Buy Your New House SOONER Rather Than Later

[JewelFreak]

Getting sidetracked by a number, here. With a down payment of 2% or 50%, other factors help indicate whether someone is a good re-pay risk: credit history, employment history (spotty or steady), other debts & obligations, income of course, for example. No single issue will predict success or failure. FHA, like the banks, discarded its previous standards & handed out money to one & all. "Are you breathing? Okay, here you go!" That, combined with purchase for flipping by countless people without real estate business experience, of thousands, maybe millions, of houses, made disaster inevitable. Builders & contractors are among this group: they bought land, built entire spec developments & condo edifices, fueled by enormous loans.

Controversy over "who is to blame" will probably echo into the next generation. Take your pick: Congress, banks, hedge funds, municipalities, people with dreams & no common sense, cynical buyers & sellers, greedy contractors.

Long business experience tells me the housing market hasn't bottomed yet in most of the country, perhaps all of it. Banks have not processed, by a long way, all the foreclosures on their books; more houses coming onto the market mean still-falling prices. With loan money becoming more available, I see (in disbelief) builders around here beginning to put up more, adding a new supply of unsold properties. Can only imagine they'll regret it bitterly. So will we, as empty places around town drag down neighboring prices.

Bottom line is, if you are confident you will be able to afford payments & maintenance into the foreseeable future, buy. If the numbers don't work, immediate house ownership isn't a necessity for a satisfying life. Wait a while. Discussions get off the mark when they morph into "You insulted me by your general statement about (fill in the blank)."

Opinion: Paying rent is Not "wasted money." You buy shelter; presumably pleasant surroundings & amenities; your taxes are paid; repairs done; landscaping taken care of; depending on the place, possibly cable, heat, power and/or hot water covered. You are not buying equity, but someone else assumes all the worries & headaches. There are worse fates!

--- Laurie

ETA: The 30-yr mortgage is not likely to disappear if the gov't removes its heavy hand. Market forces DO work: it's a product buyers want. Banks make a great deal more money on a 30-yr than on a 20- or 15-yr deal. Customer demand & more profit -- you can bet it will stick around. It also offers the lender a steady predictable return on his investment (you & your house), which makes for a stable business.

 

[ksinger]

[

LOL! You mean like the banks abdicated on sound thinking and decision making when they did ninja loans and robo approvals and offered loans to anyone with a pulse? Yeah...
The financial market and mortgage meltdown is SO much more complex with so many more and more important "causes" than who was able to put 25% down on a mortgage. I'm glad other people see that too.

oooh c'mon Ksinger,stop blaming the banks,yes the banks offer these people drugs,but these people don't have to become a user stop blaming the supplier ...

As always DF, I am not addicted to simple, bumper-sticker causes of issues, like the mind-numbingly simple (read: wrong) equation of deadbeat poor folks = economic blowout.

Suppliers of...whatever have no moral obligation to anyone. Right-o. You can be sure I'll remember your defending said supplier next time there's a big outbreak of e-coli from tainted beef or bad vegetables and people die, OK?

 

[Allison D.]

[LOL! You mean like the banks abdicated on sound thinking and decision making when they did ninja loans and robo approvals and offered loans to anyone with a pulse? Yeah...
The financial market and mortgage meltdown is SO much more complex with so many more and more important "causes" than who was able to put 25% down on a mortgage. I'm glad other people see that too.

oooh c'mon Ksinger,stop blaming the banks,yes the banks offer these people drugs,but these people don't have to become a user stop blaming the supplier ... [/quote]

Truth is, there's enough blame to go around on both sides.

In the days my parents bought their home, you could only get loan with 20% down. The lenders CORRECTLY realized they were missing a segment of opportunity in those who didn't have 20% down BUT could easily afford monthly mortgage payments. They sought to capitalize on this by creating products that didn't require 20% down.

HOWEVER, once the floodgates opened, some lenders became greedy. Wanting to make more $$, they decided to gamble on more risky borrowers. Instead of looking at the TOTAL picture (i.e. debt-to-income ratio, credit history, hard documentation proving sufficient income to handle repaying the loan), they began to develop products to help those who wouldn't otherwise qualify slide through. No doc loans, sub-prime loans, etc.....these were risks the lenders took on to help them make more money. They gambled, figuring that the loans that succeeded would outpace the loans that failed.

Borrowers were equally culpable; they used these products to get into homes they otherwise couldn't afford. Like the banks, they played the speculation game.....they figured they could game the system to their advantage; get a low-interest loan that increases later on the premise that they'd be earning more later and could still afford the payments.

Both of these camps are now the ones who want to blame others for their failed gambles.

Not everyone fell into the trap thought. There were lenders who didn't fall into the trap and borrowers who didn't either. Not all lenders went beserk with their loan product offerings, and not all buyers believed the ridiculously inflated pre-approval amounts they were quoted and chose instead to buy within or below their means.

 

[movie zombie]

This whole thing boils down to people buying much more expensive homes than they can afford (meaning monthly payments).

the banks made the loans. the mortgage brokers pushed the products. the people getting the loans by and large were inexperienced and like many here wanted the american dream of homeownership. THEY COULD NOT HAVE BORROWED THAT $ HAD THE BANKS NOT GIVEN IT TO THEM. the real $ made on these loans was in the sales in the investment market: every time the paper changed hands, there were fees. the banks had no interest in whether or not they were making a good or a bad loan...they only cared about fees and selling on the investment market. so the banks passed on the risks THEY were taking by making the loans obviously unqualified borrowrs to others....including not only the US taxpayers but other world governments and banks as well.

its really not that hard to understand. follow the $: it is the banks and wall street that created the mess in the first place and are still doing so. and they win twice because they threatened to bring the whole economic building down on us if we [taxpayers] did't bail them out.

again, it is the banks and wall street, not borrowers that created the mess. you can't be a borrower unless someone loans you the $....

