American Dream Rant.....

[SkyPup]

And let us not forget all the millions of these bimbos that refinanced their mortgages to pay off their credit card debit - two bad financial decisions do not make one right!

 

[turnkey4099]

It is the fault of the people who default on loans of any kind. Yes, there are exceptions due to disasters of some kind but they are the exception. The credit is out there but noone is holding a gun to their heads.

Just hand around a car dealers showroom and see them turning deals for 6 and 7 year loans to pay for a car. That is idiocy! If you can't afford cash or at leat a downpayment to bring it down to 3 years with reasonalbe payments, you don't belong in that car. I worked in a Sheriff's office and watched kids coming out of college, get a deputy job and show up two days later with a spanking new SUV. They may have a degree but they sure don't have any financial smarts.

As for houses? Seems it is a case of conspicuous consumption and 'keeping up with the Joneses'. Noone needs a 3000-4000 sq foot house. Even back in the 'big family' days with 8-12 kids per the houses weren't that big even in the 'rich' section of town.

Harry K

 

[KubotaSteve]

I have to put the blame on the people borrowing the money. Just because the bank says you can afford $xxxxx doesn't mean you borrow $xxxx. When we built our house I figured things up to what I could afford. The bank was willing to give me considerably more which I could have afforded if I got rid of phone, cable, cell phone, set thermostat on 50 dgrees, never go out to eat, have only one car, etc. I knew that my lifestyle wouldn't adjust so I made sure my payment was affordable to me. I think the old saying "Don't bite off more than you can chew!" fits this perfect.

 

[MossRoad]

But for how long will this trend last? The housing market is on a downhill slide and gaining speed fast. Here is a good read on the problem Safe Haven | US Housing Meltdown

I do think banks should take their share of the blame. After all, they're the ones that approves the applications. Then there's the greedy credit card companies. They almost shove credit cards down a person's throat. Then they whine, moan and groan when they have too much bad debt out. Let's not forget all the car manufacturers. No money down, cash rebates, 7 years to pay, no payments for 3 months...

If anything, housing will be more affordable with this trend. There is, believe it or not, a 40% housing vacancy rate in South Bend, Indiana. That means that if you drive up and down all the streets in this town, on average, four out of every ten houses that you pass are empty. There should be no problem finding a house to live in at an affordable price. The problems is, no one wants to start with a small, old house in the city. They want country or suburban living, a new car, big screen T.V. with surround sound, etc... all that material stuff that BobS already mentioned and they want it now. They don't know the meaning of earning something.

 

[mjarrels]

Glad I didn't have a job when I built this house... could'nt borrow much money.

mark

 

[BillyP]

I have to put the blame on the people borrowing the money. Just because the bank says you can afford $xxxxx doesn't mean you borrow $xxxx. When we built our house I figured things up to what I could afford. The bank was willing to give me considerably more which I could have afforded if I got rid of phone, cable, cell phone, set thermostat on 50 dgrees, never go out to eat, have only one car, etc. I knew that my lifestyle wouldn't adjust so I made sure my payment was affordable to me. I think the old saying "Don't bite off more than you can chew!" fits this perfect.

You're right in some aspects but when the bank sets there and tells a person he/she can afford it, that's a different story. There's a whole bunch of buyers out there that don't understand interest rates and how for instance an ARM loan works. That's when the bank should step in and explain things so that person can make a more educated decision.

Here's another good read. Foreclosure rates way up this year - Jan. 17, 2007

The part I especially agree with is Another contributor is that some lenders tried to maintain business in a slower market. To do that, some relaxed their underwriting standards, approving more marginal borrowers for loans.

I'm not in any way saying defaulting on a loan is OK. I'm just saying it wouldn't be such a problem if the lenders would do their job.

 

[ultrarunner]

In 1984, I paid $11,500 cash for a 720 square foot home in Oakland CA. This was the ONLY home I could afford since I lacked steady employment as a student.

