What is rarely mentioned is that so many of the deadbeats with an income took the adjustable rate for several years to enhance their standard of living with way below market rates. Those folks should be considered as opportunistic scammers for their gambling at our expense. I know of more than 1 person who enjoyed 2.5 to 3.5 loans on a 3 to 5 year step up. Shame on the banks for offering those terms at all ever!
I described my Niece house purchase a couple of years ago. He is a minister, and she does tutoring, teachers aide,some tax stuff, and home schools her 3 kids. A terrific hardworking couple in their late 20s that give very religious Christians a good name.
They sold a house in Arrowhead (ski resort area near LA) about 4 years ago near the top of the market. He went back to school to get his masters. A couple of years ago they bought a house in Riverside, CA ground zero for foreclosure. A very nice place 10 years old, across from a park, nice neighborhood 2,000' sq, pool. Formerly it sold for 620K, they bought it for 300K. He lost his job this past Sept, and they discovered that house had dropped from 300K to 240-250. Actually the Realtor said they could probably get offers in about 20-30K higher than that but it wouldn't appraise above 250K. Fortunately, they found a buyer, but I suspect they will owe a bit a closing. Which they will pay.
Even more fortunately he found a better minister job at higher pay in Chico, Ca (Northern California). So once again they are going be buying a house, (even after losing 60K...). I doubt that there credit score is going to be positively impacted by paying the mortgage which legally didn't have to do.
I going to urge them to consider a ARM (despite the low interest rates) with as low a down as possible, to give them the option of a strategic default, if CA Real Estate continues to fall. I believe as long as Banks allow folks to continue to borrow money at really low rates with relatively modest penalties for default, we are foolish to not take advantage of it.
My position and evolution is the same as Sam (I just got there a few month earlier). As bank owner, I want banks to maximize their profits within the limits of the law. I expect individuals to minimize their costs and losses as long as they do so legally.
Both side need to take into account the long-term consequences of short-term actions. So for banks, foreclosing on Xmas day is really stupid, as is refusing to negotiate with folks trying to make a mortgage work. For individuals walking out of mortgage for less the $10,000 is stupid because of the credit score impact.
As a society, the housing market is filled with perverse incentives which makes it very expensive for lenders and borrowers to do the morally correct thing. We need to very quickly either fix these incentives, (my first choice) or accept that people are going to act their own financial best interests.
Which means we need to stop casting moral judgments on both borrowers and lenders when the do so. So no more getting angry at banks foreclosing, jacking up interest rates and fees, buyer getting a new mortgage and than strategically defaulting on there old one, or living in the house rent free tell they are evicted.