MoZo

 

[Allison D.]

the banks made the loans. the mortgage brokers pushed the products. the people getting the loans by and large were inexperienced and like many here wanted the american dream of homeownership. THEY COULD NOT HAVE BORROWED THAT $ HAD THE BANKS NOT GIVEN IT TO THEM. the real $ made on these loans was in the sales in the investment market: every time the paper changed hands, there were fees. the banks had no interest in whether or not they were making a good or a bad loan...they only cared about fees and selling on the investment market. so the banks passed on the risks THEY were taking by making the loans obviously unqualified borrowrs to others....including not only the US taxpayers but other world governments and banks as well.

its really not that hard to understand. follow the $: it is the banks and wall street that created the mess in the first place and are still doing so. and they win twice because they threatened to bring the whole economic building down on us if we [taxpayers] did't bail them out.

again, it is the banks and wall street, not borrowers that created the mess. you can't be a borrower unless someone loans you the $....

MoZo

While I agree that the lenders created the products, I disagree that they shoulder all the blame.

Inexperience doesn't lessen personal responsibility to make a sound buying decision, whatever the product/service. As first-time home buyers six years, hub and I didn't just say "oh, the mortage company says we can afford a house that's $200K more than we're buying, so that must be true!" and use that as license to buy above our means. At the end of the day, "caveat emptor" still rules.

The lender's role is to make money, not to parent his customers and make sure they make sound decisions. The buyer's role is to make a smart purchase that he can pay for, not to worry about whether his lender is making enough profit. It's never someone else's responsibility to make sure a fully capable adult makes good decisions for himself.

 

[NovemberBride]

This whole thing boils down to people buying much more expensive homes than they can afford (meaning monthly payments).

the banks made the loans. the mortgage brokers pushed the products. the people getting the loans by and large were inexperienced and like many here wanted the american dream of homeownership. THEY COULD NOT HAVE BORROWED THAT $ HAD THE BANKS NOT GIVEN IT TO THEM. the real $ made on these loans was in the sales in the investment market: every time the paper changed hands, there were fees. the banks had no interest in whether or not they were making a good or a bad loan...they only cared about fees and selling on the investment market. so the banks passed on the risks THEY were taking by making the loans obviously unqualified borrowrs to others....including not only the US taxpayers but other world governments and banks as well.

its really not that hard to understand. follow the $: it is the banks and wall street that created the mess in the first place and are still doing so. and they win twice because they threatened to bring the whole economic building down on us if we [taxpayers] did't bail them out.

again, it is the banks and wall street, not borrowers that created the mess. you can't be a borrower unless someone loans you the $....

MoZo

Mozo, really? Borrowers are not to blame? If I borrow an amount that I know I can't afford to repay, or I can only afford to repay if the stars align correctly then I am not responsible because someone was willing to lend me the money? While I agree with you that the banks made some loans they shouldn't have and certainly have some responsibility, I think the total abdication of personal responsibility reflected in your post is a huge contributor to the problem as well.

As for the issue of putting $ down, I don't think you necessarily have to put 20% down, but I do think you have to put something down. If you can't get together 5-10% of the purchase price of a house in savings, you probably also don't have the cash reserves to pay for maintenance and other costs of home ownership. Another problem that hasn't been mentioned with putting zero down is that even assuming the real estate market didn't crash, you can't sell your house without taking a loss due to transaction costs. Let's say Borrower X bought a $200,000 house for $0. One year later, Borrower X gets transferred across the country and has to sell the house - closing costs plus real estate agent fees are $20,000. Borrower X didn't have $20,000 to put down a year ago, and still doesn't have it now, so he allows the house to go into foreclosure or get short sold.

 

[Allison D.]

I should have added......sure, most people want to achieve the american dream of homeownership, but simply wanting it doesn't absolve the consumer of the need to make sure he can afford it. That's really the heart of MANY of our problems these days - people want instant fulfillment of their wants even when they can't afford them.

I *want* a second home in the SF Bay area because I love it there and it would be a dream for me to have a place there, too.....but that doesn't mean I should disregard whether or not I can afford it. If I could get a lender to give me a loan for that tomorrow but I couldn't comfortably pay the monthly mortgage (which I couldn't), I wouldn't say to myself "well, the lender is willing to offer it to me so HE must think I can afford it" and proceed.

I have a girlfriend is (and has been several times in the past) in $$ trouble because she makes purchases based on the "I deserve this and I'm at an age where I should have it" thinking but doesn't consider whether or not she has enough discretionary income to fund them. Her present debt is about equivalent to a year's gross income and there is no way she'll be able to pay it off.

Wanting and being able to pay for are often very divergent things.

 

[Allison D.]

While I agree with you that the banks made some loans they shouldn't have and certainly have some responsibility, I think the total abdication of personal responsibility reflected in your post is a huge contributor to the problem as well.

Amen!

 

[NewEnglandLady]

I feel like I'm kicking a dead horse by posting on this thread, but I'm completely perplexed by the idea that a bank can be blamed for a decision that is made 100% by the person GOING INTO DEBT. In order to understand this concept, I have to completely change my logic.

