Batting for both sides?

[achris]

I noticed, with more than a little despair, that a couple of big banks are in trouble... Can't remember the names, but that's not important.... I heard something on the radio this morning that seemed to me to be a little unfair, like dealing from the bottom of the deck!

If you have money in a bank and the bank goes belly up, you loss your money... But, if you have a mortgage with that same bank, you still have to repay it...

Any of the financial wizards here care to explain this to me? Because it seems to me that it's a case of heads they win, tails you lose.

Chris........

 

[ebry710]

Re: Batting for both sides?

I noticed, with more than a little despair, that a couple of big banks are in trouble... Can't remember the names, but that's not important.... I heard something on the radio this morning that seemed to me to be a little unfair, like dealing from the bottom of the deck!

If you have money in a bank and the bank goes belly up, you loss your money... But, if you have a mortgage with that same bank, you still have to repay it...

Any of the financial wizards here care to explain this to me? Because it seems to me that it's a case of heads they win, tails you lose.

Chris........

If you have money in the bank and if it is FDIC insured then you don't loss your money. FDIC insures your money up to $100,000.

If you borrow money from the bank, the bank usually borrows money from fannymae, freddiemac, federal reserve or other investors. The Feds regulate the banks and usually a new bank/mortgage company will pick up your loan.

By the way, there is a number of people who don't pay back their loans and that is why there is a mortgage crisis. You just have to be willing to lose your house, credit score and go through the hassle of foreclosure.

 

[ebry710]

Re: Batting for both sides?

achris
I am sorry, I forget that we are international. I didn't notice you were from down-under. Let me correct my statement by adding the next statement:
In the United States, .........fill in the above thread.

 

[Uraijit]

Re: Batting for both sides?

The "mortgage crisis" wasn't caused by deadbeats trying to dodge their mortgage payments. It was about being sold a loan at an artificially low interest rate. Then when the rate was hiked, they were UNABLE to make the payments.

Stupid choices in buying a house they could barely, or flat out couldn't, afford in the first place. But the banks took risky loans KNOWING that it would happen. They rode the wave, and when it crashed, the tax payers are being forced to bail them out.

Private gains from public risk. Where do I sign up for such a sweet gig?

 

[fishrdan]

Re: Batting for both sides?

Chris, how are things going in Australia, financially speaking? Are you guys feeling/seeing the same problems we are in the US?

It's a pretty sad situation here from what I have seen. 5 houses out of 30 on my block have been foreclosed in the past year, all of them were purchased when the market was at it's highest 3 years ago. One that sold for $250K a few years ago was sold $109K after foreclosure, pretty sad.

I talked to a friend who is in this pickle. The "special" low interest rate (3-4%) on his ARM is about to drop off spiking his mortgage payment and there's no way he can refinance his house at a lower rate because his house isn't worth 1/2 as much as he owes. I told him not to take an ARM and get a fixed rate mortgage probably hosed either way...

 

[achris]

Re: Batting for both sides?

The "mortgage crisis" wasn't caused by deadbeats trying to dodge their mortgage payments. It was about being sold a loan at an artificially low interest rate. Then when the rate was hiked, they were UNABLE to make the payments.

Stupid choices in buying a house they could barely, or flat out couldn't, afford in the first place. But the banks took risky loans KNOWING that it would happen. They rode the wave, and when it crashed, the tax payers are being forced to bail them out.

Private gains from public risk. Where do I sign up for such a sweet gig?

Thanks, I was aware of the cause of this problem.. Another member explained it to me a few months back... The lenders lent the money HOPING that wages would rise and the marginal borrowers would be able to cope... But not being too worried if they didn't... Yeah, I get all that....

But, why aren't the banks forced to play the same hand in both directions? You can lose on one side of the equation, and not win on the other.... Seems a bit 'lopsided' to me... Or am I being too righteous again

Chris..........

 

[ebry710]

Re: Batting for both sides?

