why are people still doing this? (bankruptcy, loans, wholesale, expenses)

[stan4]

So we had a bunch of people getting into homes they really couldn't afford with little or no money down...and then the bottom fell out and foreclosures hit record levels...

Flash forward to today (not THAT far in the future)...I see people are still doing the same thing! Whether it's on HGTV's various shows about buying homes to people I know at work or as friends...people are still buying homes with nothing to little down.

Seriously?

Did we learn nothing?

Seems like the banks and the loans have tightened up and changed, but people are still acting just as stupid. Is this not proof that people will choose to do the stupid financial thing even after regulations are tightened? Who's predatory and who is an idiot now?

[notfriedkasei]

Okay, so I know very little about mortgages. Well, except that they are for buying houses and people frequently get in over their heads.

And I definitely get the down payment thing - reduces interest rates, reduces payments, pay less over the life of the loan, etc.

But then I was thinking ... even if you have a good plan, a good job, and buy a house well within your means ... you can still lose that job and not find another one for a long time. So you lose your house. Along with your entire down payment (because, uh, no one is giving that back to you). I'd feel so upset if I had paid into a mortgage for ten or twenty years, and then lost the house ... but I feel like losing a $50,000 down payment on top of that would make things so much ouchier. Whereas with no down payment, you still have that money (assuming, of course, you had saved up to begin with).

Does that make sense?

Be nice ... I'm young and nowhere near a house-buying stage in my life, so I am trying to learn

[GregW]

My sister in law stated that everyone she had known with any real money had invested in real estate. Please note this woman had moved to San Rafel, California in 1975 and stayed there untill 2005. No wonder she made money in real estate. Duh?

Anyway I invested a small amount in a rental property along with her. At least it hasn't lost anything during the crash. The only reason I did invest is that speculation had never hit that part of the country and has still avoided the place. It seemed like a good deal and so far remains so.

[Des-Lab]

I too remain perplexed as to why so many people remain so stubbornly fixated on this issue.

Yes. I get the whole financially sound and "skin in the game" concepts. Yes, I know all about the deadbeats, strategic defaulters, and some folks getting in over their heads. Ad nauseum, ad infinitum. I understand all of that.

Thing is. I am dubious that that's where you are coming from. The impression I seem to be getting is that some of you are harping on this point not much because of any of the aforementioned reasons, but rather because of a resentful...almost vindictive and punitive mindset along the lines of "Hey. If I had to struggle to cough up a down payment, YOU have to struggle."

Granted, I too would be more than a bit peeved if I had to spend two or three years as a shut in, subsisting on macaroni and hamburger to save up for a down, only to see someone else get into a house with little or no adversity of their own.

Oh well. Life's not fair sometimes. If that person who wishes to buy can prove solid income, solid credit and references, then I don't see where there's a problem if there's a lender offering that service. A person with good credit worked hard for it and these days understands how important it is. So they will likely do everything in their power to maintain it. If they were inclinded to default and skip on a mortgage, they would've done it anyway, down payment or not.

Aside from that, I am with you in being opposed to granting loans wholesale to anyone who could fog a mirror irrespective of the bigger picture. But by the same token, it needs to be taken on a case by case basis. For instance. Someone who is living in a very high rent area (such as Orange County, CA) who wishes to move to a lower cost area. Where the cost of the home (loan, maintennence, taxes, etc) are the same or lower than what they were getting gouged for in the high rent city. In such a scenario, paying 30-50% income plus expenses *AND* saving up the requisite downpayment can be a practical impossibility, or at the very least, take a decade or longer to accomplish. C'mon. You can't really expect folks to go for that when they otherwise have the income, credit, and means to qualify for a fixed loan.

[LeavingMA]

There are several things going on here. Many people think they are getting a deal and also that they were priced out of the market from 2004-2006/07. Many think that with interest rates being this low that now is the best time to buy. I've seen FHA mortgages take over many parts of sub-prime issue.

The fact is if interest rates went up home prices would in most cases start to come down further. Buyers really only look at what the total monthly payment would be. It does not matter if they are paying 4% or 7% if they could get a specific house for say $1,500 a month. I personally believe we would be better off with lower home prices and higher interest rates, but many of the powers-that-be don't want it that way. It is easier to put 10% or 20% down on a house that is $150k rather than the same one that is now $225k or $250k.

Someone mentioned if you lost your job you would be better not putting all that money down. Well, you would be better putting money down. If you put more money down your payment is less and also you could sell your home and still break even or pay off the existing loan. If you only put 3% down and homes loss 5% of their value one year you are already under water. Also, the more money you put down the more your invested in that house and less likely to walk away like many people are doing.
The problem we have right now is all the taxpayers are on the hook for everyone else's homes because most of the mortgages are sold to Fannie and Freddie. We are all invested in real estate whether you like it or not.

The first think people need to realize is their single-family home is not an investment. You buy to live in it. I've seen too many people put minimal down and still don't have enough money for emergency expenses if the furnace went, etc. Everyone seems to want the dream house and if they can get in that putting no or minimal money down they do it. I've seen people do FHA mortgages for homes over $400,000. People that still weren't ready to buy a home did so when the government offered the $8,000 tax credit. In many cases, people just aren't that smart with money and all these government programs haven't done anything to help with that.

