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Current Foreclosure Crisis Deemed the Worst in U.S. History
homeguide123.com — According to the most recent foreclosure numbers released by the Mortgage Bankers Association (MBA), the U.S. is embroiled in the worst foreclosure crisis in recorded history. More than 14 percent of subprime borrowers are defaulting, and prime borrowers are beginning to follow suit.
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- sarazen, on 10/10/2007, -1/+16I wish the silver lining was easier to find in this cloud. Getting great deals on foreclosed real estate just isn't very satisfying.
- lOvOl, on 10/10/2007, -3/+9There is nothing preventing people who lost their homes from getting another home in the future. In fact, if you are in the market for a home, you can save someone in the process of foreclosure a lot of headache if you can negotiate a short sale between them and the issuer of the loan. The seller doesn't get their credit ruined, the bank writes off the loss (which would be a lot more if they had to foreclose and sell the home themselves), and you get a nice deal on a home. Of course, I know someone who did this once but didn't to the necessary research to see if any additional liens were placed on the home they bought and in the end it turned out to be a financial nightmare, but if you do your homework you can help a lot of people who would otherwise have their credit completely ruined.
- kingpin2k, on 10/10/2007, -0/+2To say that a short sale doesn't ruin credit is a bit overstated. Sure, foreclosure and bakruptcy are the big daddies of credit problems, but short sale (basically, a negotiated settlement) is a close runner-up. It has the same effect of screaming to a potential lender "You won't be repaid!".
- williamdyer, on 10/10/2007, -0/+3If lenders were that picky, we wouldn't have the foreclosure wave now. There is no sign lenders learn such lessons.
- Monk22, on 10/10/2007, -0/+2theres tons of money to be made in the foreclosure business. im sure they dont mind.
- fyngyrz, on 10/10/2007, -2/+3Of course, you could, you know, not borrow in the first place.
I saved for 20 years (since I was 14) and bought my home outright. In the mean time, I lived frugally. No drinking, no smoking, public entertainment, bicycle transport, etc. The result? I paid a lot less than borrowers do. No interest, only one small fee. Now I own my home, several cars, motorcycle, and five businesses. No debt.
People have no patience, no fortitude. Everyone has to "have it now." Well, you get what you pay for, and guess what? When you borrow with the idea that you own, you haven't paid for it - and you don't own it. By which I mean they can take it away for all kinds of reasons.
If I could speak to all the young people, I'd tell them: (a) No credit cards; (b) No borrowing. (c) Never exceed the FDIC insured deposit amount in any savings account. (d) Invest in municipal bonds (in other words, let your town or city borrow from you.) (e) Don't entertain yourself with drugs (legal or illegal, from alcohol to cocaine, specifically because the effects don't last, but the expense is permanent.) (f) Get a (used) instrument. Learn to play. This is far more rewarding than listening to other people's recordings, and far less expensive. (g) avoid movies. Learn to dance, martial arts, etc. On your own. It'll last you a lifetime and it'll keep you very busy. Don't be a spectator. Spectators are people who make sports figures rich. I could go on, but I await my avalanche of digg-downs. :-)
- williamdyer, on 10/10/2007, -0/+3If lenders were that picky, we wouldn't have the foreclosure wave now. There is no sign lenders learn such lessons.
- kingpin2k, on 10/10/2007, -0/+2To say that a short sale doesn't ruin credit is a bit overstated. Sure, foreclosure and bakruptcy are the big daddies of credit problems, but short sale (basically, a negotiated settlement) is a close runner-up. It has the same effect of screaming to a potential lender "You won't be repaid!".
- vertinox, on 10/10/2007, -0/+5The silver lining is that people may finally wise up that ARMs screw them in the ass.
But then again... I'm not holding my breath. I don't know who told these people that ARMs are fine and dandy, but if you have a 30 year mortgage then the probability of the interest rate going up along with inflation is unavoidable. For the love of god if you can't get a fixed rate then don't buy a house.- salinemist, on 10/10/2007, -1/+3I had an ARM 7 years ago that worked out great for me. It didn't adjust for the first 5 years and rates fell after that, plus I bought a modest $130k house (midwest) on a $75k a year salary.
However then I got divorced; queue the financial ruin! :-)- dewfish, on 10/10/2007, -0/+2I have 2 arms and they work just fine.....come in handy when picking up stuff.
- fyngyrz, on 10/10/2007, -0/+1As they say, forearmed is fore... no, wait, its half an octopus.
- dewfish, on 10/10/2007, -0/+2I have 2 arms and they work just fine.....come in handy when picking up stuff.
- edmcguirk, on 10/10/2007, -0/+2When interest rates are at historic lows, it isn't the brightest move to commit to a 30 year ARM because there's no place for interest rates to go but up. But in the short term it's still a better choice.
However even though I got slightly screwed on my ARM, I still think it's the best way to go when it looks like interest rates are stable.
You can bet that you will never be protected by the interest rate caps when the rates are on the rise but you will almost always get screwed by the interest rate caps when the rates are falling (I did two years in a row). Gee, I wonder why that is? - macman2k, on 10/10/2007, -0/+3"I don't know who told these people that ARMs are fine and dandy..."
By Sue Kirchhoff and Barbara Hagenbaugh, USA TODAY 2/23/2004
WASHINGTON — Federal Reserve Chairman Alan Greenspan said Monday that Americans' preference for long-term, fixed-rate mortgages means many are paying more than necessary for their homes and suggested consumers would benefit if lenders offered more alternatives.
The Mortgage Bankers Association said the average rate for a 30-year fixed mortgage in the week ended Feb. 13 was 5.46%, compared with 3.27% for a one-year ARM. Mark Zandi of Economy.com says that although Greenspan is technically correct, for some borrowers, including those with high debt, fixed-rate mortgages may be a better bet.- Memitim, on 10/10/2007, -0/+1It's all about whether you are willing to gamble with your mortgage. Personally, it's enough of a gamble just taking on a massive debt like that. I'll definitely be going the fixed rate route.
- salinemist, on 10/10/2007, -1/+3I had an ARM 7 years ago that worked out great for me. It didn't adjust for the first 5 years and rates fell after that, plus I bought a modest $130k house (midwest) on a $75k a year salary.
- TheFinaleofSeem, on 10/10/2007, -2/+2As vertinox said, the upside is that people might think twice before spending ***** of money they don't have by borrowing it in such a way that they may not be able to pay it back. Here's hoping that the market stabilizes and that people wise up.
- bjornski, on 10/10/2007, -3/+2In America? HAHAHAHA.
Yeah, right.
- bjornski, on 10/10/2007, -3/+2In America? HAHAHAHA.
- DLHOUOKUSA, on 10/10/2007, -5/+6Has anyone considered that the people that got us in this mess has done more harm then Bin Laden has ever done. On another note what is so bad about losing a house you could never have afforded in the first place?? I have been wanting to buy a house for years but I am not able to get the house I want so I am doing something unthinkable, I am saving my money until I can afford the house I want. I know, I am a rebel.
- oldhick, on 10/10/2007, -2/+2And who in your opinion are the people that got us into this mess?
- DLHOUOKUSA, on 10/10/2007, -0/+1The bankers that gave the shoddy loans, the real estate agents that sold homes to people they knew could never afford them and the bone heads that felt they were entitled to a home they could not afford. The working man/woman and his/her family will pay for this for years to come.
- oldhick, on 10/10/2007, -0/+1Gotcha. Seems like a lot of different groups of people are being compared to Bin Laden. Not sure how that really makes sense. While the outcome isn't good and I guess its possible to make the comparison (since you've obviously done it) to Bin Laden, just not really sure what the point is or how that's relevant. But is something to ponder.
- DLHOUOKUSA, on 10/10/2007, -0/+1The bankers that gave the shoddy loans, the real estate agents that sold homes to people they knew could never afford them and the bone heads that felt they were entitled to a home they could not afford. The working man/woman and his/her family will pay for this for years to come.
- Metman, on 10/10/2007, -1/+1Alan Greenspan - While I consider him a genius, this will be his legacy for continuing to balance recession against lowering the prime interest rates. Even Greenspan himself acknowledges that would be the cause and effect of continuing to do so. However, he pointed out that the long-term effect of both was balanced against the greater of two evils.
- oldhick, on 10/10/2007, -2/+2And who in your opinion are the people that got us into this mess?
- hiphoc, on 10/10/2007, -1/+3The silver lining is that the people who got rich off the bubbe will buy up real estate and corporations when the crash comes. You know, like in 1929. And you and I will get to find out what starvation feels like. The same banks that have been destroying the third world will use the same policies to starve us, unless people know who to blame,THE FEDERAL RESEVE BANK.
- OwdenBowden, on 10/10/2007, -0/+1Like it or not this will be the only way anyone can really afford to purchase a home. I do see a crash coming but not the like that Hiphoc is predicting. What all of us will be seeing is a requirement of 30% down or you have to get P.M.I.
