Mortgage loans

[DebbieL]

Re: Mortgage loans

I'm with you Scanner - boo hoo hoo for them. They should have known better. I haven't trusted this crazy housing market for years now (why on Earth is a house that cost $200K five or six years ago worth $550K now?). Many people jumped into houses they (obviously) couldn't afford - alot of them thinking that housing just goes up, up, up and they will get rich off it. Guess what - it also goes down. I have never understood how the average household income where I live could be about $60K and the average house selling price is about $540K now. Something's gotta give baby. I have NO SYMPATHY whatsoever for anyone being so irresponsible to be signing a half million (or more) dollar loan then saying they didn't understand it. WTF??? I couldn't sleep at night if it were me. I'm waiting this stupid bubble out. Hopefully before long things will be a little more sane here (I'm in Victoria, BC).

[disneysteve]

Re: Mortgage loans

A young single person or a young couple can afford to take a higher risk than older people or those with children... The payments (mortgage, interst, taxes, and assoc. dues) were almost half my take home pay. But since I was young and single, with only a low car loan as debt, I could live cheap until I could refinance to a lower interest rate, eliminate the mortgage insurance, and lower my payment.

True. Another factor is that folks just starting out can generally look forward to their income rising over time, so if you have a fixed rate loan, the payment gradually becomes a smaller and smaller portion of income. When we bought our house, I was in my first year of employment. I knew (by contract) that my income would increase by 30% in year 2 and then increase another 35% the following year. By then, the payments were no problem at all. Though we did put down 20% when we bought.

[34saving]

Re: Mortgage loans

The hard part is that these lending practices and the foreclosures that ensue will affect ALL OF US whether we were responsible or not. More REO houses on the market = the price of all of the houses goes down. More REO houses means more vacancies, more as-is fixer-uppers, and more potential for neighborhoods to slide. More REO homes means more banks making less money and/or getting into trouble and we all know who bails out banks when they fail. Etc . . .

[DebbieL]

Re: Mortgage loans

I personally want the price of houses to come down - a lot. There is no way a house should be over $500k where I live (unless it's a mansion/estate/etc). The incomes ($60k household) don't correlate with those ridiculous prices. I knew there was a problem when I had to really start asking myself where the hell all the money was coming from? Either everybody else except me suddenly got rich (doubtful) or something wasn't adding up. It cannot continue, and common sense tells me that it has to take a dive. The sooner the better as far as I'm concerned.

[jIM_Ohio]

Re: Mortgage loans

I'm with you Scanner - boo hoo hoo for them. They should have known better. I haven't trusted this crazy housing market for years now (why on Earth is a house that cost $200K five or six years ago worth $550K now?). Many people jumped into houses they (obviously) couldn't afford - alot of them thinking that housing just goes up, up, up and they will get rich off it. Guess what - it also goes down. I have never understood how the average household income where I live could be about $60K and the average house selling price is about $540K now. Something's gotta give baby. I have NO SYMPATHY whatsoever for anyone being so irresponsible to be signing a half million (or more) dollar loan then saying they didn't understand it. WTF??? I couldn't sleep at night if it were me. I'm waiting this stupid bubble out. Hopefully before long things will be a little more sane here (I'm in Victoria, BC).

the mistake not being discussed is that the HOME you live in is NOT an investment. At least not a good one.

[disneysteve]

Re: Mortgage loans

the mistake not being discussed is that the HOME you live in is NOT an investment.

I agree, though not many others seem to. I bought my house so we'd have a place to live and keep our stuff (any George Carlin fans out there). I buy investments with the hope that they will grow in value and generate income. My house doesn't generate income. It may grow in value. In fact, I'd be quite surprised if it didn't since we've already owned it for nearly 13 years and plan to have it for many more. But we didn't buy it as an investment. We bought it as a home.

[LivingAlmostLarge]

Re: Mortgage loans

I agree with Jim in Ohio, you just have to know the terms of the loan. I am one of the those people who got an Arm (i'm running for cover right now). It's a 7/1 Arm for 4.25% and will max out at 9.25% year number 8. I like my loan, I don't plan on being in my house for more than 7 years period. I hate where I live, not the house, just the city. Once we're done with this area we're going to move back home.

I estimate we'll be in the house 5 years, enough time to maybe break even, if not I'm not going to cry over the loss. We are paying about the same as renting because where we live rent is expensive. I pay $2200/month 3 bd/2.5 ba mortgage, my classmates pay $2k/month to rent a 2 bd condo. And I don't have to move every year or have it increased during the time we're going to live there.

