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Re: Foreclosure Land
Old 03-23-2007, 11:04 AM   #21
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Re: Foreclosure Land

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Originally Posted by justin
When you are right-sized out of your job (with no prospects of finding a new one), it's time to right-size your housing as well.

Let's say someone gets paid 1/2 of their previous income from unemployment insurance that lasts 6 months, and they had a few months expenses saved up. Plus they have credit cards to keep them afloat in a pinch. Wouldn't they be fairly well off for a while? Add to that scenario the fact that they can downsize expenses while they are laid off.
It's easier said than done. I witnessed Lowell, MA crash in 1990.
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Re: Foreclosure Land
Old 03-23-2007, 11:12 AM   #22
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Re: Foreclosure Land

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Originally Posted by justin
These buyers took a risk by buying a house. If they had made a few hundred thousand in a bubble real estate market, do you think we would be having discussions about how unfair it is for these same homebuyers to become unjustly enriched by their massive growth in equity?

If you buy a house with next to nothing down, and you end up owing the bank when you sell, then you got what you would expect to get.
Those folks don't have my sympathy. If they put nothing down they took a huge risk. What I'm saying is that because of loose lending, there will be a lot of forclosures which will lower property values significantly for others who may not even be able to sell because the market will be flooded with homes at below-market rates. It happened in Texas in the mid-80's and it is really tough for everyone. If I recall correctly, both Steve R and Charles lost a lot of equity in their homes in Texas. We lost a lot on rental properties despite a lot that we invested in them. (At least a 20 percent downpayment when we bought them). We could afford the loss and that's the price of poker, but for a lot of middle class and poor folks, it could be a disaster, even if they have decent equity in their homes and didn't buy with "nothing down".

Those are the people that I really feel for...



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Re: Foreclosure Land
Old 03-23-2007, 11:29 AM   #23
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Re: Foreclosure Land

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Originally Posted by justin
I'd like to see a story about a responsible borrower who is now in default/foreclosure. You know, someone who saved up enough for a real down payment of 20%. Bought a house with long-term payments (including taxes and insurance) no more than 25-30% of their incomes.

It seems like the trend was to buy as much as you can possibly afford and just cross your fingers that no one got sick or got laid off. Getting sick or getting laid off seem like things you can and should plan for. I don't know about others, but investing a day or two into analyzing "what-if" scenarios before you spend HUNDREDS OF THOUSANDS of dollars on 4 walls and a roof seems like a pretty darn good idea to me. If figure most people spend at least a day or two researching and shopping for their big screen HDTV's or jet skis. :

I'm just left with a big ole "glad it ain't my problem!" feeling.
Yeah, it's all those "what-ifs' that people don't/can't think of.

When I/we bought a house, I didn't think taxes'd go up high single digit percentages per year. Home insurance would increase by quite a percentage (still single digit?). The fuzzy math of the ARM isn't something I took much time to figure out, as far as what a 1% increase in interest rate means as far as re-amoritization, new payment/interest amount, etc. Somewhat "hidden" PMI magic, smoke & mirrors/bells & whistles, etc. The interest rate portion went from 4.0% to 6.0%. Overall, my payment has gone up 22% in 3 years.

I'm not complaining, my head is still well above water. I consider myself to be well above average intelligence (who doesn't). But, when you tell the lender you want everything explained to you and expect no less than thorough explanations... blah blah, and he goes on to say "oh I've got XX years of experience in lending"... but still falls flat on his face as a bad communicator, "hurry up and sign this" mentality, etc. Some of it was my/our fault and some was his.

Just when you think you have a handle on it, you still think, "should I run away from all of this?". Some of the time you can't even think of the right question to ask.

There's 100's (thousands?) of factors to consider. Who's fault should it be that people are stupid not taking time to consider everything? The lenders? I think not. Buyer beware, YMMV, and all that.