Current logic: Person wants home. Person goes to bank/mortgage broker/credit union for home loan. Person is offered several types of loans depending on how much Person has to put down. Person realizes that 0% down is very risky due to a complete lack of equity in house, thus Person would need to make monthly mortagage payments for at least 5 years to build equity and hope/pray that an emergency doesn't pop up which would put Person at risk for losing the home. Person also realizes that 20% down, while not completely safe, is safer than 0% down due to the cushion of equity allowing for normal real estate fluctuations and would allow Person to sell home in an emergency without being upside-down. Person weighs all pros and cons and chooses something he/she is comfortable with, likely in between the two.

Logic needed to place blame on banks: Person cannot use logic to understand the risks of buying a home with little to no money down and needs to be financially prevented from buying a home by the banks. The assumption is that if Person is presented with a little to no money down option by the bank, Person is unable to think "This is very risky" and make the decision for him/herself.

 

[movie zombie]

lack of personal responsibility? really?

we walked into the mortgage broker's in 2003 with 20% down, all closing costs covered, and additional assets. our goal: a home on 20 acres in the santa cruz mountains. as some will already know, this is not inexpensive real estate. we more than qualified and could make those payments for a fixed loan easily. yet all the broker could do was talk about variable mortgages of many different flavors. when we stated we still wanted a fixed rate he spoke to us like we were stupid for not utilizing these products because we could 1-use our $ to go on vacations or 2-invest in ways we saw fit. now anyone not familiar with real estate could assume that this guy knew his stuff...after all, he's in the business...and they talk to you like they've got your best interest at the foremost. they pretend to be your friend and business savvy. but its all pretense. their job is to part you from your $ and they don't care in the least if you can make your payments, lose your property, or anything. all that matters it that they make their $. but most don't know that.

i worked REO in the 1980's during the Bass Brothers takeover the savings and loan industry. i was an employee for American Savings and Loan deemed too big to fail at the time. i am experienced with real estate. i know the ins and outs. i know the pressure that can be put on borrowers. of course, we got what we could afford and a fixed rate. but i'm knowledgeable. i have no illusions as to how the business works. most don't and are at a very big disadvantage.

and while i know i over simplified the problem...yes, little sally, there are evil borrowers out there....they are NOT the larger problem....nor would they have become a problem if the lendors hadn't given them the loan in the first place. the knowledge and forethought that went into the real estate bust falls on the side of those on the investment side. they fought for more deregulaton. they still fight any consumer protections.

so while some want to over simplify and blame all on the borrowers, i'm going to hold to my opinion that the majority of the fault lies with wall street and the bankers.

MoZo

ps more re personal responsibility: we got our fixed rate 30 year loan in march, 2004; it will be paid off in 3 years or less.

eta: NEL, does the bank not have an obligation to loan $ wisely? or do they exist to hand out $ to anyone walking in with an outstretched hand? just because i ask BofA for $1M dollars, is BofA obligated to give it to me? of course, BofA might be inclined to do so knowing that the taxpayers would be there to make good the loss. until BofA has to take personal responsibility for the loans it makes, it has no motivation to stop making bad loans. just because someone asks for $, doesn't mean they have to get it. or are you saying that banks must and should loan to each and every person that requests a loan?

 

[janinegirly]

Thank you NEL and November Bride and Allison! I didn't have the energy to type up a response. Blaming everyone else is a sad approach - how about personal responsibility? No one is discounting wrongdoings of *some banks* and this has been well publicized not to mention various regulatory fines and bankrupties (ie they did not get off unscathed). Demonizing banks and Wall St alone is not the answer and like them or not they are a key part of any economic recovery. Just like banks, individuals who acted without accountability or chose to ignore the possible results of their actions and poor choices deserve to face the music. All of us educate ourselves before we make any decision, it is no different for any responsible member of society. It's common sense - but then the *get rich quick" with zero down was tempting to those who chose to ignore common sense. Lack of individual responsibility and accountability
was a key component of the mortgage meltdown.

And ditto to NEL on the dead horse analogy.

 

[iLander]

Here is how it happens that a person, who is responsible and trying hard, gets talked into borrowing too much:

Mortgage Broker "With this $200,000 loan, your payments will only be $800 per month!"

Borrower "What's the interest rate?"

Mortgage Broker "Only 2%!"

Borrower "Great! Where do I sign?"

Bank SHOULD HAVE SAID "This doesn't include your taxes or insurance, it's an interest-only loan, with an adjustable rate that will go up to 10% in the next 3 years, and within 5 years there is a balloon payment and the entire balance is due. But I don't care, I get a $1,000 bonus for selling this particular product".

Borrower SHOULD HAVE SAID "This loan sounds too good to be true . . . "

Bank really doesn't care about the borrower or their ability to pay, because they will sell the loan to some other company within 3 months.

Borrower thinks the whole thing is reasonable since her cousin, sister, or co-worker just got a fancy new house this way. They seem fine, and their new home is so pretty, so why not?

ETA: Mozo is right, these people are professionals, what reason would you come up with not to trust them? At the time, we all trusted them.

It is this hindsight that is 20-20, not the foresight of 2002-2008.

 

[NewEnglandLady]

eta: NEL, does the bank not have an obligation to loan $ wisely? or do they exist to hand out $ to anyone walking in with an outstretched hand? just because i ask BofA for $1M dollars, is BofA obligated to give it to me? of course, BofA might be inclined to do so knowing that the taxpayers would be there to make good the loss. until BofA has to take personal responsibility for the loans it makes, it has no motivation to stop making bad loans. just because someone asks for $, doesn't mean they have to get it. or are you saying that banks must and should loan to each and every person that requests a loan?

I don't think banks are under any obligation whatsoever--they aren't obligated to loan you money, nor are they obligated to keep you from making bad financial decisions.

