FacebookTwitter
Hatrack River Forum Post New Topic  Post A Reply
my profile login | register | search | faq | forum home

  next oldest topic   next newest topic
» Hatrack River Forum » Active Forums » Books, Films, Food and Culture » Should the government aid those with rising mortgage rates? (Page 2)

  This topic comprises 4 pages: 1  2  3  4   
Author Topic: Should the government aid those with rising mortgage rates?
Jon Boy
Member
Member # 4284

 - posted      Profile for Jon Boy           Edit/Delete Post   Reply With Quote 
Thanks, dkw. [Smile]
Posts: 9944 | Registered: Sep 2002  |  IP: Logged | Report this post to a Moderator
dkw
Member
Member # 3264

 - posted      Profile for dkw   Email dkw         Edit/Delete Post   Reply With Quote 
I was looking for the "8th grade average" figure, but found the more detailed study instead.

It's really rather frightening.

Posts: 9866 | Registered: Apr 2002  |  IP: Logged | Report this post to a Moderator
Dagonee
Member
Member # 5818

 - posted      Profile for Dagonee           Edit/Delete Post   Reply With Quote 
quote:
I agree with this, and with almost everything else Dags has said in this thread. (But I still plan to continue to register as a Democrat, and you can't stop me.)
[Laugh]

quote:
It isn't lack of foresight, it's lack of knowledge and lack of understanding that's the problem. And unscrupulous lenders who take advantage of the same.
This is the main reason I don't mind voiding prepayment penalties. The ability to refinance if one can afford it is a large part of my reasoning in not wanting aid specifically aimed at helping people keep their houses. The prepayment penalties are specifically designed to lock someone into a finance instrument based on incomplete information and a temporary status (poor creditworthiness).

However, I know many people who got these loans, and all of them understood the crucial fact that their mortgage went up $500 a month after two years. I'm not saying everyone would know this - I hang out with a strange crowd. The scheduled increase is the piece of information that's crucial here, and there are lots of people in trouble now who knew about that.

Posts: 26071 | Registered: Oct 2003  |  IP: Logged | Report this post to a Moderator
rivka
Member
Member # 4859

 - posted      Profile for rivka   Email rivka         Edit/Delete Post   Reply With Quote 
quote:
It isn't lack of foresight, it's lack of knowledge and lack of understanding that's the problem. And unscrupulous lenders who take advantage of the same.
I believe this is true of some. I don't believe that it is true of most, let alone all.

And look, we don't bail out people who believe snake-oil salesmen and invest their life savings in some get-rich-quick scheme. Nor am I convinced we should. How is this different?

Posts: 32919 | Registered: Mar 2003  |  IP: Logged | Report this post to a Moderator
rivka
Member
Member # 4859

 - posted      Profile for rivka   Email rivka         Edit/Delete Post   Reply With Quote 
I am still a liberal! I am, I am!

I believe in affirmative action . . . under some circumstances. I'm in favor of allowing in more immigrants, and lowering the bar to qualify for legal immigration!

No, really, I applied for membership in the cabal and everything!

Posts: 32919 | Registered: Mar 2003  |  IP: Logged | Report this post to a Moderator
Kwea
Member
Member # 2199

 - posted      Profile for Kwea   Email Kwea         Edit/Delete Post   Reply With Quote 
I worked for a mortgage company for a while....and there are some really good reasons for people to get into a house when they can, even if they pay more than prime.


I have bad credit. Not horrible, but not good. I will not qualify for a FHA loan. But I can qualify for a sub-prime loan...and doing so is a great idea for me, as long as I refinance in a year or two.

One year of making a mortgage payment, on time of course, will improve my credit score to the point where I will never have a problem qualifying for a reasonable loan again.

I won't take their word for how much house I can afford, and I won't accept heavy pre-payment penalties, but not all lenders are assholes.


Even if they sell sub-prime loans to people with borderline credit....


...like me.

Posts: 15081 | Registered: Jul 2001  |  IP: Logged | Report this post to a Moderator
mr_porteiro_head
Member
Member # 4644

 - posted      Profile for mr_porteiro_head   Email mr_porteiro_head         Edit/Delete Post   Reply With Quote 
quote:
It isn't lack of foresight, it's lack of knowledge and lack of understanding that's the problem.
I think that taking out a mortgage without first acquiring the ability to understand the mortgage agreement, or getting help from someone who can, demonstrates a huge lack of foresight.

quote:
I'm in favor of allowing in more immigrants, and lowering the bar to qualify for legal immigration!
Sorry, Rivka, but that doesn't make you a liberal, unless I qualify as one.
Posts: 16551 | Registered: Feb 2003  |  IP: Logged | Report this post to a Moderator
The Rabbit
Member
Member # 671

 - posted      Profile for The Rabbit   Email The Rabbit         Edit/Delete Post   Reply With Quote 
There is a very relevant issue that no one has mentioned yet. If 1.5 million people default on their mortgages, how will this influence the rest of the economy and the realestate market. That kind of mass default is likely to result in bankruptcy of alot of lending institutions. The combination of that with having all those houses suddenly on the market, could cause the value of houses to drop dramatically. Across much of the country, realestate prices are already dropping so this this additional stress could cause the bottom to fall out of the realestate market.