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Re: Foreclosure Land
Old 03-23-2007, 11:30 AM   #24
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Re: Foreclosure Land

The issue is too real and was brought about by corporate and individual greed. Many people wanted to jump on the home ownership bandwagon without paying the dues. The majority of foreclosures will NOT be people who managed their finances and did a proper down payment. How many of the folks got in a house and ran out to buy new furnishings for the new home? How many have 1 or 2 new cars in the driveway this week?

Think back in time and remember... 20% downpayment, stable employment, second hand furniture, driving old economical cars, getting a 2nd job to make ends meet (I thought that was like a meatloaf when a small child!), eating ramen and brown bagging our lunch, making do, wearing it out, and doing without, and sometimes renting out a room.

I remember doing most of these things and most of all "JUST SAY NO" (in regards to money spending) was not always a drug abuse slogan. That was the mantra of life when I grew up and is how I raised my children.

Think about those you know who have lost homes or filed BK... How many meals out a week, new cars, overstuffed closets, vacations and lattes?

This is a group who for the most part knows the old adages: A penny saved is a penny earned & Take care of the pennies and nickels and the dollars will take care of themselves.

Am I sympathetic to the Lenders? NO, I just hope my MF's are not too heavily invested in them.
Am I sympathetic to the borrowers? NO, experience is the best teacher and hopefully they will learn.

Some times in life you just have to pay your dues. I do not think I should pay more in taxes to bail out companies and individuals who made poor choices and now have a crisis.

Also, on Bloomberg some lending expert acknowledged this morning that some of the borrowers and their loans are aging (I believe that was the term he used), meaning they have managed to pay every month for the last 1 to 2 years and now are qualifying for more conventional loans at locked rates.
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Re: Foreclosure Land
Old 03-23-2007, 11:31 AM   #25
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Re: Foreclosure Land

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Originally Posted by BarbaraAnne
Those are the people that I really feel for...
I feel bad for everybody who loses their home. But that is the way the system works. I don't like some of the outcomes and I would like to see some gummint assistance to help them find alternative housing, but an orderly market demands that lenders be allowed to take collateral when loans go bad.
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Re: Foreclosure Land
Old 03-23-2007, 11:40 AM   #26
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Re: Foreclosure Land

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Originally Posted by brewer12345
I feel bad for everybody who loses their home. But that is the way the system works. I don't like some of the outcomes and I would like to see some gummint assistance to help them find alternative housing, but an orderly market demands that lenders be allowed to take collateral when loans go bad.
I agree with you. Unfortuately its not the person who gets the zero-down loan and loses his home that suffers. He throws back the keys to the lender and moves on. Just like those who run up credit card bills, file easy bankrupcy and get another credit card. No sympathy...no bailout. My comments have more to do with how it affects those whose homes lose a lot of value and who did put down the equity and are not going to walk their obligations. They are the ones who suffer as property values crater around them...through no fault of their own.
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Re: Foreclosure Land
Old 03-23-2007, 11:46 AM   #27
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Re: Foreclosure Land

I think you are seeing a confluence of circumstance in the 'rust belt'. Heavy and auto manufacturing is not the employment engine it once was. Homeowners with a mortgage who lost their jobs in these areas are in a jam whatever the interest rate. The market for homes in their community is zilch so they can't downsize or move without abandoning their mortgage.

Cleveland has tried mightily to revitalize. Medicine is a big industry there, but the impact of the departure of other industries just keeps grinding away. I know two professional couples there, both on the cusp of retirement. Their homes were dirt cheap by west coast standards when they bought them, I just hope they can sell when the time comes.
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Re: Foreclosure Land
Old 03-23-2007, 11:52 AM   #28
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Re: Foreclosure Land

DW and I experienced the Houston / Dallas bust of late 80s. Took out a $25k loan to sell our home. All toll lost $85+ k. Worked every hr of overtime I could to pay it off. Rented for 10+ yrs until we could afford a down payment again.