Also, if I went to a mortgage broker and said "I would like a 30 year fixed-rate loan, please" and the mortgage broker kept diverting the conversation to ARMs, I'd find another mortgage broker.

iLander, are there really people who go through the lengthy process of buying a house without realizing they have to pay for taxes and insurance? Or understand how an ARM works? I struggle to think that somebody could be so oblivious.

 

[janinegirly]

Borrower SHOULD HAVE SAID "This loan sounds too good to be true . . . "

Bank really doesn't care about the borrower or their ability to pay, because they will sell the loan to some other company within 3 months.

Borrower thinks the whole thing is reasonable since her cousin, sister, or co-worker just got a fancy new house this way. They seem fine, and their new home is so pretty, so why not?

ETA: Mozo is right, these people are professionals, what reason would you come up with not to trust them? At the time, we all trusted them. It is this hindsight that is 20-20, not the foresight of 2002-2008.

1st bolded statement is not accurate. Hence why banks are very willing right now to negotiate on rates to avoid continued defaults/foreclosures. Wish some of us responsible borrowers had the same opportunity.

2nd bolded statement is also laughable. Do you also listen to all salesmen so willingly? They are all professionals after all! Put the blinders on and open your wallet! We live in an open society where big brother is discouraged therefore YOU are responibile for YOUR decisions. I take the time and read the small print. I certainly don't listen wide eyed and sign away because this person with a suit MUST be a professional and therefore why not trust? Please. Nothing to do with hindsight - the decisions I made 2002-2008 re: real estate purchases are the same ones I would make today.

 

[Dancing Fire]

if there were equity in these homes people wouldn't walk away. i have never heard of people defaulted on a loan with equity in their home.

 

[JewelFreak]

NEL,

If a car salesman says you can easily afford a Rolls Royce & offers you a loan for it, do you pick up a pen & sign obediently? Where did the concept of using one's head go? It's your future, your bank account, your financial health, not the banker's, the car salesman's or the diamond seller's. Keeping those things healthy is your responsibility, not his. Yes, he may be cynical & a creep but he has found a sucker in anyone who signs without asking questions. He is not your father, mother, even your doctor, with a responsibility for your welfare. He's offering you a product. You are free to buy it or not.

A house is a HUGE investment for most of us. It costs 3 to 5 years' total GROSS income, plus lots of interest, taxes, etc. The thought of signing that away without having researched & listed questions first, without consulting a disinterested knowledgeable party if necessary (as in lawyer, etc.), without getting every term explained, bewilders me. If you're automatically suspicious of a seller of stones offering "too good to be true" stuff, why not of a mortgage lender when the stakes are life-changing? In agreeing to shackle yourself to a debt, the first principle is "Protect Yourself."

--- Laurie

 

[iLander]

Borrower SHOULD HAVE SAID "This loan sounds too good to be true . . . "

Bank really doesn't care about the borrower or their ability to pay, because they will sell the loan to some other company within 3 months.

Borrower thinks the whole thing is reasonable since her cousin, sister, or co-worker just got a fancy new house this way. They seem fine, and their new home is so pretty, so why not?

ETA: Mozo is right, these people are professionals, what reason would you come up with not to trust them? At the time, we all trusted them. It is this hindsight that is 20-20, not the foresight of 2002-2008.

1st bolded statement is not accurate. Hence why banks are very willing right now to negotiate on rates to avoid continued defaults/foreclosures. Wish some of us responsible borrowers had the same opportunity.

2nd bolded statement is also laughable. Do you also listen to all salesmen so willingly? They are all professionals after all! Put the blinders on and open your wallet! We live in an open society where big brother is discouraged therefore YOU are responibile for YOUR decisions. I take the time and read the small print. I certainly don't listen wide eyed and sign away because this person with a suit MUST be a professional and therefore why not trust? Please. Nothing to do with hindsight - the decisions I made 2002-2008 re: real estate purchases are the same ones I would make today.

My, my. A little venomous, don't you think?

I, personally, did not get caught up in the mess. I purchased in 1998. I am going to give you the benefit of a doubt, that you were not attacking me personally and you were using the general "you".

I am also going to give some of those borrowers the benefit of a doubt.

I believe the banks and the borrowers share the blame 60/40. I still blame the banks 60%.

 

[Allison D.]

lack of personal responsibility? really?

we walked into the mortgage broker's in 2003 with 20% down, all closing costs covered, and additional assets. our goal: a home on 20 acres in the santa cruz mountains. as some will already know, this is not inexpensive real estate. we more than qualified and could make those payments for a fixed loan easily. yet all the broker could do was talk about variable mortgages of many different flavors. when we stated we still wanted a fixed rate he spoke to us like we were stupid for not utilizing these products because we could 1-use our $ to go on vacations or 2-invest in ways we saw fit. now anyone not familiar with real estate could assume that this guy knew his stuff...after all, he's in the business...and they talk to you like they've got your best interest at the foremost. they pretend to be your friend and business savvy. but its all pretense. their job is to part you from your $ and they don't care in the least if you can make your payments, lose your property, or anything. all that matters it that they make their $. but most don't know that.

i worked REO in the 1980's during the Bass Brothers takeover the savings and loan industry. i was an employee for American Savings and Loan deemed too big to fail at the time. i am experienced with real estate. i know the ins and outs. i know the pressure that can be put on borrowers. of course, we got what we could afford and a fixed rate. but i'm knowledgeable. i have no illusions as to how the business works. most don't and are at a very big disadvantage.

and while i know i over simplified the problem...yes, little sally, there are evil borrowers out there....they are NOT the larger problem....nor would they have become a problem if the lendors hadn't given them the loan in the first place. the knowledge and forethought that went into the real estate bust falls on the side of those on the investment side. they fought for more deregulaton. they still fight any consumer protections.

so while some want to over simplify and blame all on the borrowers, i'm going to hold to my opinion that the majority of the fault lies with wall street and the bankers.