The housing bubble is just a string a bubbles in as long list of them. Once we had quick trends where you were in and out - not we do our best to go in and stay there until all of the life has been sucked dry.
- lOvOl, on 10/10/2007, -3/+9There is nothing preventing people who lost their homes from getting another home in the future. In fact, if you are in the market for a home, you can save someone in the process of foreclosure a lot of headache if you can negotiate a short sale between them and the issuer of the loan. The seller doesn't get their credit ruined, the bank writes off the loss (which would be a lot more if they had to foreclose and sell the home themselves), and you get a nice deal on a home. Of course, I know someone who did this once but didn't to the necessary research to see if any additional liens were placed on the home they bought and in the end it turned out to be a financial nightmare, but if you do your homework you can help a lot of people who would otherwise have their credit completely ruined.
- mrbubbleboy, on 10/10/2007, -1/+46The silver lining is that once this crash is over with (which is going to be while) prices should be back to a normal level where a person earning a good wage can reasonably afford a house. Right now prices just aren't affordable in many of the major metro areas.
- mydigga, on 10/10/2007, -9/+5I'll keep renting... It's more efficient.
- Cymrubeats, on 10/10/2007, -1/+1You are really lucky in america, for over $250.000, you get this - http://www.caledoniabureau.co.uk/propertysale_deta ... - I live just up the street from there, and rest assured, this area is a *****, and that price is cheap. Plus we have to pay at least double for everything else (from food to clothes and everything inbetween).
- breckinshire, on 10/10/2007, -0/+6You should buy a house in the US. With the exchange rate, your pocket change can probably afford the White House.
- mike17032, on 10/10/2007, -6/+7Keep telling yourself that. Pay off your landlords mortgage for him.
- togra, on 10/10/2007, -1/+3Not necessarily true. What if the rent you are paying is less than the interest payment on a mortgage to buy the same property? What about the maintenance you don't have to pay for?What if the price slump continues and the house you bought loses %10 - %20 in value, so you are in negative equity and cannot move out? What if interest rates go up so you cant afford the payments and get repossesed? It is idiots who thought you cannot lose by buying property, and that you should mortgage yourself up to the hilt because prices will never go down, that cases the price bubble and subsequent crash.
- Azuroth, on 10/10/2007, -2/+3No landlord that wants to stay one charges less for rent then the payments on the property. Why would you think you don't pay for maintenance, that's included in the price of rent. While this is a possibility, smart purchasing wouldn't leave you in that sort of trouble with a 20% drop, since you are supposed to put 20% down anyway. DON'T GET AN ADJUSTABLE MORTGAGE!!!! With a fixed rate, your payments never change over the life of the loan. No, it's idiots buying property they can't afford that caused this problem.
- therightside, on 10/10/2007, -1/+1Yeah I try to make all my financial decisions based on a lot of what ifs and fear that go against the conventional wisdom and overall trend of the last century.
- therightside, on 10/10/2007, -1/+1Yeah I try to make all my financial decisions based on a lot of what ifs and fear that go against the conventional wisdom and overall trend of the last century.
- macman2k, on 10/10/2007, -0/+1A landlord who buys a place a 250K house in my neighborhood for cash and rents it out at the going rate of $1200/month is only netting less than $1000 per month (after paying taxes and insurance). This means that his average return is 4.8% APR if the property doesn't fall in value AND he has no maintenance expenses AND he has 100% occupancy (unlikely) This is a VERY bad investment even by your standards (positive cash flow).
It is for these reasons that I just sold my house which I had 33% equity and a 6.385% 30yr fixed mortgage. Now i can borrow a $250K house for 5.7% APR with none of the long term liability associated with borrowing $250K cash or maintaining a house or natural disaster. When you factor in interest earned on my equity I am now WAY ahead of the game by renting (vs owning).
- togra, on 10/10/2007, -1/+3Not necessarily true. What if the rent you are paying is less than the interest payment on a mortgage to buy the same property? What about the maintenance you don't have to pay for?What if the price slump continues and the house you bought loses %10 - %20 in value, so you are in negative equity and cannot move out? What if interest rates go up so you cant afford the payments and get repossesed? It is idiots who thought you cannot lose by buying property, and that you should mortgage yourself up to the hilt because prices will never go down, that cases the price bubble and subsequent crash.
- ubuwalker31, on 10/10/2007, -2/+3In a down-trending uncertain housing market, renting is usually better than owning. Check out http://www.nytimes.com/2007/04/10/business/2007_BU ...
- Cymrubeats, on 10/10/2007, -1/+1You are really lucky in america, for over $250.000, you get this - http://www.caledoniabureau.co.uk/propertysale_deta ... - I live just up the street from there, and rest assured, this area is a *****, and that price is cheap. Plus we have to pay at least double for everything else (from food to clothes and everything inbetween).
- jerbaker, on 10/10/2007, -1/+4Even with this crisis I doubt prices will fall that much. In the Los Angeles area the median household income was $43,518 in 2004. According to erate.com, this will only qualify you for a $143,000 loan under the best case scenario. The median price of a home in Los Angeles County is $599,000. Do the math yourself.
- williamdyer, on 10/10/2007, -0/+2Ummm, those numbers tell me the opposite. There ain't no market for McMansions, outside of people who could not afford them previously but got mortgages anyway.
- jerbaker, on 10/10/2007, -0/+1$599,000 in Los Angeles will buy you a one, maybe two, bedroom house in a lower blue collar neighborhood. If you want a three or four bedroom house in an upper middle class neighborhood, it's all over $1 million. McMansions will cost at least $2 million. Check the prices here sometime.
- masterofsw, on 10/10/2007, -0/+1There's a big difference to the price of a house and how much loan you qualify for. If you really think those numbers are suppose to match, then you're one of the next to lose your 100% financed house.
- jerbaker, on 10/10/2007, -0/+1Um, you can't get a loan for more than you qualify for. Are you suggesting that the population making the median income should save up the $456,000 down payment to cover the gap?
- williamdyer, on 10/10/2007, -0/+2Ummm, those numbers tell me the opposite. There ain't no market for McMansions, outside of people who could not afford them previously but got mortgages anyway.
- johnhummel, on 10/10/2007, -0/+6That was precisely why I moved out of California - $500,000 for a 2 bedroom home just wasn't going to cut it for my 5 member family.
My wife and I have it all specked out that by this time next year, we'll have $17K saved up, and we'll be able to take our pick on the market and not feel rushed to go snag a home the second it becomes available. All we have to do now is just stick to our savings plan and wait - and not get distracted by things like "Rock Band".... - vertinox, on 10/10/2007, -1/+1I really doubt the current inflation and low interest rates are going to help.
- mydigga, on 10/10/2007, -9/+5I'll keep renting... It's more efficient.
- Andronicus1717, on 10/10/2007, -23/+19Yeah that Great Depression was nothing compared to this... please.
- Leadhyena, on 10/10/2007, -2/+12Why is Andronicus getting digged down? The poll is misleading:
The foreclosure rate recorded in the last quarter has increased beyond the highest point seen in the history of the MBA survey, which dates back to _1953_.
The Depression wasn't even included in this study. - Acewrap, on 10/10/2007, -9/+5He's getting dug down for his ***** know it all sarcastic attitude.
- TWINFM, on 10/10/2007, -1/+4Ummm...that's what message boards are all about...
- chumpsucker, on 10/10/2007, -5/+2Consider that foreclosure are higher than than during the great depression.
- Leadhyena, on 10/10/2007, -2/+12Why is Andronicus getting digged down? The poll is misleading:
- Y0tsuya, on 10/10/2007, -3/+31We will have successive waves of ARM resets over the next 4-5 years. Yet real-estate agents and "economists" still insist that the worst will be over in a year or so, same thing they've been repeating since 2005, only the date kept getting pushed back. And people still listen to these hacks. We have an affordability problem, not a subprime problem or interest rate problem. Yet these economists all miss the main point. Does getting a Ph.D. in economics mean you have to give up common sense?
- manstein01, on 10/10/2007, -0/+2You know what really stunned me, was that during the real estate boom, reporters would constantly defer to "joe schmoe, and econmist for the NAR, insists that prices are showing no signs of slowing down, and that the real estate boom will continue on until at least 2010..." Or lobbyists for the mortgage bankers association or NAR would give speeches on real estate health to economist organizations and think tanks. I guess in real estate conflicts of interest do not exist.
- MrUnderbridge, on 10/10/2007, -0/+10The affordability problem is tied up with subprime more than not because it's people in those categories who are hit hardest by low housing affordability. People with marginal credit and little savings (ie, subprime) simply don't have the resources to survive the housing downturn that others might have. Not that it can't affect people with more savings and better credit - things are getting bad enough that it is.