I certainly feel sorry for those in this situation, But I do not agree with the easy BK route of solving it.
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Re: Foreclosure Land
Old 03-23-2007, 11:59 AM   #29
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Re: Foreclosure Land

Quote:
Originally Posted by BarbaraAnne
I agree with you. Unfortuately its not the person who gets the zero-down loan and loses his home that suffers. He throws back the keys to the lender and moves on. Just like those who run up credit card bills, file easy bankrupcy and get another credit card. No sympathy...no bailout. My comments have more to do with how it affects those whose homes lose a lot of value and who did put down the equity and are not going to walk their obligations. They are the ones who suffer as property values crater around them...through no fault of their own.
Martha can comment, but it is never as easy and undamaging to the defaulting borrower as you seem to think. BK rules were changed recently and it is not easy or cheap to go BK. You also usually don't get much actual relief any more. And an awful lot of the zero down fols are people with families that will be out on the street. I do have sympathy for them. I just don't think they should blame the lender.
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Re: Foreclosure Land
Old 03-23-2007, 12:18 PM   #30
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Re: Foreclosure Land

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Originally Posted by justin
I think I'll call my credit union today to see if they'll knock a couple percent off the interest rate on my ARM. I don't really want to pay the exhorbitant rate that I agreed to 2 years ago. In the spirit of equity and fairness, I think I'm entitled to at least a 2% reduction for the rest of the life of the loan. :
You might be surprised. The Fed is basically telling banks to focus on "work-outs" instead of foreclosures, so they can do some damage mitigation in this mess. Massive foreclosures would be a disaster.

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Re: Foreclosure Land
Old 03-23-2007, 12:24 PM   #31
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Re: Foreclosure Land

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Originally Posted by BarbaraAnne
He throws back the keys to the lender and moves on.
I'm curious as to what this actually means? Throw back the keys to the lender? I thought it meant defaulting on your mortgage and subsequently your credit rating going down the toilet. Can you walk away without consequences as this term seems to imply?
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Re: Foreclosure Land
Old 03-23-2007, 12:29 PM   #32
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Re: Foreclosure Land

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Originally Posted by youbet
I'm curious as to what this actually means? Throw back the keys to the lender? I thought it meant defaulting on your mortgage and subsequently your credit rating going down the toilet. Can you walk away without consequences as this term seems to imply?
NOPE you pay for a long time on the default via your FICO score.
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Re: Foreclosure Land
Old 03-23-2007, 12:30 PM   #33
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Re: Foreclosure Land

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Originally Posted by brewer12345
But there is a basic level of personal responsibility required of adult Merkins. That includes understanding the terms of any financing agreements you enter into when you sign on the dotted line.
I think there is a real danger is doing bailouts all the time- the "Put" gets extended into more and more situations. But I also think that given this there is also a real responsibility for more government supervision for these businesses that can create such tragic personal devastation to people, and such instability in sections of the economy. Strict supervision should be linked at the navel with a slow hand toward bailouts.

As far as understanding what you sign, stop and think. Have you at times seen apparent difficulty understanding modestly involved issues even by people who were basically intelligent? Watch Jay Leno sometime when he goes out in the street to talk to people.

IQ was normed at 100; but the current population would not have a mean IQ of 100. One SD is 15; say the mean population wide is 93, a fairly optimistic guess. Since 2/3 of us are homeowners, there are people buying homes who could not understand the issues no matter how hard they tried! It could be explained to them by social workers rather than salesmen and they still could not understand what was really going on.

Consumer protection has gone to hell lately; and IMO the supposed remedy of going to court is a poor and inefficient one.

