Listening to the BBC just now, and the announcer (talking about Obama’s mortgage bailout) is explaining to the world that Americans borrow the money to buy their homes and that when they can’t make the payments, they lose their home. The announcer further explains that “this process is called foreclosure.” The way he’s reporting this story – explaining basic facts – makes me wonder if borrowing for home ownership is unusual, or if home ownership is unusual.
Does the rest of the world rent? Live in apartments? Save until they have enough money to buy a house? Or does this announcer think the audience is made up of third graders?
Over here in the Netherlands, pretty much everybody who buys a house uses a mortgage - most people can’t afford to save up for a house.
In my experience, foreclosures have always been pretty rare around here, though - probably because house prices are not (yet?) falling very much and also because people are fairly cautious about what they can afford to spend on their mortgage payments. Also, we don’t really have “sub-prime” deals.
edit: I’m not sure how many people here actually own a house. I think most (70% or so?) rent.
In your particular case, I think it’s more because the term “forclosure” isn’t commonly used in British English. “Repossess” is the more commonly used term that means basically the same thing.
I made a couple of posts in past threads about this:
I’m probably not 100% right on some of the specifics, not being an American and all, but I think it’s mostly right.
Other than that, it’s basically the same type of deal in other developed countries. In addition to the difference in interest rates, many other countries, especially poorer ones, don’t have the very advanced system of personal credit tracking which exists in the US and UK. Thus, “Alt-A” mortgages, which are primarily made on a person’s credit rating, would not exist. So if you want a mortgage, you need a downpayment relatively large compared to the US.
For example, GM recently introduced car financing in China, where one could finance the purchase of a car with only a modest down payment of 50% of the purchase price. By Chinese/third world standards, this is a pretty generous deal(It was at least 6 months ago that I heard this, so things might have changed even further since then).
That gives you an idea of the availability of consumer credit in other countries vis a vis the US and UK.
Here in Australia it’s exactly the same as in the US. We save up a deposit, negotiate with our bank for a fix or variable rate, get the mortgage loan, find a home to purchase, sign a contract with the seller, make a deposit, move in at close of contract and pay off the negotiated loan.
I’ve heard all the terms used in the OP also used here in Aus, having the same meaning.
A friend of mine from the UK once told me that most people there have 10 or 15 year mortgages, and that putting down 30-50% on a house is not that unusual.
Considering that in the US I have seen ads for 40 and 50 year mortgages a 10 year mortgage would be too expensive for most Americans since they rarely put down more than 20% on a house…
Is that really so? My understanding was that “foreclosure” is one of the technical terms of the English common law and equity relating to land law that we in the colonies had inherited. My Concise Oxford gives the term without identifying it as an Americanism.
I would think a more likely explanation is the the BBC has an international audience on the continent, where the civil law system governs. Neither “mortgage” nor “foreclosure” are terms used in the civil law. “Hypothèque” is the functional equivalent to a mortgage in French civil law. I think the equivalent to foreclosure is “action sur hypothèque”, but I’m not sure.
Unfortunately, I don’t have either Megarry & Wade or my Civil Code handy, so I can’t give cites.
Jesus. I’m not a lawyer and I don’t speak French, so I’ll take your word for it. :eek:
It’s just that whenever The Economist (not aimed at a third grade audience, presumably) talks about the subject, they always use “repossess”, especially when talking specifically about Britain. I vaguely seem to recall that was the usage in Britain but I admit it’s been 20 years since I lived there.
Home ownership is very high in Ireland, just as it is in the US. Homes are very expensive here, so people borrow a high proportion of the value of the house, and pay it back over 20, 25 or more years, at a variable rate of interest.
However, even though the home is collateral against the loan, it is (up to now) really quite rare for a family home to be repossessed by a lending institution in the event of default. Banks have historically been reluctant to do so, and courts have been very slow to grant an order evicting a family from their home, usually directing that a new payment schedule be agreed. Furthermore, the government, which now owns big chunks of the banks, has directed that the banks should take no action to repossess homes for at least one year after default.
So the idea that lending institutions would routinely repossess houses in the event of default, while not difficult to understand, might need to be stated explicitly to certain non-US audiences.
If it’s the BBC World Service (a sad travesty of its former self) he’s probably aiming it at the international audience whose first language is not English.
In some European countries it’s unusual to buy, renting is much more common.