When home prices drop, lots of people find themselves in situations where instead of having equity in their home, they owe more on their mortgage than their house is worth. If these people then have to move because work, divorse or some other crisis, they are in serious trouble because they can't sell their home for what they owe on the mortgage. Not only have they lost the money they used for a down payment, but unless they can come up with tens of thousands to make up the difference at closing, they can't sell their homes. The end result is that even more people default on their mortgages which could cause an even bigger drop in home values.

Now I'm not an economic expert so I don't know if this situation is large enough to cause that kind of ripple effect but it is certainly worth considering in more detail. No matter how you feel about personal responsibility or federal aid, it might make good economic sense to bail this folks out.

Aid to keep these people from defaulting on their mortgages now could end up costing you and I alot less in the long run. How much is it worth to you to keep the value of your house from plummeting?

Posts: 12591 | Registered: Jan 2000  |  IP: Logged | Report this post to a Moderator
The Rabbit
Member
Member # 671

 - posted      Profile for The Rabbit   Email The Rabbit         Edit/Delete Post   Reply With Quote 
quote:
Originally posted by Belle:
I'm just floored that anyone would buy a home with an adjustable rate and a pre-payment penalty. Honestly, who does this? It's so obvious why those are two very bad ideas.

The answer to that question is pretty obvious.


Two years ago, the price of houses was skyrocketing. That had two important effects.

First: It made people desperate to get into the housing market. They figured that home prices were going up so fast that if they waited until they had a better down payment or credit rating, they might never be able to afford a house. They believe the that once they were in the market they'd become the benificiaries of the realestate boom instead of the loosers. I've known lots and lots of young people who bought their first house before they could easily afford it for just those reasons and for most of them it was a good choice.


Second, Skyrocketing realestate prices made buying a house a low risk proposition regardless of the terms. People got into these houses confident that within a couple of years they would have enough equity in the house (due simply to rising prices) that they would be able to either refinance with much better terms or sell the house at a sizable profit. Similarly, lenders figured that even if buyers defaulted on the mortgage, houses would be certain to sell for more than the mortage value.

If housing prices had continued to go up (as has been the overwhelming trend nation wide over the past 50 years), it would have all worked out OK. Ten years from now we'd be hearing these people say, "I'm sure glad we bought this house when we did, even though it was a big financial sacrifice at the time".

Posts: 12591 | Registered: Jan 2000  |  IP: Logged | Report this post to a Moderator
The Rabbit
Member
Member # 671

 - posted      Profile for The Rabbit   Email The Rabbit         Edit/Delete Post   Reply With Quote 
I guess I should also add that this was not and is not reflective of my own approach to debt or risk taking. When my husband and I bought our first house, we borrowed substantially less (and bought a smaller house) than banks were willing to loan us based on our income level and credit rating. We put every spare dime into it and paid off the mortgage in under 5 years. We bought the place where we live now with cash. We've been able to do this in part because we are very conservative with our money but mostly because we have been very very blessed.
Posts: 12591 | Registered: Jan 2000  |  IP: Logged | Report this post to a Moderator
mr_porteiro_head
Member
Member # 4644

 - posted      Profile for mr_porteiro_head   Email mr_porteiro_head         Edit/Delete Post   Reply With Quote 
quote:
There is a very relevant issue that no one has mentioned yet.
...
When home prices drop, lots of people find themselves in situations where instead of having equity in their home, they owe more on their mortgage than their house is worth. If these people then have to move because work, divorse or some other crisis, they are in serious trouble because they can't sell their home for what they owe on the mortgage.

Ahem:
quote:
Originally posted by mr_porteiro_head:
Many people would be stuck with high mortgages on houses with deflated values, unable to sell because they couldn't get enough from the sale to pay off the mortgage. They'd be stuck where they are, unable to take better jobs in another state, unable to move to help out family members...


Posts: 16551 | Registered: Feb 2003  |  IP: Logged | Report this post to a Moderator
rivka
Member
Member # 4859

 - posted      Profile for rivka   Email rivka         Edit/Delete Post   Reply With Quote 
quote:
Originally posted by mr_porteiro_head:
quote:
I'm in favor of allowing in more immigrants, and lowering the bar to qualify for legal immigration!
Sorry, Rivka, but that doesn't make you a liberal, unless I qualify as one.
Ah, but you're in favor of guns. You can't be a liberal. *smug*
Posts: 32919 | Registered: Mar 2003  |  IP: Logged | Report this post to a Moderator
The Rabbit
Member
Member # 671

 - posted      Profile for The Rabbit   Email The Rabbit         Edit/Delete Post   Reply With Quote 
quote:
Originally posted by mr_porteiro_head:
Originally posted by The Rabbit
quote:
There is a very relevant issue that no one has mentioned yet


Ahem:
quote:
Originally posted by mr_porteiro_head:
Many people would be stuck with high mortgages on houses with deflated values, unable to sell because they couldn't get enough from the sale to pay off the mortgage. They'd be stuck where they are, unable to take better jobs in another state, unable to move to help out family members...


