Vent: Bailing out mortgage holders getting out of hand?

[Anonymous]

I think one thing that we have to keep in mind is that a lot of these people that are stuck in ARM loans are stuck because 2-3 years ago when they got the loan @ maybe 4.5%..the LO or broker told them that "as long as you refi into a fixed rate before the loan adjust, you'll be fine and can still afford your home ...just make sure you make your payments on time" but what those homebuyers didn't take into consideration is that maybe just maybe I may not still be able to qualify for a fixed loan when that time comes around.....so all of these homebuyers are in this situation because banks was looking at their overall credit history and not just  the last 10-12 mortgage payments they were banking on to be able to refi.....

[teton]

I'm sure this is a common scenario, gloc2. It's exactly what happened to my cousin. I just don't buy it as an excuse to expect a bail out when you get into trouble. I saw interviews with two people who had gotten into difficulties with their mortgages. One admitted she heard a little voice that told her not to do it, but she did it any way. I give her kudos for acknowledging her share of the fault. The other blamed it all on the lenders.

I saw a recent post where someone said their spouse had recently gotten laid off and they were wondering if their income before the layoff could be included when they apply for a mortgage in order to get approved. If you need the income in order to qualify, then wouldn't you also need it in order to make the payments? Misrepresenting income on paper seems like one route to the problems we are having now. What happens if they don't go back to work soon?

I guess I'm bitter because I could've bought the house I wanted eight years ago but had to put it off because it didn't make sense to me either short-term or long-term. I feel like I am the one being penalized because I chose not to get in over my head. Give the rest of us 4.8% like they are giving those that need bailing out and I would see it all as fair!

Message Edited by teton on 10-11-2008 05:20 PM

[MattH]

My wife and I stayed in a tiny rental (the kitchen was smaller than either of our current bathrooms) for YEARS saving for a downpayment because we didn't want to risk being upside down if the market dropped.  We bought in 2002, and even now we could probably sell it for more than we paid, not that we plan on selling.  Even if I did get laid off, we have sufficient reserves in various forms to go quite a while before things get desperate.  During the boom years we figured bad times would come sooner or later, and we therefore made preparations.

I'm in my late forties so have no first-hand knowledge of the Great Depression, but unlike a lot of people I have listened to my parents, who experienced Depression and WWII (Dad celebrated his 19th birthday on Saipan). 

Now it looks like my tax dollars are gonna pay for a lot of folks who were less prudent.

[Anonymous]

Some of these people who are being affected by this mess really did buy modest homes and didn't realize that they couldn't afford it or that they would be hit with circumstances that would prevent them from being able to refinance, but you know what...

MOST of them went out and bought 3000 square foot homes for a family of 4, with all the available upgrades bells and whistles and THEN went to the furniture stores that were offering the 0 interest 0 payments til 2007/08 and filled their homes with thousands of dollars worth of "temporarily free" furniture. Then they realized HEY since my house payment is so small and my furniture loans aren't due for another 3 or 4 years Im going to go ahead and buy everyone in the family a Lexus because surely we can get those paid off before the other loans come due.

Its ridiculous and now the government steps in like some big spoiled brat rich parent and says "awwww my poor little baby bumped their head and can't pay their loan... here is $7 billion does that make you feel better?"

Mean while all of us red headed stepchildren (i.e. those of us who have sat around for the past 6-7 years rebuilding our credit, paying down debt and saving up down payments - those of us who were waiting until we could actually afford to buy a home the right way) we get screwed again because now the requirements for getting a loan have gotten stricter, minimum credit scores needed are higher, down payments required are bigger and we are in the same position were were in  6-7 years ago sitting right under the surface of being able to qualify for a mortgage meanwhile those who jumped the gun, bought more than they could afford and used subprime loans are once again sitting fat in their 3000 sq ft mansion with the Lexus out front and instead of being punished they are being rewarded with extra low interest rate so they can afford to pay their loan.

I don't care what angle you look at it from or who's fault you say it is... from my perspective it just isn't fair.

[MattH]

I think a lot of people made the mistake of comparing rent payments to mortgage payments, forgetting that owners have to pay for a lot of stuff that's included in the rent.  Here are just a few of the things my wife and I have had to buy in six years:

Furniture

A/C Compressor

Hot Water Heater

Toilets

Furnace

Dishwasher

Range

I have no idea what surprises the next six years might bring, but it would be a MAJOR surprise if things were suddenly to stop breaking. 

