FHA may need a bailout (bankruptcy, loans, percentage, divorced)
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US-mortgage-backer-may-need-bailout: Personal Finance News from Yahoo! Finance (http://finance.yahoo.com/loans/article/107936/US-mortgage-backer-may-need-bailout?mod=loans-home - broken link)
AFTER it was very well known what caused the subprime meltdown the government goes down that very same path to create this situation..unbelievable! More of your taxpayer money at work.
That was the case for Bernadine Shimon. Like many Americans, Ms. Shimon has recently been through some rough times. She lost a house to foreclosure, declared bankruptcy, got divorced and is now a single mother, teaching high school English in a Denver suburb.
She wanted a house but no lender would touch her. The Federal Housing Administration was more obliging. With the F.H.A. insuring her mortgage, Ms. Shimon was able to buy a $134,000 fixer-upper in August.
“The government gave me another chance,” she said.
That is the entire problem in a nutshell. The response to her should have been "tough", get 20% for a downpayment and then you can consider buying a house. Until then...rent!
It appears that the more money people feel they're losing, the more likely they are to bolt. Owners with smaller loans were less likely to strategically default, even when facing the same percentage of loss.
For example, "once you hit the $200,000-and-up loan size in California, you start to see about 33% strategic defaults," said Tantia. A similar pattern, with 18% to 20% strategic defaults and lower loan amounts, plays out in the rest of the country.
the government bank bailout created a moral hazard in the private sector, which is now being played out.
I just do not get it. FHA is not a new organization; it has been around for a long time. Why are they giving loans to people that are not eligible? Homeownership is not a right.
You do not need to put down 20% in order to be a successful homeowner.
Does anyone have any financial stats on SONYMA? You need to have good credit to get the loan but a 20% down payment is not required. How are they doing?
Why are they giving loans to people that are not eligible? Homeownership is not a right.
You're missing the big picture.
This whole thing - expansion of FHA, nationalizing secondary mortgage markets, spewing "liquidity" throughout the land - isn't about giving people a chance at homeownership, no matter what anyone claims. The purpose of this is to support American home prices, and to cause "re-flation."
The purpose of this is to support American home prices, and to cause "re-flation."
Yep. Pretty much.
And?
As I said in another post:
Let's brush aside things like ethics, sustainability, creditworthiness, etc for a moment and just look at the big picture.
The housing/credit bubbles were one of, if not THE biggest financial parties in this nations history. A lot of people enjoyed some really good times during those few years. Bulls outnumber bears by something like 10 to 1 here. It will NOT be soon forgotten. To stand or sit there and think that hopes, demands, and attempts to reinflate those bubbles is going to abate anytime soon is someone who's living in an even bigger fantasy land than those who played "The Greater Fool". Forget it. It got quickly ingrained into our DNA and will not be forgotten anytime soon. And as long as we choose to take the paths of least cost/resistance (which is human nature), some or all of those attempts will likely succeed in varying degrees.
Until both banks *AND* irresponsible borrowers (emphasis on both to avoid giving one side over the other some appearance of favoritism) are FORCED to accept financial losses up to and including hundreds of thousands of dollars-quite literally at gunpoint and/or being dragged off to reinstated debtors prisons kicking and screaming if necessary, you guys are all wasting your time.
That's how deeply the housing bubble is ingrained into our collective pshyches. Not until real people like Mr and Mrs Jones are literally murdered over it or dragged to prison will we snap out of it.
Yes. That's what it's going to take to give us the cold çock across the face we so desperately need. EVERYONE needs to pony up to their obligations irrespective of what the present and future markets do. Pay with it either out of their wallet. Or pay for it with their life.
Sadly, I don't see that happening. We will do what we always do: kick the can down the road forever. And when we catch up to it, pass the buck onto the backs of the taxpayers.
And on a related note, in another:
Although I'm definitely in the camp of those who feel that the housing markets (and the economy in general) should be allowed to 'heal' itself on its own accord, my realistic and pragmatic side just doesn't see it happening.
Those of us who have "played by the rules" and practiced financial prudence have every reason to feel like chumps and suckers. Why is it that the ones who created the mess are the ones reaping the most rewards? read: getting bailed out.
The answer is as painful as it is obvious: because those are the people who spend money.
A person who never spends on impulse, always clips coupons, seldom charges anything, or buys 'luxury' items is someone who is, from a business perspective, worthless.
There is no money in being responsible. So why help them out?
Now those who played in the housing and credit bubbles?
They are another story.
They buy their his-and-hers Escalades, rims, state of the art entertainment and sound systems, granite countertops, designer clothing etc. Ok, so they might get hit with an over limit fee every so often. But what's an extra $20 and $30 here and there? Whether or not they can fundamentally afford it or not is another story. But those are the people who, by and large, have been propping up the economy for the better part of this decade.
So naturally, when the bottom fell out from under them, they were poised to take the rest of the economy with them. And we can't have that.
So what better way to create the appearance and feel of a recovery than by bailing them out and reinflating the bubbles so they can resume the party and get back to the business as usual paradigm of profligate spending?
It appears that the more money people feel they're losing, the more likely they are to bolt. Owners with smaller loans were less likely to strategically default, even when facing the same percentage of loss.
For example, "once you hit the $200,000-and-up loan size in California, you start to see about 33% strategic defaults," said Tantia. A similar pattern, with 18% to 20% strategic defaults and lower loan amounts, plays out in the rest of the country.
the government bank bailout created a moral hazard in the private sector, which is now being played out.
There is a game being played in California, it would probably explain the reason for the "strategic" defaults.
What is happening out here is that many folks who bought near the price peak put minimums down on their homes, but held onto them the past few years. Now seeing that prices have fallen 30-50%, depending on area, many have decided to take advantage of this price decline.
What they are doing is creating a "rental" for their existing home, while going ahead and buying a new less expensive home. They have good credit, and the rental of their old home allows them to qualify easily for the new home. They then move into the new home, and now stop making payments on the old home.
The only thing that happens to them is they lose the old home down payment, which was minimal, and take a bit of a credit score hit. Since they are already in their new home, with a mortgage, they don't worry too much about the credit hit. They keep up their other debts, and their score quickly starts to rise, and they have significantly cut their losses.
What they are doing is creating a "rental" for their existing home, while going ahead and buying a new less expensive home. They have good credit, and the rental of their old home allows them to qualify easily for the new home. They then move into the new home, and now stop making payments on the old home.
This is not allowed anymore and hasn't been for awhile. If your former primary residence cannot document 30% equity you cannot use rental income from it to qualify for the new home purchase. This is documented through either an electronic or full field appraisal. They may very well qualify for both mortgages but that is the only way to do this- "buy and bail" that is happening.
What they are doing is creating a "rental" for their existing home, while going ahead and buying a new less expensive home. They have good credit, and the rental of their old home allows them to qualify easily for the new home. They then move into the new home, and now stop making payments on the old home.
This is not allowed anymore and hasn't been for awhile. If your former primary residence cannot document 30% equity you cannot use rental income from it to qualify for the new home purchase. This is documented through either an electronic or full field appraisal. They may very well qualify for both mortgages but that is the only way to do this- "buy and bail" that is happening.
The rental income isn't a supplementary income for qualifying for the new home purchase, rather it is an offset lowering the monthly liability for the old home. It would be treated the same as investment properties.
* “I knew in my heart I could not really afford the house, but they gave it to me anyway,” said Mr. Fullenkamp, 22.
* “I thought, ‘Wow, I’m surprised I pulled that off.’ ”
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