27-30% of mortgages are under water

2nd Wave wrote:

That's the way it is. Why should people destroy their family's future by paying down on a bad investment ? When the banks can just fold they get federal insurance money. What other alternative do homeowners have but to vacate their loans ?

You think money just grows on trees? Where does this "federal insurance money" come from by the way? People who did this are the reason so many workers and retirees lost a ton of their retirement and pension funds. People who did this are lazy and selfish.

Flagpole wrote:

Your sister and her husband are doing what a LOT of people are doing, and I find it shameful. They have the money. They signed up for the mortgage...they should pay it. EVENTUALLY the value of the home will come back. The housing market isn't guaranteed to go up up up.

Then you can form whatever opinion of them that you wish.

How one handles such a situation is certainly an indication of one's character and values.

But, there is a lot of propaganda surrouding this issue. This has always been an option for the homeowner. The banks making the loan should include this risk in the interest rate they charge. I'm sure they tried to. If they underestimated the risk, that's on them.

The banks certainly wouldn't have any problems with people walking away from their homes if values had gone up. Of course, the owner most likely wouldn't walk in that case. But, my point still stands.

The banks do whatever is in their best interest, they should expect the same from others.

That's true. That's the risk banks and pension funds take when they make real estate loans. Families will prioritize and choose their children's college education 1st versus paying down on bad investments. That's the reality of the situation as you drive up and down Pacific Coast Highway (US 101) in Southern California.

You think money just grows on trees? Where does this "federal insurance money" come from by the way? People who did this are the reason so many workers and retirees lost a ton of their retirement and pension funds. People who did this are lazy and selfish.

This housing bubble has been FANTASTIC!!! It was like hitting the lottery for me. I flipped a bunch of houses for a few years and made great money. Then when the bubble burst, I used that money to buy houses the banks were practically giving away and rent them out. I will probably be able to retire 10 years earlier than I would have.

Actually, it almost does just grow on trees. We just print up more. It's not like we would ever be willing to tax ourselves. The baby boomers are the most selfish generation ever. We live in a declining economy and civilization. The only question is whether the decline will come fast and furious like the USSR or whether it will be a loooooooooooooonnnnnnnggggg decline like Britian. But make no mistake, we are on our way out as an international global power.

catch a wave to reality

[quote]Flagpole wrote:

Your sister and her husband are doing what a LOT of people are doing, and I find it shameful. They have the money. They signed up for the mortgage...they should pay it. EVENTUALLY the value of the home will come back. The housing market isn't guaranteed to go up up up.

[quote]2nd Wave wrote:

I get this view, but disagree. I don't find it shameful. A house that is 50% underwater could come back, but it might be 20-25 years. The mortgage might be paid off by then. A loan is a two-way street. The bank took on risk by making a loan backed by specific collateral. Why should a buyer be expected to take on 100% of the risk and take away the loss from the other side of the transaction? Everyone knew it was a non-recourse loan going into the deal. Again, I see where you're coming from, but I don't see that scenario as shameful when the alternative is for the homeowner to have a significant negative financial impact for 10-25 years.

mylifeismovingjustfine wrote:

You can get a mighty good deal without doing a foreclosure or short sale. I bought my first house this past year. The previous owners had lived in it for about 3 years, had purchased the home for $275K, had put $40K into it (finished the basement, put on new roof and new retaining wall), and we bought it for $245K. Wasn't a short sale or a foreclosure. And we get the $8K tax credit this year.

Sounds like it was a pretty great time to buy to me.

This attitude is one that makes me less certain we won't see history repeat, at least on a smaller scale. I often hear people reference current housing prices as a good deal by quoting a decline from a previous price (There are some great deals out there. House 'A' was $500,000 four years ago and is now $300,000 etc.) That implies some relevance and legitimacy to bubble values. The fact that something is a lot less than a crazy number has no bearing on its relative value today.

I get this view, but disagree.