I invited my Grandparents to take a look after Escrow closed. My Grandfather told my Grandmother he did not have the heart to tell me I would be money ahead if I would simply walk away and chalk it up as a mistake.

In the 70's Oakland had lots of abandoned homes that could be bought for one dollar with the agreement the new owner would repair and live in the home for 5 years. Unfortunately for me, the $1 homes had all been sold when I bought.

Today, that little home is worth $250k.


My view on lenders is contrary to many. I don't see "Stated Income" loans as a bad thing... for many, myself included, due to working a number of jobs after college and not having a minimum of 2 years with any one employer... a stated income/low doc lender made if possible for me to buy my second home.

Real Estate is cyclical and always has been. With greater risk comes greater reward and the possibility for loss. Traditional lending is based on a person working the same job/industry for a number of years and we know this is not today's reality.

 

[BobRip]

I agree there is some responsibility all around. However, the buck stops with the individual as he is the one who has to live with his own failure, unless the government bails him out and people start betting on that. I would love to see some better financial education in high school. I don't know what they are teaching in that reguard, but judging from the results it's not enough. I have heard of some churches teaching this and it might be a good opportunity for some of us to volunteer and educate young people about finances.

Remember there are thousands of people working for companies trying to find ways to help you spend your money. Most of our kids are not armed to defend themselves against these people and their well thought out techniques.

 

[Bob_Skurka]

In testimony to the Senate Banking Committee in September, Michael Calhoun, the President of the CRL, explained an example of the most typical sub-prime loan, known as a 2/28, with an "exploding ARM". Buyers can qualify for this type of loan if the original ("teaser") monthly payment is not higher than 61% of their after-tax income. At the end of two years, even without a rise in interest rates, the payment will typically rise to 96% of the purchaser's monthly income.

Reading stuff like this is just absurd. No doubt it is true. But why would any consumer with any level of common sense take out a loan like this? I'd have to suggest that the people taking out these loans are idiots and their greed is showing; they have thrown out common sense completely and exchanged it for a big house and the false appearance of wealth.

Further, just look at the debt load even at the beginning. The mortgage payment = 61% of their after tax income So for the sake of the arguement, a guy makes $100,000 per year, his wife makes $50,000, the combined income is $150,000. They pay 33% taxes (state/federal) so their aftertax income = $100,000. Of that income they are paying $61,000 per year in mortgage payments. OMG!!!

• Presume they pay $250 per month (average) for gas/electric.
• Presume they pay $80 for cable TV.
• Presume they lease a car at $350 per month and they own a junker free and clear.
• Presume they pay $70 per month for car insurance.
• Presume they pay buy 2 tanks of gas a week, 40 gallons at $2.50/gallon = $433 per month
• Presume they have 2 cell phones and a house phone and the three bills = $100 per month.
• Presume homeowners insurance = $1000 {$83.00/month}
• Presume property tax = $2500 (that is low in my area for a new construction) {$208.00/month}
• Presume they pay $500 per month for medical insurance (total for the family)

Total of Misc Bills = $2075 per month
Mortgage = $5083 per month
Total Payments = $7158

Total after tax income = $8,333 per month

Available spending money ~ $1175 per month

So if you factor in the fact that most people like to EAT, most of us do that a few times a day. . .
Then factor in that most people will eventually retire so they need to save for that day. . .
And most of us have a kid or two who goes to school we have to pay for books, activities, lunches, and clothes . . .
Oh and there is the cost of furniture . . .
And car repairs . . .

Now if they got a mortgage with a "teaser rate" and they don't change that mortgage pretty quickly, then they will face all sorts of financial doom when that mortgage rate changes. But hey, its the bank's fault for twisting their arms to build those 3000+sq ft mini-mansions.

You're right in some aspects but when the bank sets there and tells a person he/she can afford it, that's a different story. There's a whole bunch of buyers out there that don't understand interest rates and how for instance an ARM loan works.

