Know anyone getting hosed in Cash-Uut Refinancings?

[justin]

Quote:

Originally Posted by brewer12345 Awww, they even put a soldier on the page. Cry me a freakin' river. You did a highly levered real estate purchase with an adjustable rate loan that you didn't make sure you could afford the risk on.

Seems like every case of "ARMs destroying a life" is really a case of "failure to analyze risk". Probably not a lot of spreadsheeting going on.

[brewer12345]

Quote:

Originally Posted by justin Seems like every case of "ARMs destroying a life" is really a case of "failure to analyze risk".* Probably not a lot of spreadsheeting going on.* *

Nope.

Actually, I have compassion for the large numbers of people who will lose their homes in the next few years. Its sad when a family is forced out in a foreclosure. While some of the blame lays with the borrowers, some of it also lays with our society, specifically for increasing income inequality and a failure to educate our people in even basic financial skills.

[justin]

Quote:

Originally Posted by brewer12345 Actually, I have compassion for the large numbers of people who will lose their homes in the next few years. Its sad when a family is forced out in a foreclosure. While some of the blame lays with the borrowers, some of it also lays with our society, specifically for increasing income inequality and a failure to educate our people in even basic financial skills.

I place the blame primarily on the individuals and greed in general, however it seems to be a case of "not knowing enough to know that you don't know". Not understanding that ARMs means the monthly payment can change drastically, but not knowing enough to ask. Same with car buying - buying the payment instead of the purchase price.

It would suck (understatement of the week!) to be kicked out of your house and have it foreclosed on.

[Andre1969]

I actually feel kinda bad for the soldier and his family. While they went out on a limb and bought more house than they could afford, it doesn't look like they went hog-wild and bought a McMansion or anything. House looks fairly modest actually, and that GM truck in the driveway is a 1987 at the newest. Now who knows, maybe they're hiding a BMW and a Navigator in the garage? 8)

I don't know where these people get the notion that the value of their home could only go up in the 5 years they planned on being there! Heck, I sold my condo in November 2004 (a few months after they bought their house), and I wanted to get out as quickly as possible because prices had ALREADY risen so much, and I knew they couldn't continue!

Still, they over-extended even to get this fairly modest home, so maybe they should have just stayed put where they were for awhile longer, and tried to save up more of a down payment.

[Marshac]

Quote:

Originally Posted by justin I place the blame primarily on the individuals and greed in general

I agree with the 'greed' part, and also with brewer. A friend of mine just bought a condo earlier this year, and is now having trouble making his monthly ends meet. Sounds sad, but until this point he had never lived away from home, never rented, never paid any utility bills, etc. I tried to convince him to rent for a little while, just so he could experience how much everything cost, and to get a better grip on what living on your own is like. Nope. Wouldn't even hear of it. Wouldn't want to 'throw his money away', and buying a home (condo) is an awesome investment. right? So instead of renting some 2br 1.5ba place for $900/mo or less, he buys a 1br 1.5ba condo for about $210k. Oh yeah, his contract job is up this month.

So what we have here are three things- Lack of planning (can I afford this?), Lack of real-world experience (HOW much does nat. gas heat cost in Jan), and greed (the 'investment' part). Will he pull it off? If he finds a job, i'm sure he will. It's just a tough transition going from $2k/mo in discretionary income to almost nothing.

[Aaron]

Yep, lack of planning and really crunching the numbers.* I think a lot of people who were buying kept ignoring condo fees, homeowners insurance, maintenance, increased utility bills, increasing gas prices for the 2 hour commute to work, credit card minimum payments increasing, etc.*

Also, many assumed they would just refinance out of the ARM if rates went too high, but glossed over the fine print in the mortgage about $10K early payoff penalty.*

Some of my friends 20 - 30 year old friends have never witnessed falling home prices and just keep hearing everyone say a home is the best investment which can only go up in value, and then it becomes an emotional purchase.*

[Andre1969]

Just to put a little sanity back into things, here's an example of how prices don't always go up.

I used to own a 3 bedroom/2bath condo with a garage in Crofton, MD. Roughly 1250 square feet.

The guy who had it before me paid $78,000 for it in 1988, when prices were on the rise.
In 1990 another nearby unit, a smaller 2 br/1 ba with 945 square feet sold for $91,000. Mine would have probably fetched $95K or a bit more.

I bought the place in December 1994, for $84K. He had been asking $86.5K. A few months later, a similar one sold for $85K, and that's about where they stayed for awhile. For several years, if I had to sell, I would have had to bring money to the table once you factored in the realtor's commission, etc..

I refinanced in the summer of 1999, and the place appraised for $92.5K. In july of 2001, the unit that sold for $85K re-sold for $100.5K. That was the point I really started getting excited, once values started breaking the 6-digit barrier. At that point I was thinking that when I did finally sell, I might finally walk away with a bit of money for a down payment on another place!

