You Can't Fix LTV

There's a comedian on TV who's gig is

"YOU CAN'T FIX STUPID".

Is it Ron White? I think so.

I've never seen him. Not for any other reason than I don't get a chance to watch much TV.

This has nothing about stupid. It's about LTV.

Loan to Value. It's a ratio of what the property you live in is worth by what you owe expressed as a percentage. Zero % would mean you own your home outright. 100% would mean you have no equity.

LTV has nothing to do with your intelligence. A low LTV doesn't mean you are smart, and a high LTV doesn't mean you are stupid. I prefer not to call anyone stupid anyway. It must be the father in me.

But high LTV can kill your ability to refinance or purchase. On a purchase, the remedy to High LTV is simple. Put more down. or put the same down on a cheaper house. I know that might not be simple to do but it's simple to explain.

On a refinance, your options are even simpler. Unless you actually have and want to come to the closing table with cash there is only one thing that you can do. Wait. What are you waiting for? Appreciation.

I don't have to tell you that appreciation is somewhat scarce these days. The problem with appreciation is that it's dependent on your neighbors. Appreciation is comparative. If your neighbors home goes up in value, so does yours. That's the rub. If your neighbors house goes down in value so in turn does yours.

The problem is your "neighbor", not Old Mr. Wilson next door, but the ones that live within a radius of your home. Yeah, those people you don't know. They are in trouble. their trouble is bring down your home.

Almost a year ago I wrote "The LTV Crunch". I followed that 2 days later with "The Foreclosure Crunch". It's two of the highest traffic / linked posts I've written.

Let's draw a 1/4 mile circle around your home. Now, everyone in that circle who is in foreclosure, who has already foreclosed, who is in a short sale situation, or needs to really sell their property will all have a profound effect on dropping your value. That drop in Value raises your LTV.

Here's a chart showing a little street in Concord. It's called Mohr Lane. Currently there are 140 distressed properties on this map. The Blue P means they have been served a Notice of Default (the first step in the foreclosure process). The Purple B means they are bank owned (generally meaning they have already gone through foreclosure). The Light Blue A stands for Auction properties. You can easily classify them all as distressed properties.

What the chart doesn't show are the Short Sales. These are MLS Listings that need to sell at a price lower than what is owed to the bank.

Guess what? Most short sales sell below their actual market value.

If you live on Mohr Lane how long until your home starts appreciating? We're going to have to sell the above homes before we can start thinking about that.