I got an Arm because this is not our final home, and no one sold me the product I chose it. Second we picked an Arm because our income potential is at barely 50%, it was DH's first job out of grad school and we know it's going up by a lot. Third we had 20% because we sacrificed and bought years ago a tiny condo with an Arm. Actually we used a floating HELOC on our house during grad school because the rate was so low we could pay it off faster. It was 1% below prime so it was like 3%.

I don't think lenders are predatory, you should know what your buying before you buy. Or else why buy? And worse this is the largest thing you will ever purchase, why would you not do your homework about loans? This is a few hundred thousand dollar purchase and people worry more about buying a car? Or a fridge? If anything understanding mortgages and your ability to afford it I would think would be well worth the time and effort.

[disneysteve]

Re: Mortgage loans

I don't think lenders are predatory, you should know what your buying before you buy.

This is true as an ideal, but I just don't think it plays out that way in real life.

My mother's house is currently for sale. The 2nd time it was under contract (we're on 3 and counting so far), the bidder worked in a pizza shop and had an income of $33,000/year. As soon as I saw the paperwork I told my mom there was no way that deal was going through because he couldn't possibly afford it. And yet, he was pre-approved for a mortgage and the realtor felt it was a sound enough deal to present it to us. Sure enough, when the process moved along, he ended up getting denied a mortgage. I am not a financial professional and I knew in an instant that his numbers didn't make sense. So why did the bank pre-approve him? Why did the realtor accept the bid? Why didn't the lender tell this guy from day one, "Hey buddy, you can't afford this house."

Even back when we bought our house, we were pre-approved for $30,000 more than we actually borrowed. Could we have made the payments if we spent what they were willing to lend us? Probably, but it would have been a stretch and we would have been left with little or nothing for savings and other spending. That's where I think the predatory lending comes in.

The simple fact is that not everyone has the math skills and knowledge to evaluate the numbers themselves and make sure they can afford the deal. They depend on the financial professionals to do that for them. If those professionals can't be trusted, I think that's a problem.

[jIM_Ohio]

Re: Mortgage loans

This is true as an ideal, but I just don't think it plays out that way in real life.

My mother's house is currently for sale. The 2nd time it was under contract (we're on 3 and counting so far), the bidder worked in a pizza shop and had an income of $33,000/year. As soon as I saw the paperwork I told my mom there was no way that deal was going through because he couldn't possibly afford it. And yet, he was pre-approved for a mortgage and the realtor felt it was a sound enough deal to present it to us. Sure enough, when the process moved along, he ended up getting denied a mortgage. I am not a financial professional and I knew in an instant that his numbers didn't make sense. So why did the bank pre-approve him? Why did the realtor accept the bid? Why didn't the lender tell this guy from day one, "Hey buddy, you can't afford this house."

Even back when we bought our house, we were pre-approved for $30,000 more than we actually borrowed. Could we have made the payments if we spent what they were willing to lend us? Probably, but it would have been a stretch and we would have been left with little or nothing for savings and other spending. That's where I think the predatory lending comes in.

The simple fact is that not everyone has the math skills and knowledge to evaluate the numbers themselves and make sure they can afford the deal. They depend on the financial professionals to do that for them. If those professionals can't be trusted, I think that's a problem.

Don't blame the banks. I invest in the banking industry and the bond industry. Blame the people which are looking for the "easy way out"

The loans the banks make have higher interest rates and I can capitalize on others stupidity. If someone is willing to do their homework, GREAT for them, but it is real easy to capitalize on those which do not follow due diligence.

Some people (myself included) have manipulated loan products to get what we want. If Banks want to make money, they have to concentrate their business where money can be made (and higher interest rates make more money for the bank than lower interest rates).

[DebbieL]

Re: Mortgage loans

I think the lenders have been EXTREMELY predatory during this nonsense. Mortage brokers were making a fortune off of many, many ignorant borrowers. However, I still have no sympathy for people getting themselves in over their heads by taking on ridiculous loans. Ignorance is no excuse to me.

The fallout from all this wreckless lending is going to be very painful for alot of people. Look forward to some kind of class action suits (people never seem to want to take personal responsibility for anything these days). I personally cannot wait for things to return to some form of sanity (I think here in Canada we are a bit behind the trends in California, Arizona, etc, but we'll get there soon enough). Remember when a house was a place you lived, not a get rich quick opportunity (which is exactly what's happening where I live - lots of speculation)? I sure can't wait for those days to return here where I live. I am hoping for 40-50% price reductions (getting back in line with reality in other words).