As to the ARM resets in 4-5 years - my rough guess is that people who make it through the first reset will switch to a fixed rate mortgage before it happens again, so the effects of each successive reset *should* be less than the first. Hopefully.
I know what you mean about the 'common sense' thing. Greenspan says he couldn't see the cause and effect relationship between unsustainably low interest rates and housing speculation, ultimately leading to unaffordable housing and a housing market crash. I don't know about him, but I saw it coming and I'm not an economist. I'm simply someone who was looking for a house and seeing 20%+ year over year gains in my market. I talked to real estate agents who said 'just BUY, get what you can, you can always refinance against your equity later!' I'm sitting here thinking, what planet are these people on that they think this will last forever? In the end, I bought a house with a fixed rate mortgage. I did my own budget instead of the bank doing it for me, and got a house that was much less expensive than what I was approved for. In the end, I'm probably showing negative equity right now - but it's OK, I'm not looking to sell and I can make my mortgage payment. That makes me luckier than most.
- DCMacHead, on 10/10/2007, -1/+23That's because the "prime" borrowers weren't really prime in the first place. Two to three years ago you could fog a mirror and get a mortgage with zero income documentation--at the rate things are going, you're going to need full documentation, a notarized note from God and your left testicle pledged as collateral to get one. So, the sales were fueled by loose lending and that money is no longer there to support prices--now it's payback time for those who bit off more than they could chew.
While all this was going on, the banking regulators sat around with their thumbs up their asses doing nothing to enforce prudent lending standards. Even more ironic is that Greenspan told people ARMs were a good idea just before he commenced hiking rates 17 times.
All the market has done up to know is take the imprudent lenders down, but there are still billions of dollars' worth of mortgages left to reset. It's humerous to hear politicians say, "oh, Fannie and Freddie can buy $17 bln worth of mortgages now"--only problem is that's not even a quarter's worth of production at a top 10 mortgage lender.- xtragedy, on 10/10/2007, -2/+5But they can't! If they do, people will buy less houses and house prices will have to drop! Tsk! Tsk! Very bad for the economy! We need to give people more unreal money! They have to buy more! More! More!
- oldhick, on 10/10/2007, -1/+3But can you really blame anyone other than the borrowers? Lets take a look, rates were the lowest they've ever been... So you go out and get an adjustable rate mortgage to squeak in even lower. Which way do you think your ARM is going to move??? It has to go up. And it'll probably go up rapidly. Common sense is lost to the gleam of a shiny new house and we have to pay for our neighbors being dumb asses.... Good times all around.
- DCMacHead, on 10/10/2007, -0/+2a lot of ***** are going to get annihilated when they decide to (or are forced to) sell. greedy ***** thought rates would go lower than 1%--the same jerk offs are the type that would spend hours on expedia trying to trim the price of an airline ticket by $5 but couldn't be bothered to do some homework on the biggest financial decision of their life
- isellmacs, on 10/10/2007, -1/+0Greenspan wasn't the one who raised it 17 times, it was Bernanke.
It's what happens when a life-long position of signifigant importance is given to somebody out of political loyalty rather than competence and ability.
- syroncoda, on 10/10/2007, -16/+9anyone looking at all the signs? country is going to *****. greed is rampant. wake up! don't make me turn on RATM and force you all to listen to it! :P
- nebben, on 10/10/2007, -6/+4I'm cranking mine up right now. Good idea. "RALLY ROUND BERNANKE ...... WITH A POCKET FULL OF SHELLS!!!!!!!!!!!!!"
I think I'm wasting my breath, but RATM is a great idea! ! !
If we don't take action now
We settle for nothing later
Settle for nothing now
And we'll settle for nothing later - TheFinaleofSeem, on 10/10/2007, -1/+3I've been forced to listen to RATM before. They're pretty damn good at banging their instruments, but as far as their message...they're dumbasses.
- nebben, on 10/10/2007, -6/+4I'm cranking mine up right now. Good idea. "RALLY ROUND BERNANKE ...... WITH A POCKET FULL OF SHELLS!!!!!!!!!!!!!"
- wonttellya, on 10/10/2007, -0/+7A few years ago, everybody and their grandmother is real estate investor buying no-money-down investment properties. Let's see how long these would-be real estate tycoons can hold out.
- mattrobuck, on 10/10/2007, -13/+15greedy Americans, buying houses they can't afford and leaving me with no other choice than to live in the parent's basement until I'm 40.
- WikiEasy, on 10/10/2007, -1/+3LAWL imagine telling your date you live with your mom at 40...
Maybe that's why you're on digg, eh?- iregistered4ths, on 10/10/2007, -4/+1All people who go on the internet, and more specifically digg.com, live with their parents until they are 40. Its a fact, the 3 of us prove that.
- spoid_, on 10/10/2007, -0/+2Better than living in a VAN DOWN BY THE RIVER!
- WikiEasy, on 10/10/2007, -1/+3LAWL imagine telling your date you live with your mom at 40...
- FreakyD, on 10/10/2007, -3/+15I hope this means that the price of 24" chrome spinners are going down
- dildoolielly, on 10/20/2007, -10/+56HI MY NAME IS PATTY AND I'M YOUR AGENT!
I'm going to speak really loudly and excited about whatever over-priced piece of cr@p house I try to shove down your throat! Did you notice my makeup and perfume? I put WAY too much on. It's my way of trying to cover up the 45 pounds I gained after I gave birth to my kid. My husband then lost interest in me and now has sex with Thai hookers when he goes on business trips for his WIlly Lomanesque sales trips! Can I interest you in this split-level Colonial which has gone 500% in the past six months? The markets fueled by low interest, interest only loans which will entrap you like an 18th century negro south of the Mason Dixon Line- hi, I'm Patty!- verevi, on 10/10/2007, -1/+3I liked your comment better when you posted it to this digg story 34 days ago:
http://digg.com/business_finance/Can_you_see_the_B ...- nouns, on 10/10/2007, -0/+2Oh SNAP! You Got SERV-D!
- verevi, on 10/10/2007, -1/+3I liked your comment better when you posted it to this digg story 34 days ago:
- badrox, on 10/10/2007, -2/+11Lets face it, it sucks. But perhaps the person(s) we should blame is ourselves. Perhaps we should send the $100 to the credit card people as opposed to spending it on some crap...
- clickwir, on 10/10/2007, -2/+5Ourselves implies me. I'm not to blame for this, I don't own a house. Nor do I have any CC debit. Nor have I ever.
- badrox, on 10/10/2007, -1/+2"Not my problem" is not going to fix it.
- therightside, on 10/10/2007, -1/+4But you live in your moms basement, so you dont really count.
- TheFinaleofSeem, on 10/10/2007, -1/+1I have credit card debt (Kinda hard not to get that as a student), but unlike most, I'm socking most of my money away to pay for it as quickly as possible rather than spending it on lots of *****. It's sad that most wont do the same.
- clickwir, on 10/10/2007, -2/+5Ourselves implies me. I'm not to blame for this, I don't own a house. Nor do I have any CC debit. Nor have I ever.
- Treoinmypocket, on 10/10/2007, -5/+14Affordability is subjective. Can't justify the payments? Then stay where you are and save some more $$. This is the market smacking people for being stupid. Don't blame the lenders - they didn't force you to buy that contract. Any idiot ( well, apparently not ANY idiot) can read the essential terms of an ARM agreement and figure out when 'The Piper' is going to need to get paid. If you can't sock away enough of the money you're saving on this low interest loan to make that payment when it comes due then don't get in.
.
It is that simple. Just because you WANT something doesn't mean you can HAVE it. The people in this predicament have no one to blame but themselves. And their parents should be embarrassed for not doing a good enough job teaching them responsibility.- manstein01, on 10/10/2007, -1/+12Where some friend's lived their landlord sold their two - family for $300,000. When the people who bought it moved in, we wondered how the hell this family of six - only two of which worked - could afford this place. Well, two years later (my friends had long since moved out) there was a story in the local paper which used this family as an example - it turns out they made a combined income of 45 grand, and used an 80/20 to buy the house...
This crash was long overdue. Any idiot with a smidgen of common sense. could see it coming - xtragedy, on 10/10/2007, -3/+1The thing is that interest rates are so low that buying now or later is the same thing. This statement alone should not exist. Its a very bad vicious circle when past a certain threshold because you can't control individuals.
- manstein01, on 10/10/2007, -1/+12Where some friend's lived their landlord sold their two - family for $300,000. When the people who bought it moved in, we wondered how the hell this family of six - only two of which worked - could afford this place. Well, two years later (my friends had long since moved out) there was a story in the local paper which used this family as an example - it turns out they made a combined income of 45 grand, and used an 80/20 to buy the house...
- chriskzoo, on 10/10/2007, -11/+22Right, lets blame the mortgage industry for dumb people getting into loans they couldn't afford.
- cozb, on 10/10/2007, -5/+14how old are you? It's the mortgage industry that APPROVED the people when they well know the barrower will be in trouble down the road.
