American Dream Rant.....

[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