By 2002 a unit like mine would've probably gone for around $120-125K. By 2003 it was more like $140-145K, maybe even $149K for a really nice one.

In June 2004, the unit like mine that previously sold for $85K and then $100.5K sold again for $152K. By that time I was no longer living in mine, and ran into problems with the guy who was rennovating it, so it ended up sitting for awhile. That turned out in my favor, though. Initially, the agent said I'd be looking at $155-160K earlier in the year, but by the time it went on the market in October 2004, we were asking something like $186K. I ultimately let it go for $185K, which is the most the buyer's lender would allow on the place. It was starting to get late in the year, and winter would soon be setting in, and I didn't want the place to sit empty for too long especially after all the remodeling work I did, so I just wanted it off of my back.

By the summer of 2005, a place like that would've gone for about $240K, and even today I see them asking around $240-250K. They're sitting on the market alot longer though, and there had to be a ceiling somewhere.

Also, condo fees had been rising. When I bought mine, the fee was $120 per month. By the time I sold it was $239. I don't think they raised it the following year, but I kept in touch with some of my neighbors there, and I recall them saying that it was supposed to go up again for 2006.

So, as they say, timing is everything. The guy who had it before me saw it go up in value $6,000 in 6 years. Had he sold in 2-3 years instead of 6, he probably would've seen more like $15K+.

I just got lucky and bought at the bottom of a market. There was nothing cunning or genius about it. That just happened to be the time I was ready to buy my first home. And had I had to sell in 5-6 years, like around 1999-2000, I would've only seen about $7-8K of appreciation. But instead I happened to sell after 10 years, and saw $101K. However, that wasn't any genius on my part, either. It just happened to be when the place was ready to put on the market. Had I not had contractor problems and the place gotten finished sooner, I might've only gotten $155-160K for it. That's one reason why I'm not TOO pissed at the first contractor, who is the brother of one of my friends. His screwing around actually MADE me some profit!

Now if the guy who I sold it to decided to sell, he might see about $60K of profit. Not bad for just two years. However, whomever buys it at that price better plan on holding onto it for a long, long time!

[BUM]

Quote:

Originally Posted by ESRBob I understand foreclosures are up and the interest adjustments are starting to kick in and people are starting to get hosed, (pretty soon banks are going to get hosed, I suspect).

Two thoughts come to mind. The first is that zillions of people are cashing out any available home equity, some need the money to survive some need the money for fun. The most newsworthy are the "survival stories" seen above.
The refi biz is still very hot.
http://www.freddiemac.com/news/finan...i_archives.htm


The second thing is... Banks (lenders) sometimes get hosed but most often rebound through collections, refi's and NEW LOANS. I don't think the banks are too worried. Some borrowers under pressure will be forced down the road of foreclosure. Others will weather the storm, many of those via some other loan product.

Might be a parallel with the recent BP oil leak. BP shuts off 400k gal/day. The price of oil goes up. Hey, they're in the oil business. They can't lose...much.

[brewer12345]

Quote:

Originally Posted by BUM The second thing is... Banks (lenders) sometimes get hosed but most often rebound through collections, refi's and NEW LOANS. I don't think the banks are too worried. Some borrowers under pressure will be forced down the road of foreclosure. Others will weather the storm, many of those via some other loan product.

Depends on the bank. Anyone concentrated in subprime lending, Option ARMs and anyone dependent on reselling loans to investors will be in for a tough couple of years. OTOH, mortgage lenders who stuck to high quality loans during the boom should emerge more-or-less unscathed.

[Nords]

Quote:

Originally Posted by ESRBob BW will have to call somebody else 8)

Maybe this is what Business Week was working on: Investing Survival Guide: Financial Independence

I wonder if "Into the Great Wide Open" is a commentary on Tom Petty's rebels without clues...

[Gumby]

I don't usually pay attention to the advertisements on the radio, but I have noticed one over the past several weeeks that makes me cringe every time I hear it.* It is for a national mortgage broker and goes something like this

Guy 1:* Wow!* Nice boat.* How did you afford it?* Didn't you tell me a few months ago that you were having trouble making payments on your mortgage?

Guy 2:* Yes, but I refinanced with ___________ and lowered my monthly payments [presumably with an ARM].* I was able to take some cash out too, to buy the boat.

Guy 1:* And your wife doesn't mind?

Guy 2:* No, she uses it more than I do.

Guy 1:* Do you think my wife would like a dirt bike? (They both laugh).

Every time I hear that, I think about the thousands of people who will dig themselves into an even deeper hole as a consequence of this commercial.* Maybe there should be the equivalent of the Surgeon General's warning on pack of cigarettes -- "Cash out refinancing is harmful to your financial health."

[vic]

Quote:

Originally Posted by macdaddy We took out a 100k HELOC in 2002 to put a down payment on another house. The rate was real low. The rate started to creep up as the Fed raised rates and went almost to 8%. Some time back we balance transfered the 100k onto a 12-month 0% CC which now saves 8k in interest costs per year. If we can balance transfer for another year I think it's a no-brainer, otherwise the cash is in the bank to pay it off.

