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A few months ago, there was a series of articles reporting that many homeowners don't actually own their homes. It was because they put minimal money down and minimal monthly payments. After some years, they still don't own their homes because only a percentage of the equity has been paid (in mortgages)
I've tried searching for the articles online and either they're gone or located somewhere that I couldn't find. I also remembered CNN covered the story. Any help to locate any articles on it will be most appreciated.
Interest only mortgages may be what you're thinking of. The "buyer" only pays the interest, not the principle. In other words, they'll never have it paid off if they keep those interest-only mortgages and only pay the payments on the interest. Absolutely crazy if you ask me...
I am a bit intrigued by the logic of some people to argue degree of ownership in this respect. I have heard people claim that the home is not really owned until it is paid off, or until a significant portion of the principal is paid, or any number of other criteria.
I have always been a bit confused by why this is believed.
Legally, once a deed has been recorded there is 100% ownership subject only to the conditions of the deed where the ownership can be revoked (a mortgage). Until those conditions are in effect, ownership is absolute with respect to the deed. Even if the owner owes more than the value of the property, or indeed the sales price of the property, they still posess 100% ownership as long as they have a deed.
In various sale scenarios other than a contract for deed scenario there is no ownership until the conditions are met that convey the deed. In a land sales contract, it is common to require full payment of the sales price prior to the transfer of title. In that case the property can be 99.999% paid in full and the buyer still has zero ownership. Only when the deed is conveyed will any ownership be transferred.
On the philosophical side, we ask ourselves if we really own our homes with such a long term mortgage or high debt load since we forsee risk to posession possibly outside our control. The more debt or risk, the less we feel we really "own" our home. But with the rising trend of taxation, can't the same thing be said once our homes are completey paid off and mortgage free?
My father once pointed out to me that the property taxes on our house were higher than the yearly sum of monthly payments had been. His business partner had greatly improved his house over the years and his property taxes were more than 8x the payments had been each year. They were both paying more for their homes after the mortgages were paid off than they had during the mortgage periods (including taxes and insurance payments to the mtg company).
Interest only mortgages may be what you're thinking of. The "buyer" only pays the interest, not the principle. In other words, they'll never have it paid off if they keep those interest-only mortgages and only pay the payments on the interest. Absolutely crazy if you ask me...
Actually, that's not how it works. The "interest only" part is only for a short period of the life of the loan, ie 3 years or 5 years. The loan then converts to a regular principle and interest loan, usually at a variable rate. The loan is a regular term loan, such as 30 years and does get paid off. The mortgagee can pay additional money towards principle at any time (even during the interest only period), reducing the amount of interest paid.
The reason so many people have these loans was because at the height of the market, they didn't plan on staying in their homes for more than 5 years (expected to sell it for a huge profit) and wanted a payment they could afford, in essence buying a home they couldn't otherwise afford. Obviously that backfired since they can't sell their houses for profit, if at all. So while it was not a smart move to make, these types of loans were plentiful and people could not help but take the bite. If they can afford the payments when the loan converts to the variable rate, or possibly refinance (which is probably impossible if they paid top dollar for a home), then they will be OK. Otherwise, they are going to be in trouble when the interest-only term expires.
I think that this is one very good reason we are seeing such a crash. These people cannot afford the variable rate. I read some articles that were downright scary. Rates as high as 12.75%. That's just crazy.
Quote:
Originally Posted by tamitrail
If they can afford the payments when the loan converts to the variable rate, or possibly refinance (which is probably impossible if they paid top dollar for a home), then they will be OK. Otherwise, they are going to be in trouble when the interest-only term expires.
I think that this is one very good reason we are seeing such a crash. These people cannot afford the variable rate. I read some articles that were downright scary. Rates as high as 12.75%. That's just crazy.
I agree and that's why I think the government has to get us out of this mess. The people who made these mistakes and can no longer afford their homes are not just hurting themselves. They are hurting the whole market and the people who just need to sell and move on with their lives for other reasons. The way the country allowed mortgage companies to write these ridiculous loans is the same way they can resolve it. I don't know how, but there has to be a better way to stop people from having to foreclose. Some say it's their tough luck for getting themselves into that mess...but unfortunately it's become tough luck for us all so something needs to be done.
Wow you just described me tamitrail!! We bought using the FHA first time homebuyer incentives. We even got a "grant". The seller paid our closing costs, no extra money was added to our loan. We've paid diligently, never missed or made a late payment, never. We have savings. When things break, we replace them. Now that we feel we are forced to sit in our home instead of selling for other reasons, we are ready to make some real improvements to make our house that much nicer.
You know, I remember awhile back reading about how Bush shot down an idea to force the lenders to work with the homeowners. I think you are right, they help set up the fraudulent loans and let them go haywire, they need to take some action at the very least. It's affecting everything, from rents to food prices to everything.
Hopefully, when the election happens, we'll get someone in who can turn this mess around. It is going to take time to recover, but there has to be a way to fix this. Foreclosing on people isn't going to help ANYONE.
We are pretty much forced to stay in our home also. We would have liked to move a little closer to where dh works...but that's not going to happen because while I never planned on making a killing in selling our house, I am certainly not going to sell to lose money. We have a nice home and we'll stay put. But it's sad that the people who need to move, can't sell their homes or have to take a huge loss because of the shape that we have ALL been put in due to irresponsible mortgaging.
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