Yes, I'd read where you said that. What I was trying to emphasize was the ripple effect which isn't different from what your said, just more extreme. While some people will have to turn down better jobs or choose not to help family because they can't sell their house, many people who are faced with the need to relocate due to work, financial or family issues don't have the option of saying no. They have to sell their homes, period. If they can't sell them for what they owe, they default on their mortgages. These leads to a positive feedback loop that can ripple through the whole economy. Housing prices fall leaving many people with mortages that are worth more than their homes. => Alot of peoples mortgages fail => banks go bankrupt => mortgage rate go up and # houses on the market goes up =>Hhousing prices fall => More people default on their mortgage (repeat ad infinitum).
Posts: 12591 | Registered: Jan 2000  |  IP: Logged | Report this post to a Moderator
mr_porteiro_head
Member
Member # 4644

 - posted      Profile for mr_porteiro_head   Email mr_porteiro_head         Edit/Delete Post   Reply With Quote 
You don't know I'm in favor of guns. I might be a giant hypocrite instead.

Which doesn't bar me from being a liberal or a conservative.

Posts: 16551 | Registered: Feb 2003  |  IP: Logged | Report this post to a Moderator
mr_porteiro_head
Member
Member # 4644

 - posted      Profile for mr_porteiro_head   Email mr_porteiro_head         Edit/Delete Post   Reply With Quote 
quote:
Yes, I'd read where you said that. What I was trying to emphasize was the ripple effect which isn't different from what your said, just more extreme.
That's actually a very important point you made. Nevermind.
Posts: 16551 | Registered: Feb 2003  |  IP: Logged | Report this post to a Moderator
rivka
Member
Member # 4859

 - posted      Profile for rivka   Email rivka         Edit/Delete Post   Reply With Quote 
quote:
Originally posted by mr_porteiro_head:
You don't know I'm in favor of guns. I might be a giant hypocrite instead.

[Roll Eyes]
Posts: 32919 | Registered: Mar 2003  |  IP: Logged | Report this post to a Moderator
Mrs.M
Member
Member # 2943

 - posted      Profile for Mrs.M   Email Mrs.M         Edit/Delete Post   Reply With Quote 
It so happens that we just bought a house. Like this weekend. During my househunt, I've learned a great deal about the Richmond real estate market and I'd have to answer the original question with a resounding heck no! My realtor told me that the average income for a family of 4 in Richmond is $60K per year. The median house price in Richmond is $285K. You should never buy a house that is more than 2.75 times your annual income, so it seems that some people in Richmond are buying more than $100K more than they can afford. The forclosures are already starting.

I think that part of the problem is that a lot of people have a warped idea of what they need. A family of 6 can share a 3-bedroom, 1.5-bathroom house. It might not be convenient or even pleasant, but they could get by just fine. No one needs hardwood floors or stainless appliances or luxurious master suites. Our new house is a 32-year-old French Colonial with great bones and many nice features. It needs a lot of work, though. Some we're going to do right away (having the layers of paint over wallpaper over paint over different wallpaper stripped and repainted) and some things we're going to wait until we can afford to pay cash (we don't believe in home equity loans). I'd love to extend my hardwoods into my kitchen and sunroom, but I don't need to. I'd love to reface my cabinets and move my range to a better spot and get range accessories and get marble countertops and a new front porch. I'd love to rebuild the deck and put in new bathrooms. These are things that I want, but I don't need them at all. I'd be curious to know how many of those 1.5 million people bought houses they couldn't afford because they were convinced that they needed them. Andrew and I qualified for financing for a much more expensive house than the one we bought because we balanced what we want with what we can comfortably afford.

BTW, that CNN Money article was outrageous! They struggled to save $5K and they bought a house for $290K?! They though it was okay to buy a house when they could barely afford the closing costs?! They have no excuses - they have student loans, which indicates that they're educated and they work at jobs that would require them to have the math skills to understand the mortgage and loan terms.

Posts: 3037 | Registered: Jan 2002  |  IP: Logged | Report this post to a Moderator
King of Men
Member
Member # 6684

 - posted      Profile for King of Men   Email King of Men         Edit/Delete Post   Reply With Quote 
quote:
My realtor told me that the average income for a family of 4 in Richmond is $60K per year. The median house price in Richmond is $285K. You should never buy a house that is more than 2.75 times your annual income, so it seems that some people in Richmond are buying more than $100K more than they can afford.
Without doubting that people in Richmond are buying houses above their means, that does not follow from the statistics you give. The average income includes a lot of people who are renting and do not intend to buy any houses; the average house sale price (and at that, you are trying to compare average and median, a bad idea) includes only people wealthy enough to buy a house. The populations are highly incompatible. Worse, you have no idea of the shape of these distributions, a much more important characteristic than their average. The correct statistic to quote would be the average ratio of buyer income to house value.
Posts: 10645 | Registered: Jul 2004  |  IP: Logged | Report this post to a Moderator
Stephan
Member
Member # 7549

 - posted      Profile for Stephan   Email Stephan         Edit/Delete Post   Reply With Quote 
quote:
Originally posted by rivka:
I am still a liberal! I am, I am!

I believe in affirmative action . . . under some circumstances. I'm in favor of allowing in more immigrants, and lowering the bar to qualify for legal immigration!

No, really, I applied for membership in the cabal and everything!

I'm a republican, and agree with those topics...
Posts: 3134 | Registered: Mar 2005  |  IP: Logged | Report this post to a Moderator
Stephan
Member
Member # 7549

 - posted      Profile for Stephan   Email Stephan         Edit/Delete Post   Reply With Quote 
quote:
Originally posted by The Rabbit:
There is a very relevant issue that no one has mentioned yet. If 1.5 million people default on their mortgages, how will this influence the rest of the economy and the realestate market. That kind of mass default is likely to result in bankruptcy of alot of lending institutions. The combination of that with having all those houses suddenly on the market, could cause the value of houses to drop dramatically. Across much of the country, realestate prices are already dropping so this this additional stress could cause the bottom to fall out of the realestate market.

