Real Estate headed for deflationary spiral (prices, illegal, borrower, loans)
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I wonder about that to. ARMS, Interest Only loans those were generally for financially savy people and people who actually knew how to handle money. When those loans were being sold to anyone - nobody looked down the road. They just looked at the immediate gratification and not at the future.
We all know the banks look out for themselves and are all about making money and not providing a service, although they try to spin it that they care about the people. However, the borrrower is responsible for looking out for themselves also. Buyer beware type of thing I believe.
I always thought it was common knowledge that interest rates went up and down and I didn't finish college. Some of the people that are losing their homes are professional people in professional careers and they can't do basic math or read a loan agreement? Instead of wondering what if "rates went up", what if "we can't sell" they just believed everything would work out and signed on the dotted line.
What kind of thinking is that? It just seems like fantasy world. That is what baffles me about this mess and it is a big mess. Only time will tell how it gets all cleaned up.
For years, everyone simply seemed to think that better times were ahead (for themselves personally, if not for everyone) and took on debts and mortgages thinking that they'd be able to afford it in the future.
Oops.
I'm so glad I'm old enough that I was raised by parents who lived through Very Bad Times (30's & World War)... not many risks taken here, because always afraid the worst was coming.... and we're debt-free because of it.
CM, you're not rude on this one. I kept my clients away from ARM's in most cases since they only made sense if you knew you would only be in a house for 1-3 years.
When an arm is 3%, it had no where to go but up. If you can barely afford the payment today what the heck makes you think you can afford it when it goes to 7-9%.
You would think some of these lenders / borrowers were totally brain dead.
Or was it just pure greed?
It was pure greed on the lenders part, however, it wasn't always stupidity on the borrower's part. Not all borrowers realized they were in a bubble and it would burst. They planned on living in the house for the period the rate was fixed and selling before the arm came to term. Although I am not in the situation, I have never lived in a house for more than 2 years. So, it would have made sense for me to take one of those loans and move after two years. On a side note, my only frustration is that I can no longer move every two years.
It was pure greed on the lenders part, however, it wasn't always stupidity on the borrower's part. Not all borrowers realized they were in a bubble and it would burst. They planned on living in the house for the period the rate was fixed and selling before the arm came to term. Although I am not in the situation, I have never lived in a house for more than 2 years. So, it would have made sense for me to take one of those loans and move after two years. On a side note, my only frustration is that I can no longer move every two years.
I have to disagree...it's not the lender's responsibility to do your homework and cover your bases. How can you blame the lender and call it greed? No house is guaranteed to appreciate and no interest rate is guaranteed to go down or stay the same.
If people bought houses and took out 100% interest only or adjustable rate loans, how is it greed on the lender's part that the house is now worth less and the rates are increasing? How about the consumer doing their research and not trying to buy more house than they can afford with a risky loan?
It was pure greed on the lenders part, however, it wasn't always stupidity on the borrower's part. Not all borrowers realizedthey were in a bubble and it would burst. They planned on living in the house for the period the rate was fixed and selling before the arm came to term.
Clearly, many, too many, borrowers and lenders did not realize they lived and worked in bubbles.
It's all about the culture of greed, consumer debt, mortage debt, instant gratification and sustaining lifestyles well beyond one's ability to repay any of it.
Location: Georgia, on the Florida line, right above Tallahassee
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One of the things I've noticed on the Seattle forum is that people are talking about moving back to California more, now that home prics are more affordable. Most of them didn't realize just how dark and dreary Seattle is. I'd reckon you see nice sunny days about a month out of the year.
However, I don't see them mentioning much about California's shrinking human service infrastructure and loss of tax base. There is a price to pay for illegal immigration. You get cheap labor. You don't get taxes. You kind of need tax payers to have the infrastructure.
In other words, the illegals build the buildings, but you can't afford to put cops or nurses in them. That's hilarious and sad.
I have to disagree...it's not the lender's responsibility to do your homework and cover your bases. How can you blame the lender and call it greed? No house is guaranteed to appreciate and no interest rate is guaranteed to go down or stay the same.
If people bought houses and took out 100% interest only or adjustable rate loans, how is it greed on the lender's part that the house is now worth less and the rates are increasing? How about the consumer doing their research and not trying to buy more house than they can afford with a risky loan?
I never said it was the lender's responsibility to do the homework. All I said is it was the lender's greed (to sell and make look appealing any type of loan they could). The borrower's had a plan and it backfired. It made sense at the time to take one of those loans. They were also told they could refinance after the 3 or 5 years. Not all people knew the bubble would burst and their house would be less than they bought it for. And not all people took out 100% interest only loans.
The main reason that I do not believe greed was the motivating factor is simply because the raw profit margin on originating mortgages is quite low. Factor in the time spent and it further becomes clear that this was NOT all that profitable. As you move up the chain and gain some economy of scale /volume there was more profitability baked in for the aggregators and some of the "investor side" mortgage money people, but this was nothing compared to the serious dough that folks in IB got /get from IPOs. In fact one could even argue that the most ruthless of the traders in mortgage backed securities simply could not compare the midas-like riches seen by the "gods of the pits" that make their lives on top of Eurodollar trading.
The fact is that borrowers that were offered mortgages got something of value: a home. That is about as Norman Rockwell/Turkey Dinner as it gets in banking! I guarantee that anybody that thought HELOC was magic piggy bank that would never go empty probably limited their financial education to rumplestiltskin -- Rumpelstiltskin - Wikipedia, the free encyclopedia
Similarly anyone who hoped about from home to home every two years must not ever really understood the rationale that allowed financial institutions to routinely offer 30 year fixed rate loans. I got a surprise for a lot of youngsters. 30 year fixed rate mortgages were not around when scriveners like Ebenezer Scrooge ran things and balanced the books by the light of whale oil lamps. The are fairly new fangled and designed by / for / around the idea that default was a calculable risk that could be insured against with a large enough pool. It was birthed by the creation of the FHA in the wake of Great Bust of the 20's -- http://www.hud.gov/local/or/working/fha25year.pdf (broken link) HowStuffWorks "How Mortgages Work"
One could say that the first seeds that encouraged "flipping" or "property ladders" were planted in 1942 when the PREPAYMENT PENALTY that originally was built in the FHA loans was CUT to encourage savings to PAY FOR THE WWII build-up in 1942! If prepayment penalties were in place on all mortgages the crazy upward price pressure likely never would have hyper-inflated the many markets that it did.
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