Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
So the bank says the home is worth $300K. You put down $30K and get a loan
from the bank for $270K.
Your first sentence is incorrect. The bank orders the appraisal for their benefit- not for the benefit of the borrower. The borrower needs to decide in a sale if they are overpaying for the house. And for a refinance, they need to make sure they aren't borrowing too much money. This misconception of the intended use and intended user of the appraisal came about when federal laws were passed that required the lender to provide a copy of the appraisal to the borrower. Receiving a copy of it still doesn't make the borrower a client or intended user. The guidelines used for mortgage appraisals suit the purpose of the lender, but oftentimes result in a different value than what you'd get if you were the client. That's because Fannie & Freddie guidelines force the appraiser to make certain comparable sale selections that might not be the best comps under other situations.
Nonetheless, the value of the house is irrelevant to whether or not the borrower still has the means to pay their mortgage. These strategic defaults are nothing more than theft, regardless of your moral relativity.
In a related matter, the securities market for bundled mortgages operates very quickly. Purchasers of those mortgage-backed securities have very little time to do their due diligence. So for the sake of valuation, they'll usually order reviews of the appraisals on a small sampling of the properties involved in the sale. The appraisers who do those reviews usually have only 1 day to complete the review and get it back to the appraisal management company. Good appraisers refused the sort of work because 1 day is usually not enough time to do a complete field review. So there were lots of bad appraisals from the origination of bad loans as well as bad reviews of those bad appraisals- resulting in the financial crisis.
Kind of ironic because several of my co-workers bailed on their homes... right or wrong they determined they could rent in the same areas equivalent homes for significantly less than owning cost... one couple moved down the street and their kids stayed in the same school.
Fast forward and they are again having trouble and the couple on the same street said what seemed like a smart thing to do at the time was not.
True, they walked away and did rent for much less back in 2008... they also ruined their 800 credit score... the home they rented was a foreclosure and after the year lease it was sold... they moved to another rental and the same thing happened and here in the Bay Area... the rents have risen steeply... so the great deal renting isn't so great anymore plus having to move takes a toll.
They wanted to buy and found their trashed credit a huge problem
Now the home they walked away from has recovered and plus a lot more...
Their older neighbor was in the same position and stayed the course... they had originally bought at the same time and now is downsizing and made a nice profit without all the turmoil.
The above is very common in the SF Bay Area... many that bailed and are now finding they missed the boat.
The problem started when larger & larger numbers of borrowers failed to pay their debts. So long as the payments were being made, no one cared about the repackaging & selling of the debts. Are you saying that banks are somehow responsible for millions of borrowers not paying their debts?
One of the problems is that the tranching made the default rate on the securities extremely sensitive to the default rate on the underlying loans; that is, a very small increase in the number of defaulted mortgages caused a huge increase in defaults on the packaged securities, even the higher tranches. So the repackaging magnified the effect of an increased foreclosure rate.
I know two people who did. What they called a strategic financial decision. One has been living rent free for 4 years. Kept loan modding and then tried to refi and then finally let it to in foreclosurez he rented a house a while back and then rented his house to someone for the same amount he was renting the new house for. so he literally lived rent free for 4 years. Put the kids on low income for school food because he qualified for it due to low income. He did a lot of cash jobs so his in one was at least on paper below poverty level.
Whoever said that you can't get ahead is the guy who has no clue how to use the system for their benefit.
I am sad that folks now use the "system" in immoral ways. They do hurt others in unknown ways, such as taxpayers, but they feel they can live with themselves.
Many are to blame in this whole mortgage meltdown situation so it is difficult to point fingers. In a different age, maybe the schemers would have been forced into following the rules.
The world has seemingly changed but maybe it is just human nature.
Excellent comments. Most banks were also forced to make bad loans by the Feds under the guise of the Community Reinvestment Act. .
This is something that is trumpeted as an undeniable fact when it is far from it.
50% of subprime loans were made by institutions not regulated by CRA, and in the cases of many of those that were regulated, there wasn't any pressure put on them to through regulation.
The truth is that mortgage lenders made these loans because they made a quick buck off of them, and weren't concerned about the long term ramifications.
