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Nice scenario but 90 plus percent of the time, these people had no "skin" in the game. The vast majority of short sales/foreclosures are from people who didn't bother putting down at least 10% plus paying principal into their homes.
Think about it. Put down 10% in 2005. Pay principal slowly down. It's 2011. They should have at least chewed another 10% off the home's mortgage. Say home was $500K. Pay $50K down. Have $450K mortagage in 2005. Now it's 2011. Their mortgage shouldn't probably be down to around $400K.
They should be able to afford the $400K mortgage.
But in real life, it's $500K mortgage and people actually take out like $510K (to pay for closing cost). They pay interest only (so never bothered paying the extra $400-600 in to principal each month). Mortgage resets and people have to start paying principal plus interest and can't afford it.
Most people who trash the homes have zero money vested in the home (either cash out refiance/home equity). They don't care. It's emotional with them cause like you said, they thought they would make money and move up later.
Where do you get your statistics to back-up "vast majority"? I'd like to see the data on that... I won't dispute that scenarios happen as you describe, but I don't get how you so confidently know that the it's mostly (vast majority) the "bad people".
Where do you get your statistics to back-up "vast majority"? I'd like to see the data on that... I won't dispute that scenarios happen as you describe, but I don't get how you so confidently know that the it's mostly (vast majority) the "bad people".
It's just common sense that higher downpayments result in lower default rates.
I don't think you need some study to come to that conclusion people are less likely to "lose their homes" if they bring significant downpayments to the table. They, as the author states start out with equity and have that flexibility to bend in price if they lose their job or need to move.
We can argue forever on the necessarily of downpayments. From a borrower standpoint, they want to put down as little as possible to limit their exposure. But from a lender side, they want as big as a downpayment as possible to limit their exposure.
I moved into a brand new neighborhood in Maryland "at peak" 2005. We were all required to put a min. 10% or more down. I still get stats from my old realtor up there. But to date, there have only been 4 short sales and 2 foreclosures in a neighborhood built at peak from the 310 homes that were sold between 2005-2008. That's a pretty low number considering all those homes were sold at peak prices. And having a pretty big downpayment helps protect the neighborhood from numerous distress properties because homeowner are still have to sell.
Whereas in my friend's neighborhood in Florida. Out of 125 homes in the neighorbood all built between 2003-2007. 50 of those homes are either in foreclosure or up for short sales. There was no min. downpayment on any of those homes. You can easily go in the county records and the "vast majority" of those homes in trouble were done with almost no downpayment. Gotta love Florida with their public databases where you can look to see what the original homeowners put down because you can see the mortgage balance.
Significant downpayments matter. There's really no research that needs to be down.
In 2005 the rate for a 30 year was right around 6%.
True but many people were getting 3, 5, and 7 year Arms during those peak years.
You could get anywhere between a 4.25%-5.5% interest rate depending on the loa and your downpayment. Why pay the 6% for a fix when an Arm was over 1 point lower?
I do some REO appraisals. I charge more than a non REO, not only because it is more work, but frequently the houses are disgusting. I bring a second set of clothes, strip and change before I get back into the truck.
I do some REO appraisals. I charge more than a non REO, not only because it is more work, but frequently the houses are disgusting. I bring a second set of clothes, strip and change before I get back into the truck.
Yuk. I remember hubby and I looked at a repo. It was really dirty and after a moments in the house I started to feel funny. Couldn't really put my finger on it until I looked down at my socks and saw I was covered in fleas. We ran out of the house and by the time I got home to strip out of my clothes I had bites all over my body. ICk. I feel itchy just thinking about it. We were in the house maybe 10 minutes at the most.
We can argue forever on the necessarily of downpayments. ...
I don't think that is something that MikeyKid is looking to argue about.
I think that just assuming that after falling 30% or even 50% in many cases,
the "vast majority" of people now going into foreclosure didn't put 10% or
more down on their property.
That being said, it's possible that there would never have been a 30%
fall had reasonable down-payment requirements been instituted.
Now, as it is, you could have put 30-40% down and be unable to sell
your home after losing your job, etc. etc.
I have a relative who put 33% down and is under water. There is no
danger of losing that house since in addition to being prudent in the
buying, they are also aggressive savers and they have a good job.
I put over 20% down and am hopelessly under water. I also don't have my original
job and can't cover the payments with my earnings, but have other means to pay.
Had I been a non-saver and aquirer of material things, I would have walked
quite a while ago.
On Topic here: I hate my bank, but would have left the house in immaculate
.................... condition on general principal.
ObSarcasm:
P.S. If anyone is having difficulty reading my posts due to spacing, line breaks,
whitespace, ... stuff like that, in the future, I'll be happy to scrunch things up.
Last edited by Marka; 03-19-2011 at 02:29 AM..
Reason: off topic
I would say Im suprised at this, but after me and my wife saw some of what we saw...it happens all to often....not sure if the banks pursue this issue or not...
What issue? If I am losing my home and want to recoup some of my downpayment, I would consider selling the appliances and fixtures. They are technically yours.
What issue? If I am losing my home and want to recoup some of my downpayment, I would consider selling the appliances and fixtures. They are technically yours.
How are they technically yours? Only if they were bought separately and not rolled into the mortgage.
It's just common sense that higher downpayments result in lower default rates.
<snip>
Significant downpayments matter. There's really no research that needs to be down.
So it's "common sense" - silly me then... Maybe you can explain how someone who puts 10% (or even 20%) down and loses 30%+ in value won't be facing a short sale / foreclosure if they have job loss, divorce, medical issues, etc, etc. My obvious lack of common sense struggles to wrap my mind around it. Plus I think about silly things like having to pay 5-6% more in agency fees on the way out if they do try and sell because they can't make the mortgage anymore. Everything is costing more while wages have stagnated and un(der)employment is a horrendous issue. It's not looking at the big picture otherwise.
To me what you're doing is projecting arrogance and completely ignoring that life doesn't put people into neat little buckets for you to pass judgment on. So in the end, "vast majority" isn't based on any factual info and it's an exaggeration. A significant chunk of the people you're throwing into the "bad bucket" wouldn't have been saved by putting 10% down. Anecdotal - yes, I know people who put down less then 10% and still pay their bills.
Now, I am not excusing trashing a house, gutting it, or taking everything that isn't nailed down. I'm not even discounting the fact that a substantial group of people during the toxic, no-doc, subprime mess did, in fact, act extremely irresponsible in taking loans. Better still, I'll even say that I agree that 3.5% down isn't enough. But I don't see putting all the blame on the downpayment amount and calling it the "vast majority". That's insinuating that this whole mess wouldn't have happened or will get cleaned up via downpayment... If you want to speak in the "vast majority" - my opinion is that they in general got caught up in the tech and credit bubble run-ups never considering for a single moment that a house could go <gasp> down in value. The core of the issue is somewhere in there.
You should consider upping out of pocket costs to buyers in a contracting economy will crush an already weakened housing market... Sure, you'll get one desired effect, but who's going to buy all those homes that people need to sell? There's 2 sides to the transaction. Shut down the demand by limited access to the financing and think about what happens to the supply. Those folks who put 20% down in 2007 and lost a job. You think they're any better off in the big picture when there's nobody to take that debt off their hands?
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