If 7 mil people lose their homes, It will drag down the fair market value of every home in the US...

[Blackhatjack]

You did not buy a home in the last 2 years. You've made all your house payments on time for many years. According to your amortization schedule you have paid down your mortgage balance and have a nice piece of equity in your home.

Surely this 'mortgage mess' has nothing to do with you. After all, people tell you that it is all about 'bad borrowers' who got mortgages who shouldn't have, right?

Well pull up a chair my friend...It does involve you, and it may cost you a lot of money.

If 7 million people who bought homes in the last 2 years 'lose' their homes, that means that 7 million homes will be added to the millions already on the market for sale. Many of those already on the market have been for sale for 8 mos or more. The owners of those homes now have lots more competition for the few buyers who have the money to actually buy a home. This is especially true since mortgage guidelines have stiffened and the pool of potential buyers has shrunk to just a handful of potential buyers.

So if you are desperate to sell your home you may take less for it than it was worth last month.

Them is the breaks, right? Sorry you got stung but it has nothing to do with me, right?

Not exactly. You have no intention of selling your home, but you do have a home equity loan that you use occasionally to smooth out the cash flow(like when you had to put on a new roof, or replace an airconditioner or hot water heater).

Well as the real estate inventory increases and sales prices fall, the fair market value of your home drops as well(see fair market values are based on what a willing buyer would pay a willing seller, and you base that value on the sale of other like properties referred to as comparables). When you contact your home equity lender you might be in for a surprise when they tell you that they can no longer lend you more money secured by your home equity loan --and in fact, you will have to pay back a portion of what you already borrowed right away since the combination of your home equity loan balance and your first mortgage balance now exceeds the fair market value of your home.

But wait... you say... I was not involved. It was not me. I got equity in my home, my amortization schedule says so. I paid my mortgage balance down.

Too bad. You are part of the 'mortgage mess' whether you like it or not.

So if you want to 'just let those 7 million people lose their homes' and are opposed the government stepping in to try and avert that catastrophe, just remember ... you will regret it if they take your advice. Big time.

And you will have years to think about it since that is how long it will take for the real estate market to work through the inventory on the market for sale, and for you to see the value of your own home begin to inch back up to what it was last month.

[Delphinus]

1. Ah, the interconnected web of life.

Great thread.

[Solar_Power]

159. There were way too many RE speculators

I think this will help people by making homes (shelter) more affordable

[hobbit709]

2. It will be a record cold day in hell before I get an equity loan.

I have 6 years left to pay on my house. With my health, I'll probably die first. After that I won't care.

[Warpy]

20. I hear ya

My hot water heater has been making alarming noises for the last 4 years, but there was no way I'd have taken out a loan to replace it. I decided to wait until it died and deal with it then, cash out my last CD.

I hate debt with a purple and undying passion. I can't understand people who try to leverage as much of it as possible so they can convince themselves they're living the good life.

[Lorien]

67. Well, some of us get into debt because of unemployment and medical bills

I hate debt with the heat of a thousand suns, but I have $28,000 of it now due to long periods of unemployment (which all occurred after BushCo stole the office) and a life saving surgery that my insurance company refused to pay for-after saying that they would pay for it (not long after NOW on PBS did an expose on my insurance company, NASE, and how they refused to pay a penny of thousands of claims). I refuse to get a credit card, so I got a home equity line of credit instead. My home is still worth about $485,000 and I still owe $100,000 on it. I live in an "up and coming" neighborhood in my city, which is fortunate.Believe me, I'm doing all I can to get rid of my debt. I haven't taken a vacation in seven years, I work six days a week, I wear very old clothes, I only get a haircut twice a year, and there's still hurricane damage to my property that I haven't fixed. Using equity for emergencies makes much more sense than getting a credit card. The interest is tax deductible, and they won't raise your rate if a utility bill is two days late. We can't control every aspect of our lives 100% of the time, no matter how much we may want to. So when life spins out of control, it's a choice between the lesser of two evils.

[pitohui]

3. but if you actually live in your home a long time this can be very good for you

lower home valuations mean lower property taxes and lower price to insure

it is the speculator and the person who moves around a lot who is harmed when houses lose liquidity, this doesn't really affect someone who lives in a house for years and then decades

also for young people this is good, if you have never been able to buy a house, because you were born in the wrong time and place, say southern california, then again low and more realistic prices are a positive thing

[MADem]

6. If you live in your home, and use it as a home, and not an ATM.

I just never could get behind that idea--hell, ya might as well rent and start up a savings account.

I was always taught that you pay your bills, and you save if you want something luxurious.

I can empathize with the people who have a family or medical emergency and need to tap that equity, but when people tap the house solely because the functioning Buick isn't cool enough and they want a Lexus like the next door neighbor, or they want to buy crap, well, that's all on them. This consumer 'buy more and more crap' society is a chicken coming home to roost. Less is more!

[Jim Warren]

31. The opposite of what you said

is what started this mess.

[Quantess]

158. Would you explain, please?

I'm very interested in this discussion, and I'm wondering what the "opposite" might be.

[zehnkatzen]

8. If you aren't in a home to make a profit, then how much it will sell for gets less important...

...that point bears repeating, I think.

This is not to say that other economic factors won't enter into it, of course. But, with all else being equal, if you're in your home to live in it and not to hope to make a profit off its sale, then the importance of whether or not its value rises, remains constant, or falls becomes a minor issue, and if you were fortunate enough to get a fixed rate mortgage at an advantageous rate then you probably stand a better chance than most to ride this bubble-pop out.

Of course, the economy declines, you lose your job, etc, etc, that'll throw all the cards back in the air, sure enough.

[Maggie_May]

9. I don't know where you get the lower taxes

The taxes on my home have gone up and my property value has gone down and down. My home was tax appraised at 195,000 could not sell it for that to save my life.

[zehnkatzen]

11. What region is that in?

Not prying about your address, just wondering, housing market and taxing conditions being variable across this Great Land of Ours™

[zehnkatzen]

13. Oh, wait, I see. Rust Belt...

...looks like they're raising assessments to keep public funding level? Just guessing.

[Maggie_May]

17. I have a home in Michigan

at this point there are 3 foreclosures and 2 auctions in my sub and taxes have not gone down. I have had it on the market for about a year and lowered the price 6 times at this point if we do sell we need to come to the table with about 15,000 dollars just to sell. Only one mortgage never had re-mortaged the home. Its just extremely bad housing market. But taxes have never gone in fact they went up about 36 bucks from last year. I don't get it at all they should be going down.

[MADem]

33. They likely raised the tax rate. Your only other option is to call the assessor and try to

get the joint reassessed. Of course, if you're fixing it up to sell, they could come back with a HIGHER valuation...!

[eridani]

27. True. If values go down, the rates will just get raised. n/t

[gollygee]

95. We had several factories close here, and values went down

our SEV went down, and our taxes went down.

But if that happens to enough people they'll have to just raise the rates to make up for the loss. Of course in Michigan there is currently a cap as to how fast rates can raise, but I'm sure that could be taken away.

[Yupster]

157. Over the last few years home prices

have gone up way too fast.

I don't think a bit of a drop will be such a terrible thing.

My home is long paid off and I'm staying here regardless of whether it goes up or down in price. I have been worried seeing its vale pretty much double in four years though. That can't be a good thing.

[lonestarnot]

4. So be it. Bushitler made the bed, now sleep in it.

[Blackhatjack]

5. My apologies for the other 3 dupes, my screen froze and I got booted and returned to find...

my OP had been posted 4 times!

Sorry about that!

[Blackhatjack]

7. Another consequence --mortgage company employees become unemployed

If people cannot obtain mortgages because those that lend money to the Mortgage Companies for that purpose refuse to fund them, the mortgage company has two options -- look for someone to buy them or just close the doors and hand out the pink slips to employees.

[HiFructosePronSyrup]

10. How's it going to look for first time home buyers?

I'd like to think that they'll make out OK, but they'll probably get screwed over too somehow or other.

[mrreowwr_kittty]

12. Credit is getting tighter so it'll be harder for them to get loans

Which probably isn't such a bad thing but many of them have literally grown up believing that qualifying for a mortgage is a snap.

[pitohui]

22. it's better for first time buyers to have lower prices

many people qualify for a house based on what they can pay every month

sadly when interest rates were low, house prices soared, so the first time buyer was running in place -- actually she was worse off, because if you buy when housing prices are high and so interest rates have to drop to attract buyers, then you can always refi later and if your income grows or you get a legacy you can actually pay down the principal (because you have less principal to worry about to begin with)

[mainegreen]

34. In the long run it's better. But the damned market is still fiery hot up here.

It really sucks waiting for this whole housing brew-ha-ha to get up here to Portland.
That's the problem with living in one of the hottest markets in the country.

x(

[Gormy Cuss]

141. Yeah, tell me about it.

My bro bought a small bungalow in Ptld for 1.5 times the price of his bigger house with land in East Nowhere, York County. Worth it because his family is now in a real city but it wasn't a cheap decision.
The upside is that Ptld area real estate holds value and he's close to most of the family and the jobs.