When home prices drop, lots of people find themselves in situations where instead of having equity in their home, they owe more on their mortgage than their house is worth. If these people then have to move because work, divorse or some other crisis, they are in serious trouble because they can't sell their home for what they owe on the mortgage. Not only have they lost the money they used for a down payment, but unless they can come up with tens of thousands to make up the difference at closing, they can't sell their homes. The end result is that even more people default on their mortgages which could cause an even bigger drop in home values.

Now I'm not an economic expert so I don't know if this situation is large enough to cause that kind of ripple effect but it is certainly worth considering in more detail. No matter how you feel about personal responsibility or federal aid, it might make good economic sense to bail this folks out.

Aid to keep these people from defaulting on their mortgages now could end up costing you and I alot less in the long run. How much is it worth to you to keep the value of your house from plummeting?

I think that the amount of people that might be able to afford a home with fixed 30 year regular mortgages due to falling prices will far outweigh those who lose equity.

I'm not an expert on economics, but more people being able to afford homes in the first place has got to be good for the economy.

Posts: 3134 | Registered: Mar 2005  |  IP: Logged | Report this post to a Moderator
Lisa
Member
Member # 8384

 - posted      Profile for Lisa   Email Lisa         Edit/Delete Post   Reply With Quote 
quote:
Originally posted by rivka:
No, really, I applied for membership in the cabal and everything!

There is no cabal.
Posts: 12266 | Registered: Jul 2005  |  IP: Logged | Report this post to a Moderator
Dagonee
Member
Member # 5818

 - posted      Profile for Dagonee           Edit/Delete Post   Reply With Quote 
This online chat is worth reading to those interested in the topic.

I recommend reading the column linked at the top called "No Money Down Falls Flat" before reading the chat.

I don't agree with everything in either, but it's a good way to understand the economics and the mismatch of incentives.

The investors who risked their money don't deserve a bailout - the loans were risky and the risk was identifiable. In fact, the investors pushed for more risk.

Here are the basics of the instruments at issue:

quote:
It began years ago when Lewis Ranieri, an investment banker at the old Salomon Brothers, dreamed up the idea of buying mortgages from bank lenders, bundling them and issuing bonds with the bundles as collateral. The monthly payments from homeowners were used to pay interest on the bonds, and principal was repaid once all the mortgages had been paid down or refinanced.

Thanks to Ranieri and his successors, almost anyone can originate a mortgage loan -- not just banks and big mortgage lenders, but any mortgage broker with a Web site and a phone. Some banks still keep the mortgages they write. But most other originators sell them to investment banks that package and "securitize" them. And because the originators make their money from fees and from selling the loans, they don't have much at risk if borrowers can't keep up with their payments.

And therein lies the problem: an incentive structure that encourages originators to write risky loans, collect the big fees and let someone else suffer the consequences.

This "moral hazard," as economists call it, has been magnified by another innovation in the capital markets. Instead of packaging entire mortgages, Wall Street came up with the idea of dividing them into "tranches." The safest tranche, which offers investors a relatively low interest rate, will be the first to be paid off if too many borrowers default and their houses are sold at foreclosure auction. The owners of the riskiest tranche, in contrast, will be the last to be paid, and thus have the biggest risk if too many houses are auctioned for less than the value of their loans. In return for this risk, their bonds offer the highest yield.

It was this ability to chop packages of mortgages into different risk tranches that really enabled the mortgage industry to rush headlong into all those new products and new markets -- in particular, the subprime market for borrowers with sketchy credit histories. Selling the safe tranches was easy, while the riskiest tranches appealed to the booming hedge-fund industry and other investors like pension funds desperate for anything offering a higher yield. So eager were global investors for these securities that when the housing market began to slow, they practically invited the mortgage bankers to keep generating new loans even if it meant they were riskier. The mortgage bankers were only too happy to oblige.

By the spring of 2005, the deterioration of lending standards was pretty clear. They were the subject of numerous eye-popping articles in The Post by my colleague Kirstin Downey. Regulators began to warn publicly of the problem, among them Fed Chairman Alan Greenspan. Several members of Congress called for a clampdown. Mortgage insurers and numerous independent analysts warned of a gathering crisis.


Posts: 26071 | Registered: Oct 2003  |  IP: Logged | Report this post to a Moderator
ClaudiaTherese
Member
Member # 923

 - posted      Profile for ClaudiaTherese           Edit/Delete Post   Reply With Quote 
Glad I didn't buy, glad I didn't buy, glad I didn't buy ... (*rinse and repeat)

We could have. Just didn't make sense for us, although people said otherwise.

Posts: 14017 | Registered: May 2000  |  IP: Logged | Report this post to a Moderator
katharina
Member
Member # 827

 - posted      Profile for katharina   Email katharina         Edit/Delete Post   Reply With Quote 
If people went into bad loans because of the market, then they were betting the market would continue. They were speculating. We don't repay people who have lost money in the stock market - why should we do it for people who lost money in the housing market? Where was the massive bailout for the people who lost their pensions when Enron collapsed?