MoZo

ps more re personal responsibility: we got our fixed rate 30 year loan in march, 2004; it will be paid off in 3 years or less.

eta: NEL, does the bank not have an obligation to loan $ wisely? or do they exist to hand out $ to anyone walking in with an outstretched hand? just because i ask BofA for $1M dollars, is BofA obligated to give it to me? of course, BofA might be inclined to do so knowing that the taxpayers would be there to make good the loss. until BofA has to take personal responsibility for the loans it makes, it has no motivation to stop making bad loans. just because someone asks for $, doesn't mean they have to get it. or are you saying that banks must and should loan to each and every person that requests a loan?

So let me understand this correctly. In 2003, you walked in to your broker with 20% down, closing costs, and additional assets in hand.,.....and yet you were able to stave off the incredible pressure of the broker into other products and insist on exercising personal responsibility to secure a 30-year fixed rate loan in March, 2004. Do you really think you would have succumbed to that pressure if you hadn't been an industry insider? I don't really think that, MoZo; from what I've seen over the years here, you seem to be a pretty astute consumer.

It's also worth pointing out I purchased around the same time you did - we bought in just 9 months later in 2004. Despite being pre-approved for $200K higher, we were somehow able to choose a home we could afford and select 30-year fixed rate loan. We were able to do this despite a complete lack of prior homebuying experience nor any mortgage banking employment history to guide us, so I have to believe that others are also fully capable.

 

[Allison D.]

Here is how it happens that a person, who is responsible and trying hard, gets talked into borrowing too much:

Mortgage Broker "With this $200,000 loan, your payments will only be $800 per month!"

Borrower "What's the interest rate?"

Mortgage Broker "Only 2%!"

Borrower "Great! Where do I sign?"

Bank SHOULD HAVE SAID "This doesn't include your taxes or insurance, it's an interest-only loan, with an adjustable rate that will go up to 10% in the next 3 years, and within 5 years there is a balloon payment and the entire balance is due. But I don't care, I get a $1,000 bonus for selling this particular product".

Borrower SHOULD HAVE SAID "This loan sounds too good to be true . . . "

Bank really doesn't care about the borrower or their ability to pay, because they will sell the loan to some other company within 3 months.

Borrower thinks the whole thing is reasonable since her cousin, sister, or co-worker just got a fancy new house this way. They seem fine, and their new home is so pretty, so why not?

ETA: Mozo is right, these people are professionals, what reason would you come up with not to trust them? At the time, we all trusted them. It is this hindsight that is 20-20, not the foresight of 2002-2008.

I'm sorry, but the scenario above is unrealistic on so many counts.

I'd bet a HUGE sum on the fact that most people WERE told exactly those things.....and didn't freakin listen because they fell in love with the idea of buying their heart's desire. Sorry, but the immediate gratification conditioning began LONG before the mortgage crisis; the mortgage crisis was just one of the more recent manifestations of it. The courts are FULL of people who stopped listening after they heard one thing they wanted to hear and tuned out all the disclaimers because hey, we can always cry "waaaaaah, we didn't KNOW that" later as a way to get out of something that doesn't roll our way.

But even if they weren't.....do you blame the car dealer when the car doesn't run because he didn't expressly tell you to plan on $50 per quarter to change the oil and to make sure you have $1K set aside for 30K-schedule maintenace period if you plan to keep the car that long? Is he also required to tell you that if you drive like an idiot and get speeding tickets you'll be required to pay them yourself? And if he doesn't tell you, do you blame the dealership for the tickets/maintenance and ask them to pay for them because they weren't doing their job to MAKE SURE you knew what you were getting into? If you're stretching your budget to afford a luxury car, is he obligated to tell you that it usually costs significantly more to replace parts on a luxury car than on a standard family sedan?

These people are professionals, so what reason would I come up with not to trust them? I can think of a real simple one - I'm the one who'll be PAYING that mortgage, Mr. Broker, and not you, so I'll be the one deciding what I'm comfortable affording/paying. If that causes you concern, let me know NOW so I can find another broker."

Are you prepared for what can happen if we start placing the burden for buyer ignorance on the shoulders of the lenders? I can just envision it now....in addition to FICO scores and paystubs, you'll have to submit your most recent IQ results before they'll lend to you so the broker can prove you were smart enough to know what you were getting into.

 

[Missy]

if there were equity in these homes people wouldn't walk away. i have never heard of people defaulted on a loan with equity in their home.

While I cannot say that this statement is 100% true I can say that it is less likely for someone who has more money in their home to walk away. It is much easier to do so when you have little or no money down. By putting more down you are making it safer all around...for the banks and for you because you are borrowing less.

I can hardly believe some of the statements being made here. This is what I mean by passing the buck so to speak. People should accept responsibility for their actions instead of looking who else to blame. I cannot believe anyone here, as a homebuyer would trust a banker/mortgage broker/real estate broker and do less research in what it takes to purchase a home than you would in purchasing a diamond. I mean, really?

We are all imperfect and we all make mistakes. And I have obviously touched some raw nerves in my posts here. I will have to preface everything I write here with in my opinion.

