SO, let them do the same thing. Why is an action necessary?
Look, these people buy a house getting a super-low rate without taking into account that it could very well be MUCH higher three or five years from the purchase date. They DID NOT choose to go with a fixed rate, which was higher, and would have prevented them from buying the house in the first place—the same fixed rate that if they could have afforded it then they’d be able to afford now. But now that the *unbelievably completely unforseeable *( :rolleyes: ) has come to pass and their loans are higher than the introductory rate, they should be able escape the pitfalls that came with the lower rate—the very pitfalls that enabled the rate to be lower? No, I don’t think so.
They’ll only lose if they try to sell while the market is saturated with homes for sale. But this is a self-correctiing problem. A housing glut will result in lower prices, allowing people to afford homes—or bigger homes. Soon after, no more glut. And prices will level out where they should be.
The problem is that for most people, the prices cannot come down. If a person owes $300k on a house, he can’t sell it for $250k. He can’t give the buyer a clear title. So the house will eventually get foreclosed upon, and the bank will have to take a loss.
Screw the bank, you say. Well, the bank gets it’s money from regular people with checking and savings account, so we lose.
And it doesn’t stop there. With a foreclosure on your credit report, you are unlikely to get a loan for, say, a new car, thereby hurting the auto industry, etc.
I’m not usually in favor of government solutions, and I’m not sure that I am here, but this real estate crisis has the potential to be VERY, VERY bad. Not just for people who made poor financial decisions, but everyone…
They should make Experian fund this bailout, whatever it costs. Those are the people who own lowermybills.com, which is still running ads exclaiming “House payments continue to fall!”
Are variable loan initial APRs so ridiculously low that even a 6% fixed rate is out of buyers’ reach?
Or the homeowner can make the payments. Just because you buy something at 300 and the market value is 250, doesn’t mean you have to sell. You ever buy a stock that went down in price?
A question. Say you got an ARM at 4% for $100,000 4 years ago. How much has the average % gone up? (I know it’s a complete shot in the dark). Guesstimations welcome.
I was pretty young in 1983, but IIRC, that was before any type of computer credit checking. Back then, again IIRC, you needed to put 20% down in order to get a mortgage, so the banks didn’t really need a credit check because if you defaulted, they could sell your house at fire sale prices and get their money back easily.
The whole “subprime” market didn’t exist.
Now today, what percentage of people who buy a $300k home put down 20%, or $60K cold cash? I don’t know. My guess is not that many.
I guess my whole point is that this doesn’t affect only “stupid people who get in over their head”. If I want to own a home (I do, but this is an example) and I want to be a responsible borrower, trying to put down 20% and having a 15 or 30 year fixed note, then I am at a disadvantage, because all of the homes are priced artificially high. When there is a glut of people who have access to $300k for a house that have no business being loaned that much money, then more houses sell for that price
So now my options are to either:
Buy a house I can afford in the ghetto next to the crackhouse.
Rent an apartment.
or
Join the crowd and buy the $300k house that I can’t really afford.
Or even if I have the money to finance the house in the traditional way, I am paying through the nose for the house because of the actions of other people.
Many people do not understand finances. If they are shown a piece of paper that says they pay $1000/mo and they get this house, they sign it. The sordid details don’t matter.
The banks have been taking advantage and knowingly deceiving these people and/or taking advantage of their ignorance and making loads of money for too long. If it only hurt the stupid people, then maybe I would care less, but it hurts everyone in what they pay for homes.
Then when a boatload of homes get foreclosed upon, the neighborhood starts going to hell. Are you going to water your lawn, keep your plants trimmed, etc. when you know that the bank is coming for your house?
As I said, I’m not really in favor of a government solution, because they are almost always enormously expensive, executed poorly, and enacted half-assed.
[QUOTE=jtgain]
Now today, what percentage of people who buy a $300k home put down 20%, or $60K cold cash? I don’t know. My guess is not that many.
[QUOTE]
Agreed. I asked the question about the ARM because my brother (who doesn’t talk to me anymore) took out an ARM equity loan against his house wherin all he had to do was cut checks. He cut a lot of them. To the tune of about $120,000-$140,000. He bought toys mostly.
($14,000 entertainment center, two top of the line Harleys. God only knows what else).
Considering that there’s no question he’ll work to help the mortgage companies that stand to lose money, I think it’s only fair that he help the mortgage holders as well. I don’t think he should bail out all of the mortgage companies or all of the mortgage holders, but some assistance to some of each group is okay with me.
We owned a house in Louisiana. (3 br, nice neighborhood, $40K.) When I finished grad school, we managed to sell it, but the rise in interest rates meant we had to finance the buyer. He paid 12.5%, which was more than we were paying, so we made money, but we couldn’t buy another house, which was no problem. Our contract said he had to get alternate financing when the rates when under 12.5%, which turned out to be great, since it was a trigger for the bottom of the market.
However, we knew people who weren’t so lucky. The oil bust wiped out values, and lots of people walked away from their mortgages, since the house value was less than the balance. It happened all over Texas and Louisiana. The oil bust had something to do with this, but high interest rates did also. So, not everyone got their money back easily.
On the other hand, this was before the mortgages got packaged and sold, so lenders did a lot better credit checks than today.
I’ll grant you that a lot of these people were stupid and/or financially illiterate. But a lot of them got bum steers from those who they depended on. Around here there is one real estate office which lied to Latinos about the terms of the loans, and even worse. I’m sure a lot of loan agents told borrowers that prices would go up, which meant refinancing would be possible. (It has been working that way for years.) In the old days, you worked with your mortgage company to find the biggest loan you could afford. Back pre-Bush, when incomes actually rose for most of the country, mortgages automatically became more affordable with time. In the old days it made no sense for a lender to lend more than you could afford. That’s how it worked for my first three houses. Is it that surprising that some people didn’t catch on, especially if being in denial meant they could actually afford a house. Where I live, that’s not easy, period.
Lots of people don’t have the choice. How many people have to lose their houses to make you satisfied?
On the other hand, if all the flippers who thought they were smarter than anyone else wind up sleeping under bridges, I won’t be crying. They don’t seem to get covered by this plan, which is good.
There is another interesting aspect of this - jumbo loans. Those are loans too big for the FHA to insure. While there is some variation among states, Alaska and Hawaii are considered more expensive than California. Hawaii, yes, but an op ed I read today said that the median home price in Anchorage was about $250K. The median home price in California is higher than the jumbo loan cutoff. There used to be a small increment in interest rates, but it has gotten much bigger due to the liquidity crisis.
The mortgage companies now selling these loans are resisting an increase, since that cuts the interest rates they get.