In America we have the free enterprise system. If you don't like it them move to Nazi Israel where the government will murder you and your family then steal your home for tyhe crime of being Christian or Muslim.

kartelite wrote:

You think money just grows on trees? Where does this "federal insurance money" come from by the way? People who did this are the reason so many workers and retirees lost a ton of their retirement and pension funds. People who did this are lazy and selfish.

Why do "mortgage banks" refuse to renegotiate home loans? FDIC pays them to foreclose.

You write as though the borrowers are the only ones to blame here. Don't you realize that the greater evil is the system itself which is basically designed to transfer wealth from borrowers, workers, retirees (middle class Americans) to the wealthiest insiders in the financial industries?

Well, I think it's safe to say at this point that TARP WORKED. QE1 was likely necessary too, but QE2 hasn't actually started yet. There's talk of it NOT happening, but I think it still will. I think what's in play here is the same kind of thing that happens in the financial markets -- over reaction one way or the other. Personally I think at this point that QE2 is not necessary. On the positive side of all this though, I think the wound is on its way to healing. Housing and jobs are still lagging, but that's to be expected, AND there are signs of life in both areas (especially jobs).Without the bailouts, we would have been WAY worse off, might now have a National Bank (owned and run by the federal government); no thanks. It was a painful time with painful decisions to be made, but they were bipartisan and I think necessary (again except not for QE2).Right now I see at least 2 straight years of continued growth...growing economy, more jobs, higher stock market. When we get there and look back to March 2009, it will be a LONG way that we've come.

Here's why this line of thinking is silly and why it's shameful that owners WHO CAN PAY walk away from their loans:Let's say I have a house that I bought for $150,000. My plan is to one day pay that house off. Fine. Let's say that in 30 years for some reason my house now is worth only $120,000. Ok. Did I LOSE $30,000? Did I lose MORE than $30,000 when inflation is factored in? I say NO. Why not? Because (unless the drop in price is only for your own specific area due to an industry leaving your town or something like that) ALL THE OTHER HOUSES DROPPED IN PRICE TOO!!! If I was planning to sell that $150,000 house and buy a $150,000 house in a southern state to retire to, well, that $150,000 house in the southern state now costs $120,000; just like my house.BECAUSE houses can go up and down, this is why you have investments to help fund your retirement. If you decided that a large portion of your retirement income was going to come from your house which you expected to rise in value, then that's on you.If you have an emergency fund and stay out of debt and buy a house with a fixed-rate mortgage that you plan to be in no less than 15 years and you invest 15% or more of your income into good growth stock mutual funds and you buy long term care insurance beginning at age 60, then you don't give a crap about the value of your house.

I am going to side with the individual borrower over the mortage banking industry here.

The bank made an investment which implies risk for a return of principle plus interest.

The loan originator received a commission on closing.

The loan was likely sold and maybe resold again to whoever services it now.

Companies like AIG then package mortgages securities for a fee and say they they are insuring them against default.

Values go up and up. Banks stop checking credit because they can actually profit from a default.

Those that want to buy are forced to pay huge sums as they compete for homes.

Finally it all collapses.

The foolish risky banks get rescued with funds from the government.

Risky AIG gets rescued.

The individuals still owe the full balance of the principle they borrowed.

So if some borrowers can negotiate a modification with the banks I do not feel sorry for the banks.

And I am not mad at these borrowers because at this point it doen't affect me. The collapse and bailout has already occured.

People take out mortgages once or twice a lifetime. Banks are in the business of making loans. They should know what they are doing.

X-Runner, I agree with you, but I disagree with the assertion that people can walk away from loans whenever they are inconvenient.

In this situation, the banks deserve to get a fist in the mouth. That being said, if it is allowed now, it will be allowed when banks are NOT necessarily making shady loans.

In the end, someone walking away from their debt/investment hurts me and you, not the bank.