It sucked to go from owning a house to renting again, but that's how investing goes. They took on a lot of risk in hopes of winning big, and they didn't. They lost. Welcome to the world everyone else lives in.

Posts: 26076 | Registered: Mar 2000  |  IP: Logged | Report this post to a Moderator
TomDavidson
Member
Member # 124

 - posted      Profile for TomDavidson   Email TomDavidson         Edit/Delete Post   Reply With Quote 
You know, it's still possible to get a mortgage that isn't evil. [Smile]
Posts: 37419 | Registered: May 1999  |  IP: Logged | Report this post to a Moderator
ClaudiaTherese
Member
Member # 923

 - posted      Profile for ClaudiaTherese           Edit/Delete Post   Reply With Quote 
Well, yes, if it is offered.
Posts: 14017 | Registered: May 2000  |  IP: Logged | Report this post to a Moderator
Katarain
Member
Member # 6659

 - posted      Profile for Katarain   Email Katarain         Edit/Delete Post   Reply With Quote 
Is it wrong that I'm hoping that this results in sane house prices, so that we can finally afford a house? I don't want something big. I want something in my budget, but the houses that SHOULD be in my price-range are practically double in price.
Posts: 2880 | Registered: Jun 2004  |  IP: Logged | Report this post to a Moderator
Christine
Member
Member # 8594

 - posted      Profile for Christine   Email Christine         Edit/Delete Post   Reply With Quote 
Dag -- I think you are absolutely right about the lower cost of houses helping at least as much as hurting. I've thought for a long time that houses are overpriced, and not just because people think they need more house than maybe they do. Housing costs have skyrocketed above inflation for decades now. That was something that my husband and I were very aware of when we bought our house -- we did not plan for it to go up in value and we were not playing the real estate game (although many tried to convince us to do just that when all we wanted was a place to call home).

If the value of my house goes down, I can live with that. I know it will be a rough situation for many, but any significant economic change hurts some and helps others. In this case, I'm not sure it's an economic change we can fend off forever, either. If it's not this, it'll be something else bringing down those housing prices.

And actually, I'm not even convinced that housing prices will go down so much as stop going up for a while. That seems like a more realistic market correction.

Posts: 2392 | Registered: Sep 2005  |  IP: Logged | Report this post to a Moderator
Stephan
Member
Member # 7549

 - posted      Profile for Stephan   Email Stephan         Edit/Delete Post   Reply With Quote 
quote:
Originally posted by Katarain:
Is it wrong that I'm hoping that this results in sane house prices, so that we can finally afford a house? I don't want something big. I want something in my budget, but the houses that SHOULD be in my price-range are practically double in price.

Nothing wrong about that at all. I even bought last year, and I am hoping prices plummet. I might lose a few thousand on this place, but we are already saving for the next house. I would happily lose movey on my overpriced duplex, if it meant getting a decent sized single family.
Posts: 3134 | Registered: Mar 2005  |  IP: Logged | Report this post to a Moderator
Stephan
Member
Member # 7549

 - posted      Profile for Stephan   Email Stephan         Edit/Delete Post   Reply With Quote 
By the way, in the secondary housing market it is already happening. My dad is a realtor in Ocean City, MD and there are a couple thousand properties on the market in that town alone. People are not buying, and the sellers are finally getting desperate and coming down in price. There is even one entire condo building bought by investors when it was first built hoping to flip the units, the entire bulding is still empty after 6 months.
Posts: 3134 | Registered: Mar 2005  |  IP: Logged | Report this post to a Moderator
fugu13
Member
Member # 2859

 - posted      Profile for fugu13   Email fugu13         Edit/Delete Post   Reply With Quote 
Rabbit: as I pointed out earlier, and Dag reiterated, mortgage lenders are only in danger due to the loss of new business, and that will mostly pan out as cheap buyouts (as has already started happening). They don't hold the mortgages, those are spread out around a large number of investment institutions.

The investment institutions will certainly take a hit, but the sums involved are paltry in comparison to their total holdings. This will also cause them to take fewer risks in that sector, which will help keep home prices low (which is a very good thing for precisely the people this is hitting hardest; those who have a hard time affording a home).

Most home prices aren't likely to see a dramatic drop; I predict a pretty big dip in newly constructed, tightly packed neighborhoods, but that will recover fairly quickly as the rate of home construction drops.

Keeping those people from defaulting on their mortgages by giving them money (in whatever manner) will only provide an incentive to provide more such loans, which keeps the problem going.

Posts: 15770 | Registered: Dec 2001  |  IP: Logged | Report this post to a Moderator
ClaudiaTherese
Member
Member # 923

 - posted      Profile for ClaudiaTherese           Edit/Delete Post   Reply With Quote 
quote:
Originally posted by Katarain:
Is it wrong that I'm hoping that this results in sane house prices, so that we can finally afford a house?

Mindreader. [Smile]

I don't want other people to bottom out. I just want the market to return to sanity. I suppose what we're doing here is discuss how to best let that happen.

Posts: 14017 | Registered: May 2000  |  IP: Logged | Report this post to a Moderator
Lupus
Member
Member # 6516

 - posted      Profile for Lupus   Email Lupus         Edit/Delete Post   Reply With Quote 
The thing is, the prepayment penalties are there because early in the variable rate loan people were getting a house for payments far below what they should have been paying. They are designed for people who thing they will be making far more than they are now in a couple of years. I think these types of loans are right for certain types of people. You are able to get into a house that you can't really afford now, but think you will be able to afford in the future. If you are wrong, then you are in over your head...but it is not the government's job to fix your mistake. Let the bank foreclose, and rent until you really can afford a house.