IMO the more you put down and the less of a mortgage you take the better all around. For some reason when I said 25% that really hit a nerve but that is my opinion and I have every right to express it. I am in the NYC market and where we live (co-op) there is a 25% rule and for good reason. And we are the most financially stable building in our neighborhood. It was one of the things that attracted me to this building in 1995 when I moved there. And we have since sold the first apt there and moved into a larger one. And the financials are still strong despite the recession and despite other bldgs around us experiencing difficulty. Of course that is not the only requirement and being on the board I can say all the requirements are very fair but also tough and with good reason. Tough requirements make it a safe purchase and make it safe for the whole community. Should co-op owners start defaulting it would have a ripple effect on the other shareholders. Now if we extrapolate that to the state and then the country etc well you can see why being tough is not a bad idea. At least In My Opinion


IMO do your research before purchasing and only buy a home that you will love and in the area you will love being because you might be there forever.

IMO make sure the monthly payments won't be a hardship g-d forbid you or your dh lose your job. Sure you can make it on 2 incomes, but can you make it on one?

IMO Do *not* take out as much of a mortgage as the bank is willing to lend. The bank was happy to offer us two times what we ended up taking as a mortgage and that was before we sold our beach house so we would have had 3 mortgages. I can tell you with 100% certainty had we done that we would be up the creek at some point in the future.

IMO Always have a backup plan should financial hardship arise. If the last 2-3 years taught me anything it was that you can never have too much money in reserve. Seriously. We have been financially very conservative and it served us well when the recession hit, because it did hit us hard.

IMO We cannot always get what we want and must be realistic. No one deserves to own a home- you must earn that privilege. And it is a privilege. Not a right.


I will say that when I said 25% down payment should be a requirement I didn't mean it as literally as I said ...I meant that it would be a good idea to put down 25% at least but I did not mean to say that if you cannot put 25% down but you are good in every other area financially to make a purchase that you shouldn't make that purchase. I never meant it as black and white as it came out. If you can easily make the monthly payments including insurances taxes etc then great but you cannot put 25% down put as much down as you can comfortably. I did not mean to make a blanket statement that it is 25% down or nothing but I did most definitely mean it when I said I think it is better to put down more than less. And I picked 25% down because that is the requirement here where I live and it has worked well for all these years- no one has ever defaulted on a loan in my building and it is not a small building.

Please don't make this personal. I assure you I have no desire to make it personal and I was not/am not attacking anyone. Let's keep this cordial and allow others points of views to be expressed. I, for one, am not trying to change anyone's mind but am just stating my points of view on this matter.
And that's all folks

 

[Dancing Fire]

I should have added......sure, most people want to achieve the american dream of homeownership, but simply wanting it doesn't absolve the consumer of the need to make sure he can afford it. That's really the heart of MANY of our problems these days - people want instant fulfillment of their wants even when they can't afford them.

I *want* a second home in the SF Bay area because I love it there and it would be a dream for me to have a place there, too.....but that doesn't mean I should disregard whether or not I can afford it. If I could get a lender to give me a loan for that tomorrow but I couldn't comfortably pay the monthly mortgage (which I couldn't), I wouldn't say to myself "well, the lender is willing to offer it to me so HE must think I can afford it" and proceed.

I have a girlfriend is (and has been several times in the past) in $$ trouble because she makes purchases based on the "I deserve this and I'm at an age where I should have it" thinking but doesn't consider whether or not she has enough discretionary income to fund them. Her present debt is about equivalent to a year's gross income and there is no way she'll be able to pay it off.

Wanting and being able to pay for are often very divergent things.

this is the first time that i ever agree with Alj or maybe the second time... hmmm, maybe i should buy myself a brand new $150K BMW drive it for a couple of months then hand the keys back to the bank.

 

[Dancing Fire]

It is this hindsight that is 20-20, not the foresight of 2002-2008.

not hindsight...even a dummy like me can see this train wreck coming. i posted this sentence on PS in 2006 ... "within the next couple of yrs we will witness the biggest mortgage default in history"

 

[ksinger]

Here is how it happens that a person, who is responsible and trying hard, gets talked into borrowing too much:

Mortgage Broker "With this $200,000 loan, your payments will only be $800 per month!"

Borrower "What's the interest rate?"

Mortgage Broker "Only 2%!"

Borrower "Great! Where do I sign?"

Bank SHOULD HAVE SAID "This doesn't include your taxes or insurance, it's an interest-only loan, with an adjustable rate that will go up to 10% in the next 3 years, and within 5 years there is a balloon payment and the entire balance is due. But I don't care, I get a $1,000 bonus for selling this particular product".

Borrower SHOULD HAVE SAID "This loan sounds too good to be true . . . "

Bank really doesn't care about the borrower or their ability to pay, because they will sell the loan to some other company within 3 months.

Borrower thinks the whole thing is reasonable since her cousin, sister, or co-worker just got a fancy new house this way. They seem fine, and their new home is so pretty, so why not?

ETA: Mozo is right, these people are professionals, what reason would you come up with not to trust them? At the time, we all trusted them. It is this hindsight that is 20-20, not the foresight of 2002-2008.

I'm sorry, but the scenario above is unrealistic on so many counts.

I'd bet a HUGE sum on the fact that most people WERE told exactly those things.....and didn't freakin listen because they fell in love with the idea of buying their heart's desire. Sorry, but the immediate gratification conditioning began LONG before the mortgage crisis; the mortgage crisis was just one of the more recent manifestations of it. The courts are FULL of people who stopped listening after they heard one thing they wanted to hear and tuned out all the disclaimers because hey, we can always cry "waaaaaah, we didn't KNOW that" later as a way to get out of something that doesn't roll our way.

