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Old 01-17-2011, 03:17 AM
 
Location: Boise
64 posts, read 131,705 times
Reputation: 53

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People were using their homes as their personal bank via HELOC or 2nd mortgages to get those cars, big screens, vacations and maybe even make the payments on the loans. All they had to do was hang in there until the price increased above what they owed, sell for a profit and repeat.
I knew an illegal alien who got a home loan. Only lasted for a year when it reset and he could not make the payment but obviously there is no way he should have been able to get any kind of loan. This actually started many years ago when the government passed a law requiring banks to make more loans to disadvantaged people so everyone could enjoy the american dream of home ownership. This law was not having the desired result so after the dot com bust our government decided it was time to take action and insure everyone who wanted a home got one. They did this by dropping interest rates (partly to stimulate the economy) and allowing banks more leeway in who they gave loans to. This had the effect of pouring gas on the housing market. They (govt) screwed with the market and created a huge false demand that made prices shoot up. But as long as everyone was making $$$ no one cared or thought about the future. Most people (myself included) thought the price increases would level off but never go down. So onw the housing market is rebalancing itself and just as there was much pleasure on the way up there will be much pain on the way down. Only the pain will be felt mostly by what is left of the middle class in this country as all the bad loans and investments that should have resulted in those business (that made risky moves) going out of business are being covered by us taxpayers.

I better stop here before I go on a political rant.
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Old 01-17-2011, 06:20 PM
 
2,942 posts, read 1,626,344 times
Reputation: 1726
[quote=Ex-Expat;17446591]People were using their homes as their personal bank via HELOC or 2nd mortgages to get those cars, big screens, vacations and maybe even make the payments on the loans. All they had to do was hang in there until the price increased above what they owed, sell for a profit and repeat.


This happened in Phoenix in 2006. People took out home equity loans and
2nd mortgages on their $300,000 homes, that they bought new in 1998 for $120,000.
Put in expensive luxury swimming pools, and purchased large SUV,s. Then the bottom fell out, and their homes went back to $120,000. But they still owed all the extra loans. So they had to foreclose, and loose their homes.

Last edited by jwest09; 01-17-2011 at 06:44 PM..
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Old 01-18-2011, 03:09 AM
 
Location: Boise
64 posts, read 131,705 times
Reputation: 53
Quote:
Originally Posted by jwest09 View Post
This happened in Phoenix in 2006. People took out home equity loans and
2nd mortgages on their $300,000 homes, that they bought new in 1998 for $120,000.
Put in expensive luxury swimming pools, and purchased large SUV,s. Then the bottom fell out, and their homes went back to $120,000. But they still owed all the extra loans. So they had to foreclose, and loose their homes.

They walked away from their homes and home loans but kept the SUV(s), big screen TV, furniture and everything else they got with the $$$ from their house. I know someone who stayed in their house for 9 months without making a payment before the bank made them move. The average is much higher now.
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Old 01-18-2011, 07:01 AM
 
1,056 posts, read 2,672,521 times
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It's not entirely the fault of the borrowers, though.

I have some younger friends that bought a house in 2005. They had bad credit but made more than enough to cover the mortgage; however, they didn't have enough down. Their lender advised a 3/1 floating adjustable rate mortgage, on the advice that in three years of paying interest only they could refinance the loan before it reset and get a fixed rate mortgage.

Year and two they paid about 800 a month; year three it was 1200 a month. And not shockingly, when it came time to try and refi housing prices plummeted and they owed more on principle than the house was worth. Their rates reset such that the 800 a month payment became 1600 a month.

Lenders were giving bad advice based on a very short window of housing trends.
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Old 01-18-2011, 08:04 AM
 
Location: River North, Chicago, Illinois
4,620 posts, read 8,123,918 times
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Quote:
Originally Posted by boisefan88 View Post
It's not entirely the fault of the borrowers, though.