Bear in mind many of these loans do not come from BANKS!!! Mortgage brokers do most of these types of sub-prime deals. They work with various mortgage companies to bring loans to buyers. These mortgage brokers are often fast talking hucksters, but never the less, people are doing really stupid things and are ultimately to blame.

I I would love to see some better financial education in high school. I don't know what they are teaching in that reguard, but judging from the results it's not enough.

My wife left a job as a private banker and became a high school teacher. She teaches accounting, business, computers, etc. She said they are FORBIDDEN from teaching simple household budgeting because it is a political hot potato. They are actually afraid that a teacher might teach that you should "donate 10% to your church" or something else that might be equally undesirable to folks in the ACLU.

 

[BillyP]

Reading stuff like this is just absurd. No doubt it is true. But why would any consumer with any level of common sense take out a loan like this? I'd have to suggest that the people taking out these loans are idiots and their greed is showing; they have thrown out common sense completely and exchanged it for a big house and the false appearance of wealth.

Further, just look at the debt load even at the beginning. The mortgage payment = 61% of their after tax income So for the sake of the arguement, a guy makes $100,000 per year, his wife makes $50,000, the combined income is $150,000. They pay 33% taxes (state/federal) so their aftertax income = $100,000. Of that income they are paying $61,000 per year in mortgage payments. OMG!!!

• Presume they pay $250 per month (average) for gas/electric.Presume
• they pay $80 for cable TV.Presume
• they lease a car at $350 per month and they own a junker free and clear.Presume
• they pay $70 per month for car insurance.Presume
• they pay buy 2 tanks of gas a week, 40 gallons at $2.50/gallon = $433 per monthPresume
• they have 2 cell phones and a house phone and the three bills = $100 per month.Presume
• Presume homeowners insurance = $1000 {$83.00/month}
• rea for a new construction) {$208.00/month}
• Presume they pay $500 per month for medical insurance (total for the family)

Total of Misc Bills = $2075 per month
Mortgage = $5083 per month
Total Payments = $7158

Total after tax income = $8,333 per month

Available spending money ~ $1175 per month

So if you factor in the fact that most people like to EAT, most of us do that a few times a day. . .
Then factor in that most people will eventually retire so they need to save for that day. . .
And most of us have a kid or two who goes to school we have to pay for books, activities, lunches, and clothes . . .
Oh and there is the cost of furniture . . .
And car repairs . . .

Now if they got a mortgage with a "teaser rate" and they don't change that mortgage pretty quickly, then they will face all sorts of financial doom when that mortgage rate changes. But hey, its the bank's fault for twisting their arms to build those 3000+sq ft mini-mansions.

Bob, you could say the same thing about the lender. Is their greed showing? Did they throw out common sense when they offered this loan to Joe Shmoe?

It only took you a few minutes to figure out this loan was a bad idea. It should take a lending institution even less?

I don't know where the size of the house came in but they're families out there that would sign anything for a place to call their own. Are they right? Are they wrong? Most likely they're wrong but it's sad to say most can't make an educated decision so I lay part of the blame elsewhere.

Bear in mind instutionhese loans do not come from BANKS!!! Mortgage brokers do most of these types of sub-prime deals. They work with various mortgage companies to bring loans to buyers. These mortgage brokers are often fast talking hucksters, but never the less, people are doing really stupid things and are ultimately to blame.

Is it kind of like the days of the loan shark? Not everyone has the education one needs.

My wife left a job as a private banker and became a high school teacher. She teaches accounting, business, computers, etc. She said they are FORBIDDEN from teaching simple household budgeting because it is a political hot potato. They are actually afraid that a teacher might teach that you should "donate 10% to your church" or something else that might be equally undesirable to folks in the ACLU.

That's a very sad thing. The ACLU could do some really wonderful stuff, if they didn't have the head stuck up their *** so far.

 

[ultrarunner]

Bob, I completely agree with your comments regarding Common Sense.