I had a hard time feeling sorry for the couple in the CNN article. They bought a house that was just under 300,000 when they only had 5,000 to put forward. That is just a terrible idea unless they were sure that they would be coming into a lot more money in the next few years. Even then, it would be a dangerous loan because if you are wrong you are in trouble.

I do think they government should work to educate people about the different types of loans, and the risks that come with some of these variable rate loans...and the risk of financing the down payment. However, it is not the job of the government to pay people to make bad decisions. As other people have said, all this will do is to continue to push up the price of housing.

Posts: 1901 | Registered: May 2004  |  IP: Logged | Report this post to a Moderator
BaoQingTian
Member
Member # 8775

 - posted      Profile for BaoQingTian   Email BaoQingTian         Edit/Delete Post   Reply With Quote 
quote:
Originally posted by katharina:
If people went into bad loans because of the market, then they were betting the market would continue. They were speculating. We don't repay people who have lost money in the stock market - why should we do it for people who lost money in the housing market? Where was the massive bailout for the people who lost their pensions when Enron collapsed?

It sucked to go from owning a house to renting again, but that's how investing goes. They took on a lot of risk in hopes of winning big, and they didn't. They lost. Welcome to the world everyone else lives in.

I wonder how many of those 1.5 million people actually live in the place they're in trouble with. My wife and I have held off buying a house for a few years now because the prices have been so crazy- despite everyone telling us that the time to get in was now. The average price of a home in our area has more than doubled in the last 5 years.

Prices have now been steadily falling for a year now. Where I work, there's a bulletin board, with a new listing of a house for sale almost every other day. So many people bought into a second house to make money off of. I feel zero pity for these people and mortgage companies that are going to be taking tens of thousands in losses (or more). If you gamble, you may lose. Also, both the investors and the mortgage were part of the problem by leveraging such small amounts of capital and artificially inflating the housing market here.

Posts: 1412 | Registered: Oct 2005  |  IP: Logged | Report this post to a Moderator
katharina
Member
Member # 827

 - posted      Profile for katharina   Email katharina         Edit/Delete Post   Reply With Quote 
This thread made me go and look. Despite a decent salary as a federal flunkie, the only thing I can afford to buy in the town I live in is a studio condominium fifteen miles from work. And there's only one listing.

The housing market wouldn't be so bad if people didn't inflate the costs with these stupid loans. There's no reason to keep it so artificially high.

Posts: 26076 | Registered: Mar 2000  |  IP: Logged | Report this post to a Moderator
Stephan
Member
Member # 7549

 - posted      Profile for Stephan   Email Stephan         Edit/Delete Post   Reply With Quote 
quote:
Originally posted by Lupus:


I had a hard time feeling sorry for the couple in the CNN article. They bought a house that was just under 300,000 when they only had 5,000 to put forward. That is just a terrible idea unless they were sure that they would be coming into a lot more money in the next few years. Even then, it would be a dangerous loan because if you are wrong you are in trouble.


The funny thing? I was in the same boat. I bought a house for $280k, and only had about $7k. I guess our credit is a lot better though. I had a 1st mortgage for $224k at 6.2%, and a 2nd balloon fixed rate mortgage for the balance of 56k. 4 months later I refinanced with Wachovia, they gave me 100% of my loan balances in 1 loan, fixed at 5.99%. We knew we could afford the original loans though, even the balloon payment after 15 years.

(For those that don't know a balloon in my case is basically a fixed rate loan where the payment was based on a 30 year loan, but the balance is due at the end of 15).

Posts: 3134 | Registered: Mar 2005  |  IP: Logged | Report this post to a Moderator
ClaudiaTherese
Member
Member # 923

 - posted      Profile for ClaudiaTherese           Edit/Delete Post   Reply With Quote 
quote:
Originally posted by BaoQingTian:
I wonder how many of those 1.5 million people actually live in the place they're in trouble with. ... If you gamble, you may lose. Also, both the investors and the mortgage were part of the problem by leveraging such small amounts of capital and artificially inflating the housing market here.

Flip This House and other do-it-yourself renovation shows have been getting a lot of airplay. I wonder how much of this has fed into the general cultural climate of "this is a good thing to do."
Posts: 14017 | Registered: May 2000  |  IP: Logged | Report this post to a Moderator
Katarain
Member
Member # 6659

 - posted      Profile for Katarain   Email Katarain         Edit/Delete Post   Reply With Quote 
I refuse to watch Flip This House because of exactly that cultural climate. I don't know if the show is making it worse to afford a home or if it's simply feeding off of the greed already out there. It doesn't matter to me. Either way, it represents exactly what ticks me off so much.
Posts: 2880 | Registered: Jun 2004  |  IP: Logged | Report this post to a Moderator
mr_porteiro_head
Member
Member # 4644

 - posted      Profile for mr_porteiro_head   Email mr_porteiro_head         Edit/Delete Post   Reply With Quote 
You know, I flipped a house for quite a profit after only 4 years (assuming that everything closes as it should next week), but that was never my plan. I bought it to live in it, and sold it when we moved.
Posts: 16551 | Registered: Feb 2003  |  IP: Logged | Report this post to a Moderator
Mrs.M
Member
Member # 2943

