Unbelievable - housing

[farmerEd]

http://www.ocregister.com/ocregister/money/housing/article_1381194.php

A couple of notable quotes:

"Usually builders keep their prices up. They try to keep their buyers happy," said Christie Vu, 27, who paid almost $870,000 for the home she and her husband, Philip Luu, share with their two young sons. "In this case, it's just the opposite."

young couple buying a 870K house...wow scary.

Now, he says, his home is worth less than he owes, making it next to impossible to refinance before his $3,000-a-month payment doubles. Eleven neighbors who bought before the price cuts are in the same boat.
...
Eventually, he'll be responsible for making full payments of $6,000 a month, he said, adding, "I don't know how we'll be able to pay that."


$6k per month mortgage payment OUCH! How do young couple afford these prices...guess these folks will be mailing the keys into the lender soon...probably with a lot of others too.

 

[brewer12345]

Morons. You bought an $800k house with little or no money down using a mortgage that would eventually adjust to payments you knew from the outset you could not possibly afford. What the hell did you think would happen? The mortgage fairy would make it all better?

 

[Leonidas]

Six months after I bought my first house - my builder cut the prices on the same model in the same neighborhood by 14%. It was a lot less dollars, but the principle was the same. I was unhappy, but I realized that I got caught in a market that was changing.

Of course, I didn't buy more house than I could afford. And, I planned to live there for a while.

Eventually, he'll be responsible for making full payments of $6,000 a month, he said, adding, "I don't know how we'll be able to pay that."

"It's not just the financial aspect. It's the emotional," Dunn said. "We can't eat, can't sleep. I can't concentrate on work. This is all I think about."

These people should get some sort of award for morons of the year. They weren't buying a home, they thought they were financial geniuses about to make a killing. And now that they got caught, it's someone else's fault?

 

[dmpi]

Turn back the clock a year or two. People actually thought there was no risk in buying a overpriced home.
Now they want to sue the home builder for lowering the price.
I'm curious how low the builder can go on price. I know they must have a hefty profit magin built in. In TX they can build and sell the same house for 250K.

By the way... that women looks pretty hot.

 

[cube_rat]

young couple buying a 870K house...wow scary.

Here in the San Francisco area, an 870K mortgage is the norm around these parts. People think nothing of paying interest only, or better yet, negative amortization payments. Payments running $4000 a month not including property taxes are perfectly acceptable. Personally, I had a hard time sleeping with a 380K mortgage 380K is a piddly loan amount to people here . Unless of course you've been in your home a long time.

 

[dumpster56]

A young guy I work with just got married and they just bought a two family house for 490,000 NO MONEY DOWN, they have a people renting the other half of the place But their mortgage is still almost 4K a month taxes are close to 11K a year. Sure they are getting 1600 a month for the rental BUT that will become income. I think this guy is NUTS, drinks too much and likes to gamble.

Banks gotta lovem, they make such dumb loans and then what??

 

[ERD50]

Dunn said he's in a financial bind because he's using an exotic mortgage called an Option ARM, an adjustable-rate loan in which the homeowner can pick his monthly payment from a variety of options.

Eventually, he'll be responsible for making full payments of $6,000 a month, he said, adding, "I don't know how we'll be able to pay that."

"It's not just the financial aspect. It's the emotional," Dunn said. "We can't eat, can't sleep. I can't concentrate on work. This is all I think about."

If this guy qualified for what would be a $6000 mortgage payment, he must be making around $200K. So, we are supposed to feel sorry for him, for buying more house than he could afford? And maxing his leverage?

So, the builder is supposed to keep the price up, and leave the houses go unsold, to protect this guy against his own bad decision? The builder should eat the money, for what?

Funny how you never see a story like this:

Hey, I made a bundle turning my house over for a quick profit during the housing boom! I think I'll share some of my profits with the builder and give some extra to the nice bank that gave me the loan. I mean, I should share the gain with them, right?

Don't hold your breath - when they make money, it is all due to their brilliance. When they lose it, it must be someone else's fault.