What kind of effect do all these CC tricks have on your credit rating? Ever checked it, I am just curious.

[ESRBob]

Gumby,
This ad will probably be as emblematic of the upcoming crisis as daytraders flipping dotcom IPOs were of the last one. It's just so perfectly awful. Thanks for sharing it!

[brewer12345]

Quote:

Originally Posted by vic What kind of effect do all these CC tricks have on your credit rating? Ever checked it, I am just curious.

Down a smidge, but still well into the prime credit range. In any case, you can clean it all up in days by paying everything off. After all, you are sitting on the cash.

[Nords]

Quote:

Originally Posted by Gumby I don't usually pay attention to the advertisements on the radio, but I have noticed one over the past several weeeks that makes me cringe every time I hear it.* It is for a national mortgage broker and goes something like this

It reminds me of the TV commercial where the guy shows off all his family's material possessions and goes on to ask:
"How do we afford all this? Well, I'm up to my eyeballs in debt! Somebody please help me!!"

[Andre1969]

Well, I'm up to my eyeballs in debt! Somebody please help me!!

One thing that always cracked me up about that commercial was the part where the guy was cutting the front yard of his quarter-acre (at best) lot with a LAWN TRACTOR!! I mean c'mon, it doesn't get much more "Conspicuous Consumption" than that!

Kinda reminds me of something one of my college buddies tried to talk me into doing once, though. Back then he lived with his parents, in a subdivision with your typical quarter-acre lots. You could probably cut the whole thing in like 15-20 minutes with a lawnmower. Well, I lived with my grandparents, out in the boonies, and Granddad had a tractor.

One day, his dad wanted him to cut the grass, and he actually had the stupidity to ask me to bring the tractor over! Like it would be easier for me to load that tractor into the back of Granddad's truck, bring it over, and then try to maneuver it around in his parents little yard!

I swear, the effort some people would go through to get out of work! :P

And if anyone's wondering, yes, he was horrible with money, budgeting, etc. Ended up basically crashing and burning in life, and would have been a great poster child for that "somebody please help me" commercial. I haven't seen him since around 1992 or so, but I did find him online and chatted a bit with him earlier in the year. He was able to pull himself out of his mess and straighten his life out. Well, "straighten" might not be the right word, since he's been in a happy relationship with a dude for like 10 years now! Maybe that was part of his problem in his younger days...having conflicts with who he really was, and trying to chase after a gender that wasn't compatible with him! Anyway, he's got a good job now, and it's actually scary how much he's matured! It's nice to see that some people CAN recover from their financial/life catastrophes.

I hate to say it, but I'm probably LESS mature now than I was back in my college days.

[JPatrick]

Quote:

Originally Posted by Andre1969 I hate to say it, but I'm probably LESS mature now than I was back in my college days.* *

LESS Mature??
I can't imagine how that could be possible,but-------------------If you get the urge to throw a toga party be sure to invide me

[jazz4cash]

Quote:

Originally Posted by brewer12345 I'd be shocked if they stopped these offers.* The credit card business for prime grade borrowers is extremely competitive and companies have been cutting each others' throats for years with these offers.* I see no obvious signs that this will not continue. [/quote Hmm...been wondering about this myself, so guess I will start a specific thread. The offers I get HAVE been greatly curtailed lately from standpoint of duration and waiving the BT fee. The ones I get now want 3 or 4% capped at $75 or $90, but only run 6-9 months.

[mathjak107]

its always tough taking refi money and investing it.its like buying on margin.since market gains are never in a linear fashion ,THEY GO UP AND THEY GO DOWN .when markets are trading sideways or down like they have been you want to shoot yourself most of the time.
its tough buying something that outperforms on a long term basis while you are paying interest for it .never forget those famous words " THE MARKETS CAN REMAIN IRRATIONAL ALOT LONGER THAN YOU CAN REMAIN SOLVENT"

[Andre1969]

I think my neighbor 2 doors down is getting hosed. Never met the neighbor, because the house was bought by by someone as an investment back in early 2005, and nobody ever moved into it. They were planning on tearing down the farmhouse, subdividing the 4.28 acres, and putting up 6 McMansions. They paid $475K for it.

Well, they got approval, but then the environmental department found out, and put their foot down by declaring part of the property as wetlands. So they only got approval to build 3 houses. Plus, the county was going to make them pay for improvements to the road. Then, earlier this year our neighborhood got downzoned, so now he can only build two houses on it.

Somebody was living in it off and on for awhile, but mostly it sat vacant. It's on the market now, for $599,000. I don't know anything about financing details, but since the thing was bought in the hopes of a quick turnaround, I'd imagine that they probably financed just about all of it, and probably with an ARM.

It'll be interesting to see how long it sits, and what ultimately becomes of it.