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In many areas there were no homes available at the "3x your income" range. It would suck to make 70 or 80k a year for instance and not have a prayer of finding a home you can technically afford. In some areas of California I don't think 150k a year would even get you in a home you could "technically" afford. So I think some of this was people just panicking and trying to get a home before they were to far out of reach (thinking that they would never come down perhaps). The reasons are varied and being so concerned about who is to blame probably won't do much good. Being responsible and buying what you can afford is a big part of all this, but events can happen to the most responsible person, so people should be careful to not judge to harshly.
Being responsible also means that for every risky move, you have a backup or contingency plan. Yes people would love to get their dream home and hedge a bet that they can afford it later thru a) a refinance b) a job change for more money or c) some other windfall; the prior poster knew an ARM was coming due so he saved for it and refi'd before it was due, at the same time keeping a job and a clean credit to be able to afford what he planned. As a two income family, we keep our mortgage under or no more than one income so that we at least would not lose our home if one gets laid off. It is when we have a job when we save more than what is required to be able to afford COBRA after a lay off or when one is sick. Personally, owning a home is very important to us so we would not move to a place where the pay is good but homeownership is out of reach. I would not want to be working in Greenwich since I can't live there.
In many areas there were no homes available at the "3x your income" range. It would suck to make 70 or 80k a year for instance and not have a prayer of finding a home you can technically afford. In some areas of California I don't think 150k a year would even get you in a home you could "technically" afford. So I think some of this was people just panicking and trying to get a home before they were to far out of reach (thinking that they would never come down perhaps). The reasons are varied and being so concerned about who is to blame probably won't do much good. Being responsible and buying what you can afford is a big part of all this, but events can happen to the most responsible person, so people should be careful to not judge to harshly.
jmfnme - I agree with you on the "3x your income" part. In the past few years, many parts of the country have had excessive housing inflation. California and much of the Northeast have houses that are extremely overpriced in comparison with the rest of the country. To get decent housing in these areas, you'd be looking at 7-10X income that would be necessary. This is a stretch for most of the middle class, which invites financial problems.
But what goes up, will come down, in time. It will never be as cheap to live in California or the New York metro area as a large swath of the South and Mid-west, but over time that great disparity will decrease somewhat.
I don't think it's as simple as generalizing everyone into one bucket, irresponsible, people who bought above their means, shady lenders, etc. There are many different reasons people are in this situation, and, while it definitely happened, it's not all because they bought above their means. I know a couple who bought a small starter condo that they could definitely afford and can still afford, however, now with the market shifts are upside down and unable to sell, but with a growing family and a job offer in a less expensive area of the country, they need to move. There are many different situations out there, so it's best not to judge too quickly. Sure there were some greedy people, but most were just normal, smart, every day people, just like you and me. Frankly, the situation just sucks all around, and I feel sorry for people who pursued the american dream and lost and now have to deal with the consequenses of that loss.
I don't think it's as simple as generalizing everyone into one bucket, irresponsible, people who bought above their means, shady lenders, etc. There are many different reasons people are in this situation, and, while it definitely happened, it's not all because they bought above their means. I know a couple who bought a small starter condo that they could definitely afford and can still afford, however, now with the market shifts are upside down and unable to sell, but with a growing family and a job offer in a less expensive area of the country, they need to move. There are many different situations out there, so it's best not to judge too quickly. Sure there were some greedy people, but most were just normal, smart, every day people, just like you and me. Frankly, the situation just sucks all around, and I feel sorry for people who pursued the american dream and lost and now have to deal with the consequenses of that loss.
sharlalulu - I think you're exactly right! It seems that after the stock market meltdown in 2000, real estate became the "next big area" in which to make a financial killing. Unfortunately, the wrong people ended up on the losing side of the financial equations. It will probably be a few more years, until this whole sorry mess, straightens itself out!
Early on in this thread one poster said this "situation is complex". I think that is very true as evidenced by the responses so far. In each case of foreclosure one must look at it as ---What happened here? More or less the same way I posed the question in my OP.
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I don't feel bad for people bought a a house over $400,000 b/c they were smart enough to know what they were gettting into but someone that only spent $100,000 maybe didn't know any better and just beleived what they were told.
KB is running a special now, 0 down, 0 interest..how can they still do that? It scares me!!! I thought the laws changed.
As someone who bought his first home a year ago, here is my perspective:
First, there are a lot of buyers who stretched themselves way too far because they wanted a house they technically couldn't afford. They took on any exotic loan to make it possible, and quite honestly I don't have any sympathy for them.
Secondly, there are a lot of lenders who preyed on that type of behavior and exacerbated the problem by "fudging" peoples' incomes.
I feel bad when I hear about people who thought they were exercising prudence but, due to a turn of bad luck (such as being laid off), are now facing foreclosure. I do not, however, have much if any sympathy for folks who took out crazy ARMs and interest-only loans and now want to be bailed out. Taking out one of these loans is a risk, and as such there are negative consequences. The only thing to do is lick your wounds and be smarter next time.
You know, it's really easy to be judgemental when you don't have the whole picture of a situation. I am a holder of one of those "crazy arms", as well as a second mortgage with an even crappier interest rate. My income was plenty to afford the house we bought. Even after the rate adjusts in September- to over 10%- I will continue to make the payments. My beef is with the broker who got us the mortgage. He guaranteed us that 2 years of timely payments and we would be able to get in to a 30 yr fixed. Here we are 2 years later- never a single late payment, and we have been turned down by 5 mortgage companies. Perhaps I should also mention that the broker had to pay for a second appraisal on our house to get the value we needed for the loan. So, while I can certainly agree that there are people who bought above their means- it certainly does not mean that there were not people who were deceived about how the whole process works.
Oh, and I forgot to mention- when we were shopping for mortgages, I sought my own quotes directly from lenders, as my broker did his thing. Was offered a 30 year fixed, slightly higher than the ARM I'm in now, from the same lender that the broker was with. When I presented this information to the borker, he came back and told me "COuntrywide will not compete against itself. If you want the loan, you have to take the ARM, or there is no deal.". Still believe this whole debacle is solely the fault of the buyers?
Last edited by Hoagie58; 06-02-2008 at 07:57 AM..
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