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- enantiodromia, on 07/07/2009, -4/+51I seem to remember reading dozens of posts a few months ago from the upset "Conservative" type diggers, saying "Hell, why should I even bother paying my mortgage at this point if the Feds are going to step in?!"
I sometimes wonder how many went through with it. - Buckwyld, on 07/07/2009, -0/+46I am sure most of us knew this would happen.
- inactive, on 07/07/2009, -16/+61People like to blame the housing crisis on loans given to low income families, when in reality most of the consumer-side blame falls squarely on middle to upper class income speculators who own multiple homes and defaulting on investment mortgages.
- drmangrum, on 07/08/2009, -1/+41To make it worse, she could conceivably buy her own house at that auction for far less than she owes.
- Skeptica, on 07/08/2009, -3/+37How much is your credit worth for 7 years? 1. Lower insurance premium. 2. Potentially more employment opportunity. 3. Chance to be enslaved by creditors for many years. How much can you get away with by ruining your credit? If you can get away with more than you lose in credit worth, you still come out ahead. After 7 years, you are fresh as new. Ruining your credit is the first step to financial independence. When you can't borrow, you don't owe. When you don't owe, you are a free man.
- StaticThunder, on 07/07/2009, -3/+37I'm sure these same people paid the bank extra when their house became worth more.
I am having great difficulty with being sympathetic to the plight of my countrymen during the recession when this is how so many of them are behaving. Apparently the rats are the first ones off of the ship and they did it by gnawing through the bulkheads.
If congress turns around and passes some bill that forgives the impact of bankruptcies and foreclosures, forces banks to make loans to people with poor credit ratings, I will be doubly angry. The one thing I have going is that I've stayed current on my mortgage, and I expect that I'll be able to get a loan in the future when these opportunists will not.
Wishful thinking I'm sure. - Surferess, on 07/08/2009, -2/+35I have a neighbor who hasn't paid her mortgage in 9 months on purpose. Her home, now in foreclosure, goes up for auction on the 31st. She said she was upside-down, and it just didn't make sense to pay it.She was still spending though, and bought a car a couple months ago. Meanwhile, I have never been a day late on my mortgage in 9 years and have had to save every penny to make the mortgage every month. Something does seem awry, but I still have my house. Now she just has a crappy credit rating and nowhere to live.
- DaDrake, on 07/08/2009, -4/+28Not sure where you are getting your information.
To understand the housing bubble, you need to understand how mortgage bonds effected the market. Essentially, in the late 70s, Solomon brothers learned that by buying the mortgages from banks and packaging them into these large portfolios (usually by region), investors would buy those portfolios. The benefits about this is it allows banks to leverage themselves more (no 30-year old mortgages holding up their capital). The bad thing is investors have no clue on the actual properties in the portfolios; therefore, investors are absolutely dependent on mathematical projections of the worth of the properties.
Problem is, all these projections are based on the assumption that the banks aren't financing risky loans... then selling the loans off to bigger banks (like Freddie mac). Normally, this wouldn't be a problem. If a bank thought it could play "hot potato" with risky loans and sell the bad-investments off to unknowing investors, they would actually be financial responsible later on (even though they no longer own the loans). But then good intentions led to unintended consequences in congress. For example, the Small Business Association was given the mandate to "help people". To do this, the SBA started to back sub-prime loans to small business owners (AKA... ones with no credit what-so-ever) up to 80%. When you have a federal government backing default rates so high... it becomes financially profitable to sell those risky mortgages.
Then, fast forward to 2007... a bunch of investors started to realize there was a whole lot of sub-prime loans in the pie (much because of government programs to back loans). In reality, the amount of sub-prime loans is around 5% .... most loans in these mortgage bonds are solid investments. Except.... that 5% means a whole lot.
So investors start to wonder how that 5% will effect their portfolios. Then they start to wonder if home prices are overpriced (the ability for mortgages to be repacked into bonds created a huge market, nearly doubling the prices of homes in a couple of decades). So they panic.
And home prices went down
Problem is, for most Americans, their home is was of their biggest asset (if your smart... you will consider it a liability). So as home prices depreciated, so did available credit and people's willingness to buy worthless ***** they don't need (a very important factor for a healthy economy).
Some like to argue that the bubble was caused by wall street... greed... bad models, etc. Whether the bubble would of happen without government intervention is something we will never know. But certainly, those programs didn't help and had unintended consequences. - smashblu, on 07/08/2009, -1/+17Greedy people trying to make a quick buck flipping houses. I remember hearing this very often before the crash.
