*************************************************** If you got a conventional 30 year fixed mortgage, the fact that the house is now worth less doesn't mean you suddenly can't pay the mortgage. The people who are screwed, did it to themselves. They took out adustable mortgages, which in and of itself is not necessarily a bad thing. But they took out ones that had artificially low teaser rates, like 2%. In many cases they did this because they wanted to just pay the low rate for a year or two, then flip it and make a lot of money. Contrary to misleading media reports, this mostly isn't due to rising interest rates due to market forces. At the time they took the mortgage, they could have asked how much the payment would be if the mortgage were adjusted to the then current market rate. And the answer in most cases would have been 7%, not the 2% teaser rate. And now with rates having declined again substantially, the ARMs are coming down again. But they aren't gonna go back to the artificial 2% teaser rate.
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I was selling real estate a few years back when 'everyone' was buying a home. There were people who could not qualify for a home that were getting them. Gone was the 10% or 20% down and 30yr fixed mortgage. Most were 5% down, 80% first mortgage, and a new 10%-15% second mortgage, and they tack on some seller helped contribution.
Go back in the past few years and you will see a lot of no money or low money down home purchases. If something happens with a buyer's income, and the whole ball of string will unravel.
It was not uncommon to see a house listed for 100k sell for 107k as the seller would help with a 7k rebate to the buyer. Usually a house had some wiggle room to accept that contribution. Now give it to a buyer who already was on shakey ground, and they may not afford it later.
Had these same people just rented instead of trying to be a homeowner, they wouldn't be in a predicament witha $1k mortgage payment vs a $700 rent payment.
There were also plenty of the ARM stuff going. Basically you qualify for this, so why not get that bigger house you want now. You know in the next few years you are going to be making more with raises at your job, and your spouse is going to be going back to work or get a raise at their job, so you can afford a higher payment in a few years when the rate goes up. So let's get that fancier house!
Well, if your raises don't keep up with the inflation, or you decide with the extra money to go on vacations and buy a new car with the extra money each month since you don't have an extremely high mortgage; you will have trouble making ends meet when that time comes. Toys and vacations are a bad thing for those who 'think' they can do it later.
We are do it now society as opposed to living within our means. Does every house need a $2,000 plasma tv on a credit card? Does everyone person need a new car @ over $20k all the time? Record losses for the auto makers with the latest survey indicating that most cars in families are now 11 years old. Seems right. I have a 9 yr old truck, a 17 year old truck, and a 33 year old car to play in. All paid for and run fine, why buy a new car and go into debt?
I have seen interest rates on loans in the 20% and higher range. Nobody should do those. If you don't absolutely need it, do you need to go in debt to keep up with the Jones'?
In my opinion, I think the wording of a sub-prime mortgage being a 'crisis' is wrong. Banks and lenders gave those loans out knowing the full credit history on the borrower. They have full history on what it takes to own a home. Buyers know what they can afford and should have known they couldn't afford a house if something goes wrong with their finances. Both the lender and the borrower are at their own peril. The banks wanted a profit and risked it by lending money out that the normally wouldn't do; the buyers wanted a home now instead of waiting until they could really could afford it with a down payment large enough to keep the payment normal.
We are now in a time where most Americans will see 3 to 4 major job changes in their careers and your income will fluctuate during those transitions. Gone are the go to work at one company and retire from there. Most will be lucky to even see a company still be around in 30 years.
Wow, just some 2 or 3 cents into a conversation.....:0)
Tim