[stan4]

Originally Posted by Des-Lab

I too remain perplexed as to why so many people remain so stubbornly fixated on this issue.

Yes. I get the whole financially sound and "skin in the game" concepts. Yes, I know all about the deadbeats, strategic defaulters, and some folks getting in over their heads. Ad nauseum, ad infinitum. I understand all of that.

Thing is. I am dubious that that's where you are coming from. The impression I seem to be getting is that some of you are harping on this point not much because of any of the aforementioned reasons, but rather because of a resentful...almost vindictive and punitive mindset along the lines of "Hey. If I had to struggle to cough up a down payment, YOU have to struggle."

.

No...what's going on isn't about resent. It's about a whole lot of tax money going into rescuing people and institutions from the fall-out of this and then seeing it just happening all over again...we as a country should have learned *something*...it's worrying that I will again have to participate in the bailout of millions of people who made stupid decisions. I'm not innocent...I've made dumb mistakes in my life. But the point of those dumb mistakes is to learn from them.

To the poster who said you'd be better off less invested in a house...that's not really true. When you have no money in the house (or what we call equity), if and when the house prices fluctuate downwards, you can actually owe more money than the house is worth. If at that time you were to lose your job (as many people did), you would be 'under water' and here comes the foreclosure, bankruptcy, etc....

[stan4]

Originally Posted by Des-Lab

In such a scenario, paying 30-50% income plus expenses *AND* saving up the requisite downpayment can be a practical impossibility, or at the very least, take a decade or longer to accomplish. C'mon. You can't really expect folks to go for that when they otherwise have the income, credit, and means to qualify for a fixed loan.

That's funny. That's what people did for generations. My parents were in their mid-30s before they got their first home. The rented up till then. Their first apartment in NYC had a mattress, a box, and a mini-fridge. Now they are millionaires. Some people in some areas (and many countries) rent their whole lives.

It's the b.s. fallacy that we all should and deserve (I hate that word) to own a home. Especially at the expense of everyone else's financial security.

[Des-Lab]

Originally Posted by stan4

That's funny. That's what people did for generations.

That's true. But also for generations, home price to income ratios were also more in line. And by extension, the overall cost of living as well. A generation or two ago, it was possible for a single breadwinner working an average honest job to comfortably support a family of four.

Today, that's just not possible. Ironically the only people who can really do that are the ones who are created this "mess" and are feasting on the carcass of what was once the middle class.

As for "entitlement", well you better be careful what you wish for bro. You just might get it. When everyone suddenly stops spending or even striving to achieve, and the economy takes yet another beating a-la Cinco De Mayo piñata, don't say you weren't warned.

Again. YOU can't have it both ways either.

[stan4]

Originally Posted by Des-Lab

That's true. But also for generations, home price to income ratios were also more in line. And by extension, the overall cost of living as well. A generation or two ago, it was possible for a single breadwinner working an average honest job to comfortably support a family of four.

Today, that's just not possible. Ironically the only people who can really do that are the ones who are created this "mess" and are feasting on the carcass of what was once the middle class.

As for "entitlement", well you better be careful what you wish for bro. You just might get it. When everyone suddenly stops spending or even striving to achieve, and the economy takes yet another beating a-la Cinco De Mayo piñata, don't say you weren't warned.

Again. YOU can't have it both ways either.

There are homes for every income. Just not the homes that people want with their pretty granite and stainless steel nonsense. And homes are not for everyone. It's not some right that you get to have a house. And we should remove the stigma from renting, too. Sometimes it's the wisest thing to do.

It's still possible for a single breadwinner to support a family. Just not the way people want to live. You have to admit that what is considered 'standard' for lifestyle is unbelievably different these days...everyone wants and expects the little luxuries of life. THAT is mostly what people are paying for with their second incomes. "What do you MEAN, 'luxury'?! We can't live without THAT!" b.s.

The younger generation freely admits that they expect to go from their parents' house to another place just as nice...there are many who don't understand that their parents didn't start out in their 3000 square foot McMansion...you have to work your way up to that, often living in seedy dumps to get there. People I know who do a lot of hiring say that these young people come in and demand the salary - THEN they will show their employers how good they are. Back-assward. That is the entitlement of which I speak.
They want their iphones, ipods, imacs, flat-screens, Starbucks, cable, wireless...all of which are luxuries (but have now been deemed necessities). Even the most poor, broke-ass 20-somethings I know have internet phones. The priorities are evident.

[dazzleman]

Originally Posted by stan4

So we had a bunch of people getting into homes they really couldn't afford with little or no money down...and then the bottom fell out and foreclosures hit record levels...

Flash forward to today (not THAT far in the future)...I see people are still doing the same thing! Whether it's on HGTV's various shows about buying homes to people I know at work or as friends...people are still buying homes with nothing to little down.

Seriously?

Did we learn nothing?

Seems like the banks and the loans have tightened up and changed, but people are still acting just as stupid. Is this not proof that people will choose to do the stupid financial thing even after regulations are tightened? Who's predatory and who is an idiot now?

Why should we learn when the government bailed everybody out? Bank bailouts, loan modifications. And now the government is underwriting almost the entire mortgage market. What do the banks care? When the loans go bad, it falls to the taxpayer. How can we learn when the government keeps enabling it?