- Treoinmypocket, on 10/10/2007, -3/+6Age has nothing to do with wisdom - as your comment clearly indicates.
Are you saying that the borrowers read the terms of the agreement, didn't put enough aside for when the higher rates kicked in and this is somehow the lender's fault? Or are you saying the borrowers didn't understand that "this low rate applies for this many months and at the end of this many months the rate goes to THIS %..."?
Either way you have a fool who has no one to blame but themselves for their trouble. - chriskzoo, on 10/10/2007, -2/+6Right, just like the guy coming to my front door selling products I know don't work "approves" me for the purchase of them or phone solicitors wanting my money for the "police fund" ensure me that my money will goto the police. Get real - some people are just stupid/greedy and get into things they can't afford without doing a little research. Wait, you mean someone making $25,000 a year can't afford a $250,000 house - what, what!?
- brufleth, on 10/10/2007, -1/+3Mortgage companies are in it to make money. You have to make your own budget and decide what you can actually afford. My brother-in-law and sister who are teachers were approved for a mortgage WELL out of the rage they could afford despite him having weak credit. It was up to them to look at their income and determine what payments they could actually afford.
- RedNeckerson, on 10/10/2007, -1/+5I can get approved to buy a $2500 vacuum cleaner too.
It would be my own damned fault if I did something that stupid.
- Treoinmypocket, on 10/10/2007, -3/+6Age has nothing to do with wisdom - as your comment clearly indicates.
- manstein01, on 10/10/2007, -2/+7Completely agree. Talking to some people you would swear home ownership is some God given right.
- cozb, on 10/10/2007, -2/+3lets, see, If you want a home, and some bank and a mortgage agent smiles and says "Why, yes you can, no problem, none at all, sign here", you kinda believe them.
still making the minimum payments on your xbox360?- thcobbs, on 10/10/2007, -2/+5Because you're dumb enough not to use one of the hundreds of amortization calculators out there? I mean come on, where is the personal responsibility of the borrowers?
I was offered SEVERAL "low interest now" ***** loans. I turned them all down and went with the higher fixed-rate mortgages. I know what interest can do, and I even ran several "what if" scenarios before I even started LOOKING at houses.- spawnfree, on 10/10/2007, -0/+3you are forgetting that most normal people just try to act intelligent, you actually are.
- brufleth, on 10/10/2007, -0/+2It isn't hard to figure out what you can actually afford to pay. Here's a hint, it will almost certainly be less than the bank is going to approve you for and in the case of an ARM YOU should have assumed interest rates would change and accounted for that. I'll be renting for quite a while because I know I can't afford to buy in my area. I'm sure I COULD get approved for a mortgage that would easily buy me a nice place. I know I wouldn't be able to afford it though. Take responsibility. Don't expect the person selling you something to decide if you can afford it or not.
- thcobbs, on 10/10/2007, -2/+5Because you're dumb enough not to use one of the hundreds of amortization calculators out there? I mean come on, where is the personal responsibility of the borrowers?
- cozb, on 10/10/2007, -2/+3lets, see, If you want a home, and some bank and a mortgage agent smiles and says "Why, yes you can, no problem, none at all, sign here", you kinda believe them.
- cozb, on 10/10/2007, -5/+2everyone else is dumb, chriskzoo is the all knowing, bow down before him and pay your respects
- thcobbs, on 10/10/2007, -3/+5If you're too stupid to understand what it means to be "living beyond your means", you deserve what you get.
- xtragedy, on 10/10/2007, -4/+1The real answer (and very basic one) is more like for the economy to work, people need to own things. When salaries are not good anymore and families smaller, everyone owns less and less. To work that out, interest rates are lowered. Then people can buy again. Whatever you do, one needs to own something. Imagine if nobody owned anything anymore... It wouldn't be capitalism. So let the riches be rich and lower the rates even more!
- Treoinmypocket, on 10/10/2007, -1/+4you are leaving supply and demand out the capatalism equation. People work and earn their way to what they can afford and business supplies that need. People making bad decisions is no ones fault but their own. The economy will grow according to the public's ability to earn and buy what they can afford and striving to earn more so they can afford more- THAT is the driver of capitalism, not everyone owning a house.
When my parents bought the house I was born in there was no such thing as a credit card and their down payment of cash was 25%. - macman2k, on 10/10/2007, -0/+1You don't own it if you borrow money to buy it. But I agree, that stable economies need decentralized ownership.
- Treoinmypocket, on 10/10/2007, -1/+4you are leaving supply and demand out the capatalism equation. People work and earn their way to what they can afford and business supplies that need. People making bad decisions is no ones fault but their own. The economy will grow according to the public's ability to earn and buy what they can afford and striving to earn more so they can afford more- THAT is the driver of capitalism, not everyone owning a house.
- togra, on 10/10/2007, -2/+5Yes, do blame the mortgage industry for making loans to people who obviously couldn't afford them. Think of the person you know who is the most stupid, irresponsible and bad with money. Now would you lend that person $100k?
They are both stupid. The difference is you expect the general public to be stupid. You hope the professionals doing their job wouldnt be so stupid. - macman2k, on 10/10/2007, -0/+1The problem is NOT the mortgage industry but the federal reserve and fractional reserve lending. If the supply of money was fixed (instead of growing with each new loan), then interest rates would fluctuate with supply and demand. When there is excess savings then rates would go down, when there is excess demand to borrow money then rates would go up. In this manner our country (as a whole) could not buy more than we have saved. One person would need to save a $1 for every $1 that someone else needed to borrow. Lending standards would take care of themselves. Right now the banks and mortgage brokers are devaluing every dollar in existence with each new loan they make.
- cozb, on 10/10/2007, -5/+14how old are you? It's the mortgage industry that APPROVED the people when they well know the barrower will be in trouble down the road.
- Bahimiron, on 10/10/2007, -0/+9God bless my fixed rate.
Of course despite its location, by the time this crisis is over I'm gonna lose my shirt trying to resell. It doesn't help that people are moving out of my area (Boston) at a record setting pace.- thcobbs, on 10/10/2007, -0/+4but at least you won't lose your house.
- mydigga, on 10/10/2007, -0/+6Because they found out the Patriots are spying on them.
- thcobbs, on 10/10/2007, -1/+1Next thing you know, those Patriots are gonna slip back through a rift before it closes.
- thcobbs, on 10/10/2007, -1/+1No Flash Gordon fans I take it?
- williamdyer, on 10/10/2007, -0/+1Hehe, coach thought the PATRIOT Act was about him, hehe.
- thcobbs, on 10/10/2007, -1/+1Next thing you know, those Patriots are gonna slip back through a rift before it closes.
- cdahlkvist, on 10/10/2007, -0/+3More likely is that you will have your home when things start to get back to normal and hopefully for you it will still be worth more than you paid.
I purchased my home 8 years ago for $147,500 and a fixed rate of 6.5%. During the boom my resale value went up to $276,000 due to the area I am in. I know the reality is more like $200,000.
I was offered a lower rate for the first 7 years if I took an ARM. That might have been nice for a few years but it surely would suck now.
Point being that people need to do the research. A house is a big investment and if you are going to take a 30 year (I did a 15 year) that is almost half your life. Take the time to do the research on something that is probably going to affect you for the rest of your life.
I'd also add that when I bought my house everything was explained to me very clearly and numerous times so it's not the fault of the lenders (other than them assuming rates would stay low and lending to people that could only afford under current circumstances) but rather the idiots that trap themselves into a financial situation they know they can't handle. - brufleth, on 10/10/2007, -0/+1Prices aren't plunging too badly here...well depending on where your house is at least. Overall prices actually stayed constant in the greater metro area last year but there were internal fluctuations of a few percent here and there. Rents are coming back up too despite the exodus. I'm not sure how much new development there is either. Boston isn't such a terrible place to own right now. You might have to stay with your current house for a while though if you want to make money selling it.
- cozb, on 10/10/2007, -9/+13 It's the mortgage industry that APPROVED the people when they well know the borrower will be in trouble down the road, so yes it's the fault of the industry and they know it.
- chriskzoo, on 10/10/2007, -0/+13OK, so people default on the loan and the mortgage company then has to take over the property, in a declining market. The buyer gets hurt for getting into a loan they can't afford and the mortgage company gets in trouble getting stuck with properties they can't sell and aren't drawing an income from. It's called capitalism and the the dumbest thing you can do is bail either side out. Let the chips fall where they may, the market will correct, homes will be more affordable, mortgage companies will not offer shady loans, and everyone will be better off in the long run.
- cozb, on 10/10/2007, -1/+3I dugg you up, because it's a logical conclusion to this problem.
- Treoinmypocket, on 10/10/2007, -2/+1And I dugg YOU up for having the humility to say so. KUDOS to you.
- mookiemookie, on 10/10/2007, -8/+2Until you realize that letting the "chips fall where they may" would cause even more job losses and hurt GDP even worse than it is currently.