I can only add that traditional lending is based on Income and almost totally ignores assets. There are instances where a "Swing" loan makes sound financial sense... i.e. short term borrowing more than your "Income" would support because it would not make sense to liquidate long term assets.

Of course, if push comes to shove, the option to liquidate assets is available.

I know several wealthy people that have taken advantage of these 1 and 2 year "Teaser" rates because they could. In every case these loans were repaid prior to the loan "exploding".

They may exist, but I have never come across a Variable Rate Adjustable Mortgage with significant prepayment penalties as opposed to Traditional Conventional Fixed Rate Loans which often have them.

I'm old enough to remember when many Non Traditional borrowers had little hope of qualifying for a home mortgage.

 

[Bob_Skurka]

I don't want to dominate this thread because there are some others who have made some excellent points, but I have one question . . .

I'm old enough to remember when many Non Traditional borrowers had little hope of qualifying for a home mortgage.

How many of these "non traditional borrowers" find themselves in that position because they chose to buy things like big screen TVs or a new car, instead of saving their money?

My dad taught me to pay my savings account before I pay anything else. So first money goes to savings, second it goes to pay my bills, food, normal expenses . . . whatever is left is what we have for recreation, vacation, etc.

 

[N80]

I can remember as a young man a loan or credit card application was a big deal. They wanted to know everything. They wanted to know who your parents were and where they lived. They wanted pay stubs, bank statements etc.

You can get a car loan or credit card now without much more than a driver's license and a signature. Home loans are now like car loans used to be.

So who's at fault? We are. We live in a culture of greed, irresponibility and instant gratification. I'm guilty too. I was far more cautious and frugal when I had far less money.

But there is no need to be searching for the blame. As someone mentioned in a different thread, Pogo the possum got it right when he said, "YEP, SON, WE HAVE MET THE ENEMY AND HE IS US."

As a nation we've had a big couple of decades. One of these days we will have to pay for it.

 

[riptides]

Yes, in some areas the commutes are very long and the prices are amazingly high, at some point people may realize that revitalizing city cores is an economical choice for housing. As far as size goes, the number of people living in a house has gone down. The square footage of their house has virutally doubled. Those are facts.

Well Bob, I am on the outside of our nations capital. I see a pretty good picture of "suburban" home constructions, inner city renovations, and country mcMansions. None of it is affordable. I don't how people have done it or are doing it.

Mike, put this whole thing into perspective. The sub-prime market is only a small fraction of the lending market. The forclosure rate is roughly 00.54% of the market. Those who pay late (30 days behind) is right about 5.00% of the whole market.


I believe you ane I are agreeing on many things, but we disagree on who is to blame. I blame the individuals who overextend, you blame the institutions who do the lending. But overall we both see the same problem, we just think it needs to be fixed differently.

So with that in mind, let's pose a similar question. Do American consumer's constant demand for cheaper goods drive their jobs to China, or do corporations move jobs to China to increase their profits and that puts American workers out of jobs? Chicken or Egg?

Good and valid points, Bob. I will not go into the China syndrome as it can be a topic all unto itself.

What still amazes me is the bankers cowering now as foreclosures are rising, due in no part to their own actions of raising rates. Especially in a slow market. Would it not make more sense for the banks to make mortgage money affordable? Thus possibly holding off on foreclosures?

-Mike Z.

 

[Bob_Skurka]

What still amazes me is the bankers cowering now as foreclosures are rising, due in no part to their own actions of raising rates. Especially in a slow market. Would it not make more sense for the banks to make mortgage money affordable? Thus possibly holding off on foreclosures?

-Mike Z.

I don't see the bankers cowering? Where is that happening? I see a few lending institutions (some are banks, some are insurance companies, some are private ventures) that underwrote some of these crappy sub-prime lenders (and again, many of those are not real banks, but are mortgage companies) that are putting the big hurt on the sub-prime lenders. The sub-prime lenders are in a world of hurt, because they are the ones who are writting all these crappy loans. (Again realize the default rate is 00.54% of the total mortgages, it is likely that it will continue to rise, but unlikely it will hit 1.0%)

Again, the banks are not the lenders for the vast majority of this stuff.

