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Was just watching a piece on CNN about homeloans & they focused on one gal that purchased a house, here are the figures
$38,000 salary
$10,000 down payment
$700,000 house
Loan payments started at $700 per month.
She is 2 months behind her mortage payment which is now $7,000 per month.
Getting tired of hearing people say that they did not know about loan they were getting into, where does common sense come to play on both the person seeking the loan & the lender...
It is so screwed up on soo many different levels.
We were on the market for our first home in Summer of 2004. We heard so many non-loogical concepts but I held on to the standard 20% down, fixed mtg. Did we buy in a high market? Yes. But no regrets cause we're not house poor.
Geez, that gal you noted on the cnn show is getting house raped! $700 to $7000/month??! WTF was she thinking? HOw can anyone logically enter into such a contract?
Not only do I feel the lender should be held accountable but what about the lawyers?! I mean our lawyer looks out for us and that is what we pay him to do. There are so many that should be held accountable BUT....yes, the buyer should have known better too.
That's insane. It's frightening that a person making that little money would even enter into the thought process of buying a $700,000 house. I'm sure CNN picked an extreme example, but clearly a lot of people got loans they couldn't afford to pay back. I think a lot of people just got so excited when they heard someone trusted them with 1/2 a million dollars or more that they just signed the papers without reading them. And Joe Loanofficer doesn't give a crap if Jane Consumer can't afford to make the payments five years from now...he gets his commission up front. Clearly the lending banks had no problem padding the current books with fee revenues at the expense of potential losses down the road. And clearly their boardrooms were taken over by pure salespeople rather than anyone who had ever taken a introductory macroeconomics course.
Just to put things in perspective, Bank of America posted something like a 95% drop in profits last quarter, but they still turned a profit of $3 million A DAY.
How does anyone who's only making 30K a year even remotely think they can afford a $700,000. I can't even imagine doing something like that... I'm seeing this a bit in my area, where people who made a decent living, more then 30K a year but certainly not millionaires invest hundreds of thousands of dollars in their house using an ARM and now are forced to sell. Truly stupid.
Oh yeah! I forgot to mention this, Lou Dobbs was using this piece as an "attack on the middle class" story.Quote:
Originally Posted by T-Bird76
Not sure how moving into a $700,000 house would be considered the middle class anymore, that is hovering around the upper middle class......
Though, to his credit, I don't think he saw the report in advance as he was quite shocked how somebody making around a $30k salary can think they can afford a house worth $700k, the math simply does not work....
Was this lady not questioned as to why she was doing that? Seems kinda obvious.
That is happening a huge amount in Florida - the property taxes and insurance rates have gone through the roof, and subsequently, those with ARMs (and there are a great deal in Florida) are really struggling. Foreclosure percentages are amazing in Florida as well - second only to California. Anyone with a little money to invest - you can get property pretty cheaply here at the moment.
She said she wanted to live the "American Dream" & purchase a house, she also mentioned that the loan officer said she could afford it.Quote:
Originally Posted by Phil D.
So, she bought the house, moved her kids, & some other adult family members into the house (who did not work).
What also had me thinking was moving into a big house like that, with monthly payments of $700 per month on a salary of $38,000, even that is tight. Huge house like that is expensive to maintain....
When a loan officer tells you "of course you can afford this", would that not affect your thinking on whether you could afford it?
Me personally.Quote:
Originally Posted by adam613
If I was making $38,000 & was applying for a loan on a $700,000 house, no. Besides, maybe the loan officer told her she can afford payments for certain period of time.
These types of loands are for a short period of time....
Now, if I was making $200,000 & was applying for a loan on the same house, yes, maybe I would listen to the loan officer.
This is obviously an extreme case. However, asking someone who issues loans for a living and can't legally issue her a loan he knows she can't afford, should constitute "doing your homework". It's the same sort of mentality that causes people to take the antibiotics their doctor tells them to take for a sinus infection.Quote:
Originally Posted by Midnight Mike
This woman was most likely stupid and greedy to try to buy a house like that in the first place, but there's plenty of blame to go around here...