GB2 ECON CLASS PLZTHX- chriskzoo, on 10/10/2007, -1/+2This has nothing to do with jobs. Who is going to lose a job over this, except maybe a few lenders? The people in the homes might lose their home (their fault) and have to live below thier means for a little bit.
I liken it to someone who loses a very good paying job and then complains that he is out of work for months, meanwhile a job goe unfilled at McDonald's or Wal-Mart. Hey, just because you USED to make a lot of money doesn't mean that it should be beneath you to take a job paying less money while you find the job you really want. Just because you USED to be able to afford a big house does not mean you shouldn't be smart and move into more affordable housing while you get your ***** in order.- mookiemookie, on 10/10/2007, -1/+2Who would lose their jobs?
Lenders, construction workers, retail furniture, home improvement etc stores, which would then impact wages and spending, which would then impact GDP, which consumer spending comprises 2/3rds.
Trying to explain economics to digg is like trying to explain it to monkeys.
- mookiemookie, on 10/10/2007, -1/+2Who would lose their jobs?
- chriskzoo, on 10/10/2007, -1/+2This has nothing to do with jobs. Who is going to lose a job over this, except maybe a few lenders? The people in the homes might lose their home (their fault) and have to live below thier means for a little bit.
- cozb, on 10/10/2007, -1/+3I dugg you up, because it's a logical conclusion to this problem.
- thcobbs, on 10/10/2007, -4/+7What the *****? How about the borrower was too stupid to realize they couldn't afford what they wanted.
You know what happens when I realize I can't afford something? I DON'T ***** BUY IT.- zengonzo, on 10/10/2007, -2/+4And when someone with questionable credit history asks you for a loan you are certain they will default on because the rates will skyrocket, YOU DON'T ***** LEND IT.
This is the fault of buyers and the industry alike. They colluded in stupidity. The difference is that the industry should know better - it's their home turf, whereas the buyers were clearly myopic.- williamdyer, on 10/10/2007, -0/+1The lenders also follow federal policy on lending. If the Fed, Fanny, Freddy, FHA, etc. wanted a more rigorous lending process, they would have had one. The whole thing was part of making people feel good while the nation is going to hell with foreign debt and insane war spending.
- brufleth, on 10/10/2007, -2/+2The industry did what they could to make share holders happy and get fat bonuses and promotions. When buying something it is up to the purchaser to decide if they can afford it. You might have tens of thousands of dollars available via credit cards but NOT spending all of that and avoiding bankruptcy is up to you.
- zengonzo, on 10/10/2007, -2/+4A loan is a contract between two parties. Do you mean to suggest that only the buyers are responsible for this issue? Do you think anyone should be bailed out?
If the industry stood to suffer from a fallout, which is clear that it will, then it should have been more responsible with loan handouts. - thcobbs, on 10/10/2007, -3/+1I think you're still missing the point. I'll put it this way:
Loan Writers: Dumb... and they shouldn't get a bail out.... they should be responsible for their actions
House Buyers: Dumb... and they shouldn't get a bail out.... they should be responsible for their actions
It's all about responsibility... and you seem to want to take all the responsibility off of the home buyer. - zengonzo, on 10/10/2007, -1/+1How can it seem like that when I repeatedly stated that both were responsible?
'This is the fault of buyers and the industry alike.'
'Ultimately, everyone involved is at fault.'
I want to see them both hung out to dry, too .. so what point am I missing?
- zengonzo, on 10/10/2007, -2/+4A loan is a contract between two parties. Do you mean to suggest that only the buyers are responsible for this issue? Do you think anyone should be bailed out?
- zengonzo, on 10/10/2007, -2/+4And when someone with questionable credit history asks you for a loan you are certain they will default on because the rates will skyrocket, YOU DON'T ***** LEND IT.
- Treoinmypocket, on 10/10/2007, -3/+6SO let me get this straight - the mortgage industry approved a loan for a person....knowing....that person would be in trouble down the road. Just to be clear, you are saying a business knowingly entered into a financial contract where they KNEW they would lose money?
You are an employee aren't you. I mean you don't actually RUN or OWN a business do you?- zengonzo, on 10/10/2007, -0/+5You're missing the resale element.
And nevermind that in a rush for the quick buck many people can make stupid decisions with longer term consequences.
Simply owning a business doesn't confer a magical ability to think clearly. That depends on the person.- Treoinmypocket, on 10/10/2007, -0/+1Fair enough but I'd argue that owning a business makes you think a lot harder about every expense and your prospects for recovering them.
You might point out the astounding number of small business failures that occur annually but that is more to do with not knowing how to grow th ebusiness then it is about being frugal. Most businesses that fail in the 1st tow years do so because they mistakenly believe that because they have opened their doors people will come in. Marketing/advertising is viewed as an expense rather then an investment.- zengonzo, on 10/10/2007, -0/+1In many cases these loans were bundled together with lower-risk loans and immediately sold to larger companies, hedge funds. That's how this thing bloomed to be so much greater.
Ultimately, everyone involved is at fault. You can also argue that the process of buying a house should make people think a lot harder, but it apparently didn't. People were greedy and callous, buyer and seller alike.
- zengonzo, on 10/10/2007, -0/+1In many cases these loans were bundled together with lower-risk loans and immediately sold to larger companies, hedge funds. That's how this thing bloomed to be so much greater.
- Treoinmypocket, on 10/10/2007, -0/+1Fair enough but I'd argue that owning a business makes you think a lot harder about every expense and your prospects for recovering them.
- zengonzo, on 10/10/2007, -0/+5You're missing the resale element.
- chriskzoo, on 10/10/2007, -0/+13OK, so people default on the loan and the mortgage company then has to take over the property, in a declining market. The buyer gets hurt for getting into a loan they can't afford and the mortgage company gets in trouble getting stuck with properties they can't sell and aren't drawing an income from. It's called capitalism and the the dumbest thing you can do is bail either side out. Let the chips fall where they may, the market will correct, homes will be more affordable, mortgage companies will not offer shady loans, and everyone will be better off in the long run.
- krizzle, on 10/10/2007, -1/+16You haven't even experienced the fiveclosure yet.
- clickwir, on 10/10/2007, -4/+2"You see that bitch?!? That's not a forehead, that's a FIVEhead!"
- pinguwin, on 10/10/2007, -3/+9So the MBA says it's the worst crisis ever. Wonder who's fault that is. I blame dumb people for this, homeowners and the MBA. Don't think it ever crossed their minds this is PR for a bailout, do you? Nah...all their lobbyists are sleeping in late until noon lately, don't yah think?
- pinguwin, on 10/10/2007, -2/+6So the MBA says it's the worst crisis ever. Wonder who's fault that is. I blame dumb people for this, homeowners and the MBA. Don't think it ever crossed their minds this is PR for a bailout, do you? Nah...all their lobbyists are sleeping in late until noon lately, don't yah think?
My brother in is in the mortgage industry and laughed at how silly they were becoming. Approving pretty much anyone with a pulse. He said they knew what was going to happen but rode the gravy train, regardless of who had to pick up the pieces. - Shawn4168, on 10/10/2007, -8/+11Wow...haven't seen anybody else say it yet, so I guess I will.
This is Bush's fault somehow.- gtluke, on 10/10/2007, -3/+7i'm pretty sure thats a given on digg.com now
- Treoinmypocket, on 10/10/2007, -2/+2Silverado
- t1m0j5, on 10/10/2007, -8/+1How and why could you justify it as Bush's fault? or do you make up facts? (WMD)
- Shawn4168, on 10/10/2007, -0/+3I don't know. All I know is that it needed to be said in order to be on the front page of Digg.
- brufleth, on 10/10/2007, -2/+2Only if stupidity can spread via mass media which may have some psychological merit. However the blame more or less lays on the shoulders of buyers who apparently can't budget their money and figure out what they can afford.
- billmccartney, on 10/10/2007, -0/+11I feel so bad for people who were living out of their means, and the idiot investment groups who made bad financial decisions on lending those people money....
Oh wait, no I don't. All of these parties are getting their just desserts. As cruel as it sounds, these people are financial idiots for not seeing this - and don't get me started on the mortgage companies...- clickwir, on 10/10/2007, -0/+3I have to agree. I sat back over the past few years and watched people buy new places and we wonder, "how can they afford that?" "That's at least $xxxx per month! Are they selling crack!?" Then we find out they have entry level jobs making 10-20% less than us and just bought a house over 2 times the cost of what I'd say is our max. Yea, they'll be out of that house in a couple years.
- scorchedearth, on 10/10/2007, -0/+2Unfortunately, the shady moneylenders got bailouts from the government and will continue to defraud everyone because the market was unable to enact its unique form of discipline on the banks who had clearly earned it.