[rucky]

40. Depends on the type of loan they got.

there are some of those loans you see on the internets that offer gobs of cash for a home, little down payment, and low, low monthly payments. They get a teaser rate, and make interest-only payments for the first 3 years or so. In those three years they have earned exactly zero equity in their home - and if they've just been making the minimum payments, they have negative amortization going on (they owe more than their home is worth). Combine that to a loss of home value, and the borrower is stuck in a bad ARM loan that's floated way way up - and they have no equity to refinance into a better loan.

[tammywammy]

51. Depends on what they're trying to do

I just bought my first home a couple of months ago. I put zero down, but got a traditional 30 year conventional loan at a good interest rate. Also I bought a foreclosure so I paid waaaay below the market rate. I also have good credit though.

As long as the buyer isn't looking at ARMs and buying within their means, they should be okay. As more importantly, they should be looking for a place to live, and not just something to flip.

[cliss]

14. You are so right, Bhj.

This is a monster storm coming and when it hits, we will all get hammered.

Can you imagine, 7 MILLION homes getting foreclosed? That's what I've read. In September, supposedly 7 mil. families will bite the dust because interest rates will get jacked up + a lot of variable mortgages will get adjusted upward = out they go.

Now if you think about it, these homes probably have an average of 4 people living in them. = 28 million people. Where will these people go? To apartments? Out on the street? September is not such a good time, because winter is approaching.

Absolutely staggering, hard to believe. I'm visualising large groups of homeless people, living in refrigerator cardboard boxes, down on Burnside. Kinda like Calcutta, but colder.

[CreekDog]

108. I think rents will go up because these foreclosed folks will not be buying for a while

[KansDem]

152. "...28 million people. Where will these people go? To apartments? Out on the street?"

I predict the creation and rise of the "Second Chance Housing Industry." Just like "Second Chance Credit Industry" ("fix your credit" scams or "buy a car when you have bad or no credit" come-ons), the Second Chance Credit Industry will oversee the construction of public-like housing for all those families financially wiped-out by this crisis. These buildings will be built in the least-desirable locals (cheap land) and be built "economically" (read: cheap materials and construction) to maximize profits for the corporate overlords. One advantage is that all the riff-raff (these 28 million Americans) will go where the overlords want them to go: far away from the gated communities of America's elite.

Hell, perhaps a enterprising entrepreneur will build these communities near or by the remaining factories and industrial areas, creating a resident worker class for the industrialists! It will make the Company towns of the 19th century look like Xanadu!

[alfredo]

15. Will this be reflected in this years property taxes? If so it will hurt our

schools.

Here in Lexington Ky our default rate is up 551% over last year. That may sound bad, but that doesn't even put us in the top 100 of cities.

[TheWatcher]

16. Haven't you heard?

The Stock market made a miraculous recovery today and was only down a smidge.

Helicopter Ben will save the day by levitating the Market, so there is nothing to worry about.

This Real Estate stuff is just a bump in the road. The talking heads told us that the Sub=Prime thing would have no impact.

The fact that of the 2.2 trillion dollars in the ComMercial Paper Market, 1.2 Trillion is mortgaged backed means nothing. All they have to do is print more money.

CNBC says Everything is fine.

Get with the program. It's all about feeling good and blind faith.

Let's catch some American Idol or Are You Smarter Than A Fifth Grader.

Man, Lindsay Lohan is still hot, don't you think?

I think I'm gonna fire up the plastic and get another IPhone.

It's a Great Day in Pleasantville.

:sarcasm:

[Blackhatjack]

19. Yeah I heard a CNBC pundit tell a caller to just take a moment and relax....

she had lost $10k in value in her retirement account over the last two days.

These guys are so divorced from what it means to work hard to earn a living, and how hard it was for so many people to save the little bit they have today --only to see it disappear.

[oldhippie]

132. If it went down $10K in the last few days, then .......

.... it probably went up $10K all by itself over the last few months. Just lost paper gains that were recently accrued. Unfortunately, there's no ratchet mechanism in the market. Easy come, easy go.

[Catherine Vincent]

18. Great post!

I know one thing, here in the Houston area, I see tons of new homes being built. The north, south, east and west and in between. Lots of folks getting a lot of loans. I guess that's a good thing.

[Blackhatjack]

21. Keep in mind it is not the building of new homes that matters at this point...

We have lots of builders committed financially to finish a project, and they will finish the new homes they are working on.

The problem is that housing permits and housing starts are way off, and new homes will sit there unsold and unoccupied further adding to the inventory of homes on the market for sale.

And many busy builders today will be filing bankruptcy next month when they realize that the construction interest is going to eat up all their profit before they can sell the new homes for a decent price.

Always look 6 mos out for the building business since it usually takes that long for building projects to build out. It is what they do once they finish the current project that tells the tale.

[blondeatlast]

36. Don't be so sure. Lots of construction in Phoenix; we just bought

a new home here, but it turns out the builder of our development is building now to hedge against later. They have built out the development to get completion before they will inevitably have to lay off the crews. Mind that this is in August. In Phoenix. The crews work 10 hour days.

And these homes, regardless of what the developers have told us--HAVE NOT BEEN SOLD (I have access to that information through the county).

Several homes in our development have come back from sold since last month as well. We're in a very hot area now but the builders are practically giving the damn things away and they still are dead weight.

Don't be fooled--they are not getting loans and many less-than -perfect credit customers who had loans are probably getting their loans recalled, especially if the home hasn't been completed yet.

TEN houses in our vicinity have come back from sold. That's within four blocks.

[Blackhatjack]

39. People need to listen to you ... You have it pegged exactly

I know about people who bought in that market in the last couple of years, and they back you up 100% in your take on that market.

You can NEVER gauge the current health of the real estate building business based on what you see going on today.

I is all about issuances of buildin permits for future construction, and future building loan commitments.

I know a number of builders who are already committed to build out their project --they are all in, and cannot fail to build out the rest of the project they marketed to people who have already bought in. They will finish the building commitment and hope and pray that the market changes by some miracle and they can sell the remaining units. Chances are very small that will come to pass.

Go to realtytrac and look at the number of 'new developments' in which units are already in default and headed toward foreclosure.

Typically builders who cannot keep up with construction loan interest rates in a 'dead' real estate market will do everything they can to move the properties, even virtually give them away by cutting their profits to the bone --and if that does not work they default, declare bankruptcy and start over again.

Everyone else who bought in often are left with a development project that drops in value as the lender puts the units up for sale at highly discounted prices, which depress the value of their homes to less than they paid for them a short time ago.

We are on the front edge of this wave I am afraid...

[blondeatlast]

100. Month and a half ago, the builder closed up the on-site office and told us

all the homes were sold. I found that strange so did some sniffing around. they are building over 20 homes now and yet the most recent completions are not occupied. There are still about 10 under construction and I'll be damned--now the developer has put up the "Open" sign on the main artery street again. It wasn't there about a month ago and the office had a sign saying sold out.

I think we are well-positioned to weather the storm (we made a large down payment with a traditional fixed rate mortgage) but our first-timer neighbors may be in a world of hurt.

This should be a hot area and was selling very well until about 4-6 weeks ago. Same with developments all around us--lots of builds but no sales.

I'm not liking this.

[Blackhatjack]

116. It is not uncommon for builders to transfer interests to separate corp entity & declare sold out...

When the builder is finishing up a subdivision, if there are a number of finished units which remain unsold the lender may require the construction loan to be paid off and the remaining debt obligation to be restructured over a longer period of time.

Builders take the opportunity to create a separate entity to accept title under the new financing arrangement which in almost every case is controlled by the same individuals as the builder's corporation that did the building.

Then one or two units may be heavily advertised as last of units available by the selling entity.

This may not be illegal but it surely gives the buyer the impression the subdivision is 'sold out' except for the unit they are looking at --which in fact is not true.

[blondeatlast]

122. I think I might just ride my bike down there tonight and count how many are being completed

but apparently aren't sold. I'm guessing at the very least there are 12 homes being built right now.

Of course, the builder has its own financing company but as soon as we closed our loan was sold--or was it??? Spmehow I know that they still have their hands on both my home and my bamk account...

