mortgage mess

[Tinster]

Same mess here in Puerto Rico.

We live in an up-scale, gated community of 320 single
family homes. Close to 50 homes are for sale now.
Mostly "for sale by owner" in an attempt to squeak out a
few more $$.

I know of one guy who bought a home here and he had no
income to support it long term. It's fallen in value at
least $100K since his purchase, he's about to lose his job
and his low, introduction interest rate just got launched
upward. He's in a panic.

I call it the "greed factor" all around. I really have
little pity for ANY of the players in this mess.

just my 2 cents.

d

 

[Brooklands]

The living beyond one's means syndrome is not a new development. There have always been people doing it. My brother-in-law from my previous marriage was a bank president, and he was always worried about the people he knew who were living well with unbelievable debt ratios, mostly from multiple credit cards...

 

[NutmegCT]

Well, from my 1830s background ... I'll sure admit that folks have lived beyond their means for a *long* time.

But the way this disaster is unfolding, it's showing that we haven't progressed very far. In the 1830s if you lost your house, you lost your house. You moved in with relatives. There was no such thing as a mortgage, or "collateralized mortgage-backed securities", or multiple SUVs and motorboats in the driveway. You couldn't borrow money at all, unless you were a business. And even then, the maximum loan length was 30 days. Yep - 30 days.

Nowadays, the ill-informed (or ill-educated) family which "owns" the $400K house, two SUVs, motorboat and motorhome on a $35K salary can bring down a whole economy.

It's not really a "mortgage" issue. It's a complete lack of responsibility, "oh honey that's cute let's get one" issue.

Onward through the fog!
Tom

 

[bugimike]

OK, admittedly, these people are living way beyond their means, but why are the lenders taking the risk on them? Do they like losing money or is there a hidden silver lining in it for them to do so?

 

[Guest]

The person doing the lending gets a commission.
The corporation doing the lending takes the loss.
The person is not affected (unless the corporation goes out of business of course).

If the person who approved the loan had to repay their commission if it went belly up, you'd see standards tighten in a heartbeat...

 

[Sherlock]

The only problem I see (really) is that the combination of the two factors 1) people who are greedy for what they can't really afford & 2) irresponsible lenders who hand out these mortgages... have the effect of dragging down the economy for everyone else who is responsible with their money (who I suspect are the majority of people)

And with the size of the American economy all of this ripples across economies worldwide having a negative impact.

 

[lawguy]

This whole issue has me royally PO'd, but may end up personally benefitting me.

Call me stupid. You see, I still live in the first house I bought about 9 years ago. I paid under $100,000 as a brand new associate attorney with student loans, a child and one on the way. Not accounting for unrealistic optimism- if I wanted to sell it today, and I mean today- I could sell it for $130,000- if I wanted to wait a few weeks, another $10,000. It is a modest starter home, but with a bit more room and a few neat details- there will always be a decent market for a house like that.

My income is literally 200+% of what it was when I bought the house and I have been looking for a new place (buy or build) for 2 years- so far nothing has met my desires, which I am willing to wait for (4+ acres, 5 bedrooms, out in the country).

Most houses that meet my criteria cost more than I want to pay...not that I couldn't get approved for it...but I will not let someone else decide what my budget is. After all, their goal is to take as much of my money as they can. However- the prices are coming down, oh so slowly, but they are. My house, due to its price point in our area will not devalue, but the houses I want will. Good for me.

As for "predatory" lenders- I would hate to see public money, my money, used to bail them out....or the "victims" who let envy drive their buying decisions, but provided the proper disclosures were made and the law was complied with- I have no sympathy for a person who refuses to be relaistic about they can afford or is so short-sighted that they believe that historic low interest rates will never rise.

I am not jealous of their over-sized, overpriced and over-mortgaged home, but I suspect they may be jealous of my low house payment, absence of car loans and complete unfamiliarity with consumer debt. I am willing to wait until I can afford more without a strain. I guess I don't fit in today's world.

Again, stupid me- I locked in a fixed rate at the historic lows. I guess no one will bail me out...but then again, I don't need it.