- macman2k, on 10/10/2007, -0/+1You think their decisions wont affect you? Every loan was made at the expense of the $USD and every bank will have to take major losses (if not go completely belly up). You pay higher prices on everything we import and your salary buys less in REAL terms than it did a few years ago. So yes, these people get what they deserve, but we are also getting what we deserve (fallout from failure to act to prevent it). Sadly, many innocent people will suffer because of the greed and foolishness of both lenders, borrowers, and politicians.
- JMMarich, on 10/10/2007, -0/+9I just bought my new house in a market that is actually decent, but I still made sure to get a fixed rate. Anyone who got an ARM for any other reason than "I am moving in 1 year and this is no issue" is a complete moron. Its the growing CC debt issue with another face - immediate gratification without being able to effectively pay for it.
--Josh- brufleth, on 10/10/2007, -0/+3Exactly. A credit card company will approve you for tens of thousands of dollars in credit but that doesn't mean you run out and buy $10k entertainment centers and then get pissed when you can't afford to pay.
- TherealObadiah, on 10/10/2007, -0/+12Well, at least I don't have to listen to those moronic ads shouting, "No Credit? Bad Credit? NO PROBLEM!
- nouns, on 10/10/2007, -0/+1as long as I can keep my "Freee Credit report dot-com" jingles
- archer75, on 10/10/2007, -1/+8I keep reading about this, but i'm just not seeing this. My wife also does mortgages too. We just aren't seeing all this doom and gloom taking place.
- Mrstupid7, on 10/10/2007, -0/+3Drive through a subdivision that has opened in the last 5 or so years. You'll see it then. The one down the street from my parent's old house seems like about a 1/3 of the houses are now up for sale or have been foreclosed.
- Treoinmypocket, on 10/10/2007, -3/+3No they aren't.
- RedNeckerson, on 10/10/2007, -1/+3-
- Treoinmypocket, on 10/10/2007, -4/+3Because it isn't happening.
- H4xirl, on 10/10/2007, -0/+2It happens where I lived.The bank foreclosed on us and half the neighborhood overnight.Some people could afford to stay but most of us sold out and moved to a cheaper place.
- mike17032, on 10/10/2007, -0/+3You must not live in CA (or some other place idiots think its a good idea to blow 500k on a place the size of a big closet).
I dont either, and I dont see it much around here. Mostly because houses never went to retard level prices in this area. - BirthTax, on 10/10/2007, -0/+0It depends on where you live. And even in metro areas, it depends on your neighborhood. I live in a suburb of Chicago, an area of the country that is not supposed to be affected much, but my particular suburb has a lot of tear downs and $1M homes (next to 60 year old ranches). My wife and I are looking at houses right now. We've seen a couple of foreclosure properties, and a couple of properties where the owner owes more than the house's asking price. One is being sold as a relocation, so I think their employer gets the bill, but I'm not sure about the other. We've been looking off and on for a few years and this is the first time we're seeing this.
- clickwir, on 10/10/2007, -0/+1.... and it doesn't happen everywhere. There are some places where the market is good, but those are getting less and less.
- Mrstupid7, on 10/10/2007, -0/+3Drive through a subdivision that has opened in the last 5 or so years. You'll see it then. The one down the street from my parent's old house seems like about a 1/3 of the houses are now up for sale or have been foreclosed.
- SirGunslinger, on 10/10/2007, -1/+17Just like fat people need to put the fork down, broke people need to put the credit card down. Don't buy what you cannot afford.
- Captbob007, on 10/10/2007, -3/+3Exactly! And the govt shouldn't be bailing anybody out for being so stupid as to buy something they can't afford or to get a type of mortgage they don't understand. Nobody's fault except their own, and I'll be profiting like crazy off of foreclosed properties I'm buying up.
- lucienve, on 10/10/2007, -2/+14Dugg down as inaccurate - this isn't the 'Worst in US History'. The article states that the data that they're looking at only goes back to 1953. The article actually says that it's the 'worst in _recorded_ history', and then gives the dates they have data for. The digg headline, unsurprisingly, is overly dramatic and tabloid-worthy.
- Highstand, on 10/10/2007, -1/+8Any bailout is for the sole purpose of the lenders/banks. If I make bad investments I get a pat on the head and am told to do my research next time. Banks make bad investments and they whine and cry to the feds to bail them out. If they truly support a "free market" then ride the Titanic to the bottom like a man. Yes, yes I know the banks have more of impact on the economy than I do, but if you make bad loans that is YOUR fault. If you bought a house you can't afford that is YOUR fault. You cashed out all of your equity to buy a Hummer, yes again - YOUR fault. The government should step back and let the whole thing crash and sort itself out. People may have to live in Hondas and tent cities for awhile, but our economy will be better in the long run. It will get much worse. Anyone who tells you the worst is behind us is either A) a realtor, B) a real estate investor, or C) a homebuilder. On the bright side, commodity prices will crash and we will have $1 a gallon gas within the next three years.
- macman2k, on 10/10/2007, -0/+1actually, the dollar will crash as the FED pumps billiions of dollars into the country and the rest of the world stops buying our debt. Gas will be much higher in the future.
- joe122370, on 10/10/2007, -1/+5here's an idea....buy what you can really afford and get the locked rate. Anything else is stupid and your fault, not anybody else's
- chess007, on 10/10/2007, -1/+4Here's an idea: stop the crooked process of sub prime lending. Here's how it works. A sub prime loan is a loan with a high interest rate usually given to people who have bad credit. People who are believed to be at a high risk for not paying. People sometimes use this type of loan to get a home. Thats fine. Here's the problem I have with those types of loans: some of them do not allow payment more than the specified payment. For example, if a person has a 5 year loan and they are saposed to pay $500.00 dollars a month, the terms of the loan dictate that they can't pay more than $500.00 a month. That means that the company gets all the interest! A person can't pay off their loan early. Its very unfair. And if they get foreclosed on, according to their contract, they can't even pay if off if they have the money to do so! That should be against the law. Not the loan, but the rule that doesn't allow people to pay more than what they agreed on. That is such a rip off.
Those are the type of loans that are more likely to be pitched to women regardless of their income. So, if a single woman has good credit and enough money to get a normal loan, the lending company will still try and pitch a sub prime loan because foreclosure is more likely. Meaning: if you don't pay they get the house and whatever money you put into it.- irvman21, on 10/10/2007, -1/+2Assuming nobody was holding a gun to the head of the person who took out the loan, it was still entirely their decision to enter in to a bad agreement. It is your responsibility to watch out for your own best interest, nobody else is going to do it for you.
- H4xirl, on 10/10/2007, -0/+2Yes but isn't it part of the point of governments to stop the strong(rich,somewhat intelligent,persuasive banks) from taking advantage of the weak(in this case stupid people)?
- irvman21, on 10/10/2007, -1/+1it's the governments responsibility to keep the strong from forcing the weak to do things against their will. Nobody was forced to do anything in this situation. Everyone who entered into these agreements is an adult and it is exactly the idea that they should be protected that allows them to live so irresponsibly.
- H4xirl, on 10/10/2007, -0/+1I'm not saying somone was forced,and I do believe these people are at fault.However what I am saying is that the market's major forces are also at fault for letting the market get to this point.
- billmccartney, on 10/10/2007, -1/+1LOL... if you think the banks took advantage of the individuals, you are wrong. If a house goes into foreclosure THE BANK LOSES THE MOST!!!
It is the banks and investments groups that signed for all these bad loans who are at fault too! In this case, people and financial institutions screwed up - and now they have to pay for it!- H4xirl, on 10/10/2007, -0/+1But the banks are FDIC insured,aren't they,the government pays them back,and not the people who where stupid enough to take these loans.Also, I do agree with that the people and financial institutions screwed up and now they have to pay,but will that instiution pay more, or will the people pay more?
- H4xirl, on 10/10/2007, -0/+1I'm talking about the local governments getting invovled in this process to stop the rapid climb of housing prices.
- irvman21, on 10/10/2007, -1/+1it's the governments responsibility to keep the strong from forcing the weak to do things against their will. Nobody was forced to do anything in this situation. Everyone who entered into these agreements is an adult and it is exactly the idea that they should be protected that allows them to live so irresponsibly.
- H4xirl, on 10/10/2007, -0/+2Yes but isn't it part of the point of governments to stop the strong(rich,somewhat intelligent,persuasive banks) from taking advantage of the weak(in this case stupid people)?
- adwarereport, on 10/10/2007, -0/+1No, that's NOT how it works. Sub prime loans are usually given to people with *perfect* credit, people who are believed to be at low risk for not paying. The interest rate floats based on the libor or some other index for some period of time, then they ratchet up slowly over time, usually with a yearly cap (mine is guaranteed to rise no more than 7.5% per year).
The problem is that the mortgage bankers/brokers do not fully explain the loan. They go to great lengths to push the benefits (low rate, low risk assuming you plan on moving in 5 years), but not the risks. In our case, the loan payments are less than the amount of the interest so the principal amount is increasing over time. When this amount passes a certain percentage, you are then on the hook for principal + interest, just like any other loan.