[redacted]

23. We need an IMMEDIATE MORATORIAM ON FORECLOSURES. WHY SHOULD A HEDGE FUND

GET A BAILOUT WHEN MY NEIGHBORS DOWN THE STREET GET KICKED OUT?


What needs to be done first of all is the commitment that not one nickel of public funds should be spent on bailing out bankrupt and panic-stricken junk bonds and other paper.

The US needs a uniform federal law stating quite simply that, unless and until the president can certify that the current world financial crisis has been overcome, any and all foreclosures on homes, farms, businesses, hospitals, and infrastructure are banned. This would be accompanied by a debt freeze or debt moratorium on payment of principal and interest, again for the entire duration of the crisis.

Something similar was done in the New Deal. The interests of bankrupt banks and mortgage lenders must yield to the social imperative of not evicting 10 or 15 million people over the coming months. No bailout of the financiers. Just a law that stops foreclosures, and lets the financiers, not the people, fend for themselves.


http://www.911blogger.com/node/10634

[eridani]

28. Fawkin' A!! as we used to say back when n/t

[blondeatlast]

37. Excellent idea! nt

[earth mom]

134. Great Idea-EXCEPT-with * in office Hell will freeze over first before he does a thing for the peons.

:grr:

[redacted]

143. Mortgage banking and related industries are regulated by the STATES. Not by Bush.

I'm getting a little tired of this knee-jerk "Yeah but Bush won't do anything about it" mentality.

Most governing activities in this country are carried out by state governments. That's a PolySci 101 principle. And jurisdiction over mortgage banking and foreclosures is not a federal government activity.

There are many things that can be done without relying on "Daddie Bush" at state and local levels. This is one of them. You don't NEED Bush to "do anything about it."

[TheFarseer]

149. I hate to say I agree

people bought stuff they couldn't afford. That's the bottom line. What is bush supposed to do about it?

[joeunderdog]

148. I think any funding for a bailout should be tied to the lenders themselves.

There's no incentive (and ever-fewer laws) stopping them from giving out loans they shouldn't. Overextension of credit was a big part of the reason for the Great Depression, and we have removed many of the safeguards designed to prevent a similar demise.

Nowadays, some of what the BushCo banking industry is doing amounts to nothing more than loansharking and sharecropping practices. They--and their enormous profits--must be tied to the solution. Otherwise they will only recreate the same circumstances and grab ass with Uncle Sam again and again. Why wouldn't they?

[mike_c]

24. it's hard to have much sympathy, frankly....

Full disclosure first-- I have the securest of secure positions (tenured university prof) and make a very good salary, especially considering that it is nearly double the median income for my area. However I, along with a whopping 88 percent of the folks in my community cannot afford to buy a median priced home. Ten years ago I could have done so easily. Not today. Home prices in my community skyrocketed during that time. The house I currently rent was appraised about 12 years ago at $145K. No one buys into my (rural, working class) neighborhood today for less the $350K, and that's rock bottom.

So first and foremost, I WELCOME seeing some sanity reintroduced to the housing market in the form of falling property values. I hope they fall 50 percent or more back to their late 90's values, or even further.

It's hard being sympathetic because the folks who fueled that price rise aided and abetted the banking industry's zeal to separate fools from their money. They bought homes at inflated prices just because they wanted them, and because credit was easy to come by-- the banks were more than happy to crank the debt engine to extraordinary levels and folks just marched to whatever tune they and the real estate industry played.

[OutNow]

25. Texas home equity loan law - Woody Guthrie

Texas was one of the last states to legalize home equity loans. Legislation was passed during the depression that a loan secured by a home could only be used to buy or improve the home. It was intended to keep all the scam artists and other bank crooks from taking people's homes away by tricking them into using it for collateral for other purchases.

Once the Republicans took control of the state government in the last 10 years or so it wasn't long before the bank crooks got the law changed. I tried to tell people at the time that IT IS NOT A GOOD IDEA to borrow money on your house to take a vacation or buy a new car.

It looks like many people in Texas (and every other state) will now have to learn why New Deal Democrats outlawed home equity loans. It will be a hard lesson to learn.

Woody Guthrie sang it best - Pretty Boy Floyd

Yes, as through this world I've wandered
I've seen lots of funny men;
Some will rob you with a six-gun,
And some with a fountain pen.

And as through your life you travel,
Yes, as through your life you roam,
You won't never see an outlaw
Drive a family from their home.

[eridani]

26. I want to do something about those 7 million just because I'm not a sociopath

I own my home free and clear and have no intention of moving, so I'm a poster child for illustrating the Marxist distinction between exchange value and use value. However, having that many people totally screwed is bad for society in countless numbers of other ways.

[mike_c]

29. your comments just gave me more hope than I've felt all day....

Now THAT'S what we need to hear more of! I'm afraid I'm just growing too cynical and bitter these days.

[Tesha]

62. The "7 million" won't die, they just won't get to keep their McMansions.

The "7 million" won't die, they just won't get to keep
their McMansions or they'll discover that they have far
less money in their McMansions than they thought they had.

They were suckered, but as W.C.Fields once said, "You can't
sucker an honest man". They thought they were getting away
with something at the expense of all of us who merely sat
around and saved for our down-payments, or stayed in a
house that wasn't "super-sized" but was well on its way
to being paid-for. As it turns out, they were simply
willing fools being taken in by their finance companies
as they dreamed of getting rich off "the system".

There's no reason why we should bail them out of this mess
than we should bail out every high-roller who goes to 'Vegas
and loses his shirt.

Tesha

[Blackhatjack]

65. You have no evidence to back up such a ridiculous theory...

The great majority of the 7 million did NOT buy McMansions. These are families who purchased homes.

I see nothing to indicate that any of these families bought their homes for the purpose of making a quick buck.

Your meme reminds me of the Repub line that people are poor because they choose to be.

[Tesha]

76. You may believe whatever you choose to believe.

But the people who took interest-only loans, the people
who took "low-doc/no-doc" loans, the people who took
ARMs at ridiculously low initial teaser rates all were
people who should have known that they were going in
over their heads and it's clear that a lot of them
*DID* know.

They were greedy, and it's hard for me to get all
broken up about that now.

There's a reason that the Tesha family doesn't live
in that nice little house we saw on the Filbert Steps
a few years back: We couldn't afford it! We stayed
living within our means. A lot of these folks didn't
and now it's time to pay the piper.

Tesha

[Blackhatjack]

79. Your characterization that home buyers 'were greedy' explains a lot....

I guess you have no compassion for people who are not as smart as you are.

[Tesha]

90. You appear to be trying to put words in my mouth.

> I guess you have no compassion for people who are
> not as smart as you are.

You appear to be trying to put words in my mouth, so
I'll make this my last comment and then you can take
your final (cheap) shot.

I've clearly and unambiguously used the word "Greedy".
That's the principal characteristic that I think is
shared by the folks who are being burned. And yes,
I have very little compassion to spare for the greedy.

Tesha

[Blackhatjack]

93. The word 'greedy' came out of your mouth, I just commented on it....

It is not a cheap shot to point out that you believe most of those who got mortgages in the last 2 years were just 'greedy.'

I just choose to disagree with your conclusion.

[blondeatlast]

101. Good thing that the glut of unsold homes won't touch your perfect little world...

Or will it? Apparently reading entire posts (as I've encountered you before today) is too much effort for you.

BHJ made the point that ALL homeowners are going to be hurting from this, even those of us living within our means with traditional mortgages.

Judgmental much?

[Tesha]

117. As I've said elsewhere...

As I've said elsewhere, we bought our house to live in,
not to use as a financial instrument. As such, it has the
same intrinsic value to us whether its market value is
$6M, $600K, or $60K.

And because we bought a house we could afford, we're
"right side up" unless there's an absolute, inconceivable
bloodbath in the real-estate market.

BHJ makes a point that is unlikely to have any applicability
back to us; sorry.

Tesha

[CreekDog]

112. Tesha you are wrong, that's exactly what I did, but there were good reason

1) i have good credit, FICO then and now 800+
2) i made 20% down payment
3) i bought in a frenzied market where I had to find a place and buy it before i sold; selling was an afterthought
4) the only way to qualify was stated income because I applied for my loan while carrying my old house (which sold two days before escrow)
5) i chose interest only 5 year fixed because it was available and kept my monthly minimum low...i always paid principle on that loan
6) once the dust settled, 6 months later, i refied into a 30 yr fixed 5.5% (i pay less principal now because the rate is fixed, I feel no pressure to reduce it)
7) i took the proceeds from the old house and limited my down to 20%, put the rest into savings and home improvement and I sleep well.
8) the market turned down, but i still have equity

So, while I'm not in the same boat as people losing their homes, I used the same means as they did to buy my current condo and lots of people prudently used the interest only stated loans.