The "mortgage crisis" wasn't caused by deadbeats trying to dodge their mortgage payments. It was about being sold a loan at an artificially low interest rate. Then when the rate was hiked, they were UNABLE to make the payments.

Stupid choices in buying a house they could barely, or flat out couldn't, afford in the first place. But the banks took risky loans KNOWING that it would happen. They rode the wave, and when it crashed, the tax payers are being forced to bail them out.

Private gains from public risk. Where do I sign up for such a sweet gig?

I never like to call people who can't or don't pay for their mortgages "deadbeats".

I do think that most people looked at real estate as a safe investment whose value would always go up. I do think that smart people took advantage of that thinking (Realtors, Mortgage Broker, Contractors, Furniture Stores, and the entire US economy). They allowed people to buy houses that were inflated and then allowed them to take out second mortgages to buy toys, home improvements and other houses. It was musical chairs and now the music has stopped.

If you buy a house for $500,000 you know it will increase to $550,000 by next year. If you owe $100,000 on your mortgage and your house is worth $250,000, surely you should be able to pull $75,000 out of it to buy that............sounds silly on hind site.

 

[fishrdan]

Re: Batting for both sides?

Ahhh I like your reasoning...

The bank goes belly up so we foreclose on our mortgage the bank defaulted on, and pay them 1/2 of what the mortgage is worth... Makes sense to me

 

[achris]

Re: Batting for both sides?

Chris, how are things going in Australia, financially speaking? Are you guys feeling/seeing the same problems we are in the US?

It's a pretty sad situation here from what I have seen. 5 houses out of 30 on my block have been foreclosed in the past year, all of them were purchased when the market was at it's highest 3 years ago. One that sold for $250K a few years ago was sold $109K after foreclosure, pretty sad.

I talked to a friend who is in this pickle. The "special" low interest rate (3-4%) on his ARM is about to drop off spiking his mortgage payment and there's no way he can refinance his house at a lower rate because his house isn't worth 1/2 as much as he owes. I told him not to take an ARM and get a fixed rate mortgage probably hosed either way...

We're feeling it here too... I'm pretty insulated.. I own my house and have a decent savings balance... also a job in a field that thrives on economic unrest, oil! So my pay is still ok...

There is a saying that my parents used to use when referring to economics... "When America sneezes, the rest of the world catches cold". I guess since the Chinese and Indian economies have emerged that is not as relevant... but we still feel it when you guys have a tough time... Last month our reserve bank (same as your federal bank) lowered the interest rate for the first time in something like 4 years. Initially everybody was happy... It put a whole $51/month/$100,000 of their mortgage back in their pockets... Then someone noticed that as the interest rates fall, unemployment rises... That's not good.... So the repayments have gone down, slightly, but you don't have a job to pay them anyway.... Great choice!!!

As for house prices, we have seen a slowing and some small drops in value, but nothing like what you're talking about... I think overall we've seen about 5-10% drops.... The biggest thing at the moment is the collapse of 2 banks in the US... Apparently several local councils here were investing heavily with them.. so now there are fears that the councils will recoup their losses by increasing land and housing rates... Just what we need with fuel at over $1.50/litre (more than $4.80/US gallon!) and mortgage repayments still at all time highs, and food prices going through the roof (because of fuel/transport costs).. Until a couple of months ago I was living on my own... And before food and fuel it cost me $189 per WEEK to keep the house running, that's council rates, water rates, insurances, power, gas, water and the like... When you consider that I'm not here for half the time, that's frightening!!! I see families who I know aren't earning much and I shake my head wondering how they manage...

Chris.........

 

[Uraijit]

Re: Batting for both sides?

Thanks, I was aware of the cause of this problem.. Another member explained it to me a few months back... The lenders lent the money HOPING that wages would rise and the marginal borrowers would be able to cope... But not being too worried if they didn't... Yeah, I get all that....

But, why aren't the banks forced to play the same hand in both directions? You can lose on one side of the equation, and not win on the other.... Seems a bit 'lopsided' to me... Or am I being too righteous again

Chris..........