-ERD50

 

[Lazarus]

The amount the houses dropped in the article exceeds the entire value of my house

 

[brewer12345]

If this guy qualified for what would be a $6000 mortgage payment, he must be making around $200K. So, we are supposed to feel sorry for him, for buying more house than he could afford? And maxing his leverage?

The really spooky thing is that I would bet dollar to donuts that he makes nowhere near $200k and still got the loan. Mortgage underwriting has gotten so loose it is absurb, especially on negative amortization "stated income" loans.

 

[Texas Proud]

If this guy qualified for what would be a $6000 mortgage payment, he must be making around $200K. So, we are supposed to feel sorry for him, for buying more house than he could afford? And maxing his leverage?

So, the builder is supposed to keep the price up, and leave the houses go unsold, to protect this guy against his own bad decision? The builder should eat the money, for what?

Funny how you never see a story like this:

Hey, I made a bundle turning my house over for a quick profit during the housing boom! I think I'll share some of my profits with the builder and give some extra to the nice bank that gave me the loan. I mean, I should share the gain with them, right?

Don't hold your breath - when they make money, it is all due to their brilliance. When they lose it, it must be someone else's fault.

-ERD50

Well, even if the builder kept the prices up, it would not matter.. the houses would have gone unsold and he would have lost value anyhow... that is how the market works... a willing buyer and a willing seller determine the price... there were no willing buyers at the high price... he lost... but, that is to high of finance for him I guess...

 

[Andre1969]

If this guy qualified for what would be a $6000 mortgage payment, he must be making around $200K.

But in a case like this, with an adjustable mortgage, did they qualify the guy for a $6000 mortgage payment or did they only qualify him for the initial terms, of $3000 per month? I agree, that it's pretty stupid for a person to get in over their heads like that, but at the same time, I think it's pretty stupid for the bank to qualify them in the first place!

 

[brewer12345]

But in a case like this, with an adjustable mortgage, did they qualify the guy for a $6000 mortgage payment or did they only qualify him for the initial terms, of $3000 per month? I agree, that it's pretty stupid for a person to get in over their heads like that, but at the same time, I think it's pretty stupid for the bank to qualify them in the first place!

They probably qualified him for $3k or something between $3k and 6k. It might or might not have been a bank doing the lending. Banks have done hideously stupid things with mortgages, but other types of lenders have been at least as aggressive.

 

[ERD50]

They probably qualified him for $3k or something between $3k and 6k. It might or might not have been a bank doing the lending. Banks have done hideously stupid things with mortgages, but other types of lenders have been at least as aggressive.

This must be the case, but it seems hard for me to understand. Banks are in the business of making loans, don't they know their own business? Why would you make a low equity loan to a marginal person, the bank is on the hook if the home value drops, and I'm sure there are some hefty costs involved to actually take possession and sell a foreclosed property?


It does not seem worth it for 6% or whatever.

And I heard some podcast, the banker said something about if they make too many bad loans, their ranking (I don't know what ranking that is), goes down, which was a bad thing.

-ERD50

 

[brewer12345]

This must be the case, but it seems hard for me to understand. Banks are in the business of making loans, don't they know their own business? Why would you make a low equity loan to a marginal person, the bank is on the hook if the home value drops, and I'm sure there are some hefty costs involved to actually take possession and sell a foreclosed property?


It does not seem worth it for 6% or whatever.

I think the perspective was that nobody had had a loss from residential mortgages in years, and that the party would just keep rolling. Kind of stupid, but when everyone else is doing it and your stock is languishing while theirs shoots up...

It is also worth remembering that A) many of the lenders aren't banks, and B) many of the lenders (banks and others) make the loans and immediately sell them to some other bagholder investor, whi may in turn re-sell part or all of the loans. If I don't have to care about what happens to a loan 91 days after I fund it, I might be a lot more cavalier about loan standards.

FWIW, I saw a study indicating that the average foreclosure costs a lender about $50k.