Where people got into trouble was not refinancing out of them (takes equity usually to do that...they didn't make sure they had equity first).

Also, instead of getting a cheaper deal on a prudent home, they used the difference from stated income qualification to buy into more expensive homes and couldn't get out of adjustable loans and bingo, here we are 3 years later.

But not everybody using these means were abusing them. That's my point.

[Tesha]

119. Okay...

> But not everybody using these means were abusing them. That's my point.

Okay. And the people like you who were *NOT* greedily abusing
these instruments will be fine.

Tesha

[Lars39]

97. I lost a home to bankruptcy due to medical bills,

and an income that was suddenly halved. Approximately half of all bankruptcies are due to medical bills.

[Tesha]

98. I'm sorry for your loss, but that's clearly not the situation the OP was...

I'm sorry for your loss, but that's clearly not the
situation the OP was raising in the topic posting.

In America, with our lack of Single Payer Health Care,
your situation is unfortunately common.

Tesha

[Lars39]

126. People tap into their home equity to stay ahead of medical bills, too.

To label all as greedy isn't accurate.

[wordpix]

153. many jumbo mortgages over $417K are for McMansions but not all; not true that subprime meltdown is

about McMansions. Probably most subprime loans are for modest homes.

[Blackhatjack]

154. True...

[HCE SuiGeneris]

30. Tighten your belts all. I am talking to these people every day...

this precipice is very steep. Do NOT over spend if you can help it. Mac an cheese for a while to save your home, if that is what it takes.

[MattSh]

Talk about a one sided story!

What allowed his home value to go up much faster than the rate of inflation was all of those formerly unqualified people being allowing into the mortgage market to buy homes. This drove up the value of his house, and many others as well well beyond what would be expected through normal appreciation. This even allowed the wider use of home equity loans in the first place. No complaint from the author here. Letting these 7 million people into the market benefited most housing values immensely.

Now his housing equity is going down because reality caught up with the housing market. So instead of his house going up 10%, 15%, 20% or more a year, well beyond what would be expected in a normal market, housing prices are (gasp) coming down. Soon, falling home values might bring values back to where they should have been if there had been no run up in housing values. Bottom line, he's still ahead of the game, and so are most home buyers.

Should this continue a while, and it will, then the author might be underwater. This will happen whether these 7 million are bailed out or no. It will be the end result of decades of fiscal mismanagement within government, free trade, and lack of regulation in the markets. The Iraq war will cause more damage to the economy and housing values than not bailing out 7 million home owners.

[Blackhatjack]

38. You make several assumptions that are just not true, allow me....

You posted
"This drove up the value of his house, and many others as well well beyond what would be expected through normal appreciation"

There is no 'normal appreciation'. The only way to value any piece of property is to gauge what a willing buyer and a willing seller agree on. Appreciation rates vary over history, and there are no 'normal appreciation' standards.

YOU posted
"Soon, falling home values might bring values back to where they should have been if there had been no run up in housing values."

What you are ignoring is that housing is a basic need of every family. You cannot refuse to pay the 'market price' for housing today because you believe that the price is too high. Just like you cannot refuse to buy food or water because you believe the price is too high.

You posted
"Should this continue a while, and it will, then the author might be underwater. This will happen whether these 7 million are bailed out or no. It will be the end result of decades of fiscal mismanagement within government, free trade, and lack of regulation in the markets. The Iraq war will cause more damage to the economy and housing values than not bailing out 7 million home owners."

You are ignoring the what happens when you have imbalances in a free economy. Oversupply ALWAYS creates a drop in price. As the oversupply drops price goes back up with competitive demand. You don't think putting 7 million more homes on an already oversupplied real estate inventory will have a negative effect on all houses? You obviously do not understand market economics.

And how is having 7 million people lose their homes going to help anyone? Banks don't need to own more properties they cannot sell. 7 million people now have to scramble for a place to live. And people who could very well make their payments, although with some difficulty, will join the ranks of those who lose their homes because there is no assistance to them.

You posted
"Bottom line, he's still ahead of the game, and so are most home buyers."

Ridiculous. Everyone who pays consistently on their mortgage for years deserves to have their efforts create a valuable ownership interest in the home they are purchasing. Having the value of that home decline by tens of thousands of dollars means that the payments they were making would be more properly characterized as 'rental payments.'

I agree that prices are high for many essentials in our economy. However, no one will leave this roadside accident unscathed --no one. And even if the government provides some relief, many will still sink. What the government needs to be doing is 'save as many as it can' and in the process reduce the negative effects to a level that the economy can overcome it.

[DU GrovelBot]

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[spinbaby]

35. Umm...where are those 7 million people going to live?

If seven million people have lost their homes, then seven million people are going to need someplace to live. Are there that many affordable rental properties available? I just see this bizarre scenerio where millions of houses stand vacant while millions of people live under bridges.

[Gormy Cuss]

52. First off, 7 million loans does not translate to 7 million people.

It would be somewhat higher since the average household size is greater than 1.

Second, there would be a tremendous stress on existing rental properties if the number of foreclosures is high in the area. One of the ways that the gap would be filled is that REOs (properties owned by the lenders after foreclosure) would become rentals if the sales market was too soft for the lender to recoup the value of the loan.

Third, a subset of those who lose properties through foreclosure will walk away with enough cash to purchase a more modest property either in the same area or a different one so not all will be looking at the rental market.

Fourth, I doubt that all 7 million mortgages issued in the past few years will default. Some of those loans are conservative products like fixed rate mortgages or refinanced loans with considerable equity intact. Many of the others will be held by unhappy owners who can't refinance but will do everything that they can to avoid foreclosure. The highest estimate that I've seen is 2.5 to 3 million, which is still a huge number but only half the size of the OP's example. The OP is correct that if there are a large number of defaults nationally or even a large number regionally that there is a ripple effect extending to all homeowners in terms of house value.

[tsuki]

41. Which is why viewing your house as an "investment" is wrong

thinking.

[slackmaster]

43. tsuki's got it right

:toast:

[Dr. Strange]

55. Exactly!

I've said this to several people (including my wife) and they look at me like I'm speaking a foreign language.
Your house is an expense--not an investment.

[CreekDog]

138. Actually, everything you do is an investment

The key is whether it is a good investment or a bad one.

And that all depends upon the tangibles and intangibles that you need or want to get from it.

You could spend tons of money riding roller coasters all your life, yes, that is an investment, strictly speaking. But if you love it and it does no harm, then more power to you.

[wtmusic]

56. Why?

Investments lose money all the time.

Though the next five years could be rocky, real estate over longer periods of time is an excellent investment.

[Blackhatjack]

61. While its true over the long haul, factor in periods like 1929 depression...

Real estate has the advantage that over long periods of time it holds its relative value. But millions of people can and do lose their homes in periods of time like today.

Those who owned homes before the 1929 crash felt the same way I am sure.

[wtmusic]

64. IMO most of the people who will lose homes in the coming 5 years are

1) Those who overborrowed to begin with
2) Those who took out seconds against the equity in their home to buy RVs and other status toys
3) Those who were not paying attention to record high prices when they bought
4) Those who had unrealistic timeframes about a return on their investment

We're not including those who lose their jobs and simply can't afford their mortgage, because that is a casualty of the economy in general.

Real estate will never undergo a meltdown like what happened in 1929 to the stock market, as there is a "solid" asset to back it up. Your home can't "go bankrupt".

[Blackhatjack]

69. You are skewed in your understanding of this problem...

Most people who bought homes bought them as owner occupiers. THey did not buy them to make an unrealistic return on their investment.

People who need a home cannot wait years for 'high prices' to come down.

Some people may have used a home equity loan to buy status toys, but they are by no means the great majority of people. Home equity loans were 'pushed' by banks because it gave the banks security.

Many people did overborrow, but they were encouraged to do so by the mortgage companies and banks. Many people were misled into thinking that the market could not fall in value, and had they known the truth they would have rejected the program offered to them which overextended them.

Mark it down --there will be another meltdown like what happened in 1929 to the stock market. It is just a matter of time. And the 'solid asset' to back it up is only of a value that the market assigns to it. Put 7 million homes on the market tomorrow and watch the value of everyone's home drop. Everything is relative in value.

[wtmusic]

81. Blame banks for people overborrowing?

Wow--there's a classic responsibility shirk. I would like to see one instance of a bank claiming the housing market could not fall in value. And if people are stupid enough not to know that, they should have someone else handling their finances. Can I also blame DU for spending so much time here? :crazy:

I waited for years in the 80s for high prices to come down before I bought my first home. It wasn't when I wanted (later) and it wasn't the house I wanted (not as nice). But I got it. Too many people think they're entitled to what they want, when they want it.

