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It's the home owner's fault. They willingly entered into a mortgage. If they didn't understand the ramifications of interest rate changes, then they should not have signed the contract.
You're right of course, but it is the bank's fault as well as they knowingly came up with these loans and catering to a market that ordinarily couldn't afford conventional loans. These Interest-Only and ARM loans are extremely profitable for the banks, but they expose not only the banks, but the nation's financial system to jeopardy if housing prices don't rise. Rising home prices are the only way the borrowers who signed up for these loans can attain equity. But once the housing market stalls, or begins to sink, the ramifications of a stalled housing market begin to affect employment in construction, real estate, the mortgage industry, the big retailers who sell home improvement (Lowe's, etc.), then it moves into the restaurant industry, theaters, gift shops, basic retail, etc...in other words, the industries that employ the people who took out these loans, and they begin to default as they can't sell their houses that are falling below the mortgages they owe or pay the adjusted new rates. Like I said, I agree it was the borrower's fault as well for putting themselves into these situations. But think of it,... can you really blame someone for taking a risk to attain what would otherwise never have been possible as far as homeownership? Sure they took a risk, but many of them were able to do this and come out ahead by selling before the crash began. The people who really are, like the banks, at fault (and stupid), were those who had fixed rate conventional loans, or even owned their homes free and clear, but then took out equity loans to splurge on trips, cars, luxury items, vacation homes, whatever, and took those equity loans out as ARMs etc. Now those people were idiots and bought the lie that equity is "their" money, instead of realizing that equity means nothing until it is converted to cash, and, that if you cash out equity, it's still not your own money, but lent money from a lender who is charging you varying interest rates to use that money. It was never the homeowner's real money, but that's how it's sold to them. If they were dumb enough to put their homes in jeopardy by taking out equity loans they couldn't ultimately afford to pay back, or thought they could sell their homes at higher prices in the future to cover the equity loans they took out, then they may find themselve with nice pictures of the Caribbean, a new SUV, and ultimately no house. Those people are hard for one to feel sorry for. That was pure greed and stupidity. But even though millions of these borrowers will lose their homes (remember they are also the subprime market that credit cards companies lowered their standards on to give them credit lines with outrageous fees as they were the most profitable customers and they charge up the cards to the hilt, pay the minimums, and will default on that too), it's the banks themselves that lowered standards and created these convoluted financial loopholes to lend money to a segment of the population they could fleece for bigger return profits. And, most of the banks sell their loans...they create the problem, but then try to sell the loans off as profitable debt to investers willing to take the risk in return for hopefully high profits. So it's like a financial cancer that has spread through the entire financial system and it affects all banks and all areas of the economy, so you and me, even if we never participated in it. If the end result of this is that houses decline 20+%, that means even if you have 20% equity in your house and have a conventional 20% down/30 Year fixed mortgage, you're now unable to refinance, or possibly unable to sell as you have now no cushion of equity through no fault of your own. The lending practices of the banks and lenders (including credit card companies) have crashed the market and affected all homeowners, or have the potential to affect all homeowners, regardless of whether they are in good equity shape, own their homes free and clear, or not. If hundreds of thousands of homes flood the market through foreclosures and jingle mail, then regardless of your individual situation, that affects your ability to sell your home. That's happening around the country, first the coasts, Florida, Washington D.C. metro, etc., but now it's spreading to the Midwest where home prices are falling and there never was a housing bubble through most of it. So ultimately, the banks are at fault. That's my humble convoluted opinion.
It's the home owner's fault. They willingly entered into a mortgage. If they didn't understand the ramifications of interest rate changes, then they should not have signed the contract.
Perhaps they werent well explained? The best way to avoid any problems is to save till you can buy outright 100% down.
thisguy said:
"The banks dont lose much - they make a lot of income in the short run and even if house forecloses they have a 'real asset'"
I guess if they require a down payment, it protects them because they are forclosing your house at 90% price, the 10% downpayment you automatically lose. But if the bank cant sell the house for even that, they do lose money. Those that loan you with 0% downpayment are asking for big trouble. Banks need to be more careful who to pre-qualify for a loan and how much of a loan depending on the job, income and downpayment percent. As for ARM, they dont explain it clearly enough that some misinformed people lose out and end up losing the house and all equity. Some people sell the house at a small loss, others get forclosed.
Even fixed rate morgages can get you in trouble if you take out a large loan on more house than you can afford or if you lose your job. Its best I save up till I can buy a house 100% down.
Perhaps they werent well explained? The best way to avoid any problems is to save till you can buy outright 100% down.
thisguy said:
"The banks dont lose much - they make a lot of income in the short run and even if house forecloses they have a 'real asset'"
I guess if they require a down payment, it protects them because they are forclosing your house at 90% price, the 10% downpayment you automatically lose. But if the bank cant sell the house for even that, they do lose money. Those that loan you with 0% downpayment are asking for big trouble. Banks need to be more careful who to pre-qualify for a loan and how much of a loan depending on the job, income and downpayment percent. As for ARM, they dont explain it clearly enough that some misinformed people lose out and end up losing the house and all equity. Some people sell the house at a small loss, others get forclosed.
Even fixed rate morgages can get you in trouble if you take out a large loan on more house than you can afford or if you lose your job. Its best I save up till I can buy a house 100% down.
If buying a home required 100% down, with the way the American consumer saves I think about 4% of people would own a home. I am not being funny, I truly think this. Those who had "passed down" wealth or were hugely successful in their career (i.e. made $150K+/year) would be pretty much the only ones. Other people cannot save $300K in a lifetime. The average 401k balance in this country is $41K.