I have some younger friends that bought a house in 2005. They had bad credit but made more than enough to cover the mortgage; however, they didn't have enough down. Their lender advised a 3/1 floating adjustable rate mortgage, on the advice that in three years of paying interest only they could refinance the loan before it reset and get a fixed rate mortgage.

Year and two they paid about 800 a month; year three it was 1200 a month. And not shockingly, when it came time to try and refi housing prices plummeted and they owed more on principle than the house was worth. Their rates reset such that the 800 a month payment became 1600 a month.

Lenders were giving bad advice based on a very short window of housing trends.
I'm an advocate of personal responsibility, but I'm not one of those idiots who thinks that only applies to the borrower.

The lender and those who represent the lender also have personal reponsbilities and, because they are experts, the amount of responsibility they had to properly advise their customers should have been much higher.

While I don't feel much sympathy for either side - the borrowers should have done more homework and made sure they were getting good advice, and the lenders should have known better than to lend to people in such a precarious position - what sympathy I do have is more for the borrower in situations like those of your friends because they aren't the experts.

Then again, I'm pretty hard-core and don't think we should have propped up the banks that got themselves into this situations. I don't think we should have let the business of those banks just explode, but the banks should have had all their existing business converted into a "bad bank" managed by the government while the original bank was dissolved and any appropriate legal action for breaches of fiduciary obligations taken against the officers of the bank.

An example I think is appropriate: What would happen to a doctor who ran around telling people they should take codine and failing to tell them about the addictive properties of opiates? Sure, people should know about the addictive properties of opiates on their own, but as a society we hold the doctor to a higher standard because he's the "expert." I don't see much difference in the case of a mortgage broker, especially since some of the most successful mortgage brokers made as much - even more - money as a doctor does.
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Old 01-18-2011, 01:37 PM
 
Location: Boise
64 posts, read 131,705 times
Reputation: 53
I think everyone in the money train is partly responsible. Drunk on greed and the fear of missing the $$$ train. Borrowers for taking on more loan then they could pay with the idea of selling for a profit in a year or two. Realtors for selling the idea that housing never comes down and it's always a great time to buy. Mortgage brokers for accepting shady documents or false documents just to get their cut. Banks for giving $$$$ to people without seriously considering their ability to repay and then sticking the taxpayer with the bill. This whole thing was just one big transfer of wealth from the working masses to the select few TBTF banks.
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Old 01-18-2011, 01:43 PM
 
Location: Boise, ID
139 posts, read 383,403 times
Reputation: 87
Let's focus on some positive points in the real estate market. First off, home values have declined to a point where the average Idaho wage earner can now support a single family home mortgage. Resale inventories are shrinking and we can finally start to move that infamous shadow inventory of REO's. We are converting folks who work as baristas from Starbuck's and stockpersons at Costco from renters to first time homeowners. As far as water is concerned, have you seen the level of Lake Mead lately? We are not nearly as screwed as So. Cal and Arizona are going to be.
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Old 01-18-2011, 10:12 PM
 
1,056 posts, read 2,672,521 times
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But part of that problem is people aren't in the position to take advantage of low home prices, because they're buried in the home they bought during the boom years, or they're being foreclosed on, or they have no job.
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Old 01-18-2011, 10:46 PM
 
Location: The City of Trees
1,402 posts, read 3,347,128 times
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What about the thousands of people, yes in Boise, who are not buried in a home, who are not being foreclosed on, and have a job? Are they just forgotten?

People moving here with a job, what about them?
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Old 01-19-2011, 12:26 AM
 
Location: Sandpoint, ID
3,109 posts, read 10,804,417 times
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Quote:
Originally Posted by TohobitPeak View Post
What about the thousands of people, yes in Boise, who are not buried in a home, who are not being foreclosed on, and have a job? Are they just forgotten?

People moving here with a job, what about them?
I think that's the point of what TeamGray is saying. While Idaho is seeing some big hits in the housing market, I would think the pain will be shorter and less severe than people in the crazy bubble areas. Granted Idaho saw its own "bubble" but nothing like places where some of my friends live...yikes...
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