This is happening to us in the next 6 months or so. However, we are not going to default. That's because I put $100k down and I make a ton of money, so I can swing the mortgage payment. What sucks is that prices have stalled (if you are confident that housing prices will continue to rise, it's actually quite stupid and irrational NOT to take this loan). So while we aren't going to default, the appreciation on the property doesn't cover the increasing principal balance so we've actually lost a bit of money on the house.
What is amazing about all of this is that people still continue to believe that you can make real money in real estate or stocks. You can't expect above average returns in any type of investment where there are few or no barriers to competition from other investors. Here's my advice: put 6 months of living expenses in your savings, and then invest in yourself (education or business). You WILL come out way ahead over time.- natedouglas, on 10/10/2007, -0/+1House prices raise over time... yes. Just like the cost of bread. It doesn't make it a good idea to buy a $500,000 lot of bread, though.
- irvman21, on 10/10/2007, -1/+2Assuming nobody was holding a gun to the head of the person who took out the loan, it was still entirely their decision to enter in to a bad agreement. It is your responsibility to watch out for your own best interest, nobody else is going to do it for you.
- Deguello, on 10/10/2007, -1/+1Dear Housing Market,
SHOOP DA WHOOP! - theworldisflat, on 10/10/2007, -1/+15Dear California,
We told you. We told you... we told you.
Thanks
Rest of the US not paying 500K for a 700sqft shack.- plizard, on 10/10/2007, -1/+1but dude i flipped that house! lolz
- OswaldKenobi, on 10/10/2007, -2/+10The Personal Responsibility Crisis is worse than it has ever been in the United States.
- dupswapdrop, on 10/10/2007, -1/+6If you sign up for a bad loan it's not my fault! It's not the governments fault! It's your fault! Get some education before you sign up for any type of loan and make sure you understand the terms of your loan before you sign.
- Fission, on 10/10/2007, -0/+5I've been in the industry for a few years now and I now run my own office. You can't blame one or the other for what is going on because it is all situational. Take these for example:
1) Some people needed to refinance to save money and get out of trouble. The lender promises them that it will be closed before they go late and not to pay their mortgage. When they get to the closing table, the numbers changed from the nice 6% fixed they had to an 8% ARM. Now this person is in a bind because they have no money currently and need to refinance to pay their mortgage. The 8% will still save them some money, so they decide to sign the papers and bite the bullet. Bait and switch is the LENDER'S fault.
2) You buy a $400,000 house on your $40,000 a year salary because they give you that nice 1.25% stated-income option arm with a payment of $1,333 a month. Every month you defer money onto your mortgage and next thing you know, the loan recasts into a fully indexed rate at a 7.5%. Your mortgage payment is now $2800 a month and you can't afford the house you live in. Time for foreclosure! That is the BORROWER'S fault.
In the end, it's a joke how little this industry is regulated. You're dealing with people's largest financial asset and yet there is no set requirements for licenses or regulations. When a broker can send out a fake GFE with a 3.00% fixed rate and change it at the closing because it was *****, that is just messed up. They should start enforcing some rules and maybe even require people to get licensed. The problem is, it may already be too late.- Metman, on 10/10/2007, -1/+1WHAT?! This is America! God damnit we can blame whoever we want!
- omega1045, on 10/10/2007, -1/+3My wife and I often have conversations about how most of our friends have houses *much* bigger than ours. We live in a 1700 sq ft. home, but have friends in 3000+ sq ft. homes. We don't have kids, but even if we did I don't think it would be a big deal in our home. We have plenty of room. I grew up in a smaller place, and always thought we had plenty of room then. I just don't get why people want to pay $2k a month on a mortgage payment when they could be investing that money.
The other thing I don't get is how people in California think it is a great place to live with the cost of housing. I am not dissing California at all. But I live in a suburb of Austin, TX, in nice neighborhood. We paid less than $130k for our home (and I think it is nice). If you are unfamiliar with Austin, it is easily the nicest place in Texas to live. We have a booming tech economy, and the quality of living here is great IMHO. And I am not from Texas, so that is saying a lot! There are other places like Austin where there are good jobs and real estate is not ludicrous, these places just aren't in California.- FOUGHTANDWON, on 10/10/2007, -0/+2Agree with you. I have a new home, suburb of Houston. 1800 sq. ft. home for 120K, and though it's just my wife and I, even if we had two children in this house, we'd still have enough room. Why get the biggest house we can afford, when we're plenty comfortable, and can pay it off much sooner when we're not maxed out on mortgage.
- natedouglas, on 10/10/2007, -0/+2I grew up in a 1700 foot home, from the time I was eleven. It was the biggest house we ever had. I lived in a trailer twice, with my mom and dad and sister (when she visited), and it was small (and ghetto) but adequate. And a little house when I was smaller.
1700 square feet is pretty nice, really. We had a ***** floorplan in that house (just a modified ranch, with a second living room ("the den") instead of a garage), but it had four bedrooms, two baths, a decent-sized kitchen, a sun room, and the aforementioned living room and den. That's enough to raise two kids comfortably, or one very comfortably and have an office too. If my mom had made the den into the master suite and thrown in a bathroom, maybe extended it back and made another room (office/nursery), you wouldn't really lose anything of value but would have a large house by almost any standards.
This obsession with square footage is stupid. Why does anyone need 5000 square feet? To put more useless junk that costs you money? Minimalism is key.- WakeRider, on 10/10/2007, -0/+0The house I live in at the moment is 1400 sq feet. It is big enough for my parents, sister and myself to live in very comfortably. It is just one of the average sized houses in a suburb in Auckland, New Zealand. Having 3000+ sq feet would be classified as a mansion over here. Mind you the definition of "big" in New Zealand is very different to what the Americans define as "big."
- RedNeckerson, on 10/10/2007, -1/+6I knew better than to play invisible money games and got a fixed-rate, in addition to moving to an area where the houses are actually worth the asking price. This "crisis" doesn't affect me, only stupid people.
- casemon, on 10/10/2007, -5/+9Anyone else think this was engineered? Reminds yeah of the Great Banker Land Grab... err Great Depression of the 20s... looks like it's only going to get worse (by design).
Hint, someone profits from any "depression" or "crisis".- OswaldKenobi, on 10/10/2007, -3/+4You are such a moron, it's not even worth it to explain it to you. People like you are the problem with this country.
- JMMarich, on 10/10/2007, -1/+10This is a good one. Its really got me thinking.
Perfect example of America's Problem : MY SISTER:
39. Married. 3 kids. Declared bankruptcy 8+/- years ago. In the last 8 years, she and her husband have had ATLEAST 6 new cars. She lives in a 100k house.
My wife and I are 29. In the last 12 years, we have had 1 NEW car. Bought it when my 10 month old was born for the extra airbags and safety in the back.
She complains how my wife and I live in a 400k house and she has an old house in bad repair. Go figure.- qualish, on 10/10/2007, -1/+2Feel free to pass my contact information along to your sister. She sounds like a foxy lady. *sexy growl*
- plizard, on 10/10/2007, -0/+5well idiots shouldn't get a 1mil dollar mortgage making 32k a year with a subprime ARM of 12% and rising and think they will pay it off in the 40 years they 'agreed' to. ***** idiots.
thank god for my fixed 4.99 APR - uselessexpert, on 10/10/2007, -1/+7This may sound ***** up, but I am glad this is taking place, and that a lot of people and lending institutions are falling flat on their face.
Just like the borrowers knowingly getting in above their heads to try and make a quick buck with variable rate mortgages and the lenders that administered them to the government, they are all at fault.
So, I am glad to see them getting screwed, due to their greed and their short vision, not to realize that all these craziness in real estate was eventually going to come to an abrupt end.
Anyone remember the tech bubble?... Just the same!- nihilite, on 10/10/2007, -0/+2The difference - the US government resells mortgages as MBSs on the bond market and they guarantee that even if homebuyer stops paying their mortgage, the bonds will still pay up. So instead of going bankrupt and investors losing their money, the homebuyer goes bankrupt, the US government gets stuck with the bill, and the investor is still happy.
Do you smell a rat? I do.
- nihilite, on 10/10/2007, -0/+2The difference - the US government resells mortgages as MBSs on the bond market and they guarantee that even if homebuyer stops paying their mortgage, the bonds will still pay up. So instead of going bankrupt and investors losing their money, the homebuyer goes bankrupt, the US government gets stuck with the bill, and the investor is still happy.