 - posted      Profile for Mrs.M   Email Mrs.M         Edit/Delete Post   Reply With Quote 
quote:
Without doubting that people in Richmond are buying houses above their means, that does not follow from the statistics you give. The average income includes a lot of people who are renting and do not intend to buy any houses; the average house sale price (and at that, you are trying to compare average and median, a bad idea) includes only people wealthy enough to buy a house. The populations are highly incompatible. Worse, you have no idea of the shape of these distributions, a much more important characteristic than their average. The correct statistic to quote would be the average ratio of buyer income to house value
KoM, you're right and I appreciate how gracious you were in pointing that out. [Smile] It was 2 in the morning and I have bronchitis, so I probably should have held off on posting.

According to my realtor, most homeowners in Richmond are in houses they can't afford. When I told her Andrew's income for last year and asked her if she thought we would have any problems getting financing (I was pretty sure we wouldn't, but I'm insanely compulsive and anxious about money), she laughed. She told me that most people buying houses at our price level make more than $35K less than Andrew and have worse credit and more expenses. I was shocked. I am so afraid of living outside of our means that it's unthinkable to me to buy a house that we can't comfortably afford.

The housing market in Richmond is cooling considerably. Although a lot of people are relocating here, there's significantly more inventory than there has been.

Another thing to consider is that during the peak of the market, about 4 years ago, people were waving inspections to ensure that they got the houses they wanted. I could never, ever do that. I would walk away from my dream house if I couldn't get an inspection. So many of those people are having to pour huge sums of money into their houses to fix things that an inspection would have caught. We have friends that need a new roof on an 8-year-old house and who had to replace a lot of their ducts. They have water damage and I had to tell them that they're going to have to do a lot of work in their second bathroom (the tiles are falling in a way that indicates either improper installation or a structural problem). This is particularly true of new construction houses. We purposely looked for a house that was built before the '80s (and kept up well), because they weren't as concerned with getting the most houses into the smallest spaces as fast as they could.

Posts: 3037 | Registered: Jan 2002  |  IP: Logged | Report this post to a Moderator
Belle
Member
Member # 2314

 - posted      Profile for Belle   Email Belle         Edit/Delete Post   Reply With Quote 
Four years is not flipping. Flippers generally try to unload a property after mere weeks, months is a long time. they never intend to live in the house, it's bought and sold only as an investment.

My husband refuses to do contract work for house flippers. Generally, they want things cheap, dirty, and fast....and he doesn't work that way. They try to undercut material costs and avoid necessary inspections because it's all about cosmetics with them - does it look good so they can convince someone to buy it quickly? Never mind if it works six months down the road, they'll be long gone.

Moral of the story - don't buy a house from a flipper. Chances are the renovations done to sell the house were not very professional jobs.

Edit: And to follow up on what Mrs. M said - get a professional home inspection done on any property you are trying to buy and do NOT use the inspector recommended by the homeowner or the contractor. Find your own. I can't stress this enough. A home inspector certificate is not hard to get, so I would ask not only to see the certificate, but ask background questions like what type of construction they've done before, and what qualifies them to be an inspector. If their only qualifications are the course you need to take before you file for the certificate, run, don't walk to another inspector. Your best inspectors are those that are retired from a construction industry, and were licensed plumbers or electricians or carpenters before opening up their home inspection service.

Posts: 14428 | Registered: Aug 2001  |  IP: Logged | Report this post to a Moderator
Mrs.M
Member
Member # 2943

 - posted      Profile for Mrs.M   Email Mrs.M         Edit/Delete Post   Reply With Quote 
Speaking of failed flippers, check out this guy. I can never decided whether to laugh or cry or throw up when I read his blog.

I wholeheartedly second Belle's inspector advice. Ours is fantastic - he's a carpenter and a contractor. I wish we could hire him to do the work on our house, but he won't because it's unethical. Not even if you pay him under the table (I asked - I love him). He's already saved us thousands of dollars.

Posts: 3037 | Registered: Jan 2002  |  IP: Logged | Report this post to a Moderator
Stephan
Member
Member # 7549

 - posted      Profile for Stephan   Email Stephan         Edit/Delete Post   Reply With Quote 
I called it!

http://www.reuters.com/article/domesticNews/idUSN1426067420070315

quote:
NEW YORK (Reuters) - Lawyers for investors hurt by the meltdown of mortgage lenders that cater to risky borrowers are likely to file a wave of class-action lawsuits against the lenders and possibly their auditors and bankers as well.

U.S. lawyers have already sued subprime lenders including New Century Financial Corp. and NovaStar Financial Inc. and their top executives for securities fraud, claiming they misled investors about the companies' finances and had lax guidelines for approving mortgages for borrowers with poor credit histories.

Prominent plaintiffs' firm Lerach Coughlin, which already has brought suits on behalf of investors in New Century and NovaStar, is looking at bringing cases against other subprime lenders, said David Walton, a partner at the San Diego-based firm.