Ha
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Re: Foreclosure Land
Old 03-23-2007, 12:35 PM   #34
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Re: Foreclosure Land

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NOPE you pay for a long time on the default via your FICO score.
I think you also get a 1099 for whatever portion of the loan was "forgiven." The "gift" of forgiving the loan is taxed as income.
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Re: Foreclosure Land
Old 03-23-2007, 12:35 PM   #35
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Re: Foreclosure Land

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Originally Posted by wab
You might be surprised. The Fed is basically telling banks to focus on "work-outs" instead of foreclosures, so they can do some damage mitigation in this mess. Massive foreclosures would be a disaster.

link
Thanks for the link WAB

This is a good thing. The old adage for the lenders is 1/2 a loaf is better than none. Also good for the hardworking people who get a reasonable intrest rate. Good for the communities with less forclosures flooding the market to depress prices.

Sometimes a modicum of common sense breaks through!!!
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Re: Foreclosure Land
Old 03-23-2007, 12:40 PM   #36
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Re: Foreclosure Land

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Originally Posted by wab
You might be surprised. The Fed is basically telling banks to focus on "work-outs" instead of foreclosures, so they can do some damage mitigation in this mess. Massive foreclosures would be a disaster.
Maybe I should stop making tons of extra early payments, then skip a few months of payments. And move all my money out of my accounts there (so they can't exercise their right to offset against my assets). Cause I like paying less just as much as the next guy!

Seriously though, my CU typically offers to lower the adjustable rate rates if they are offering lower rates on new loans. I think they do the same with fixed rates. All you do is pay them $500 or $750 to "refinance" the loan at the lower rate. Not sure if you actually have to refinance it or not...

I could see workouts being more profitable than foreclosures. Getting at least something each month instead of having a ton of REO sitting on your books. Of course we all know that huge bureaucratic banks may not give their "work-out" folks the flexibility and authority to make good decisions for the company.
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Re: Foreclosure Land
Old 03-23-2007, 12:50 PM   #37
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Re: Foreclosure Land

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Originally Posted by wab
I think you also get a 1099 for whatever portion of the loan was "forgiven." The "gift" of forgiving the loan is taxed as income.
Yep. I've seen a couple of 1099's from credit card companies while doing my volunteer tax prep gig. The tax clients are none too happy to learn they owe taxes on debts that they thought were 'forgiven' and now behind them.

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Re: Foreclosure Land
Old 03-23-2007, 12:52 PM   #38
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Re: Foreclosure Land

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Originally Posted by crazy connie
Thanks for the link WAB

This is a good thing. The old adage for the lenders is 1/2 a loaf is better than none. Also good for the hardworking people who get a reasonable intrest rate. Good for the communities with less forclosures flooding the market to depress prices.

Sometimes a modicum of common sense breaks through!!!
Ultimately lenders are rational and want the best recovery they can get. If that comes from extensions, they will do it. But either way, it ain't good for housing prices.
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Re: Foreclosure Land
Old 03-23-2007, 12:55 PM   #39
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Re: Foreclosure Land

I learned in my tax law class that the threat of sending out 1099's for deadbeat borrowers is a very powerful tool. You, as a lender, may not be able to squeeze much out of a deadbeat borrower. But give that deadbeat a 1099, and then let the IRS chase them down for the taxes on it. It's relatively easy to slither out of paying your unsecured debts to private parties. It's a lot harder when the IRS comes after you.
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Re: Foreclosure Land
Old 03-23-2007, 01:32 PM   #40
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Re: Foreclosure Land

Risky lending--the lender side.
Default, foreclosure, economic and finacial distress are not good things for the individual suffering through them. They are good, however, as a part of our economic system. Risk. Risk that if you lend to a borrower who cannot repay you may have a default and you may have the property back. Risk that banks will no longer lend to you so that you can make riskier loans. Risk that your anticipated return may not materialize.
The government has an obligation to keep our economic system intact. It should be done by making sure the fully regulated institutions (i.e. banks) have sufficient liquidity to survive and to keep making loans to those with the ability to repay. It should not bail out every mortgage company. A few failures will bring sanity back into the practice of lending. (I still see DiTech advertising 125% load to value--so the excess, IMHO, is not yet out of the market).
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