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.