Mortgage Defaults Spreading to Fixed Rate Borrowers (Sacramento, Elk Grove: sales, good credit)

[NewToCA]

Looks like some of the folks who bought their home with 20% down payments and fixed rate loans are falling into difficulty:

The mortgage default crisis has an ominous new face. It's your neighbor with a traditional fixed-rate loan...With capital-area job losses reaching 45,000 in the past year and unemployment at 11.1 percent, lenders, bankruptcy attorneys and debt counselors all say they're seeing rising delinquencies among prime borrowers with fixed-rate loans and good credit. Many of those slipping into trouble are state workers, the mainstay of Sacramento's economy.


Mortgage defaults spread as even 'safe' borrowers falter - Sacramento News - Local and Breaking Sacramento News | Sacramento Bee (http://www.sacbee.com/topstories/story/2017811.html - broken link)

[Jonah1979]

That is because people who should have bought 350k houses bought 500k houses and those who should have bought 700k houses bought things for 1.1 mil. It was a flawed idea that just because interest rates were low you should buy way more house that you qualified for. Of course if we had lending standards that were followed this wouldn't be happening.

[mysticaltyger]

Originally Posted by NewToCA

Looks like some of the folks who bought their home with 20% down payments and fixed rate loans are falling into difficulty:

The mortgage default crisis has an ominous new face. It's your neighbor with a traditional fixed-rate loan...With capital-area job losses reaching 45,000 in the past year and unemployment at 11.1 percent, lenders, bankruptcy attorneys and debt counselors all say they're seeing rising delinquencies among prime borrowers with fixed-rate loans and good credit. Many of those slipping into trouble are state workers, the mainstay of Sacramento's economy.


Mortgage defaults spread as even 'safe' borrowers falter - Sacramento News - Local and Breaking Sacramento News | Sacramento Bee (http://www.sacbee.com/topstories/story/2017811.html - broken link)

I agree with what Jonah said. The lending standards got so pathetic that even the so called "safe" loans were really not as safe as they looked.

We really have to go back to the mid to late 1970s before we really know what decent lending standards look like.

[whydoucare?]

Originally Posted by Jonah1979

That is because people who should have bought 350k houses bought 500k houses and those who should have bought 700k houses bought things for 1.1 mil. It was a flawed idea that just because interest rates were low you should buy way more house that you qualified for. Of course if we had lending standards that were followed this wouldn't be happening.

But if you get laid off from your job you have no control over that. Those people who put their 20% down and got a fixed loan are now losing their homes because of all the job layoffs. These people didnt over-extend themselves, they had good credit and sufficient income. My neighbor down the street from me is barely hanging on to their house he was laid off last year and have yet to secure another job. He has taken a lower paying job but its not going to pay the bills. They are trying to sell but it's hard. It is taking people so long to find employment they run through all their savings.

[Mossy]

Originally Posted by whydoucare?

But if you get laid off from your job you have no control over that. Those people who put their 20% down and got a fixed loan are now losing their homes because of all the job layoffs. These people didnt over-extend themselves, they had good credit and sufficient income. My neighbor down the street from me is barely hanging on to their house he was laid off last year and have yet to secure another job. He has taken a lower paying job but its not going to pay the bills. They are trying to sell but it's hard. It is taking people so long to find employment they run through all their savings.

I very much agree with you!

[NewToCA]

In the past, when you lost your job, you had the option of selling your home and "resizing" your lifestyle expenses. Today, this option is frequently unavailable, even to the financially responsible.

If you bought a $500K home a few years ago in a booming suburb like Lincoln or Elk Grove, it likely isn't worth more than $300K today. If you had put down 20%, or $100K, and made your monthly payments for the past few years, you likely still owe about $380K. If you lost your job, or had your hours significantly reduced, you couldn't just sell your home and lessen your annual expenses. You are "underwater" on your home, likely $100K or so after sales expenses.

And these folks generally weren't irresponsible.

[nmnita]

Originally Posted by Jonah1979

That is because people who should have bought 350k houses bought 500k houses and those who should have bought 700k houses bought things for 1.1 mil. It was a flawed idea that just because interest rates were low you should buy way more house that you qualified for. Of course if we had lending standards that were followed this wouldn't be happening.

I don't think it is fair to blame the mortgage lenders solely, in fact I know it isn't fair, I am tired of everyone saying, it isn't my fault, well guess what? Many of these buyers or those who re-financed should have known they were in over thier heads. Even if lenders should have followed the old standards and buyers should have known they couldn't afford those homes, it makes little difference. If you lose your job, get very little severance pay and still have bills, you could have a house payment of $1000 or less a month and still have trouble meeting the mortgage paymnets.

Nita

[GLS]

Originally Posted by mysticaltyger

I agree with what Jonah said. The lending standards got so pathetic that even the so called "safe" loans were really not as safe as they looked.

We really have to go back to the mid to late 1970s before we really know what decent lending standards look like.

You are correct, but don't think we have learned anything from this. Barney Frank has begun to put pressure on Fannie Mae to "relax" standards again. Allowing or strongly encouraging people to buy something they can't afford was the catalyst for the housing debacle. It seems Washington has learned nothing from the first disaster.