cycle will continue.†Next time get it right. My point is that without the threat of financial loss many people will not safeguard possessions like their home. Being prepared for a potential problem is part of being a responsible homeowner.
The point is if you as a seller give away anything in the sale of a product you are devaluing that product.
As a former appraiser who has spent time reviewing sales disclosure forms at the assessor office which do not match the gobbly-gook posted on the former mls now known as the broker's whatever, I can assure Just-n-time, that it is the licensed appraiser's job to account for these factors which articially inflate the selling price and net out the true market value.
Thanks thundermutt and cranky.
Let us keep this simple and maybe one of us can walk away with an understanding of each others perceptions/opinions. I do have to apologize for my misquote, but I do it with a smile. I did not misquote you on purpose, but that is exactly what the media does to convey a point that might not be true.
Thundermutt, you are looking at the Live Easy program as a discount. I do not understand your reasoning. Let us put it into numbers. I like SE Guys car analogy.
You buy a car listed in the paper for 10K ( Home List Price) for 10K (Selling price). The blue book (market value/appraised value) is 10K. As you can see no discounts were given to the buyer. After putting 10% down (required down payment) and showing you have good credit (720+) you receive a 30 year fixed rate loan for 9K. To make it easy let's say your monthly payment is $10 a month. Your friend decides to give you a gift. He says he will pay your monthly payment until 2010. You put $150 bucks in your pocket over the next 15 months. Has the true market value of the car changed? Did your friend pull one over on you? Is there a gimmick involved? Has the car's value been artificially inflated? The existing car owners are not feeling a loss because they just bought their car. The average homeowner stays in their home for 5-7 years.
:lol:
If your friend who gives you the gift is the dude selling you the car it’s not a gift it’s a discount!!! Don’t you think the next person buying a car from that same dude is going to want the same deal? Then the next thing you know all of the people out there trying to buy the same car second hand realize that the original seller is discounting, and they demand that discount on resale as well. Then the next thing you know the blue book value falls based upon this shadow discount and the banks are no longer lending $9000 on the same car. They will only lend $8100 on it.
Does this scenario sound familiar?
Here's the thing: today information and statistics are available in a few keystrokes. So anyone doing their due diligence on an Estridge or CP Morgan development will know what we know: discounts are available. Only a fool would pay $300K for a used house down the street from the new one Mr. Estridge will sell with a $25K rebate.
Thank you for your civil tone. I will try to learn from your good manners.
Here's the deal, though, as far as your car analogy goes, it depends who your friend is. If it's a disinterested third party, then your logic is correct.
However, the definition of market value is the price that a buyer and seller are willing to agree upon. In your case, it's clear that the seller is willing to sell the house at a $25k discount or accept $275k.
And the buyer only thinks he is getting a good deal. He's forgoing 12 months payments, etc., which sounds like a good deal, but in truth, he's also overpaying or overfinancing the value. If the buyer wasn't so ignorant or short on cash(?), why would he take out a loan for $240K ($300k - 20%) when he could take out a loan for $220 ($275 - 20%) which would offer him a lower payment and less interest costs?
I stand by my conviction that this gimmick is an effort to artificially inflate the market value.
It's obvious why the builder/seller is motivated and the lender agrees to it because of the extra interest income, but where does this leave the buyer? Clearly, neither the seller nor the lender is looking out for the buyer. Sound familiar?
And the idea of some how protecting the neighbors home values with this gimmick is bunk. All existing homeowners are suffering this problem right.
ok. Look at the analogy this way. The gift (here is 40K for you buying my house) is given by the seller. The seller owes 5k ( cost to build the house) on the car. His profit on the car is 10K-5K-$150. At the time of sale the car is still worth 10K. Also, the value of the car stays the same without hurting the value of other similar cars. If the cost was 275K, the people next door that spent 300K would loose just like what was said in previous statements. That is not an option.
You are correct about the downpayment of 10% and 20%. You and I both know there are many factors that go into why a person would put 10% or 20% down. I personally look at a home as an investment. Many look at their home as a place to live and raise a family. Do you want your money tied up in something that is not increasing in value or even loosing value, or do you want to risk other investments? PMI, ...many variables. Also, 10% gives buyers an option to own a house right? I wonder what the percentage of people that have 60-120k to put down on a house is in the Indy area? Jayson?