Before I "mark it down", do you have any historical data indicating a plunge of the housing market--anywhere--akin to the 40% drop which occurred over a few days in 1929?

[Blackhatjack]

86. If you look at bank expenses you would see advertising/marketing is right there...

Banks sell the products available to them, and banks make no money in that area if they do not advertise, market and sell those products.

Sure banks encouraged borrowers to borrow their money. Borrowers did not hold a gun to their head and say give me that loan or else.

I have talked to bank lending officers who have said they believe these exotic loans would work nicely for borrowers since the market has been appreciating for so long. So there are instances where the bank did represent to the borrowers that the market would not likely fall in value.

Many people cannot afford a home at today's prices. However, it is when families have children at home that a home is really important, and they need the extra space. When people retire they usually only need space for one or two people. So the time in life does drive the need for a home, and not everyone can afford to wait for years on end.

The difference between the stock market and the housing market is that changes in positions can occur instantaneously in the stock market compared to the extended procedures needed to close on real property. I have seen the market tank before when interest rates rose to 14% or higher, which had a similar effect on housing sales.

Real estate will see another drop in the future and will rebound again. It is more important how quickly those changes occur that matters rather than that they occur at all.

[bleedingheart]

78. if you pay cash for real estate it may be a good investment...or get in when its good

but let us look...

For folks like my mother....real estate was in investment.

She paid 13,000 for her home

If she has taken the 30 years to pay it off...at 8% interest...it would have cost her $34,300 to pay off the house entirely...she paid less..she paid it off in 7..

At the end of 30 years...her home is worth about $120,000...good investment. Her home beat inflation in terms of its value..

However....it may not go so well for the folks who got sucked into the "big home scam"

A person who takes out a $310,000 loan...will pay $669,099.60 at the end of the 30 year loan...and you have to count on your home being worth that much or more...if you sell it as an investment...

Now if the market goes wild...that is great
if you pay cash...that is good too
but to call it an investment you have to beat $669K...and some folks may not be able to do that...

[wtmusic]

83. Your mom's smart and so she made money

Funny thing about investments -- there are no guarantees. She was smart enough to pay off her loan early so she did well.

Many others are too lazy too learn how mortgages and the housing market work, and they eat it. I can't feel sorry for them.

[tammywammy]

85. I don't feel sorry for them either

Sorry, so all those that think I should. Seriously, buying a house isn't picking up a shirt. They should have researched before they bought. It's not that hard in this day and age to figure out the difference between a 30 year and an ARM. The information is out there, and it's their fault for not understanding it. They signed the contract.

[pitohui]

110. a VERY critical mistake in your math and logic

you say -- person who takes out a $310,000 loan...will pay $669,099.60 at the end of the 30 year loan...and you have to count on your home being worth that much or more...if you sell it as an investment...



no, that is not true, because during those 30 years if the person had not owned and occupied the house they would have ALSO had a huge, unpredictable, and constantly inflating expense known as rent -- most often combined with the regular large expense of moving because you have to move more often when you rent due to insane landlords, rental neighborhoods more likely to go into quick decline thanks to crack, and so on

you don't have to make every penny back of your investment from the increased value of the house -- some part of the value you have already realized because you didn't have to pay rent all these years

don't have the exact numbers to hand but this is the approximate cost of living in my house for 15 years, including mortgage (now paid off), insurance, maintenance -- $120,000 (roughly double the original selling price)

similar houses in my neighborhood sell for at that price, so you might think, gosh that's a lot of years with no profit

HOWEVER throw in the rent i would have paid all those years, $650 a month for the first ten years, $1,200 a month for the last five -- my next door neighbors in the same housing plan, slightly worse condition, pay $1,500 a month now because of post katrina housing shortage but let's ignore that as a temporary blip --

i would have paid $150,000 in rent over the 15 years and have ZERO asset to sell in exchange for it

so the price of my house doesn't have to rise at all for me to be WAY ahead financially and in fact i hope it doesn't, as when it rises then i have to buy higher priced insurance and my property tax also rises

"buy and hold" is a superb strategy for the owner/occupier because in the end you do need a place to live

and the price of the house does NOT have to rise as much as you think, to cover the interest expense, because there is an offset caused by the fact that buying the house means you don't need to rent a house

[bleedingheart]

130. sorry but real estate while a good investment is still risky

and if you buy in an overpriced market...it won't be an investment unless you get a fair price for it to begin with...buy at too much or if you fail to pay it off.....or if you borrow against it...it may not save you that much...


I am not against homeownership...very much for it...but it should not be part of your retirement plan...

Too many folks in my generation are not putting any money away and they are banking on their home being their retirement...that is really foolish.

[blondeatlast]

103. Word, tsuki.

:thumbsup:

[slackmaster]

42. My house could lose half its current market value and still be worth more than twice what I paid

12 years ago. It wouldn't hurt me a bit, especially since I have no plan to sell it, ever.

[Blackhatjack]

45. You have ignored the change in the buying power of dollars 12 yrs ago...

AS the dollar tanks, those dollars you hold today are actually worth a lot less than they were 12 years ago --so yes it would hurt you a bit.

However, nothing changes the intrinsic value of a home as a place of shelter, and that is why in a full blown crash of the economy homes hold their relative value to other items of value.

But homes can be undervalued simply by an oversupply of them on the market for sale at any one time.

[slackmaster]

49. No, it makes no difference to me whatsoever

If you take inflation into account, my monthly payments are about 1/3 what they were when I bought the house (at a much higher interest rate than I am paying now). Again, because I don't plan to ever sell the place, the dollar value of my home means nothing as long as it's more than the remaining balance on my mortgage.

I have so much equity built up that values would have to drop by about 75% before I was at risk of not being able to get equity-secured credit. I have no need for that in the foreseeable future, and I don't think a drop of that magnitude is going to happen. California real estate has consistently appreciated over the long haul. I'm almost 300 feet above sea level, so not even global warming threatens my security in that respect.

[Blackhatjack]

50. Not everyone is in your excellent position, but it still will cost you ...

If you are saying money does not matter to you --then obviously making or losing or keeping money is not important.

But not everyone is in your position.

[slackmaster]

53. My retirement savings is completely independent of my home

I have a current 401k, two self-directed IRAs that were once 401ks from previous jobs, a regular brokerage account, and a gun collection. That (plus whatever I might eventually see from Social Security) is my retirement plan. My house is for living in. As long as I can keep making the payments for about 10 more years, that's in the bag. I will always have a place to live.

I agree with and reiterate the position of those who have stated that your primary residence should not be treated as an investment.

[Blackhatjack]

59. If you really believed that your home should not be treated as an investment you would rent....

and invest the difference in your other investment holdings.

But you did not do that. So your home means more to you than just shelter.

[slackmaster]

70. No, you have it bass-ackwards - I live in San Diego

Owning a home puts me in a much better cash flow position than renting does.

My monthly housing cost (including taxes and insurance) is about $1,200. Houses comparable to mine rent for close to $3K, and you don't get a deduction for mortgage interest. For $1,200 I would barely be able to rent a studio in any decent neighborhood.

So in a sense you had the right idea - The money I save by owning as opposed to renting goes into retirement savings. And I don't have to put up with a landlord, the threat of getting evicted for reasons beyond my control, etc. My life as a homeowner is much less stressful than when I was renting.

[Lorien]

73. $1,200 a month is great for your area

I know folks out there who pay that much for a 400 sq. ft apartment! Plus, as you say, there's all the other benefits.

And I agree; even with the home repairs, the stress some landlords put on renters outweighs the stresses of home ownership.

[slackmaster]

80. I bought in 1994 solely for quality of life, not income or appreciation

The $140K I paid then seemed like a lot, but it was worth it to have more room and no more landlords.

If someone had told me then that the market value of my home would quadruple in 12 years, I would have though them insane.

[Lorien]

96. I bought mine in 1996 for $150,000

it was less than I could afford at the time-but like you, I bought it for the quality of life it allowed me, not as an investment. I had just gone through a real nightmare with my last landlord, so buying seemed like the only logical option to me. I never would have imagined the increase in value either...thank goodness we bought when we did. There's no way in hell I could afford to buy in my neighborhood now! And renting is painful in my city also; I certainly can't afford to rent the amount of space required to run my home based business.

[slackmaster]

104. You're not my ex-wife by any chance, are you?

:D

Seriously, I feel sorry for anyone trying to get started right now. Things will get better for them eventually, but it may be many years as it was for me and I presume you as well.