I absolutely agree that it's a slanted system. Like I said, public risk for private profit. It's wrong wrong wrong, no matter how you slice it up.

My response was aimed at Ebry saying that the problem was cause by people not paying back their mortgages.

That wasn't it at all. It was that their mortgages were RAISED to the point that they couldn't pay them...

Not to mention a GROSSLY inflated housing market, that people were foolish enough to think was an actual value.

I felt like such a sap for not being able to make the numbers work to pay $250,000 for a "starter home". "How is a house worth that much?" I said. I asked myself about 300 different ways, and came to the conclusion that it simply wasn't.

Looks like I was right. Now houses are starting to drop down to their realistic values, and everybody who bought into them without thinking it through, is loosing BIG.

Who's the sap now? I'm thinking about buying in the next 6 mos. or so.

 

[Uraijit]

Re: Batting for both sides?

I never like to call people who can't or don't pay for their mortgages "deadbeats".

I do think that most people looked at real estate as a safe investment whose value would always go up. I do think that smart people took advantage of that thinking (Realtors, Mortgage Broker, Contractors, Furniture Stores, and the entire US economy). They allowed people to buy houses that were inflated and then allowed them to take out second mortgages to buy toys, home improvements and other houses. It was musical chairs and now the music has stopped.

If you buy a house for $500,000 you know it will increase to $550,000 by next year. If you owe $100,000 on your mortgage and your house is worth $250,000, surely you should be able to pull $75,000 out of it to buy that............sounds silly on hind site.

Didn't see this post before...

Anyway, I wasn't calling them deadbeats either. I was just saying that failure/inability wasn't a cause of the economic problems we're having, it was an effect. It wasn't that everybody just decided not to pay their debts. They were too ignorant to make good financial decisions. They based their choices on what their real-estate agents and bankers were telling them: "You can afford it, just get an ARM, it's REALLY unlikely that it will go up, the economy is just great! Sign here please!"

Well, when their mortgage rates skyrocketed, they had no choice but to default on their mortgages...

The 2nd and 3rd mortgages were just pathetic. Again, it was stupidity on BOTH sides. And everybody loses.

 

[achris]

Re: Batting for both sides?

Who's the sap now? I'm thinking about buying in the next 6 mos. or so.

I agree with you totally... In fact, if you have the money, buy 6 houses... Be a capitalist!...

We have the Oprah Winfred(spelling?) Show here and I caught it once when she had a financial adviser on... Correct me if I'm wrong, but aren't those ARM loans the ones that have a really low initial repayment (1st year or 2) but the loan continues to accrue interest at the normal rate, and that interest is added to the loan itself? So, you are continually INCREASING the amount you owe for the 'honeymoon' period.... I think that anyone who goes into one of those without thinking it though VERY carefully is a little silly. Couple that with the over inflated house prices... recipe for economic collapse....

Fortunately, Australia never caught onto that style of lending...

Chris.........

 

[SnappingTurtle]

Re: Batting for both sides?

According to congressional reports, a full 30% percent of the defaulters (home owners) were falling to make even their first payment. This went on for years at this rate, yet the banks and lending institutions continued to loan to this group of house buyers. Over two years after they knew they were in trouble, they ran to the American government and begged for tax payer money to bail them out.

It was their hope that the housing market would continue to rise, and they could either profit from the down payments and from the sale of the repossessed houses for an additional profit on these defaulted loans, or, they could quickly resale the loans to other institutions making a smaller but very quick profit with little or no risk in the loans they made to high risk consumers.

It was a snow ball scam on a international level. Like playing musical chairs. They all knew that there would be winners and losers, but arrogance always said they would be the winners.

Well many lost, and just as in the artificial bank invented Internet bubble, the little guy will be the one holding the empty bag and receiving the blame.

The money lost in this last, from a long line of get rich quick bank scams, didn't disappear from the world. Some just got even richer than they already were, and the rest of us will just get poorer.

Are people responsible for the loans they sign, yes. Were the banks giving horrible advice to these non-professionals? As always yes. Why do the banks do itt? Because they want more money. Greed.