As for what makes sense? Heck I don't know. Then again, if I was a lender I would have never lent this money in the first place. There was just too much money going around. I know of private mortgage brokers who have been structuring these loans (they don't actually make them) and they earn upwards of $10,000 per deal they put together!

 

[riptides]

I disagree...

Housing here in Northern Indiana is still affordable if you are willing to move into an older neighborhood as a starter home. Buy a house for 50K when you are 20. Stay in it and pay it off by 30. Sell it and buy a 100K house and your payments stay the same. Pay it off by the time you are 40. Sell it and buy a 150K house, etc... you can move up to a nicer home every 10 years and your payments never go up. If you double your mortgage payment on the principle, you can do it every 5 years.

I'll agree in some areas of the country housing appears to be more affordable, but then you have to look at other factors like the job market.

Your method of progression seems sound, but would NOT work in my particular area. Affordable housing is a very hot topic in and around some of the counties I live in.

I also think people in their forties today have had more than their share of job, financial, medical and family related issues than those in their sixties and seventies. What I am saying is the days of living in one place for ten years, having a single employer for life, getting a pension from your employer, and having decent medical insurance are not a common core part of this generation. Thusly they would effect negatively on trying to move forward in your progressive scenario.

-Mike Z.

 

[Highbeam]

I am young enough to have been offered, been preapproved, for home loans far exceeding my comfort level. I have seen family and friends declare bankruptcy depsite having a steady job. Overspending and the credit card are almost always to blame. Luckily, I made some good choices and am in a good place now but having just been in the real estate market I am here to tell you that it isn't necessarily a 4000 square foot mansion that is to blame. Even modest 1500 SF homes in many regions will put a middle class earner into financial strain. The home values have risen so high and so fast that those folks who didn't purchase a home and ride this wave of rising values will not be able to purchase a home without risk of overextending.

I totally blame the consumer who takes advantage of interest only loans, 0% down payment loans, or adjustable rate loans among the many other seemingly great deals. It is time folks take responsibility for their own decisions. In school, the whole concept of budgets and living within your means was totally skipped for my generation. They taught us how to count money and even balance a checkbook but not how to manage spending.

For me, it was a good parent that passed on a few good lessons. It sounds like a common path to success that starts with good parenting.

 

[DUMBDOG]

Purchased my first house at 19 and a junior in college. Did not live in it but it was a duplex and I rented out both units and lived with my sister. When I married we moved into the upper unit and stayed there until we bought our present home. We have lived there for over twenty eight years. In the next couple of years we plan on building a home on some land that we purchased ten years ago, once we can afford to do it, in other words, pay mostly cash for the house. We also have a second home in Florida that we bought and rented out for short term rentals to tourists, that was not all it was cracked up to be so now it sits empty during the summer. They are all mortgage free except for a second that was used to purchase land for the gardening business and to cover operating low points in the rental business.

It all requires patience, timing and living well within your means. The biggest menace to the American dream is the real estate taxes.

 

[kenmac]

So, who is at fault ? I say the it's people that know they can't afford the loan but, the lenders share the blame also for telling these folkes & showing these folkes they can afford the loan so the person working for the lender gets their big check for getting these flokes approved. Doesn't matter if you can't pay utilities or put food on the table as long as they show them that they can make the loan payments.Where I live , there is a car dealer that is selling new cars for 0 down & only $99.00 per mo. the catch is that $99.00 is only for 90 days !

 

[HomeBrew2]

Personally, I'm hoping for interest rates to rise, defaults to occur, and a continued slumping (not crashing) real estate market. Being a "secondary market" lender involved in 1st trust deed interest only construction loans, I'm anxious to make more than my current 9%. Additionally, as in a bear stock market, default and slump are spelled "buying opportunity" according to my dictionary