A prospective home owner should talk with friends and relatives to get a realistic estimate of what ownership will cost, including the loan payment, insurance, taxes, possibly Homeowners Association Fees, utilities (yes, some renters pay those, but a bigger place will cost more to heat and cool), maintenance, and so forth.  Figure out what you might spend on ALL costs associated with the house for the first five years you live there, plus some room for surprises.  Divide this five-year number by 60 to get your estimated monthly cost of home ownership.

Now, look over your last year of rent and whatever utilities are not included in your rent. Divide the annual total by 12 to get your current monthly cost of housing.

Open a new savings account.  Every month, deposit into that account the difference between current housing cost and projected cost of ownership.  If you find it difficult to do that each and every month without fail then you have learned something important before learning it the hard way.

[teton]

Good advice, Matt. That's exactly what I did eight years ago. I was putting money into an account to cover the difference between my cost of living as a renter and what it would be as an owner. It became obvious that I would really be scrimping to make the mortgage payment if I bought a bigger place. I'm glad I didn't do it. I've had things happen over the last few years that would've put me in a bad situation financially if I was paying the higher mortgage.

[Anonymous]

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BobSki778 wrote:

I guess it all comes down to how you define "buying within your means".  In my book, that's buying small enough that you can afford to make the payments under some reasonably bad-case scenarios (temporary loss of job, economy tanking, etc)

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DW and I have been keeping an eye on things for several months, and have just started looking around with a realtor these past couple weeks.  We're preapproved for an amount that we know we won't come anywhere near spending in this current market.  As a matter of fact, one of the properties we went to look at on Thursday had a $10K price drop between when the realtor printed off the disclosures that morning and when we got there to look it over in the afternoon.  It's down about $25K from when it was first put on the market this summer.  Another property that we're going to see Sunday afternoon has come down from about $135K in the early spring to $99K now.

Two years ago, we likely would never have been able to even consider these properties, had they been on the market and had we (and our credit scores) been in a position to buy.  Now, we know our payments will be less than what we're paying to rent our tiny apartment now.  If something happened to one of our jobs, we'd still be able to very comfortably make the payments.  If something happened to both of our jobs, we'd still be able to make the payments without dipping into reserves, though it would be stressful.

I reckon that most people for the next decade or so will be crunching their numbers very conservatively when it comes to buying a home with a mortgage.  Then they'll start to forget, and we'll start to see prices get ahead of themselves again.  But for now, DW and I are very happy that we're going to have a much better quality of home than we had dreamed of when we married five years ago.  It's too bad the folks who are trying to sell when we're looking to buy may be coming out worse than when they bought their homes, but in the end, they will be better off for selling to us now than waiting.  (We also have another issue depressing housing prices in our area, since a local military base is going into mothballs over the next few years.)

That's the ingenuity of the free market system:  no transaction takes place unless both parties feel they are better off making it happen.

[MattH]

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@Anonymous wrote:

I think we need to blame the mortgage companies who were giving people loans.  People do make bad choices, but you can't just blame the home owners.

My neighbor just lost her home to foreclosure.  Her husband was ill and from day one she called the mortgage company to work with her and they refused.  She even got 3 jobs to try to save the house, but didn't help.  She is now a widow with 2 kids trying to find a place to live.  So what bad choice did she make?

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I am deeply sorry your neighbor is in such a position, but why didn't her husband have life insurance and disability insurance? Should I become disabled or my wife suddenly become a widow she will no doubt face many difficult problems, but lack of money won't be one of them!

All who read this: if your income is needed by another person or persons and you don't have life insurance, get some right away.  And if your employer does not provide long-term disability coverage then you need that as well.

[Anonymous]

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@MattH wrote:

if your income is needed by another person or persons and you don't have life insurance, get some right away.  And if your employer does not provide long-term disability coverage then you need that as well.

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These are probably the cheapest policies you'll ever get, especially through your employer.  I think it's about the cost of a value meal per month for tons of coverage.

[Anonymous]

yes, i'm a single mom in the process of buying my first home.....but i have always cover myself since my daughter was born.  i have life insurance polices on my dog, my daughter and myself including renters insurance and knowing that i'm a single wage earner i also have disability insurance through my job's union and a private one and i spend less than $100.00 a month for all of them.  I believe when you become a homeowner single or married you have to cover all basis and i knew of a lot of homebuyers during the crazed market that didn't cover themselves and even today their comment is always can't afford it..  i believe that it should be included in your DTI when your purchasing.  i look at it like this if lenders require you to pay PMI to cover their investment...why in the world wouldn't you as a homeowner not cover your investment by purchasing any and every policy that will assist you if needed!