But even if they weren't.....do you blame the car dealer when the car doesn't run because he didn't expressly tell you to plan on $50 per quarter to change the oil and to make sure you have $1K set aside for 30K-schedule maintenace period if you plan to keep the car that long? Is he also required to tell you that if you drive like an idiot and get speeding tickets you'll be required to pay them yourself? And if he doesn't tell you, do you blame the dealership for the tickets/maintenance and ask them to pay for them because they weren't doing their job to MAKE SURE you knew what you were getting into? If you're stretching your budget to afford a luxury car, is he obligated to tell you that it usually costs significantly more to replace parts on a luxury car than on a standard family sedan?

These people are professionals, so what reason would I come up with not to trust them? I can think of a real simple one - I'm the one who'll be PAYING that mortgage, Mr. Broker, and not you, so I'll be the one deciding what I'm comfortable affording/paying. If that causes you concern, let me know NOW so I can find another broker."

Are you prepared for what can happen if we start placing the burden for buyer ignorance on the shoulders of the lenders? I can just envision it now....in addition to FICO scores and paystubs, you'll have to submit your most recent IQ results before they'll lend to you so the broker can prove you were smart enough to know what you were getting into.

Oh, I think you might be more wrong about that than you think. This is an excerpt from the Financial Crisis Inquiry Commission report published just this January. The conclusion section. Worth a read. I do not give borrowers a pass at all, but even this commission singles out the top people as worthy of special opprobrium, which is the position that some of us in this thread have been taking all along. Any emphasis is mine, but you can read the whole conclusion section and find your own angle. Here's the link.

http://c0182732.cdn1.cloudfiles.rackspacecloud.com/fcic_final_report_conclusions.pdf


CONCLUSIONS OF THE
FINANCIAL CRISIS INQUIRY COMMISSION

For example, our examination found, according to one measure, that the percentage
of borrowers who defaulted on their mortgages within just a matter of months
after taking a loan nearly doubled from the summer of 2006 to late 2007. This data
indicates they likely took out mortgages that they never had the capacity or intention
to pay. You will read about mortgage brokers who were paid “yield spread premiums”
by lenders to put borrowers into higher-cost loans so they would get bigger fees, often
never disclosed to borrowers. The report catalogues the rising incidence of mortgage
fraud, which flourished in an environment of collapsing lending standards and
lax regulation. The number of suspicious activity reports—reports of possible financial
crimes filed by depository banks and their affiliates—related to mortgage fraud
grew 20-fold between 1996 and 2005 and then more than doubled again between
2005 and 2009. One study places the losses resulting from fraud on mortgage loans
made between 2005 and 2007 at $112 billion.
Lenders made loans that they knew borrowers could not afford and that could
cause massive losses to investors in mortgage securities. As early as September 2004,
Countrywide executives recognized that many of the loans they were originating
could result in “catastrophic consequences.” Less than a year later, they noted that
certain high-risk loans they were making could result not only in foreclosures but
also in “financial and reputational catastrophe” for the firm. But they did not stop.
And the report documents that major financial institutions ineffectively sampled
loans they were purchasing to package and sell to investors. They knew a significant
percentage of the sampled loans did not meet their own underwriting standards or
those of the originators. Nonetheless, they sold those securities to investors. The
Commission’s review of many prospectuses provided to investors found that this critical
information was not disclosed.THESE CONCLUSIONS must be viewed in the context of human nature and individual
and societal responsibility. First, to pin this crisis on mortal flaws like greed and
hubris would be simplistic. It was the failure to account for human weakness that is
relevant to this crisis.Second, we clearly believe the crisis was a result of human mistakes, misjudgments,
and misdeeds that resulted in systemic failures for which our nation has paid
dearly. As you read this report, you will see that specific firms and individuals acted
irresponsibly. Yet a crisis of this magnitude cannot be the work of a few bad actors,
and such was not the case here. At the same time, the breadth of this crisis does not
mean that “everyone is at fault”; many firms and individuals did not participate in the
excesses that spawned disaster.

We do place special responsibility with the public leaders charged with protecting
our financial system, those entrusted to run our regulatory agencies, and the chief executives
of companies whose failures drove us to crisis. These individuals sought and
accepted positions of significant responsibility and obligation. Tone at the top does
matter and, in this instance, we were let down. No one said “no.”

 

[Allison D.]

Ksinger, what I read in that report doesn't suggest that lenders didn't tell borrowers that their ARM loan would go up or that after the i/o period, their rate would jump to prime +(pick a number). This appears to imply that most of the withholding from BORROWERS was related to fees, i.e. closing/doc, etc......FEES, not consequence of variable interest rates or ARMs. i don't know HOW that couldn't possibly be disclosed since it's all over the blessed paperwork at time of signature (or at least it was in my case).

The entire second paragraph you bolded (and in fact most of the report) doesn't have anything to do with duping consumers; it's about duping investor groups to offload the high risk loans. The duping came from the thinking that "if I end up with too much risk, I can just offload it to the next guy (investor)."

 

[Allison D.]

if there were equity in these homes people wouldn't walk away. i have never heard of people defaulted on a loan with equity in their home.

While I cannot say that this statement is 100% true I can say that it is less likely for someone who has more money in their home to walk away. It is much easier to do so when you have little or no money down. By putting more down you are making it safer all around...for the banks and for you because you are borrowing less.

In a *normal* market, yes, BUT downpayment doesn't translate to equity when the market tanks. Buy a house for $400k, put down $80K and finance the other $320k. Then the market tanks, house prices begin to self-correct, and the house you just bought for $400K is now only worth $300K. Your "equity" just evaporated, AND you're in the hole another $20K. You now can't sell out from under it to stem the loss because you're underwater on the loan, not to mention that even if you could you'd have to incur broker's fees too.