Agreed, well, at least with part of the statement. Going into the deal, I would put the burden of responsibiltiy on the lendee, you have to have a little knowledge, or ball-park as to what you can afford, certain some common sense.Quote:
Originally Posted by "adam613
If the Lender told the lady that she can afford the loan for 2 years, & the loan rate increased in "1" month, then of course I would have a different opinion.
These loans that people were signing up for, were loans with risk & I believe had additional paperwork requirements for people to sign, now, of course if people read that paperwork.......
This may be an extreme case, but I hold the banks and loan officers fully responsible for this debacle. For a loan officer to tell this lady she can afford a $700,000 house on $38K a year is almost criminal.
The greed and avarice shown by these mortgage brokers/officers (who are in many cases car salespeople looking for a quick buck) is a national embarrassment. The loan officer in this case should be held liable for this lady's foreclosure.
Not to say she does not share in the blame, but for a supposedly financially knowledgeable loan OFFICER to tell a woman she can afford such a house at her income level is just a travesty.
That said, I am okay with B of A profits--I need the dividend check each quarter ;) ... just not on the backs of people who were oversold on homes. I think ALL banks share in that one.
I have to say Art I agree with you to a point. The bank should have NEVER granted her this loan. I don't understand how they did? I'm assuming they based her debt to income ratio on the 700 a month rather then taking on 700K in debt. I had a few friends in this "Fly by Night" as I call it mortgage biz. They did some shady things...when I went to do my refi I talked to them just to see what the deal was and they tried telling me some tall tales, I used HSBC, great bank, in fact my mortgage is sort of like an ARM but in reverse. I'm in a program called "Pay right rewards." For every year you pay your mortgage ontime each month, your interest rate goes down a quarter of percent, which will work out to a 3% mortgage rate when the rate decrease maxs out.
As I returned just as the bubble burst I can't say what was going on here, but in MSP the CNN example was quite common. Coming out of the late 90's the Minneapolis region experienced a severe housing shortage. It was brought on by the perfect storm of an influx of Somali refugees, the tech sector bringing in thousands of employees, and it's 4 largest employers (3M, NW, Pillsbury, and General Mills) all recruiting from all over the country. What happened is from middle 90's to 2000 population increased by roughly 50%. As a result from 1999 to 2005 home values were going up roughly 40%. It was ridiculous, no one planned on still owning these homes in 5 years. I have friends that were moving their primary residences right on the 2 year marks, repeatedly. Every bank (and broker) was pushing these no money down, 5 year interest only balloon payment loans. The problem was, and is, that most people took the offer figuring worse case they'll pocket the profit and just sell in less than 5 years. A good example is a friend of mine that moved there a year before me and is now facing that looming date. In 2000 he married and bought a condo in the burbs for 98K. In 2002 he sold said condo for 130K and bought a new condo for 225K, again using these stupid 5 year no money down deals. In 2004, he moved again, selling previous condo for 265K and buying new one for 290K, again using our favorite mortgage. Now it's 2008 and his current condo is worth 250K if he's lucky, he makes roughly 60-65K, his wife is good for another 20K (p/t @ NW), and he is staring at a 290K balloon payment due in 17 months with a recession looming and the bubble having burst. OK, I tell him no problem he made 80K on the last 2 so worst case he refies (thankfully their credit is still perfect), takes the loss, and carries a 200K mortgage. OOPS, my bad, that money went to hardwood floors, remodel basement (condo is a town home with full basement), timeshare in Mexico, new car, you getting the point here. Now this is a reasonably intelligent person, roughly my age, and he never saw this coming. He honestly thought this economy and the housing bubble would go on forever. Now, someone asked how does your lawyer let you walk into this mess? Simple, you don't have one. Using a lawyer for a simple house purchase is one of our quaint NY traits. In MN, and several other places I have learned, lawyers aren't used. Your broker handles the closing. In fact the big reasons I didn't end up in this mess with everyone else is well first I didn't try to buy a 300K house on a NW salary and second what I did want to buy fell through because I did want to use a lawyer for the closing and the seller walked. I was told to my face that if I wanted a lawyer, I was paying for his too. I just was dumbfounded and luckily never made another offer prior to the bankruptcy.