[quote]Flagpole wrote:

Let's say I have a house that I bought for $150,000. My plan is to one day pay that house off. Fine. Let's say that in 30 years for some reason my house now is worth only $120,000. Ok. Did I LOSE $30,000? Did I lose MORE than $30,000 when inflation is factored in? I say NO. Why not? Because (unless the drop in price is only for your own specific area due to an industry leaving your town or something like that) ALL THE OTHER HOUSES DROPPED IN PRICE TOO!!! If I was planning to sell that $150,000 house and buy a $150,000 house in a southern state to retire to, well, that $150,000 house in the southern state now costs $120,000; just like my house.

[quote]Flagpole wrote:

You disproved your own point. Real estate will always be looked at on a local level. The decline in Souther California, Vegas, Miami, Detroit, is much more severe and in entirely different ballpark than the drops in Richmod, Dayton, and Jackson, and even in the aforementioned cities you'll need to look at a neighborhood by neighborhood breakdown.

AtTheBeach wrote:

You disproved your own point. Real estate will always be looked at on a local level. The decline in Souther California, Vegas, Miami, Detroit, is much more severe and in entirely different ballpark than the drops in Richmod, Dayton, and Jackson, and even in the aforementioned cities you'll need to look at a neighborhood by neighborhood breakdown.

Houses in my neighborhood are still going up. Across town they are down, but demand is still high in some areas.

Flagpole wrote:

Manufacturing is up. The stock market is up. Hiring has begun. Personal saving is up and so is spending.

And...local, state, & government debt is still going to kill us. Mass layoffs of government workers. Severe reductions in pension payments.

We know even more about how recoverable reserves of oil are rapidly shrinking after the wikileaks news this week, so expect gas prices (along with those of all other commodities) to start creeping up. There is no reason middle class salaries would increase at the same pace with more global competition.

By the way, the stock market being up means very little. It is nothing but a casino to the traders now. They could care less about the value of a company or how their billions of high frequency transactions impact the companies.

Smokey Bandit Runner wrote:

Houses in my neighborhood are still going up. Across town they are down, but demand is still high in some areas.

Word. Here's a graph from 2008 that illustrates my point.

True (about localization), but if you're in Southern California and want to move out of your house and buy another one also in Southern California, then the loss is a wash. If you can't sell your house without having to borrow more to cover the difference, then you just have a choice to make -- again, no one is guaranteed to have the value of their home rise.In these down market times, you can also compare regions. Arizona and Florida were hit hard like Southern California was, so you could move around in those three areas and it will likely be a wash.The BULK of the people who are in trouble because the value of their home dropped are so because either A) they weren't in the home very long (so shame on them for wanting to sell; people in hell want ice water -- we don't always get what we want exactly when we want it); B) they took out loans against the equity which has now disappeared; C) they bought more house than they could afford to begin with. That's pretty much it.If you do the following when you buy a house, you will NOT be in trouble if the value drops significantly:1) Fixed rate mortgage ONLY; no ARMs or sub prime loans.2) No more than 25% of your take home pay per month.3) Do NOT take loans out against the equity.4) Plan to be in the house 15 years MINIMUM, so if you're in the military or know that you will be moving on in a few years, DO NOT BUY.It's pretty easy really.

We still have challenges and will always have challenges, but your fears are too great. Some of the state layoffs have already happened, and more of the lessening will be done through attrition.Salaries are increasing, and experts are saying that they expect more increases in the near future as salaries have been held steady for a while now.The rising stock market means LOTS. It not only is enabling those who wanted to retire 3 years ago to finally retire, but it is allowing more spending by those already in retirement. Both of those things lead to a lower unemployment rate and more spending which helps the economy.

not confident wrote:

Flagpole wrote:

Manufacturing is up. The stock market is up. Hiring has begun. Personal saving is up and so is spending.

And...local, state, & government debt is still going to kill us. Mass layoffs of government workers. Severe reductions in pension payments.

We know even more about how recoverable reserves of oil are rapidly shrinking after the wikileaks news this week, so expect gas prices (along with those of all other commodities) to start creeping up. There is no reason middle class salaries would increase at the same pace with more global competition.

By the way, the stock market being up means very little. It is nothing but a casino to the traders now. They could care less about the value of a company or how their billions of high frequency transactions impact the companies.