If you decide to stay in the loan, you're paying interest based on $320K (80% of $400K) instead of based on $240K (which is 80% of what your house is now worth post-crash). Over the life of a 6%, 30-year fixed rate loan, that means paying up to $92K additional in interest, so add some or all of that to the potential losses if things don't turn by the time you need to get out.

The above group represents those who actually chose to walk away on their loans. The other major group are those who desperately *didn't* want to walk away, but had no choice because their payment doubled in 3 or 5 years and they simply couldn't make enough income to repay the higher payments. Those people just plain had no choice and were forced out, whether they put down 5% or 20%.

In either case, I don't see how putting down 20% versus 10 or 5% had any relevance to the outcomes.

 

[Allison D.]

IMO the more you put down and the less of a mortgage you take the better all around. For some reason when I said 25% that really hit a nerve but that is my opinion and I have every right to express it. {/quote]

I fully agree with you on this, Missy, BUT it's also important to expect that those who disagree with it also have every right (and may exercise it) to voice their dissent. That should be expected in an open discussion.

[I will say that when I said 25% down payment should be a requirement I didn't mean it as literally as I said ...I meant that it would be a good idea to put down 25% at least but I did not mean to say that if you cannot put 25% down but you are good in every other area financially to make a purchase that you shouldn't make that purchase. I never meant it as black and white as it came out. If you can easily make the monthly payments including insurances taxes etc then great but you cannot put 25% down put as much down as you can comfortably. I did not mean to make a blanket statement that it is 25% down or nothing but I did most definitely mean it when I said I think it is better to put down more than less. And I picked 25% down because that is the requirement here where I live and it has worked well for all these years- no one has ever defaulted on a loan in my building and it is not a small building.

Please don't make this personal. I assure you I have no desire to make it personal and I was not/am not attacking anyone. Let's keep this cordial and allow others points of views to be expressed. I, for one, am not trying to change anyone's mind but am just stating my points of view on this matter.
And that's all folks

It's good to know you didn't mean this as black and white because it did most assuredly come out that way, but I think what people most reacted to was the judgment that others who don't share your opinion are exhibiting financial irresponsiblity.

For what it's worth to you Missy, I don't feel these comments were personal to me and I didn't take them personally. I used my example as just that - an example to help illustrate the math, but I'd have felt just as passionately about my dissent even if I was sitting here as someone with no mortgage or someone who put 20% down. What stirred my pot was the implication that there's only one right way (regardless of which side I fell to) because to me, *that* is among the most dangerous thinking around....the suggestion that one size should fit all and anyone who doesn't drink the kool-aid is somehow irresponsible/ignorant/insert adjective here. I'm not trying to change anyone's mind either; just expressing my own points of view.

 

[Dancing Fire]

[quote="Allison D.

In either case, I don't see how putting down 20% versus 10 or 5% had any relevance to the outcomes.[/quote]

yes it does Alj...requiring more d/p would of eliminated those 0 down speculating buyers w/o those speculating... home prices then would only increase at a normal pace = no inflated bubble.

 

[Allison D.]

[quote="Allison D.

In either case, I don't see how putting down 20% versus 10 or 5% had any relevance to the outcomes.

yes it does Alj...requiring more d/p would of eliminated those 0 down speculating buyers w/o those speculating... home prices then would only increase at a normal pace = no inflated bubble.[/quote]

DF, I know we've covered this ground before, but I'll again say that there's a HUGE spread between allowing 0% downpayment and requiring no less than 20% down. 0 and 20 are both extreme ends of the spectrum, and I believe there's lots of room in the middle there to get responsible buyers into loans they CAN comfortably afford without taking on undue risk or promoting the bubble effect.

 

[Dancing Fire]

[quote="Allison D.|1299655215

DF, I know we've covered this ground before, but I'll again say that there's a HUGE spread between allowing 0% downpayment and requiring no less than 20% down. 0 and 20 are both extreme ends of the spectrum, and I believe there's lots of room in the middle there to get responsible buyers into loans they CAN comfortably afford without taking on undue risk or promoting the bubble effect.[/quote]

Alj
true...i guess the 20% d/p will always be stuck in my head cuz that's what our bank wanted as d/p,plus we didn't want to pay PMI. it was very hard for us to borrow money back in 1987 b/c wife and i were young kids with no credit history.

 

[Trekkie]

DF, I know we've covered this ground before, but I'll again say that there's a HUGE spread between allowing 0% downpayment and requiring no less than 20% down. 0 and 20 are both extreme ends of the spectrum, and I believe there's lots of room in the middle there to get responsible buyers into loans they CAN comfortably afford without taking on undue risk or promoting the bubble effect.

Alj
true...i guess the 20% d/p will always be stuck in my head cuz that's what our bank wanted as d/p,plus we didn't want to pay PMI. it was very hard for us to borrow money back in 1987 b/c wife and i were young kids with no credit history.

It's not always necessary to put down 20%. Years ago I bought an option on a plot in Oubaai, the Ernie Els designed golf course. I put down ZAR10 000, nowhere near 10% (nevermind 20%!!!) but it was the minimum required by the developer. Two years later I sold the plot for ZAR340 000. Today I'm kicking myself because those plots go for ZAR900 000+.

It is possible to buy responsibly without putting down 20%.

Look into new developments. Often one doesn't need a wacking great deposit.

When I bought my first house I was a kid (18!!!) with no credit history. But I had a deposit, because I had worked from a young age and saved my money. I didn't waste it on new cell phones and pretty clothes.

How many 18 year olds are able to do that? How many 28, or 38 year olds?!

I don't know any. They're too busy buying designer handbags and iPhones and iPads.