If there are any to be called deadbeats in this latest scandal, it is the management of the worlds largest financial institutions.

 

[avenger79]

Re: Batting for both sides?

The "mortgage crisis" wasn't caused by deadbeats trying to dodge their mortgage payments. It was about being sold a loan at an artificially low interest rate. Then when the rate was hiked, they were UNABLE to make the payments.

Stupid choices in buying a house they could barely, or flat out couldn't, afford in the first place. But the banks took risky loans KNOWING that it would happen. They rode the wave, and when it crashed, the tax payers are being forced to bail them out.

Private gains from public risk. Where do I sign up for such a sweet gig?

I am going to disagree slightly. yes the banks caused it but the idiots who took the loans should have been intelligent enough with their finances to look at the payment book and say wow that's more then I make in a month, I can't afford it.
I know a few people caught up in this mortgage situation. I really have no sympathy for them. When I bought my house, yes the bank was willing to give me twice what I borrowed. No way could I afford that and live comfortably so I bought something I knew I could swing. People need to be responsible for their own finances. You know what your check looks like and how much you have left at the end of the week. The money won't magically appear because a bank tells you it's ok.
yes there's a lot more to it then just the mortgage thing but people and their dreams of wealth sure don't help. Bailing them out is even worse. So do we tax payers get the money back when they sell the house for a profit, or do they get to keep the free money?

 

[Beefer]

Re: Batting for both sides?

I agree, if a bank goes under due to poor investments, mismanagement, or whatever, the outstanding loans should not be required to be paid back. My reasoning? A) banks/lending institutions would be choosier in their approval methods B) banks/LI's would become stronger and more stable C) people would be unable to make impulse buys on items they can't afford

I don't think the government should be bailing out homeowners in this current financial atmosphere. I have been in the real estate industry for 10 yrs now as a home inspector, and I have seen every possible scenario of home buyer. There was the McDonald's hourly employee with a 2nd hourly job buying a $280k home because she could get into it with a 80/15/5 loan, ie, 100% financing, with an ARM, not thinking about how she could pay the mortgage without tons of overtime. She made 2 payments, and is now renting a bedroom from a co-worker for her and her daughter. Thought she was going to get rich. I could tell you hundreds of similar stories. Most of them got in way over their heads knowingly, thinking that the Realtor was working in their best interest (ROFLMAO), only to lose everything.

These are the people who do not make educated purchasing decisions, and rely solely on the advise of others. The kinds that buy into vacation timeshares, MLM opportunities, and Billy Mays type marketing. It's the dumbing down of America, and we failed the exams. Time to wake up and grow up, without a handout from fellow taxpayers.

I used to try and comprehend how people who made $40k were able to buy a big house, the Lexus/BMW/Benz/SUV, etc., the toys (boats, ATV's, airplanes, Harleys, etc.), and pay the electric and food bills. Well, reality is here, and they couldn't/can't. I'm sorry the folks make conscious choices to finance every aspect of life (groceries on credit cards?!?!?!), but every choice has an option. That's the option they chose, and they should deal with it as necessary.

Banks chose to finance these people. These people chose to accept those loans, payments, and RESPONSIBILITES. Both parties now need to be responsible for their respective decisions.

I used to be envious of the people with all the toys. Now not so much. I paid cash for everything I own, and I make less than the average person. I drive a $2000 car, and own a $1000 boat. My wife is a full-time student, and we have a 7 year old daughter. I bought a small house 16 yrs ago, sold it for a small profit (before the big bubble, otherwise I'd have a nicer boat ), and we manage our finances as carefully as we can. We pay interest no nobody on anything, and plan to stay that way as long as we can.

I don't want to sound cold, but I feel no pity for any homeowner who bought a house that required a mortgage of over 25% of their net income at the time of purchase, and I certainly feel no sorrow for the banks & LI's that made the loans.

My two cent rant... Kirk (Beefer)

 

[Uraijit]

Re: Batting for both sides?