- drmangrum, on 07/08/2009, -6/+20That's a gross oversimplification. I agree that people should stand by their agreements and pay back the loans they made, but lets not kid ourselves, the current situation is largely the banks fault.
We're not talking about people paid too much for a house in a bad location and lost their investment. The banks created the housing bubble. They were the largest driving force in the overvaluation of home prices. They are the ones that lent out ***** of money at absurdly low interest rates on properties they KNEW wouldn't hold their value.
The banks have lost NOTHING. They lent money that doesn't really exist. When the home owner defaults, they get the property. It really doesn't matter what it was worth or what it's worth now. It's all a giant shell game. - nathanbutnet, on 07/08/2009, -0/+14Do you have evidence of this?
- KahRahTay, on 07/08/2009, -1/+14isn't that illegal?
i'm pretty sure you cant bid on your own property at an auction for precisely that reason.
correct me if i'm wrong - theberlindoctor, on 07/08/2009, -3/+16We're in the same boat. We both lost our jobs and had to find ones more than 2 hour commute away. Meanwhile, our house is now worth much much less than we bought it for (which I would be fine with if we could still live in it), and we havent paid off enough to be able to sell it (despite making double the normal monthly payments in an effort to pay it down enough to sell). Turning it into a rental will reduce the value even further as well as raise the property tax to the point where its just not worth it. Rental prices in our neighborhood have dropped significantly so renting it would barely cover the tenant liability, increased taxes and reduced value from it being a rental. No win.
We're more or less totally *****. We can still afford the payments, however we dont even live in the house and theres nothing we can do about it. Its become an insanely expensive paper weight we cant even live in. I can totally understand why people would walk away. We got totally ***** over by doing what at the time was the responsible adult thing. - PROGLVR, on 07/08/2009, -0/+11Bad Credit report? Who cares? There has to actually be credit for this to matter. There is no current credit. The banks are holding all that 'bailout' money to cover all those bad debts. They are not loaning as promised. Think about it...why was a bailout necessary to be able to loan to people if banks can get money from the Fed right now at an almost zero interest rate to then loan to us at at least 5-6%? Our money is gone to cover all these bad debts. The banks will be fine. It is all of us who are screwed.
Moving forward people will not be as haphazard with credit as they were. People are already saving more and staying within their means. It will be a long long time for people to forget all this and start the cycle over. Banks will be begging to lend since no one will be wanting loans.
The cheap money has hurt and will hurt for a long time to come. This is a readjustment. The greed plan has backfired. The bailout will not work and it is not working. More banks will fall because they just will not be necessary. This is a new time coming. It is time to live more simply, live on your terms, and not believe the hype. - cybrguy, on 07/08/2009, -0/+10How does keeping people who can't afford to own a house in the position of home ownership make the economy more productive?
What basic part of their lives will suffer because they no longer own a home? Why is it so important to prevent them from returning to being renters like millions of other people?
If family A has to sell their home, and move into a rental home or apartment because they can't make payments, then so what? Its not the end of the world, they are just moving somewhere else. Sure they are loosing social status, but they will eat, sleep, laugh, cry, work, and play somewhere else.
And remember, if Family A sells, maybe Family B (who has rented up to this point)will have a chance to buy at a new low price. So why is family A more deserving of that home than family B? Its a possession that anyone can live fine without. It doesn't need extra protection.
There is a lot of blame to go around to the government, banks, and the Fed, but just remember that life doesn't end when you don't own a home. Possessions don't = happiness. - pathouston22, on 07/08/2009, -0/+9Yes 7 years is short term. Under normal market conditions, a house will not increase in major value in just 7 years. Owning a house should be a decade or decades long investment - under normal conditions.
If your house dropped 75% in value, then the house was way too overpriced to begin with, and it was a bad investment choice. Which basically is what millions of people have done who live in places like California. - darkened, on 07/08/2009, -2/+11There is a very very key point everyone needs to remember here. When you default on a mortgage you actually aren't making the bank have less supply of money. Due to fractional reserve lending the banks actually create the money out of thin air when they grant you a loan for the home.
This is completely the opposite to the way credit works in every other system say such as you purchase office supplies from a company on invoice. If you don't pay your $1,000 invoice the company is out of $1,000 worth of supplies and has nothing in return.
When you default on a mortgage, the bank has all the money you've paid already and now will become owner of the home and has "lost" little to nothing and has gained property AND money.
Do you see anything wrong with this picture? - NICU, on 07/08/2009, -1/+9The people who bought those houses at insane inflated prices are dumbasses who have to be held responsible for their dumbass decisions. They weren't forced to overpay for a house. This is no one's fault but their own. I hate the complete lack of responsibility in this country.