- plizard, on 10/10/2007, -1/+2another thing i forgot to mention is that lenders will approve borrowers up to 75% of their month gross when calculating monthly mortgage payments! 75%!!!! you should NEVER EVER EVER go over 30% or you WILL run into financial problems
- Fission, on 10/10/2007, -0/+1Did you just pull that out of your god damn ass? I do this for a living and no lender full documentation goes over 50-55% total DTI and that is pushing it. That debt-to-income ratio includes everything else on your credit report as well and NOT just your mortgage. The most anyone does is Fannie Mae with their My Community program at 60% and is a low-income specialty program. If they used just your mortgage 75% gross of your income, then your net after taxes will pretty much be equal to or less than your mortgage payment. Don't be an idiot.
- chicofaraby, on 10/10/2007, -1/+4I'm a small business owner. I bought my house using a ARM because that is the only way I could get financing. We waited our three years, re-financed and now have a thirty year fixed. It wasn't rocket science. But, I have the advantage of living in Austin Texas where real estate prices aren't ***** insane. There is nothing wrong with ARMs, but when people buy an overpriced house on an ARM because their lender uses that to qualify them for an outrageous amount both sides get burned. Greed is the problem, not ARMs.
- Superfreak77, on 10/10/2007, -5/+0Shouldn't have deported inmigrants! This group makes a significant percentage of home purchases...
http://money.cnn.com/2005/08/08/news/economy/illeg ... - easyfnmoney, on 10/10/2007, -1/+1I hear and read all these stats, yet you never see the people who are affected by them. I think this is just political propaganda for the candidates to have something to talk about in the election... other than the war. Sure, people may be getting forclosed on, Im not disputing that... I dont care what these organizations are saying. I feel bad for the people who are victims of these predatory loans.
- billmccartney, on 10/10/2007, -0/+2While a mortgage forclosure may suck, it isn't like a person becomes homeless! They will just have a more modest lifestyle - without their house.
- stizz, on 10/10/2007, -0/+6I live in the Los Angeles area and I am sick of seeing homes that were $250k 10 years ago, now on the market for 1.2million or more. Homes do not appreciate that fast in a mere decade. Meanwhile, the median income is still barely scratching 50k a year. All these fools that either bought way more than they could afford, or bought soley with the greedy purpose of flipping the property for profit get no sympathy from me. In a few years, I'll be able to finally buy a home at a realistic price; I look forward to that. I just hope if I buy a foreclosed propery, the previous tenants don't trash the place too much before getting kicked out. Schadenfreude? Probably,..but ***** em.
- makingspace, on 10/10/2007, -0/+2Yeah, I've had the same thought...except the only problem that when the coming depression hits rock bottom you can expect lending rules and regulations to tighten like you've never seen them when those prices finally come down followed by double (triple?) digit interest rates and massive inflation. Consequently you will likely be required to pay 70-80% of that price tag up front...start saving now, and good luck!
- degaz, on 10/10/2007, -0/+5It's human nature for people to assume that things will always be good when times are great. You get a house at 3% for 3 years and then refinance when the time is up. The problem now, all those people who planned on refinancing can't because the banks have to tighten their lending standards since they have to retain their capital for the inevitable bank runs. The problem with that is they have no capital since they were funding all these subprime mortgages with investor funds.
This is greed at its worst. This is the ugly side of capitalism they don't teach you about in school.- chicofaraby, on 10/10/2007, -3/+3Everyone knows that capitalism is holy and has no ugly side. The magic invisible hand of the market cures all ills.
You must be a commie, terrorist, gay, illegal immigrant or some other boogieman. - macman2k, on 10/10/2007, -0/+1We don't have real capitalism. THe banks/federal reserve commit legalized fraud by creating new money out of thing air to lend to home owners. Take this power away and they would be forced to lend out of money actually saved and the economy would have these booms and busts (just steady growth with steady slowly declining prices).
- chicofaraby, on 10/10/2007, -3/+3Everyone knows that capitalism is holy and has no ugly side. The magic invisible hand of the market cures all ills.
- Defuser, on 10/10/2007, -0/+4Notice that nobody you know is being kicked into the streets to freeze, as most of these articles seem to imply is happening? That's because it wasn't families that were driving the Housing bubble. It was Realtors. They snatched up every house they could find, creating artificially high prices for everyoen else. So now it's not, for the most part, families that are losing their shirts- it's investment bankers. Personally, I'm glad their greed finally came back to bite them. They can rot in hell for all I care. Aside from keeping young families out of homes for the past five years, the only other thing they accomplished was to drive up everyone's property taxes.
- orangerust, on 10/10/2007, -2/+3The fact that so many people here are stating that "if you dont understand how to live within your means...you get what you deserve" aren't accounting for certain things. It is impossible to predict how your other cost of living expenses will inflate moreover, the job market one makes a lively-hood in may shrink or all together fold. Then if you are 45 with a mortgage, suddenly your associates degree which got you a great job 25 years ago isn't worth squadoosh. there are tons of other examples. I am not saying that these people should be allowed to miss payments, but the fact that they can't pay doesn't make them less intelligent then those of use who do pay on time.
- Defuser, on 10/10/2007, -2/+4If you are "45 with a mortgage", you should have been smart enough to get a Fixed Rate back when you were 30. Make no mistake, it's not the middle-aged family man that's being screwed at the moment. It's the dumbass that bought six houses hoping to flip them for twice what he paid for them.
- chicofaraby, on 10/10/2007, -2/+2Dugg for "squadoosh."
- Treoinmypocket, on 10/10/2007, -2/+1I liked "squadoosh" but what are you talking about with"impossible to predict how your other cost of living expenses will inflate"? You most certainly can predict these within reason and as to your "job market may shrink..." that's what a savings account and investments are for.
Can't afford those? Then you can't afford the house!! You should have AT LEAST 6 months salary in reserve at all times and be investing in your company 401k (or a private one if your company doesn't offer it) aggressively. People who have no restraint are playing Russian Roulette.
I have been unemployed more than once and I never lost my house or failed to feed my family or had to move to 'da hood. Why? Because I'm not stupid enough to leave myself financially exposed like that. Guess what? I'm going to retire in my early fifties with everything covered, no need for Social Security and no change in my lifestyle.
Read books like "The Automatic Millionaire" for starters. - macman2k, on 10/10/2007, -0/+2Even with 6 months savings, 30 year fixed mortgage and every other smart "decision" there are always unknowns. The difference is that while 3 years ago someone in this situation could sell and "downsize", today they are stuck with a mortgage they can no longer afford. If they bought at the peak then they may be under water in the home and forced into foreclosure.
50 years ago people could count on a steady job that will last 30 years, today people are lucky to keep the same job for 5 years.
- DeFex, on 10/10/2007, -1/+2"hi this is God, sorry about your $1000000 house getting foreclosed, I didn't hear your prayers for a $250,000 a year job, I was too busy smiting Indonesia. Ill make sure your team win the super bowl, hows that?"
- bromanct, on 10/10/2007, -1/+1DeFex, why don't you knock that chip off your shoulder?
- jaxcs, on 10/10/2007, -1/+1A bail out is coming - it's practically guaranteed. What's funny is that this won't be seen as a government hand out.
- chicofaraby, on 10/10/2007, -2/+1Welfare is only bad if poor people get it. Everyone knows that.
- RedNeckerson, on 10/10/2007, -1/+2You're quite paranoid about losing your welfare. Are you afraid you'll have to cut back on your Digg posts if you have to get a job?
- chicofaraby, on 10/10/2007, -2/+1Welfare is only bad if poor people get it. Everyone knows that.
- ren1999, on 10/10/2007, -3/+4I warned that if executives kept outsourcing and paying their highly educated people $14.00 an hour with a $1.00 raise a year, then laying them off after 3 years after giving them a lot of overtime to cover jobs where there are no hires -- would lead to sub-prime and prime home loan borrower defaults. I'm talking about the bank's loan department here!
In 2000, banks had a lot of money to loan people for homes. In 2004 Bush spent the surplus and banks no-longer had the money to loan people. That is when people started to default. It has been getting worse and worse because our White House continues to defend these executive decisions where employees aren't paid enough to make their house payments -- and might I add, buy new cars since U.S. auto-companies failed to sell at least half of their inventory last time.
Thanks to Bush and greedy executives, and also our short sighted immediate return investors. The U.S.A. is ruined.- RedNeckerson, on 10/10/2007, -1/+3"In 2004 Bush spent the surplus and banks no-longer had the money to loan people."
Did your mama drop you on your head? Banks don't get their loan money from taxes, and the White house doesn't determine how much my employer pays me.
Folks, I think we're seeing one of the classic symptoms of Bush Derangement Syndrome in Ren's post. - Treoinmypocket, on 10/10/2007, -0/+1There was NEVER a surplus - it was predicted by the Clinton Administration but wasn't actually there and those predictions were all debunked in short order.
Also, you talk about short-sighted immediate return investors but you let short-sighted, instant gratification home buyers COMPLETELY off the hook.
- RedNeckerson, on 10/10/2007, -1/+3"In 2004 Bush spent the surplus and banks no-longer had the money to loan people."
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