Posts: 3134 | Registered: Mar 2005  |  IP: Logged | Report this post to a Moderator
Stephan
Member
Member # 7549

 - posted      Profile for Stephan   Email Stephan         Edit/Delete Post   Reply With Quote 
And Clinton makes it a campaign issue, now all we need is a suicide and my predictions have come true.

http://www.reuters.com/article/politicsNews/idUSWBT00668120070315

Posts: 3134 | Registered: Mar 2005  |  IP: Logged | Report this post to a Moderator
mr_porteiro_head
Member
Member # 4644

 - posted      Profile for mr_porteiro_head   Email mr_porteiro_head         Edit/Delete Post   Reply With Quote 
That was fast.
Posts: 16551 | Registered: Feb 2003  |  IP: Logged | Report this post to a Moderator
Dagonee
Member
Member # 5818

 - posted      Profile for Dagonee           Edit/Delete Post   Reply With Quote 
$1 Billion Pledged to Help Fend Off Foreclosures

quote:
Neighborhood Assistance Corporation of America, an 18-year-old housing advocacy group, yesterday announced it would commit $1 billion to refinancing the loans of lower-income people at risk of losing their homes.

The financing will come from CitiGroup and Bank of America, which have been lending money for years to borrowers screened by the nonprofit group. NACA, of Boston, said it had helped put 50,000 people in homes since its creation.

Beyond the cash involved, this will allow much better negotiation with the lenders. Foreclosure is expensive, and there's a lot of room between everything the lenders are contractually due and the amount they can recover in foreclosure - especially now. This amount is the potential surplus in such a negotiation. A national group is likely to be able to get more of it for the homeowners than homeowners could on their own.

If the refinances avoid foreclosure and result in less risky (by definition, more affordable) loans, then borrowers and lenders will both win.

It still results in propped up housing prices, but I have a lot less of a problem with private companies doing it. Beyond that, it's not clear that propped up prices are worse than the collapse that might (not definitely would) result from a foreclosure wave.

Posts: 26071 | Registered: Oct 2003  |  IP: Logged | Report this post to a Moderator
fugu13
Member
Member # 2859

 - posted      Profile for fugu13   Email fugu13         Edit/Delete Post   Reply With Quote 
I read the blogs of some people heavily involved with the real estate industry, and a lot of the problem appears to be sellers following the prices by too much.

Also, at least one of them has remarked that that $1 billion is something that was already there, they're just re-spinning it.

And I also have absolutely no problem with private enterprise offering new, safer loans as a means of gaining profit; that's how markets work, and it improves the situation rather than creating perverse incentives.

I don't think we'll see it prop up housing prices, either. A billion dollars is comparatively small change, and the people they're targeting aren't likely in recent homes anyways.

Posts: 15770 | Registered: Dec 2001  |  IP: Logged | Report this post to a Moderator
Pat
Member
Member # 879

 - posted      Profile for Pat   Email Pat         Edit/Delete Post   Reply With Quote 
quote:
Originally posted by Belle:
I'm just floored that anyone would buy a home with an adjustable rate and a pre-payment penalty. Honestly, who does this? It's so obvious why those are two very bad ideas.

Real Estate Investors do it all the time. Of course, they should have a sure-fire exit strategy in place before they sign on that dotted line.

But you're right Belle, no one in their right mind should have an ARM on their personal residence. You just never know what the future will hold.

Posts: 1800 | Registered: Apr 2000  |  IP: Logged | Report this post to a Moderator
Zalmoxis
Member
Member # 2327

 - posted      Profile for Zalmoxis           Edit/Delete Post   Reply With Quote 
This guy goes a little overboard, but:

http://patrick.net/housing/crash.html

I read a recent Wall St. Journal special report on renting vs. buying, and it cleared up quite a few misconceptions I had. I'm glad that I didn't do anything stupid in the overheated Bay Area market.

Also -- the New York Times has a rent vs. buy calculator that's very cool: http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html

Posts: 3423 | Registered: Aug 2001  |  IP: Logged | Report this post to a Moderator
Pat
Member
Member # 879

 - posted      Profile for Pat   Email Pat         Edit/Delete Post   Reply With Quote 
The real estate market is in the process of correcting itself right now. It's purging itself of those who took advantage of a very liberal underwriting processes that overlooked all kinds of fraud, deceit and outright lies of those loan officers and their clients who were willing to do anything to get their loan closed.

The unsavory loan officers, appraisers and mortgage companies who were looking to make a quick buck are being taken down and put out of business.

I feel that if someone was led into signing a loan that was obtained through fraudulent maneuvers, then that person should be assisted. Of course, the only way to prove this would be through a court of law. I'm not sure that rewarding them with tax dollars is the way to go about this.

In about 6-9 months, the subprime market will still be there, but it will more akin to a primary loan market and will serve the noble cause it's there for -- to help those who have bad credit, but are otherwise a good risk to get a loan for a house.

Posts: 1800 | Registered: Apr 2000  |  IP: Logged | Report this post to a Moderator
  This topic comprises 4 pages: 1  2  3  4   

Quick Reply
Message:

HTML is not enabled.
UBB Code™ is enabled.
UBB Code™ Images not permitted.
Instant Graemlins
   


Post New Topic  Post A Reply Close Topic   Feature Topic   Move Topic   Delete Topic next oldest topic   next newest topic
 - Printer-friendly view of this topic
Hop To:


Contact Us | Hatrack River Home Page

Copyright © 2008 Hatrack River Enterprises Inc. All rights reserved.
Reproduction in whole or in part without permission is prohibited.


Powered by Infopop Corporation
UBB.classic™ 6.7.2