[Lorien]

107. Heheh

not anyone's ex, thank goodness! ;-)

Yeah, I know what you mean. I have two middle aged friends who are renters; one is 50 and the other is 46. Neither has seen a pay raise in years, and so they turned to credit cards to cover some expenses (such as car repairs-they both own older vehicles). Both are married. One has two kids. Now their cost of living is increasing further with rent hikes; landlords are passing on the jump in insurance rates to renters (it's Florida). The one with children went house hunting all summer, but even with all the foreclosures there was nothing in their price range that wasn't in a dangerous neighborhood. I worry about what they'll do if they get priced out of the rentals in safe neighborhoods, too. :-(

[Lorien]

72. Um, no. Renting means that you are at the mercy of a landlord

I loved my last apartment. Unfortunately, so did a investor. I was forced to move when the complex was turned into a time share. I found a house that cost me no more to own then my apartment had cost me to rent. After losing my apartment to an investor, owning felt much more secure. Besides, I could paint the walls any color I want and plant a garden. That was ten years ago. Now my $150,000 home is worth $485,000 and the neighborhood it's in is only getting better and better. When I had two medical emergencies and my insurance wouldn't pay, the equity in my home covered the costs. When I had six months of unemployment the equity made up the difference. I still have over $350,000 of equity left in the home. Even if it loses half it's value, I'm still up from where I would have been renting by quite a lot.

15 years ago I also had $80,000 in stock. Over the next ten years it lost over half it's value. There is nothing that is a 100% guarantee when it comes to investing. But real estate throughout history has been a safer bet than most. Still, the majority of us buy our first home because we want a home of our own, not because we're out to make a fast buck.

[pitohui]

111. renting is simply too expensive, leave that to the yuppies in manhattan

ok i'm joking a little but rent is way too expensive in many areas compared to owning the home

see my post #78

we would be in a terrible situation now, with me unable to work, if we had made the decision to rent and live off "investments" from any small amount of money left over

[tsuki]

94. That is what I am talking about. My home has been see-sawing

with the current market, but since I have been living there 20 years, it is still worth more than I paid.

But those people who watch those infomericals and buy thinking to flip and make a killing are toast here. They got caught.

[Blackhatjack]

120. I am amazed that people would rather punish folks they think were stupid or greedy than...

have the government take the right approach which will improve their own financial standing.

IS it more important to try and prove something and have your house valuation go down, or would it be better for the government to help these folks refinance into more traditional mortgages they can pay and maintain your own house valuation and financial standing?

People by and large are not stupid. However, many of the adjustable rate mortgages and their details are incredibly complex.

Don't believe me? Ask any 10 people who have ARM loans to explain to you the details of their mortgages --bet you they can't do it.

[slackmaster]

160. Sorry, but some of those people were stupid or greedy and it's not "punishment"

To allow the terms of the contract they entered into take effect.

People by and large are not stupid.

Yes they are.

[napi21]

44. That's true, but in at least some areas, the homes were very

overpriced! When I hear the prices of a home in Fl, Ca, Ma, etc, I really believe some people are just plain NUTS!

The other thing I'd like to know is how many of those 7 million homes were bought to flip? That had become a full time job for some people. They actually quit their regular jobs to buy & sell houses. It's a spec game, and if the price drops or the selling market slows down, those folks lose that house.

[Blackhatjack]

46. Don't lose sleep over 'flippers' --they make up a very small % of home buyers...

... but they sure make good television exposes.

The great majority of homes purchased in this country are still purchased by owner occupiers.

[TahitiNut]

47. Most important, it's the EQUITY that's lost.

While both the market value of the house being sold AND the price of a home being purchased willl have been reduced, the equity a homeowner has will have been reduced. This is of major importance to those who've only been in the home market for less than 5-10 years. These are the ones whose equity is close to the minimum (10-25%) needed to get a mortgage. Considering real estate commissions and other cost of sale, that'll mean down-sizing, at best, for folks whose home ownnership is at that precarious point ...starting a family, the DINK/SINK transitions, and similar situations.

New entrants to the home market will see the 'advantage' of lower prices (an 'advantage' as long as they don't keep going down) ... but face higher hurdles in obtaining a mortgage on favorable terms.

[Blackhatjack]

48. You're right... if they walk away after yrs of pmts without equity they should rent

and have no further obligations to anyone.

THe loss of equity will prevent them from getting back into another home for many years, and add to this the devaluation of the dollar and its buying power.

Prices for homes overall will dip, but it won't help those who lose their homes --or those looking to buy a new home.

[Sapere aude]

54. Well rent a house for Christ's sake. And get some cheese to go with that whine.

We never promised you a rose garden!

Or maybe study Buddhism and learn to live with the shitty conditions humans have to put up with.

Life sucks get use to it!

[wtmusic]

57. no kidding

I thought sitting on my ass and waiting was going to make me a millionaire, but apparently now it's not.

Waah.

[Blackhatjack]

58. Have you checked on the availability of rental property? You are in for a shock...

... rental properties are in high demand, and rental prices are going up.

I guess you feel the same way when you pass a soup kitchen?

"Life sucks get use to it" --what a wonderful philosophy of life!

[Sapere aude]

66. Life sucks is not a philosophy of mine it is a reality that you may choose to deny.

The Four Noble Truths:

The Buddha's Four Noble Truths explore human suffering. They may be described (somewhat simplistically) as:

1. Dukkha: Suffering exists: (Suffering is real and and almost universal. Suffering has many causes: loss, sickness, pain, failure, the impermanence of pleasure.)
2. Samudaya: There is a cause for suffering. (It is the desire to have and control things. It can take many forms: craving of sensual pleasures; the desire for fame; the desire to avoid unpleasant sensations, like fear, anger or jealousy.)
3. Nirodha: There is an end to suffering. (Suffering ceases with the final liberation of Nirvana (a.k.a. Nibbana). The mind experiences complete freedom, liberation and non-attachment. It lets go of any desire or craving.)

[CreekDog]

128. "Life sucks"?! How about "Every day is a gift"

[porphyrian]

60. What are the banks going to do with a bunch of houses no one can buy?

Sure, they can take them, but what then? Can they make their money back before they go bankrupt? Let's not assume they really have the upper hand yet.

[Blackhatjack]

63. Banks borrowed money to make the loans secured by the loans...

Banks don't want or need additional homes, but they are forced to foreclose and put them on the market for sale at auction to the highest bidder --which will be much, much lower than they should be worth.

The money recouped from the sale will be paid on the debt the bank owes, and difference in the amount the sale brought and the amount still owed by the borrower will be pursued as a deficiency against the borrower for years to come. And at some point the bank will write it off as uncollectible and sell that debt to a debt collector who will pick up where the original creditor left off.

[porphyrian]

82. My point is that there will come a point that they will actually lose more money...

...taking and trying to sell the houses, which is less and less likely, especially if every bank is doing the same, than they would just sending another bill and eating the loss another month. And I don't think we're far from that now.

[roamer65]

84. Get ready for the Fannie Mae to become the equivalent of the RTC...

from the S&L bailout. The banks will have to have somewhere to dump the houses for cash, otherwise we'll have a banking crisis like the early 1930's.

[Romulox]

68. Artificially blowing up the housing bubble

Is a subsidy to property owners at the expense of people who are looking to buy. It's probably a bad idea for the Federal Government to encourage inflation by enriching property owners at the expense of those who don't own.

[Blackhatjack]

74. First, the 'subsidy' is not an expense to those looking to buy...

If there is no stability in the housing market, you can 'want to buy' but you will not receive a mortgage UNLESS you are already well off.

The kind of government intervention that would head off 7 million people losing their homes will actually benefit homebuyers. The market will stablize. Credit requirements will ease, and the family that wants to buy will be able to buy.

Plus when they buy, the home they buy will likely hold its value and begin to rise again.

[CreekDog]

129. Even if you are well off, you can't get a mortgage from a lender that is imploding

I have great credit, down payment, etc. Won't help me much when my lender is Countrywide if reports are to be believed.

So, that's where this mess is really getting out of hand --by affecting people who normally would be good risks and would qualify.

[MadHound]

71. The trouble is the gov't simply can't step in and try to avert the catastrophe

The government simply doesn't have the money to do so. You're talking about figures like seventy billion dollars. Where the hell will that come from? What, we borrow it from China? Like that's a smart move.

As far as putting a moratorium on foreclosure, do you realize what sort of chaos that would spread throughout the economy? Do you realize how far such a move would drag it down? The financial sector, for better or worse, is now the engine that drives our economy. If you throw such a foreclosure restriction on it, the financial sector will fail.

Look, I empathize and sympathise with these people. But such a radical solution as what you propose would cause far more harm than good.