 

[PATR8]

I have be watching this thread, interesting reading. It says allot about the country's mentality. Even with Katrine they were interviewing a lady who had lost her house. Of course it was the governments fault for the flood so they owed her a new home. It was an interesting interview listening to her point of view right up to the point where she admitted she did not actually own the home, she was on section 8 housing paying $28 a month (that is right $28 a month with the tax payers paying the rest of her rent) and now she deserved a new home of her own.
I am like most one here so far, very little sympathy for the home buyers who should have known they were way over their heads and NO sympathy for the lenders.

We have a very nice gated community near us where my neighbor works as a realitor. She says the turn over rate on the homes there is nearly 30% a year from young couples wanting to live the gated community's dream on a trailer court income. She says there are homes there with rented furniture and leased cars, people she knows can not afford the homes but always seems to get the loans. She tries to warn them to include the speech about the huge turn over but to no avail. She likes it cause she has sold the same house 3 times in the past 28 months

 

[tony barnhill]

hmmmmm....we're looking to buy a "warm weather" place - New Orleans, Alabama/Florida panhandle Gulf Coast - maybe this situation will work to my benefit!

Puerto Rico...hmmmmmmm...never thought about that location....

 

[jlaird]

Bah Tony, just put another wing on the garage.

 

[tomshobby]

I remember going to college nights for two years taking 72 credits while holding a full time job and fully paying my own way while taking care of my family. 3.96 GPA. I also remember walking the halls at school in my shop clothes and being snubbed by other students, many of them also going to school on my money (and yours).

Now after working hard the last 4 years developing a new home construction tool, then building prototypes and proving the design, and finally manufacturing it only to see it start like wildfire and then hit the skids with this mortgage mess. Yes, I was heavily invested in it and will loose big time, but I will be the one loosing, not the taxpayer. I would not have it any other way. Though it would be nice if the government were a little less of a hog at the trough when I do well.

 

[NutmegCT]

Believe me, it's great to read there are still folks who limit (or shun) debt. Thanks for posting your experiences- renews my "faith in mankind".

Someone asked why lenders approve borrowers who pretty obviously can't afford the debt they're taking on.

One thing that comes to mind immediately: private (or lender) mortgage insurance. The buyer pays a small amount extra each month to "guarantee" that the lender won't lose any money if the buyer can't meet the mortgage payments. In a few cases, it's the lender itself that purchases this insurance. Thus, if the buyer tosses in the towel, the lender hasn't lost anything.

Another interesting development in the last 30 years or so: the collateralized mortgage obligation (CMO). Lenders actually "sell" their mortgage to another corporation, which bundles the mortgages (hey - they're worth something, right? and they're guaranteed, right?) into a package of collateral which actually issues its own bonds. Buyers of the bonds "lend" money to the owner of the package, and receive dividends from the owner. Similar to you putting money into savings, and getting interest on it. So the CMO is actually a legal entity itself, borrowing money and paying "interest".

And as more and more folks bought houses they really couldn't afford:
1. seller's agent got a 6% commission on the sale price.
2. lender had an "insured" mortgage
3. lender "sold" new mortgages in a package deal to major banks
4. major banks took the packages and created CMOs
4. CMO issued bonds based on the "value" of its mortgage packages
5. CMO paid dividends to the firms which lent it money
6. lenders looked for more people to sell houses to
7. more buyers got "the house of our dreams" for a temporary low payment

and the circle goes round and round ... 'til it collapses of its own weight.

Ain't this fun? By the way, I doubt there will be a huge amount of "public" (federal) money paying for all this mess. The mortgages were insured, so only the homeowner gets swamped. More likely, there will be a temporary freeze on foreclosures, and on monthly payments (mortgage interest rates).

And besides - there isn't much public money left.

Tom (a/k/a Publius /bcforum/images/%%GRAEMLIN_URL%%/laugh.gif)

 

[drooartz]

This issue is one I have thought about quite a bit myself. First a bit of background:

We're a young couple (early 30s), no kids. We have a mortgage on a modest house, fixed rate low interest -- partly due to excellent credit scores. While we both had a small amount of credit card debt before we were married, we didn't miss payments and paid it all off within the first year of being married. Now we have just the mortgage and one small car loan. A couple lean years with one of us out of work just strengthened our desire to live well within our means. My good solid Yankee parents taught me well. /bcforum/images/%%GRAEMLIN_URL%%/smile.gif

I do feel sympathy for folks who were truly misled, but find it hard sometimes to empathize too much. The math to figure out what you can afford isn't really that hard; we're talking Elementary Algebra.

