Mr. Seller is upside down on his house. He realizes that he can buy another house in the same neighborhood for the new “reset” value, which in Park City is about 30% below the peak. Mr. Seller becomes Mr. Buyer of a nicer house than he currently lives in and his mortgage is about 40% below his last mortgage because of course, he was overleveraged. Once Mr. Seller (now Mr. Buyer) is moved into house #2, he walks away from house #1. He has a new mortgage at a stellar 30-year fixed rate so he doesn’t care that his credit is ruined for 7 years.
I heard about this new tactic and didn’t think it would really effect me until….a local bank decided that my preapproved buyers, who are NOT upside down on their current home…are a “high risk” for this tactic. Even though we have their current house listed for sale on the MLS, their loan for their move up house is “stuck in underwriting”.
Just when many of us were exhaling a sigh of relief that the real estate market is picking up, the banks are throwing a new curveball at us.