- Narcism, on 07/08/2009, -3/+11Or maybe sterilization?
- minoss, on 07/08/2009, -1/+9No, but if home values are up and you default they get a high valued asset since mortgages are collateralized loans. If you don't they're making a bunch of money anyways from interest. Loaning money is a risk for both parties. There is nothing wrong with someone walking away or defaulting on a home they owe more than it's worth. That's part of the risk banks take when making loans, and it's what makes banks only give loans to people who put money down.
- sinkinglife, on 07/08/2009, -0/+7You need to work to pay for a house you bought. Welcome to life. This is why people save money and plan for worst case scenarios.
- martinherrera, on 07/08/2009, -2/+9i will never own a credit card ever again, nor buy a new car with credit. i want to have a positive net worth and not be in debt
- BassMastr, on 07/08/2009, -2/+9If you blame the banks for everything then you have NO CLUE what is going on. There is plenty of blame to go around. Just curious if you remember anything passed our govt. requiring loans to be given to those who might not otherwise qualify.
- AaronCo, on 07/08/2009, -0/+7Well DUH @ the article here...
Some home owners are massively underwater and don't want to keep their home because they know the average rate of appreciation won't be enough to build equity for another 10 years or more. So imagine paying PMI and being unable to refinance without massive injections of cash into a home you might have only wanted to keep for 5 or 10 years anyway. Not to mention what happens when you try to sell (or need to move because of a job change, etc)... ick.
But of course the bank won't write down the principal, won't allow a short sale and won't take the deed in lieu of foreclosure... that is until the mortgage is at least 3 months late and a foreclosure process is in the works.
So you've got a choice. EIther stop paying the mortgage and walk away, or deal with a financial anchor for the next 10 years. Given that even a bankruptcy will only be a problem for about 5 (most will lend to those w/ prior bankruptcies even if it's still on a credit report) and the potential damage to your credit report is minor, it's a no brainer.
In fact several financial advisors even ADVISE THEIR CLIENTS to do this. Why? Because it actually makes sense. Ditch the house, get an apartment and build your savings so you can afford a real down payment. - crocodilexp, on 07/08/2009, -1/+8Truly insightful, not just a witty one-liner. Worth 10 diggs IMHO, but I can only give one.
- darkfus, on 07/08/2009, -0/+7Businesses would do this, so why shouldn't private citizens?
- Solkre, on 07/08/2009, -2/+8No, it's pretty good to be a buyer.
- NJank, on 07/08/2009, -0/+6"Something does seem awry,"
yup, those banks completely botched the risk assessment of their investment. now they have an asset that won't cover their outlay. that's business. the lendee doesn't really figure into it, except for the fact that they overestimated the value of a credit score hit as a deterrent to forcing action on the default portions of the contract.
this is free market business, folks. supply and demand, risk and reward. that's just how things work. - asgardshill, on 07/08/2009, -5/+11May I suggest decaf?
- Mike17102, on 07/08/2009, -0/+6Because banks are charities, true story.
- nextekcarl, on 07/08/2009, -0/+5Likely they could bid on it, though it might not matter. When I used to manage a self-storage facility (so this might not apply at all, though it is similar) the law said people could bid on their own stuff if it went up for auction. If it went for less than they owed, they still owed the remainder, though we never went after anyone for it (it wasn't worth the trouble). So if they bid, and won, they would likely still owe money on their locker. We never had anyone bid of their own stuff, directly anyways. Usually they just bought the stuff they really wanted from whoever did buy it.
As a side note, the law (here in Oregon) said that if it went for more than they owed, they could ask for the excess within 18 months and we had to give it to them, though I don't recall anyone asking within the 18 months. At least, for the relatively few lockers that went for more than we were owed. - neoneddy, on 07/08/2009, -2/+7I'm one of those "conservative types", I feel that way exactly, however sometimes I don't feel like getting up for work, or taking out the trash, or doing plenty of other things.
Part of being an adult is doing what needs to be done even when you don't feel like it. Grow up America.
Note: I'm $40k upside down and we plan to work harder and pay it down. - PhantomRogue, on 07/08/2009, -1/+6The situation is everyone who signed an ARM or tried to get a house with ZERO money down. These are purchases that families save years for. Yet the ***** who works at WalMart wants to live in a 400,000 dollar house. And when he say, "Oh *****, I can get that house with no money down and 0.0% APR" and sign the Mortgage, not realizing that the APR jumps to 19% after 18 months.
