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How come we don't have people walking away in droves from their car loans? After all, these cars aren't worth what was paid for them the minute they are driven off the lot. This "isn't worth what I paid for it" thought process is a contrived excuse to walk away from debt and then because you walked away from what you agreed to pay, no on is supposed to come after you? Come on....grow up. Live within your means people.
Very true! I was talking to some co-workers who bought properties that fell in value and made the statement, "Why should I pay for something that is worth less than what I paid?" My response, "You signed the contract."
People don't have much sympathy for those who lose money on a stock investment yet they expect a different response from a RE investment. It is no different.
Very true! I was talking to some co-workers who bought properties that fell in value and made the statement, "Why should I pay for something that is worth less than what I paid?" My response, "You signed the contract."
People don't have much sympathy for those who lose money on a stock investment yet they expect a different response from a RE investment. It is no different.
That's why this real estate crash is still dragging down the economy.
Usually to invest in the stock market you have to have money. You buy 1000 shares of "x" stock. You have to have that money. If "x" stock loses money, you lose money. But for the most part it's your own money you are losing.
With the housing crash, a lot of people, put zero down and than found their properties "loss $100K in value" Well since they didn't put anything down, they feel like they can just "walk away" from their obligation. Who cares if they "lose the home". The home was used as collateral but it's not worth as much.
What's the default rate on those who put at least 10% down? I can tell you that even if those homes declined by 20%, those who put 10% down and made principal payments, will still try to save their homes because they had skin in the game.
The people who defaulted will blame the banks. The banks will blame the investors who purchased the securities. The investors will blame the banks who lowered their lending standards.
]]And if it appears that people who bought were foolish, you can blame it on years of prior experience with the "American Dream" so marketed in this country which consistently increased in value.
No, people who bought were foolish because they couldn't do simple math.(median home price = 7x median income) = unaffordable and unsustainable.
You have to let stupid people fail or you will have an entire country of stupid people.
I'm all for people taking responsibility for their actions and accepting the consequences of their mistakes. But if you simply wait for people to fail and let it happen on such a massive scale, that eventually impacts the people who didn't fail. Suppose you had a world of 10 homeowners. 9 people bought homes they couldn't afford. Now they're all underwater on their mortgages and trying to sell causing the values of all 10 homes to plummet. Is that fair to the one guy who was financially responsible? It's actually in the best interests of that 10th homeowner to keep the remaining 9 from losing their homes. Letting them go into foreclosure is simply going to make his home even worth less. Instead of simply letting people fail, what we should be doing is not creating the conditions that sets people up for such failure in the first place.
A lot of people here are saying it's the borrowers fault for borrowing too much money. But why aren't the lenders equally responsible? If I loan someone $1000 and they never pay me back, sure people will judge him for being a deadbeat. But they should also judge me for agreeing to give it to him. That's why I hold the banks equally accountable for this mess we're in now. You guys are in the business of lending. You've been doing this forever. You should know by now who's a good risk and who isn't.
I wasn't one of those people who bought during the boom. I'm still renting and I'm more relieved than ever I didn't jump on the bandwagon. But I can sympathize to some extent with the people who got in over their heads. Not the person who decided to buy a second home or borrow against their equity to buy a boat or SUV, but the person with a modest income who was having trouble saving enough for 20% down. When someone dangles an obscene amount of money in front of you, it's pretty hard to say no.
But to the person who thinks stopping government programs is the answer, that's a very simplistic way of looking at things. Everyone likes to frame the issue in terms of big government vs. small government when it should be about EFFICIENT government. I wouldn't have had a problem with the bank bailout if it had come with strict conditions like no raises or bonuses, no mixing of commercial banking with investment banking, breaking up banks deemed too big to fail, and requiring banks to reduce principals on loans and resuming RESPONSIBLE lending to small businesses and individuals, not stopping it altogether.
That's why this real estate crash is still dragging down the economy.
Usually to invest in the stock market you have to have money. You buy 1000 shares of "x" stock. You have to have that money. If "x" stock loses money, you lose money. But for the most part it's your own money you are losing.
With the housing crash, a lot of people, put zero down and than found their properties "loss $100K in value" Well since they didn't put anything down, they feel like they can just "walk away" from their obligation. Who cares if they "lose the home". The home was used as collateral but it's not worth as much.
What's the default rate on those who put at least 10% down? I can tell you that even if those homes declined by 20%, those who put 10% down and made principal payments, will still try to save their homes because they had skin in the game.
The people who defaulted will blame the banks. The banks will blame the investors who purchased the securities. The investors will blame the banks who lowered their lending standards.
I agree. 10% should be a minimum requirment for any government-backed loan. If a private lender wants to lend 100% great, but it shouldn't be on the taxpayer's dime. Preferably 20% should be put down to receive the best rates which would exclude the ability of the borrower using a piggy-back loan.
No, people who bought were foolish because they couldn't do simple math.(median home price = 7x median income) = unaffordable and unsustainable.
You have to let stupid people fail or you will have an entire country of stupid people.
So is there a good / acceptable multiplier?
Historically I've bought between 2.4 and 2.6 times my annual salary. My current home purchase (closing next month) will be 1.9 times my salary. There's no way I'd sign on for a 30 year ride any higher than 3 times my salary, and I'd be apprehensive then.
Suppose you had a world of 10 homeowners. 9 people bought homes they couldn't afford. Now they're all underwater on their mortgages and trying to sell causing the values of all 10 homes to plummet. Is that fair to the one guy who was financially responsible? It's actually in the best interests of that 10th homeowner to keep the remaining 9 from losing their homes. Letting them go into foreclosure is simply going to make his home even worth less.
What about the renters who were responsible enough to not over pay but would like to buy a home for it's true value??? Is it fair to them to keep prices inflated?
Quote:
Originally Posted by DennyCrane
Instead of simply letting people fail, what we should be doing is not creating the conditions that sets people up for such failure in the first place.
Its kind of too late for that now since the conditions are in place already, so letting people fail is the only fair alternative.
Quote:
Originally Posted by DennyCrane
That's why I hold the banks equally accountable for this mess we're in now.
Many (non bailed out) banks are out of business and many more will be.
It's a basic business practice... If you write off a bad debt you would send the person / company a 1099 for Income of that amount which then was reported to the IRS.
It is still done except if I recall properly they have a temporary exemption in place for short sale properties since we are in a "recession" and it would add additional problems to people who are in trouble.
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