If you're a mortgage broker and you draw commission off every loan you make, and you can either make a deal on a subprime loan and pull commission, or make no money with no loan..what do you do? You make the loan. The banks were adding assets to their balance sheets so they didn't care either.
The problem started when larger & larger numbers of borrowers failed to pay their debts. So long as the payments were being made, no one cared about the repackaging & selling of the debts. Are you saying that banks are somehow responsible for millions of borrowers not paying their debts?
Yes...To an extent. Don't get me wrong; I would have a really hard time ever walking out on a mortgage. I'm not saying that consumers weren't irresponsible, and I'm not saying that some people shouldn't have had better financial sense and made better personal choices. I am saying that the banks WERE responsible for WRITING CRUMMY MORTGAGES. In doing so, EVERYONE suffered. Many people COULDN'T pay their mortgage as a direct or indirect result of the banks issuing mortgages to anyone with a pulse. IF the banks hadn't issued so many crummy mortgages, THEN we wouldn't have had the bubble, THEN the real estate market wouldn't have crashed, and the home appliance business wouldn't have taken a hit, and the auto industry wouldn't have taken a hit, and the Insurance company's wouldn't have taken a hit, and everything around the housing market wouldn't have taken such a hit. The widespread effect of the housing bubble is hard to estimate, but it goes further than home builders, banks, and buyers. Very few, if any businesses, were immune to the market crashing, and the ripple effect was devastating.
Yes...To an extent. Don't get me wrong; I would have a really hard time ever walking out on a mortgage. I'm not saying that consumers weren't irresponsible, and I'm not saying that some people shouldn't have had better financial sense and made better personal choices. I am saying that the banks WERE responsible for WRITING CRUMMY MORTGAGES. In doing so, EVERYONE suffered. Many people COULDN'T pay their mortgage as a direct or indirect result of the banks issuing mortgages to anyone with a pulse. IF the banks hadn't issued so many crummy mortgages, THEN we wouldn't have had the bubble, THEN the real estate market wouldn't have crashed, and the home appliance business wouldn't have taken a hit, and the auto industry wouldn't have taken a hit, and the Insurance company's wouldn't have taken a hit, and everything around the housing market wouldn't have taken such a hit. The widespread effect of the housing bubble is hard to estimate, but it goes further than home builders, banks, and buyers. Very few, if any businesses, were immune to the market crashing, and the ripple effect was devastating.
..and they wrote the crummy mortgages because "they"..or at least some of the people working at the mortgage companies, banks, along with the guys selling mortgage backed securities, got rich off of it. Nobody forced anyone to get rich selling bad loans, they did it on their own.
When this whole thing hit the fan, a guy I worked with had a friend who was trading mortgage back securities. When he was told to clean out his desk, he had already banked more money than most people in this country will make in a lifetime. Do you think he cared for a second that everyting he worked on was a failure? He's got multi-millions in the bank!!
It's the homeowners fault that this guy did what he did, or that his bosses looked the other way because they were reporting such huge profits? Some people really have a soft spot for Wall ST, I tell you. How they idealize such a bunch of crooks I'll never know.
One of my sisters is way underwater in her home and decides she can't afford to live there anymore. Her plan is to just stop paying her mortgage and keep living there until the Sheriff comes and kicks her out of her home.
In her State there is an average time from stop paying and being kicked out of the house of 300 days. In her twisted logic, that would give her almost a year to save the money she sends in for her mortgage to use on a rental and other expenses.
Don't tell me this is immoral or crazy, I have already told her that. Do you know anyone who has done this and how would she be able to rent an apartment after this?
(She lives alone and declared Chapter 7 Bankruptcy 3 years ago, but was able to keep her house for some reason after her bankruptcy.)
I'm sure your sister would be able to rent an apartment after being kicked out of her house. Especially if she's been able to save up enough money for first months rent, last months rent, and perhaps a bigger security deposit. People walk away from underwater houses all the time. In fact, that's probably what most people should do. Let the banks think twice about lending money on overpriced properties.
Let the banks think twice about lending money on overpriced properties.
And then Borrowers whine and complain when Appraisals come in low in a rising market.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