I am going to disagree slightly. yes the banks caused it but the idiots who took the loans should have been intelligent enough with their finances to look at the payment book and say wow that's more then I make in a month, I can't afford it.
I know a few people caught up in this mortgage situation. I really have no sympathy for them. When I bought my house, yes the bank was willing to give me twice what I borrowed. No way could I afford that and live comfortably so I bought something I knew I could swing. People need to be responsible for their own finances. You know what your check looks like and how much you have left at the end of the week. The money won't magically appear because a bank tells you it's ok.
yes there's a lot more to it then just the mortgage thing but people and their dreams of wealth sure don't help. Bailing them out is even worse. So do we tax payers get the money back when they sell the house for a profit, or do they get to keep the free money?

They're not keeping their houses! The banks are still foreclosing on them. But a forclosed house still loses the bank THOUSANDS of dollars.

I agree that the people getting into these loans are very much to blame for THEIR OWN predicaments. But on the other side of the coin, the BANKS are to blame for THEIR problems.

If some neighbor kid asked you to "loan" him $500, that he would pay you back based on his $20/month allowance, you'd have a pretty good idea that he wouldn't be able to pay it back. So he buys an over-priced bicycle, at 3 times its value with it, and pays you back $50, and then can't pay anymore.

You take the bike back. You don't need a bike, you have no use for it. So you sell it for what you can get. Well, now it's a used, repossessed, bike, that initially sold for 3 times its actual value (cause all his other friends were buying them too). Now, because the whole town loaned money to the neighborhood kids, to buy these bikes with. There is a huge excess of these bikes that have been repossessed, and are now on craigslist.

So you get maybe $75 for the bike.

The neighbor kid is out $50, and a bike that he didn't pay for.

You're out $375, for giving a stupid loan.

Now, who's the person to "Blame" here?







Lets take it a step further, and say that the Mayor sees that a lot of people have lost a lot of money. "Well, that's not very fair" says the mayor, and sends all of the people who loaned the kids the money a check.

But how's the city gonna pay for that? "I know," says the mayor, "we'll garnish the allowances of ALL of the neighborhood kids!"

 

[tommays]

Re: Batting for both sides?




Being a person who could well afford there home i was sucked into one these Real Estate messes 11 years ago and walked away before it closed with no loss


It took the real estate agent morgage company and the who should have been the most trusted the real estate appraiser working toghter to try and move me into a home that was about 75K to high in a very tight market at the time


Had i not been very carefull about reading the report and location of the comparable homes i would have fallen into the mess and when i made them do a legal appraisal it fell apart like the house of cards shame it was


However this has kept going on and ended in a current mess because you aparently cant trust a good part of the real estate trade even with there fiduciary responsibilitys

 

[avenger79]

Re: Batting for both sides?

only two people really make money on houses banks and realtors. yeah their not looking out for the consumer's best interest.

 

[modernrocketry]

Re: Batting for both sides?

A mortgage is an asset that has value. Even if the institution that holds it goes defunct.
Someone will want to buy that asset and thus offset some of the money loss when the bank goes under. Think of it as a gold coin.

Your $$$ in the bank is insured to 100K, if you have more than that in a single account, you should seek financial advice or add additional insurance to cover it.

 

[SpeedJunkie]

Re: Batting for both sides?

only two people really make money on houses banks and realtors. yeah their not looking out for the consumer's best interest.

Funny... you are way off the mark here. First of all, homes put money in the wallets of way more people than banks and Realtors; how about the timber companies, builders, shipping companies, contractors, home improvement stores, and everyone they employ. Homes are big business and contribute tons to the economy (hence the housing crisis causing an economic downturn). Also if people didn't make poor finical decisions a home should be a great investment.

I would say the lending institutions are more at fault than Realtors. The Realtors job was not to qualify a client on what they can afford, it is to show them houses in their price range and negotiate the deal. Lending institutions are suppose to have debt to income ratio limitations they screwed the pooch when they started getting creative.