A lot of this speculation that ruined the home market could of been 'reduced' (not eliminated) by even a 5% down requirement. Then speculators who were buying 5th, 6th, 7th homes and juggling them all would not of been able to trade houses like stocks with nothing down, and exotic loans that basically require almost nothing to pay on a monthly basis the 1st year. A 5% down requirement would not lock out most of the US population from getting a house, and at the same time require speculators to at least put down SOMETHING and hence reduce the # of properties they could be speculating in concurrently. The guys buying a $600K house in CA to try to flip for $700K in 4 months, would have had to put down $30K for at least those 4 months. Most of these people were putting down nothing and paying for 2-3 months of interest only type of mortgages before trying to flip...
Again, who owns the government? Businesses with deep pockets i.e. banks and oils are 2 of the biggest, so a regulation like this that would stymie the # of transactions in the mortgage industry (hence driving down profits of banks) would never pass. But I still contend it would of stopped much of the bubble and the pain that is sure to be seen by lots of the "little people" in the next few years.
I am sure the same is happening in the other once hot markets...
Florida Real Estate
8/31/2006 8:55 AM EDT
According to the latest Florida Trend magazine, in Southeast Florida, Centex (CTX) recently offered discounts of up to $100,000 with Realtor commissions of 6% to spur sales.
Homebuilders have laid off workers, which is not a sign that things will improve any time soon.
Countrywide (CFC) and Washington Mutual (WM) have each closed offices.
My take - Buyers and sellers are playing a game of chicken, where buyers don't make bids, and sellers won't reduce price. As homebuilders flinch, buyers should win the game.
In Tampa Bay condo projects are being downsized and delayed. With speculators gone, the best new condo projects appear to be just 70% sold. Despite this, lenders are still interested in financing new condo projects.
Across the state of Florida sales of existing condos declined 22% during the first quarter. From Bradenton down to Naples sales are off more than 40%.
I guess we are seeing a return to a healthy market where most people actually buy to live in as a primary or secondary house. Most of the spectators have left, being burned by the deflating of the bubble. Serves them right, now they will lose money on the flip! I read an article where the realtors said in 2006 and 2007, house prices might rise 2%! Things have finally stabalized. Itll take a few years for all the excess inventory and new development to be sold off so I dont see prices rising again for some time.
Banks should now require at least 10% downpayment. You are right, most people take a morgage. What about the disciplined people who buy a mobile home and save aside money by buying funds(which appreciate nicely) and in 10 years have saved enough for 100% down on a house to own free and clear?
Just a few blurbs of many I could of taken from this article (written about a 15 months ago)
1) By the time those measures were in place in Phoenix last fall, however, the swarm of investors descending on the city was almost too much to stop. At one of the construction sites of big builder Toll Brothers, a van full of investors from Las Vegas pulled up to a sales trailer shortly after the antispeculation measures had gone into effect. According to a Toll Brothers spokesperson, the saleswoman on call was so flustered by the group's displeasure at being denied an opportunity to invest in such a scalding market that she had to radio headquarters for backup. "They all wanted to buy multiple properties, and they wouldn't take no for an answer," says the spokesperson. "They were trying to climb in and give her their deposits. She had to lock herself in the trailer."
2) Zareh Tahmassebian is on the way to look at two of his houses in Phoenix. He is lost. Most people don't get lost driving to their own residence, but then, Tahmassebian has never actually been to these particular homes. There are a few reasons for that: (1) He has no intention of ever moving into them, (2) he lives in Las Vegas, not Phoenix, and (3) he owns six other houses--and a half share of seven more--in the greater Phoenix area. "Sometimes it's hard to keep track," he says.
Tahmassebian, just 22, is a big, affable guy who dresses the way a budding young speculator should: black trousers, a blue-and-white-striped shirt, cuff links, a Cartier watch, black suede loafers, and rimless purple sunglasses. The son of Armenian immigrants, he has spent the past four years in Las Vegas working as a mortgage banker, a job that he says paid him $250,000 in salary and commissions last year. He has taken the day off to fly to Arizona for a "frame inspection." The houses he's inspecting are somewhere inside the Cholla Ranch development that's being put up by KB Home, one of the nation's largest builders. Right now he's in the general area--cruising southeast down Highway 10 in a white Chrysler 300M rental car--but lacking specifics. "Is that Tempe?" he asks. "I think I have some houses there."
When we finally arrive at the first construction site, on Paradise Lane, Tahmassebian begins his inspection. "See this wood?" he says, gesturing to the slatted frame of the unfinished house. "This wood made money for me! I don't own it--but I own the rights. I put a 10% deposit down, I haven't even made a mortgage payment yet, and it's already gone up $45,000. What a country!"
3) On several occasions Tahmassebian has even found himself at the grand opening of a community--an event typically reserved for "end users," as the builders like to refer to people who actually plan to take up residence. The openings are sales events where hopeful buyers are invited to gather with their families for a lottery in which the lucky new homeowners are selected. In oversubscribed communities the lotteries can get tense. Elsewhere, they take on the quality of a new-community pep rally. When a winner is chosen, the lucky family's name goes up on the board. They get a button. Someone takes a picture. Everyone applauds
Wow its crazy what a bubble it was! I am glad things have died down and it looks like the bubble will keep deflating for years to come. Perhaps by then if I have enough money, ill buy a house!
I still place all the blame on the consumer. People are responsible for their own actions.
People with ARMs are usually the same kind of people who max out their credit cards, then blame the credit card companies for giving them line of credit to begin with.
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Interesting nugget on FL market..