Some, like you said, would want the lower monthly payment and others would rather have no payments for 15 months. Others can afford the extra payment per month and would like the extra cash.
I am looking at the Live Easy plan as a lower profit margin selling tool.
If all of the builders had a similar deal, it would come down to who would be willing to make the least amount of profit and stay in business. The values of the homes would stay the same. Now the only big variable would be supply and demand, like our econ major stated.
The scenario you have presented could potentially be defined as fraud. If you execute a sales disclosure form in Indiana, and then transfer funds to the buyer outside of the closing you have artificially inflated the value of the home for taxation purposes. You have indeed reaffirmed the value of that home and similar homes in the eyes of the government, but decreased its net market value. Only a foolish person would take that deal. At the conclusion of the 18 month period he would be the proud owner of a $279,000 home (that is giving a 2% appreciation over two years) that is taxed on a value of $300,000.00. He has basically lost almost all of his equity. If there is no appreciation of home values his initial discount of $31,500 (about $1750 P&I per month) took the value down to $268,000.00. At that point if he had to sell he would have to pay 7% in real-estate commissions lets pray he could sell it for 98% of the appreciated value. That is $273,420 minus the commission of $19,139.40 equaling gross proceeds of $254,280.60 before closing costs. By that time the mortgage payoff will be about $265,680, so our initial buyer (now seller) will need to bring more than $11,400 to closing. Will the builder pay that expense as well?
Our country is in a financial crisis in no small part caused by this type of back room dealing and Pollyannaish market value assumptions. If we have learned anything it is that we need to turn our back on this stuff and get back to simple supply and demand economics.
What happens if the builder in Estridge’s scheme goes bankrupt before the conclusion of the 18 month period? Is the money going into some kind of escrow account in the name of the homebuyer? If that is the case, how do you account for that?
http://www.irs.gov/newsroom/article/0,,id=107815,00.html
It seems that Estridge would have to pay taxes on the gift... and that the buyer (the recipient) would not have to pay taxes on it... and that's only if the value exceeds $12,000 (which in this case, it seems it would). Anyway, the gift tax only applies if it's over $12,000... if it's under $12,000, it doesn't matter if it's a relative or not. And according to this brief overview (the link), even if it is over $12,000, you only evade the tax if it's your spouse (no other relatives included). It lists three other ways to evade the gift tax, but not anything to do with relatives.
There is no question that a reseller of an existing home always struggles to compete with the new homes being offered by the builder in the neighborhood until the development is complete. The original seller (builder) always has an advantage over the existing resale homes. As a builder we have to make a decision on what we believe is best for all stake holders involved: current homeowners, prospective home buyers, the overall market as well as our company and its employees. Faced with a 50% drop in the market we can:
1. Stop building and allow the neighborhood to become stagnate, over grown with weeds and watch as existing home values begin to plummet.
2. Slash prices and keep selling homes to buyers who are willing to buy homes in a neighborhood dropping in value while forcing existing homeowners lose their equity.
3. Continue to sell and build homes in the neighborhood at the same values as existing homes purchased while creating a very substantial savings to the first year of ownership costs to the new buyer.
We choose 3.
Cranky, how would you like to have just bought a home from a builder a year ago for $300,000 to realize the builder is now selling it that home for $275,000?
If builders are already more competitive in their ability to sell new homes over existing homes, are their past customers better off if the builder begins discounting home selling prices just to move product? Cleary not.
Lastly, if one looks at it from a buyers perspective, would you prefer to buy a product with advantageous financing that is holding value or a home at a deep discount in a neighborhood falling in value?
Let’s do the math: Your discounted $275,000 home with a 90% mortgage at 6.0% interest will have a P&I payment of $1,483. Your mortgage is $247,500. Our customers will have a payment of $1,618 beginning 15 months after you begin your payments on a mortgage of only $270,000.
Which home is likely to hold its value?
Which home would you prefer to have purchased a $300k home next to the year before?
Which home will cost you the most to own in one year, two years, three years…..
Which home purchase allows you to have saved $24,000 in the cost of living over the next 15 months?
I appreciate everyone’s comments, thoughts and willingness to dialog on an important and real topic which we all face from our own unique perspectives.