[Blackhatjack]

77. Here is what the Govt can do to avert the catastrophe...

Government backed loans have been around forever.

You don't have to 'bail out' borrowers by giving them money.

You avert the crisis by making money available to lenders at little to no interest with the express condition that it be used to 'refinance' borrowers who now have adjustable rate mortgages or other exotic mortgages into fixed rate mortgages. You provide cash underwriting incentives to encourage the lenders to rework missed payments and forego outrageous fees that have accrued.

As you place borrowers on a firmer footing, the great majority will not lose their homes. THose homes will not hit the real estate market and further depress home prices.

Mortgage Companies will not close, and people will not be laid off.

Everyone would benefit from this.

[MadHound]

87. Still unfeasible

So you extend liquid funds to people for them to borrow. The loans you are looking to prop up are risky ones to begin with, hence our current problems. If you again extend these people money, even at little or no interest, that won't make them any better of a credit risk, and in this climate of an economic downturn, they will still be at high risk for defaulting on these loans. Sure, you may save some people, but certainly nowhere near all or even enough. At best, perhaps half that number will be able to turn around their own personal finances. But that will still leave you with 3.5 million homes glutting the market, homes that would then belong to the government, and frankly real estate is not a business for our government to get into.

Secondly, such loans that you're proposing would adversely effect the banking sector. You are essentially removing seven million loans froom their balance sheets, how many banks will fail because of that?

Third, back to my original question, where are you going to get the vast quantities of money to support these loans you propose? Taxes? Borrowing? Neither of these choices are good ones, and would result in serious economic problems down the line.

Look, I hate it, you hate it, but frankly the best solution would be to go through this painful process right now rather than deferring it to later and letting the problem grow. That's part of what got us into this mess to begin with, Greenspan diverting the worst of the tech bubble mess into a housing bubble. Further diversion will not solve the problem, only allow it to expand. I know that this sounds heartless and cruel, but frankly with the mess the economy is in, and the fact that this country, both privately and publicly, is drowning in red ink, really limits what we can do. Sooner or later our country is going to have to face the music and take the hit. Best to do so now, for the longer we put it off, the worse it will become.

[Blackhatjack]

88. Here is where you are wrong ...

Banks, Mortgage Companies and Investors are presently holding the debt obligations, and it is the missed payments and accruing interest/fees that finally pushed lenders to cut off credit to them.

The money would be in the form of 'guarantees' to the lenders, not actual cash payments.

The proposal I outlined would not eliminate 7 million loans from their balance sheets. It would be a replacement of one loan for another, with different terms.

The government has been in the real estate business since the New Deal. The government controls interest rates and makes billions of loan guarantees a year through Fannie Mae and Freddie Mac.

it is not good to let an entire market collapse so that you can rebuild from the bottom of the barrel. THere is value in the real estate market, we just do not know how much --and this is why mortgage lending has been suspended.

The failure of the government to regulate banking practices that have so negatively impacted consumers and stuffed the pockets of the lenders led to this situation. If credit card companies greed were reeled in, loan products were regulated to be fair to the borrowers, then a majority of people in trouble right now could make their way out of this mess.

Just my opinion.

[BlooInBloo]

75. Irresponsible lending but even more irresponsible borrowing.

[Blackhatjack]

89. both can be fixed without letting the entire real estate market collapse and people lose their homes

[BlooInBloo]

91. That would be nice - but something needs to be put into place preventing....

.... people from taking out bad loans. Clearly the the "personal responsibility" way doesn't work.

[Blackhatjack]

92. absolutely agree

[Jed Dilligan]

99. As a renter, what's my stake

in other people's investments?

[slackmaster]

105. The rent you pay is loosely connected to the owner's mortgage payment

Some people get lucky and find rentals that have been owned by the same person for a long time, so the landlord has had no reason to raise rents. You are paying the landlord's mortgage plus upkeep.

A decline in the overall market can make rents soften, as can a surplus of rentals in an area.

[Jed Dilligan]

114. So when value goes down,

mortgage payments go down, right? Even if my landlord went bankrupt, there would just be a new owner (who couldn't evict me unless he was moving in, and no one with rental property would live where I live unless they were a crazy Nelson Rockefeller type). Presumably, he would have snagged the property at a cutrate price and so his mortgage payment, if any, would be lower.

All in all, I don't believe in the "ownership society" and I'm glad I never bought in. Real estate being the primary basis of wealth has always seemed medieval to me.

[slackmaster]

121. Down is much slower than up when it comes to prices

But you already knew that. ;-)

All in all, I don't believe in the "ownership society" and I'm glad I never bought in. Real estate being the primary basis of wealth has always seemed medieval to me.

But someone owns the place where you live. Why choose to be a serf in a big pond when you can be a lord in a small one?

[Jed Dilligan]

135. I don't like fixing shit all the time

Homeowners I've known, it's more like homes own them.

It's more big-picture, though, my concern--the only benefit of capitalism is progress and innovation, and capital tied up in real estate is not contributing. I prefer Adam Smith's version of capitalism where there is no land ownership at all--I wonder if his followers had not conveniently dropped that important point, would the free market be as exploitative as it is today?

[Jed Dilligan]

136. I don't like fixing shit all the time

Homeowners I've known, it's more like homes own them.

It's more big-picture, though, my concern--the only benefit of capitalism is progress and innovation, and capital tied up in real estate is not contributing. I prefer Adam Smith's version of capitalism where there is no land ownership at all--I wonder if his followers had not conveniently dropped that important point, would the free market be as exploitative as it is today?

[slackmaster]

146. Capitalism is great if you are competitive and "successful"

It provides a fertile ground for people to create and live their own lives as they see fit.

For others, it must seem like one of the cruelest systems possible.

A caller on the Thom Hartmann show yesterday initially pissed me off but left me struggling to see his point of view. The guest was Senator Bernie Sanders.

The caller asked what Sanders would do in regard to forgiving student loans for people who couldn't make payments because they couldn't find work that paid well enough. His own situation was that he had accumulated some debt while getting his Master's in social work. He found that while work was available, the pay wasn't enough to cover his living expenses and keep up with his loan payments. He asked Senator Sanders whether any forgiveness was on the way for people in his situation.

My initial reaction was "Tough shit. Why should the taxpayers have to bail out someone who made a poor career choice. Didn't he do the research before deciding on that path?"

Sanders' response made me think about it. He said some relief was on the way in the form of federal guarantees, but there would be a price - Students would have to commit to 10 years of public service in the form of working in underserved areas. (Kind of like Fidel Castro's recent conditional grant of 500 medical school scholarships to US students, I thought.)

Maybe that's not such a bad idea. I simply can't support bailing someone out from the consequences of a bad personal decision without the public getting something in return. People must not be given the luxury of never growing up, of having government (i.e. all of us) act as foster parents when their big ideas don't pan out. But maybe there's middle ground, where people spread their pain out over time, and pay the public back with something other than cash. Something that is needed and not being provided any other way.

Just as I don't think it's appropriate for an able-bodied person to expect a government bailout when unable to find the "dream job", we can't expect the private sector to automatically provide for people who have fallen on hard times due to factors they cannot completely expect or control. I think the same principles should apply to people being foreclosed on in the current situation. Some of them deserve to lose their homes because they were greedy. Many were conned into more debt than they could handle; they were gullible. Some were outright conned, and others just got unlucky because their circumstances changed in an unpredicable way.

Maybe I am owned by my house (and my cats). I plan to spend the day eradicating a mild flea infestation. But I'd rather do it myself than have a dickhead landlord (like my last one) or someone he hired coming in here on my quiet weekend and screwing up quiet enjoyment of the little free time my busy job allows.

[Digit]

139. Nothing to do with the landlord's mortgage payment

It has to do with what comparable properties are renting for, supply and demand, how long do you want to be on the market and vacant, how picky you are regarding pets, how the property shows, amenities, condition, and how aware you are of market conditions.

Market conditions vary thoughout the country (as we all know), and this has a great impact as well.

Some investors might even have a negative cash flow...do you think they can ask more rent because they owe more? Nope.

I have been a landlord for 28 years and a Realtor for 27.

That is just off the top of my head...but my point is...it has nothing to do with the landlord's mortgage payment.

[slackmaster]

147. Not always true

I know a couple who just moved back to their home in San Diego after finishing a 13-year stay in Oakland, CA.

The place they rented in Oakland was beautiful - high on the hill in Montclair, "three-bridge" view of San Francisco Bay, hardwood floors, quiet and relatively safe neighborhood. I believe the highest rent they paid was $1,500 per month, or about half what comparable houses in the neighborhood were renting for. The landlady could have jacked up their rent any time over all those years, and they might well have stayed anyway. It wasn't what she wanted to do. She was content with quiet, clean tenants who took good care of her property and made their payments on time.