Maximum Mortgage = What I Make - What I Spend - What I Save

I never want to see someone lose their home -- but had they taken a moment to stifle their lust for the bigger and better, they might have wound up in a situation similar to where we are. We bought what we could afford, which meant some sacrifices in what we could get. We don't have the latest and greatest, but we do have a nice home that meets our needs, and 2 reliable cars with no other debt. I was even able to put money aside to take a stab at the old car hobby. All this on 2 modest school district salaries. I received the same "low interest" offers, and into the recycle bin they all went.

So I wind up a bit torn -- I want to sympathize with folks who are facing housing turmoil, but I also don't want to reward the lack of self discipline and greed that got them (and good chunks of the economy) there in the first place.

 

[Steve]

I work in real estate. Not as an agent, or a lender, but I help people to find good, honest assistance with buying or selling a home, anywhere in the country. I like to think that I am good at what I do.

Mostly, greed has been the cause of the situation. Not only people buying a home to actually live in, but speculators as well. Buying for "investment" purposes helped drive up prices on both coasts, and certain "hot" areas such as Las Vegas.

People believed that the market would continue to climb indefinitely (sound familiar?), developers threw up condominium developments up on spec, and the rest is history.

Interesting statistics.......in 2005, when the boom was really hitting its stride, I placed out over 500 customers,151 of whom actually closed on a property.

Last year, when everyone was singing the blues, I "only" placed 395. Of those, 154 bought or sold. The real numbers went UP! The speculators and the dreamers were out of the equation, that's all.

There are buyers out there still, but they are not nearly as quick to pull the trigger as they were. They don't have to be. Certain areas are still strong, have experienced almost no downturn at all, such as Phoenix AZ, Santa Fe NM to give a couple of examples. The midwest is generally strong still, with Chicago being the worst affected in the immediate area, and of course Michigan.

It's goofy out there, but it's not as bleak as the media are trying to make it out to be..........

 

[Mickey Richaud]

but it's not as bleak as the media are trying to make it out to be..........

Now, THERE'S a surprise! /bcforum/images/%%GRAEMLIN_URL%%/wink.gif

 

[Guest]

No, say it aint so!
/bcforum/images/%%GRAEMLIN_URL%%/rolleyes.gif

 

[Basil]

but it's not as bleak as the media are trying to make it out to be..........

Now, THERE'S a surprise! /bcforum/images/%%GRAEMLIN_URL%%/wink.gif

Of course I have no opinion on the topic of the Media. /bcforum/images/%%GRAEMLIN_URL%%/rolleyes.gif

 

[Tinster]

We bought what we could afford, which meant some sacrifices but we do have a nice home that meets our needs, and 2 reliable cars with no other debt. I was even able to put money aside to take a stab at the old car hobby<<<< but I also don't want to reward the lack of self discipline and greed that got them (and good chunks of the economy) there in the first place.

Says it all!!

Like my grandma always preached:

"Save your money, pay cash, buy the best quality you can
afford and finance nothing but your house."

Works for me and the Mrs.

d

 

[Steve]

We bought what we could afford, which meant some sacrifices but we do have a nice home that meets our needs, and 2 reliable cars with no other debt. I was even able to put money aside to take a stab at the old car hobby<<<< but I also don't want to reward the lack of self discipline and greed that got them (and good chunks of the economy) there in the first place.

Says it all!!

Like my grandma always preached:

"Save your money, pay cash, buy the best quality you can
afford and finance nothing but your house."

Works for me and the Mrs.

d

Words of wisdom indeed!

 

[Tinster]

<span style="color: #CC0000">I'm from the UK - it's outside London"</span>

The Mrs is from Horsforth-it's in the UK, north of London
in the Dales.

/bcforum/images/%%GRAEMLIN_URL%%/thirsty.gif

d