Foreclosures... The bad and The worse

[phoenixgirl]

I have a friend, now a teacher, who worked for a bank. The mortgage person convinced her that she could be approved for a loan (although she wasn''t at first and the friend had to pull some strings), and she put in a contract on a condo. Suddenly, she realized she was in over her head, and a realtor friend helped her get out of it (they hadn''t provided her with the association bylaws in the stated time). She was so glad that she didn''t get into that fix. The mortgage person seemed to think my friend was ungrateful after all the trouble she had gone to, although that was partly what clued my friend in that she couldn''t afford this mortgage to begin with!

Why was the mortgage industry approving such high risk loans? That''s who I blame. Yes, people should make smart decisions, but a lot people thought that they were. My brother bought a condo in 1999 for $250k, and sold it in 2003 for $550k. When times are good, people can''t imagine that they won''t just continue to be so.

 

[fleur-de-lis]

Date: 9/23/2008 12:09:28 PM
Author:meresal
It seems that foreclosures are one of those things now that, ''Everyone knows someone who has experienced one, or has experienced one personally.''


With the new talks about more initiative to help these families in need, I thought sharing a few anonymous stories would be interesting. This is not political and only comes from the fact that I heard the most appaling stories this weekend from my sister, about two of her old neighbors in Nevada. How are they going to determine which families really need the help and which ones have ''made the bed they now lay in''?

If I had to take a guess (and presuming the eventual plan is based on rationality), I''d imagine the initiatives will involve refinancing homes with exotic terms into traditional, 30-year fixed. One of the hidden benefits is that in most non-recourse states, the non-recourse loans are for the initial purchase money order; once refinanced, a homeowner can no longer "walk away" and not be sued for the shortfall. Thus, a family that refinances will pretty much be forced to stay in the home. Even if they have to reduce loan amounts as a "carrot" to lure homeowners, in the end those homeowners give up something valuable if they live in a non-recourse state: the ability to walk away without being liable for the difference in a short sale or foreclosure (the "stick"). If more people are stuck in their homes and cannot simply "walk away" without bringing a BIG check to closing like they do now, there will be fewer foreclosures, fewer homes for sale to erode prices further, and the house price freefall should slowdown significantly.

Or so the idea goes.

f-d-l

 

[movie zombie]

we saw one mortgage broker 5 years ago when we bought this place that got all pouty and acted hurt when we rejected his good deal: no interest loan for the first 5 years and an ARM to boot. we didn''t go back. we did use another mortgage broker who also offered such a deal and wasn''t happy we didn''t take it [they make their $ by selling product] but didn''t get so upset when we insisted on our fixed 30 year loan. now mind you our credit scores were over 800, we had 20% to put down, and we could more than afford the 30 year fixed monthly payment for our jumbo loan. so why was the industry pushing these products at us? because they made lots of $ off them. they pushed them at anyone and everyone and given the pressure we experienced, i can understand why someone who really has dreamed of having their own home, didn''t have a down payment, etc. would succumb to the lure these people tossed out to them.

movie zombie

 

[fleur-de-lis]

Date: 9/24/2008 8:19:42 PM
Author: movie zombie
we saw one mortgage broker 5 years ago when we bought this place that got all pouty and acted hurt when we rejected his good deal: no interest loan for the first 5 years and an ARM to boot. we didn''t go back. we did use another mortgage broker who also offered such a deal and wasn''t happy we didn''t take it [they make their $ by selling product] but didn''t get so upset when we insisted on our fixed 30 year loan. now mind you our credit scores were over 800, we had 20% to put down, and we could more than afford the 30 year fixed monthly payment for our jumbo loan. so why was the industry pushing these products at us? because they made lots of $ off them. they pushed them at anyone and everyone and given the pressure we experienced, i can understand why someone who really has dreamed of having their own home, didn''t have a down payment, etc. would succumb to the lure these people tossed out to them.


movie zombie

I live in Southern California, so I''ve heard a lot of stories like this. A couple I know had 30% down (not easy in the genteel sections of LA), each had great jobs, and each had Tier1/high FICO scores, but they signed a no-DOC ("liar") loan. Obviously the broker received a greater kickback and they state quite assuredly that their terms and interest rate are identical to the loan they would have been given had they done a full-doc loan, but it does make one scratch one''s head.

 

[Beacon]

I agree it is confusing. Even some mortgage brokers themselves believed that their loans were fine and real estate was a sure deal. In 2005, we were considering buying a property and were talking to a lender who was selling the Option ARM, Pick a Payment, loan. It had potential neg am, the usual stuff. Those loans don't bother me cause I know how to deal with them as I have a finance background. But that's another story. Anyhow, the loan agent assured me, literally and I quote her, "don't worry, the prices only go up." She meant the real estate prices!

I did not want to embarrass her so I didn't say much. I've been around the block more than once and I knew better. What I realized is that she really believed what she was saying. She even had recently purchased a second property herself on that belief. She was not trying to con me or anything, she really did believe it.

It was remarkable.

 

[movie zombie]

yes, remarkable indeed.

i was working in REO when the savings and loan debacle went down and i learned enough to make me question everything and read everything.

movie zombie

 

[Beacon]

Date: 9/24/2008 10:31:19 PM
Author: movie zombie
yes, remarkable indeed.

i was working in REO when the savings and loan debacle went down and i learned enough to make me question everything and read everything.

movie zombie

This is the best advice!

I know that people don''t read the docs, but I also have to say that some docs are exceedingly difficult to understand. We refi''d 1.5 years ago into a 10 year interest only loan. After ten years it turns into an ARM. Even though I understood it, I gave it to my husband and told him to read every page. Poor guy! At the end I asked him to calculate how much our payment would be upon adjustment at the end of ten years, assuming rates stayed the same. He couldn''t figure it out at all. He was hopelessly confused.

He''s no dummy, he''s an Ivy educated software engineer. I took the docs and tried to walk him through their example, which was so badly written that I abandoned it and did the calculations myself. Frankly, given how bad the disclosure was, I don''t think many people w/o a finance degree (mine''s a double in finance and accounting) could understand it.

That is a large part, IMO, of how people got into trouble. Some didn''t read it, some couldn''t read it and some didn''t care what it said one way or the other as long as they got the house.

 

[Haven]

I don''t have any stories to share to vilify families who are in the very difficult process of losing their home.

But I do think that living beyond one''s means is an epidemic; at least, I see a lot of it among my generation here in Chicago.

I can share how shocked hubby and I were to learn how much mortgage brokers were willing to lend us when we started looking for our home. We ultimately decided that we only wanted to buy something we could afford on my salary alone, because my salary is nothing compared to hubby''s, so the payment is very comfortable for us and if I want to stay home when we have kids, we are confident that we''ll be more than comfortable with that. In fact, we don''t use a penny of what I earn to pay for anything, and that works well for us.

Our mortgage broker was shocked that we didn''t want to spend every penny we could on a home. Boy, am I glad we didn''t do that.