 

[MasterBlaster]

It is also worth remembering that A) many of the lenders aren't banks, and B) many of the lenders (banks and others) make the loans and immediately sell them to some other bagholder investor, which may in turn re-sell part or all of the loans.

Mortgages have been collateralized now and are sold on the secondary market in bundles. The bundles vary geographically and accross the credit-score risk spectrum. The idea is that any one bundle won't lose everything because of all of the risk-spread. Much of the money for these mortgages has been coming from trade surpluses in Asia.

They have to put their those unused dollars that the trade surplus has built up somewhere - right ?

On second thougt maybe we can take their cars and big screen TV's and trade them for overpriced housing mortgages. Then when the price of the houses fall we can just walk away from the mortgage.

That'll show them !

 

[Texas Proud]

As other have pointed out... most mortgages are bundled...

But don't forget that a lot of mortgages have insurance on them also... what do you thing that PMI payment is all about The first 20% is the insurer and then it hits the bank... so not so stupid..

 

[brewer12345]

But don't forget that a lot of mortgages have insurance on them also... what do you thing that PMI payment is all about The first 20% is the insurer and then it hits the bank... so not so stupid..

Haaaaaahahahahaha...

Nope, mortgage insurance was mostly not used in the bubble market because 80/20 piggyback structures were far cheaper than paying PMI.

 

[Andre1969]

I think I read somewhere that studies have shown that when people fall on hard times, they'll fight like hell to save the house. So while they may be lapsing on credit card payments, utilities, the car payment, and so on, they'll often do everything in their power to try making the mortgage payment. Perhaps this is one reason why the lenders are willing to do these risky loans?

 

[brewer12345]

I think I read somewhere that studies have shown that when people fall on hard times, they'll fight like hell to save the house. So while they may be lapsing on credit card payments, utilities, the car payment, and so on, they'll often do everything in their power to try making the mortgage payment. Perhaps this is one reason why the lenders are willing to do these risky loans?

Yeah, but if you are a clueless schmuch who bought at inflated prices 20% above current market and your payment suddenly doubles to more than you can carry, its a cornhole for you and the lender.

 

[savedapile]

I have a friend who bought a no money down interest only mortgage house in California in 2001. His reasoning was it would go up in value, he could sell and move elsewhere and buy a house for cash. He was age 48 at the time. Didn't have much in retirement savings, his inheritance he was counting on is being eaten away by aging parents. Drove very fancy huge cars, drank like a fish, loved to eat out and buy bling for the kids and wife.

Fast forward to today, almost no equity in the house, no way to leave the workforce. He recently told us he would be 80 before he could retire.

Kind of a poster child of how not to retire early.

 

[Texas Proud]

Haaaaaahahahahaha...

Nope, mortgage insurance was mostly not used in the bubble market because 80/20 piggyback structures were far cheaper than paying PMI.

Don't know as I have been out of that business for 6 or 7 years.... maybe I could ask an old friend, but most have gone onto structured deals and left the mortgages behind...

But, no matter, the deals were structured where there were 'safe' traunches and 'risky' traunches. You would think that the people buying them knew what they were buying... then again, you used to hear how someone lost millions buying IO bonds and the interest rates were going down..

 

[brewer12345]

But, no matter, the deals were structured where there were 'safe' traunches and 'risky' traunches. You would think that the people buying them knew what they were buying... then again, you used to hear how someone lost millions buying IO bonds and the interest rates were going down..

Yeah, the tranching still happens that way. The Aaa-rated stuff won't take any losses, but everthing else in the structure will eitehr get downgraded or hurt if loans start blowing up in large numbers.

 

[Meadbh]

Is it true that 100 year mortgages are now being offered? Your great grandchild will get to hold the mortgage burning ceremony!

I prefer the ING slogan: the best mortgage is no mortgage

 

[FinanceDude]

Or a Latin description:

MORT - means "death"

GAGE - means "grip"

So, a mortgage is Latin for "death grip".................