There are two kinds of landlords - Ones who want to bring in as much cash as possible and treat it as a business, and ones who use their rental property as a tax shelter. I don't doubt that the former are the norm, but there are good rental deals out there because of people holding on to highly appreciated property that they want to keep and not generate a lot of taxable income from.

[Jed Dilligan]

155. My parents just couldn't sell their home

They rented it out for about ten years and charged the mortgage plus what they needed for maintenance. Then they got owner-move-in evicted from their apt. and moved back. They liked the flat much better and would still be there if it wasn't for the eviction.

[Digit]

156. There are always exceptions, rare as they might be n/t

[mrreowwr_kittty]

137. Some of the homes foreclosed are being rented

The renters end up evicted, through no fault of their own.

[Jed Dilligan]

142. Not where I live

the only allowable eviction with change of ownership is owner move-in.

[NNN0LHI]

102. When I bought my first two homes I needed 20% down just to apply for a home loan

Then the bank charged us about 500 bucks to get the loan applications processed whether it was accepted or denied. The 500 bucks was gone either way. So it was kind of like the burden of whether your shit checked out or not was more on the person applying for the loan than the lender. Because no one wanted to lose their 500 bucks and the 20% down money.

I went to a home closing with my daughter earlier this year. She put no money down. Nada. As a matter of fact she received a check for 300 dollars because they had overestimated her closing fees which had been added to the purchase price. Even if she never makes a payment and gets foreclosed on she still ends up 300 dollars ahead.

With loans like the one my daughter received being common is the number of home foreclosures surprising?

Not to me it isn't.

Don

[tammywammy]

109. I bought a house a couple of months ago

I did a zero down. I put up $1000 in earnest and at closing I wrote a check for $140 to cover everything else. But I went with a 30 year fixed rate.

[CreekDog]

106. There is nothing wrong with debt that you can afford for a prudent purpose

Paying off all debt (or mortgage debt) at the expense of other things is silly.

This is called "lack of diversification" and is not prudent financially.

I live in the SF Bay Area. You can bet that I'm not putting extra money into paying down my mortgage --too much of my wealth is in my home as it is. I put the extra into 401k and savings, not into my mortgage (5.5% fixed or 4.1% after taxes). The only reason I would pay extra on my principle would be to reduce my monthly mortgage payment if I thought I needed to do in the long term.

And instead of draining my savings to buy a car, I financed the car, which has never had a loan greater than it's value, has fairly low finance charges and leaves me with enough emergency money to get by for months.

That said, except for minor credit card purchases, I think secured debt that is within your means, that is less than the value of what is securing it is the principle to follow.

So, finance a car within reason, finance a house with prudence and keep saving for a rainy day.

But the goal of zero debt, period, while satisfying in some ways, is not financially as sound, especially if you live in an area of high housing costs, where paying down the mortgage would cause you to do stupid things (like underfund your 401k) or NOT save for a rainy day.

[pitohui]

113. your post is sound

in our case however we felt it best to pay down our mortgage as soon as possible, being realistic about how long i would be able to work

as a general rule, yes, diversification is wise because it increases your chance of having at least an average result -- having at least something -- putting all one's eggs in one basket and then watching that basket increases variance, so you have a better chance of winning a lot or losing everything -- but you can't really take a risk on losing everything when you are getting older

prudent debt is wise, those who never take any risk are reacting from fear, not from sound financial principles

i think your advice is excellent for the typical investor and there is too much contrarian or fear based advice in this thread

[CreekDog]

123. What you said about "fear based advice" in this thread is spot on

Well, when I had a 5 year fixed then adjustable loan, I was paying lots of additional principle thinking I might have to absorb the increased payment if I couldn't refinance. But anyway, later...when I refied I was calculating how much to put into the 401k and how much to allocate to additional principal reduction. Slowly, I realized as long as the 401k paid greater than 4.1% per year (even gov't securities beat that), I was losing by paying additional principal.

Further, 401k contributions are tax free. Principal payments are after tax and not even tax deductible.

This came as a revelation.

[NNN0LHI]

115. Lets say I have $15,000 worth of debt

And if that 15 grand is paid off as per the agreement over a three year period I would pay about 4 thousand in interest on that debt at going rates.

If I had 15 thousand in cash to do with what I wanted I make around 4000 tax free dollars by paying off that debt now.

I doubt I could make anything close to 4000 tax free dollars from investing the $15,000 in my 401k over that same three year period.

At least thats how I look at it.

I do agree having some savings for a rainy day is a very prudent idea. I am not so sure about the idea of carrying needless debt?

Don

[CreekDog]

124. Actually I think you are incorrect

Your 15,000 to pay down debt is using after tax dollars. Net pay. It costs you 20,000 to pay that 15,000 debt.

If 401k money is pretax, then nearly 4000 (in the 25% bracket) is saved immediately in taxes in the first year! You break even. If you kept doing that, the tax savings over three years would be 12,000. If you get earnings or matching, there's yet more to be had.

This is just to say that if you are making these choices with your money, consider your options. If you are foregoing allowable pretax retirement contributions and/or matching contributions from your employer, paying off a relatively low interest debt is the less wise decision.

[NNN0LHI]

125. Actually I think you are correct

I didn't delve into it that deeply enough. Thanks for the lesson. I'm never too old to learn.

Don

[CreekDog]

127. I agree with the sentiment to avoid debt

But I've learned that secured debt is a useful thing and with good credit, you can get it cheaply.

I could pay off my car right now with cash, but if I'm out of a job, I'll need my savings to pay for mortgage and health insurance and I'll wish I hadn't spent 15,000 to get rid of my $229/month car payment.

[Blackhatjack]

144. You need to print this on a card and hand it out ....

and here are few other items I would add.

No matter how big or small your house payment is you are getting the value of having a place to live and you are avoiding payment of rent. Not every investment pays you back in cash, but if it saves you from having to pay another expense then it certainly is a valuable return on your investment.

You could not be more right about 401k money being pretax --people forget that they have to earn on average at least an additional 25% to equal the same amount of funds invested otherwise.

YOU POSTED: "If you are foregoing allowable pretax retirement contributions and/or matching contributions from your employer, paying off a relatively low interest debt is the less wise decision."

You cannot say this enough. Paying off a low interest mortgage early is rarely a good move.

The problem with the latest round of 'exotic' mortgages is that many gimmicks were added which destroy the predictability of the mortgage costs as circumstances change.

[notadmblnd]

118. and we'll all owe more than our homes are worth.

[Geek_Girl]

131. I think if you bought your home more than five years ago

You're probably ok. I bought my 3200 sq foot home for 140K. Today the houses on my street are going for about 200K of course in the next few months I'd imagine that the costs for those homes will drop. But I really think that home prices need to drop. The cost of housing went way up to fast. My advice for people is to keep there property rent it out if they have to and if you have any money to invest buy property while the cost is low.

[Lorien]

133. And if you bought your home five years ago

you might being paying less for it every month then someone renting a property does for half the space. In my area of town a rental that is half the size of your home goes for about $1,200-$1,800 per month.

[CreekDog]

140. I like the posts about a homes "intrinsic" value

A home isn't the way to get rich, or retire.

But if you buy a home and are happy with the payments you make for it, even if it loses much of its monetary value, unlike other investments, you are getting use and the value of a place to live, hopefully happily.

[Blackhatjack]

145. The reason home ownership is a good investment for most people is ...

No matter how wildly the economy swings, over the long run homes hold their 'relative value' compared with other investments.

The thing that has people spooked is that any 'investment' in a capitalist society will have periods when its fair market value is lower than its relative value --and when people who are financially savvy realize this they call it a 'buying opportunity.'

When jobs disappear, or overall expenses increase which make it difficult for consumers to make their payments, many houses go on the market and only those with plenty of cash are financially able to buy --but when they do they make a lot of money 'going in' because of the real relative value of the property.

[camero]

150. One point not made

If the houses around you are for sale and their values are going down then it drags down the value of your own property through the community rating. So even if you didn't take out an equity loan you still take a hit. In the boom times, the houses even in less than perfect condition saw appreciation because the other houses in the neighborhood rose sharply in value. The reverse is also true.

So, all this because some bankers weren't satisfied with 1.5 times the money lent repaid but had to insist on 2-3 times the money lent and then had to invent a scheme to try to bleed out more from other speculators and greedy types.

Oh how the mighty fall but I hate when it takes the rest of us with them.

[Blackhatjack]

151. Exactly --as the OP stated it will drag down the value of every home