Private landlords practically disappeared here in the 1960s, thanks to the Rent Acts which gave tenants such security of tenure that it was almost impossible to get them out. In recent years they have appeared again and people who bought solely in order to rent, and pay off the mortgage with the income, are likely to get hammered in the credit squeeze.
My understanding is that a foreclosure involves a morgage company taking possession of a house, selling it for whatever they can - often at a very low price - and keeping all the proceeds from that sale.
In the UK, a morgage company can take possession of the house - normally via court order - and they have to try to sell it for the market value. Of the monies raised from that sale, the morgage company only takes what is owed and gives the remainder to the person who borrowed from them.
Not directly relevant to the BBC programme that the OP refers to (which was probably UK-centric), but the mortgage situation in the US looks pretty unusual seen from here in Germany due to a cumulation of factors that are all a question of degree rather than principle.
The differences in Germany (some of which definitely do not apply to the UK) are:
[ul]
[li]apartment living more widespread (due to population density) even among the well-off and even in small towns i.e. less of an expectation that you will of course acquire a house. [/li][li]building (rather than buying) a house often a lifetime goal with a lot of emotional investment - house seen as family home not capital asset, which makes people who can marginally afford it to prefer waiting a few years to save up more, to be on the safe side.[/li][li]large deposits (saving up to which often begins in childhood) and long-time fixed rates are the norm e.g. less risk.[/li][li]non-recourse mortgages virtually unheard of (AFAIK) and personal bankruptcy not readily available i.e. less moral hazard - if you end up foreclosed on you end up not without a house and on the ground floor, but without a house and in a deep hole. Which deters from buying a house when the financing is precarious, of course.[/li][li]no real estate bubble hence no expectation or practice on the part of homeowners to extract equity.[/li][/ul]
Most places I have lived, it is common to obtain a mortgage, but generally people put more cash down than in the US. In Dubai, until recently, it was common to pay cash for homes.
Lots of good information here (and thank you) but the above tripped a trigger in my head. Isn’t this what it used to be like in the US?
When I was growing up (40’s and 50’s), it seemed that the only people who moved around were people who rented. My friends’ parents (the ones who were homeowners) stayed in their homes until they died, or until they retired and headed south (and one of the kids would move into those houses). My parents owned two houses in their entire lives, one in Iowa and one in Seattle, a period of 50 years. I’ve owned four in less time than half that time, and I have friends in their 30’s and 40’s who’ve bought and sold four or five times.
Which doesn’t prove or show anything – just an observation. Seems like “the family home” isn’t as prevalent as it once was.
If you read the PDF history I linked to, you can get a feeling for how it turned out that way. Basically, countries have industrial policies that guide their economies. In Japan, the economy revolves around the export of cars and electronics, in Germany, the export of cars, machinery, and capital goods.
Since WW2, the American industrial policy has more or less revolved around Americans buying and selling houses. It’s very much ingrained in the culture now. I remember a thread on this board a few years back, when the housing bubble still wasn’t readily apparent to many people, where I dared to hold the view that owning a house didn’t automatically make one a better person. The amount of vitrol directed at me made me wince. There were (American) posters here who were really took it as some kind of personal insult.
tschild’s point about non-recourse loans is pretty important and is what’s unfamiliar about the US situation for many foreigners. The idea that if your payments get too much and the value of your house drops you can walk out and wash your hands of the loan obligation is very weird.
But non-recourse loans are not the norm in the US either, AFAIK. Residential mortgages are only non-recourse in certain states like California and Louisiana. In practice, a homeowner who defaults on his mortgage is likely to be personally bankrupt anyway, since for many Americans, his house is his biggest and often only asset. I think it was more important of him to note that personal bankrupcy is much more difficult and much less common in Germany and other civil law countries. Germany, and actually most other countries, have personal savings rates much higher than the 0% or close to 0% in the US and UK.
I think the key there is “headed south”. The massive migration from the Rust Belt to the Sun Belt has produced a couple of interesting trends, mostly based (AFAICT) on the need for lots of new housing in the South. One of them, I think, is a previously more or less unknown amount of mobility- meaning lots of renters and short-term home buyers.
The fiancee’s parents have lived in their home since they moved here from New York 20 years ago, but I’m 26 and I don’t know anyone- anyone- under the age of 40 who bought a house recently and plans to live in it for more than 5-10 years.
We bought ours last year and we expect to be in a different one by 2015.