For every 5 houses we show buyers, 1 is bank owned. That is an enormous number of houses that have been foreclosed in recent times… 20% of houses we show… While this is not an Official Statistic, it is our own experience. The price range is insignificant, as we have the same number of foreclosed or bank owned properties at prices above $600K as we do for homes below $300K.

What we have seen is that a good number of these bank owned homes had previously had negative amortization loans for the primary mortgages… if you are unfamiliar with what that loan product entails, let me just say that it is marketed as a way of keeping payments low, and of getting extra equity out of the house. What it really is, is a way of having monthly mortgage payments that do not completely cover the interest. By extension, this means that the equity in the home is not increasing, but is in fact decreasing with every month that goes by… the difference between the amount of interest owed each month and the payment amount is added to the principle of the loan.

In short, a negative amortization loan leads to decreasing equity in the home, which means that over time, even in an appreciating market, your home becomes worth less than you owe.

The math is not too hard, but reads poorly on the web… example, if your interest payment should be $100 per month, and you only pay $80 per month, your payment amount is less, but the total amount owed on the house increases by $20 each month, so unless the house appreciates faster than that, you will be behind the eight ball soon enough.

An then the interest rate increases. Payments become too high to afford, and you cant sell the house because in order to do so you will have to actually fork out cash from your pocket.

This is what, in part, has led to the many bank owned properties for sale that we see now.

Please… be careful in selecting your mortgage program… do your due diligence, and work with a trustworthy loan officer, who understands your needs, and who has your interest at heart.