The Banks lost a TON. They lost capital and are now reeling. Banks are closing at a record rate and are begging Obama and the Government for bailouts. And these Bailouts will not go to anything that will improve their lending. - moduc, on 07/08/2009, -0/+5A quarter? Maybe 80%? Who would want to pay for loan that is much more than the house that they can drop. Many people I know buy a different house (through spouse, or other means, and dump the house. Save tons of money that way.
- jdames1980, on 07/08/2009, -0/+5Yep, as a buyer who looked in horror at housing prices for the past 8 years as I rented my life away, I was very happy to finally purchase a home at a great price late last year.
- LuckyASN, on 07/08/2009, -3/+8"because they don't want to put money into a house that's worth less than what they owe."
So if your house goes up in value, your mortgage company can charge you more? - pstroll, on 07/08/2009, -3/+8The best is when they gut the house of all the copper and appliances just before handing over the keys.
- lebruf, on 07/08/2009, -3/+8I intentionally defaulted on mine because I knew that it was the only way I would get the bank's attention in order to get a loan modification. 6 months later, it definitely sucks having some credit cards shut down on you because of what the bank is reporting, but I've got an active modification going on my 1st, and my 2nd got paid off for only $10k (I owed $40k) when they decided to cut me a deal after it went 180 days late.
Nice to get some bailout cash when your bank is so stingy and shortsighted they won't consider refinancing your home even though your credit is great, your payment history is flawless, and you make good income. Damn rules about appraised values, and 2 years employment edge so many people out, there's nothing they can do to get out of this mess.
So I defaulted, and finally got what I wanted. - kevinmoore, on 07/08/2009, -0/+5The idiocy here is thinking a 30-year mortgage for $1 million would only end up costing $1.1 million.
- Ascus, on 07/08/2009, -0/+5You are so right, if you know you are going to be declined for a loan application by all but the most predatory of lenders. It keeps you from appling for loans for crap you don't need.
In 7 years your golden. What the lenders don't tell you is, its seven years from your last payment or loan which ever is later. So if you go 5 years then pay someone against your loan, you just extended that loan for another 7 years. - nathanbutnet, on 07/08/2009, -0/+5Not surprising to me in the least. When you are underwater on your loan and our society has impressed upon you to only look out for number 1 (worry about your own family and finances) for years and years this is what you get. I would do, or at least heavily consider, the exact same thing myself and not because I don't love my home but because it is practical and right for my family.
That said moving forward I really do hope that we impress upon banks a sense of purpose in their community (instead of purely making money) and impress upon individuals and families a sense of community as well. Our extreme capitalism has gotten off track. - xexx, on 07/08/2009, -0/+5A destroyed credit is probably the best thing that could happen to some people.
- Hetman, on 07/08/2009, -0/+5The plus side is that if you do have money for a house right now you can get one really cheap.
- danthepiercer, on 07/08/2009, -0/+5youre not wrong.
drmangrum was being ironical...i hope. - pathouston22, on 07/08/2009, -4/+8You should look up long term planning. Destroying your credit because your house is worth less than you owe in the short term is pretty dumb.
- mnocket, on 07/08/2009, -0/+4I think many people see foreclosure as a violation of the mortgage agreement - not as exercising a specific provision of the agreement. I can see it from either side. The homeowner has signed a document agreeing to make specified payments on a specified schedule. The foreclosure provisions in the mortgage agreement are there to specify what happens if the homeowner VIOLATES this agreement to pay. Many contracts contain provisions specifying what happens if one party or the other violate the agreement. These clauses do not offer a "no fault" option to the parties. If you violate your contractual obligations, you are at fault. The fact that this causes the foreclosure provisions to kick in does not absolve you of fault. You failed to live up to your obligations. Some people see this as a bad thing. Others see it as a smart financial decision if the penalty of foreclosure is less than the cost of continuing to fulfill your mortgage obligation. One is more of a moral judgment and the other more of a business decision.
- NJank, on 07/08/2009, -0/+4credit scores mean a lot if you want someone to give you credit. If you don't, well, then they have little leverage.
- SocialPoison, on 07/08/2009, -0/+4Is 7 years short term? Not saying everyone should file for bankruptcy... but some should. If you have most of your equity in your home, and your home value dropped by 75%, it might take you longer than 7 years to get out from under it and get some equity back.
- nathanbutnet, on 07/08/2009, -0/+4pstroll, that is not the half of it. In the Sacramento, CA area some folks took to dumping concrete down their drains before they left.
- PWoT, on 07/08/2009, -0/+4Yeah there's times when the math actually works in your favor, I hate the thought of anyone doing it just because it seems, well, wrong (you made an agreement to pay, after all) but I'm actually surprised the number isn't higher than a quarter. I've talked to several people who have done this as a financial strategy, it just didn't make sense to do anything else.
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