First-time buyers see dreams fade: Easy mortgages, overvalued homes leading many into foreclosure

Indianapolis Star ^ | January 29, 2004 | Chris O'Malley

[sarcasm]

Rock-bottom interest rates and low-down-payment mortgages have allowed more first-time homebuyers to fulfill the American dream in recent years, but some say the dream has turned to nightmare.

A number of inexperienced buyers now face foreclosure, complaining they didn't realize the high cost of homeownership -- everything from adjustable rate mortgages to hidden taxes to construction defects.

[apillar]

"Irwin later sold her loan to a national mortgage company, which would not work with her when she fell behind in payments.

The reason: "They basically are telling me I don't have enough income to maintain the mortgage," said Barnes, who said she now earns $4,000 a year more than when she bought the house."

I find this a little hard to believe, most fiancial instituitions are willing to work with people because foreclosure is expensive, time consuming and in many cases
the get a house back in poor condition.

Most states also have many borrower friendly legal provisions to avoid forclosure, such as one in the state I live, the lending instition can't initiate foreclosure if the borrower is making a "reasonable attempt" to sell the home. If nothing else, this women could use a provision such as this to avoid imminent forclosure and buy herself a few months to catch up on her payments if the bank won't work with her.

[Prodigal Son]

You can't watch a hour's worth of television without an ad for "easy money" cash-out refinancing of home loans. I wonder if anyone is going to own their own homes in a few more years.

I haven't owned a television in over a decade. Throwing the thing in the trash immediately innoculates you from advertising.

I don't know if it's a consequence of living life with no television or not, but I haven't gone in debt for a helluva long time either except for a small mortgage on my house. I mostly paid cash for that purchase as well though (keeping the amount I could've used to pay the whole thing in order to renovate it). If I were to want a car, I would pay cash. I can't see paying another man interest unless it is absolutely necessary. (Absolutely necessary = my wife needs an operation in order to keep living, not keeping up with the Joneses)

On university campuses, desks are set up on registration day to sign up 18-yr-old kids with no income for multiple credit cards.

Freedom is full of perils.

[wtc911]

LI is a national anomoly for a number of reasons, especially Nassau County. We bought in NW Nassau only five years ago for $250k. We did the bathrooms (3), kitchen, doors/windows and that's it.

A smaller house, with original everything (even a fuse box) and only one bath, from 1942 just sold for $480k after one week on the market. The buyer is going to sink @ $75k into it before moving in. The neighboring NW Nassau towns have an entry price of at least $750k.

The buyers here are for the most part first generation Asian, Indian, South American medical professionals and business owners. I have no idea what the financial arrangements are or if these folks are on the edge but we see no slow down in the near term. The rest of Nassau and into Central Suffolk has risen in a ripple effect.

[HungarianGypsy]

$103,000 for $25,000 a year? My husband makes twice that and we only got up to $110,000. At least we know we'll be able to afford it.

[LN2Campy]

You are correct, but the current situation is largely due to lenders' virtual abandonment of sound mortgage underwriting principals. When I bought my first house, fairly strict debt service to income ratios were applied, and many people were denied mortgages.

Nowadays it seems as though all you have to do is exhibit a pulse, and lenders are falling over eachother to give you a $110% mortgage.

This is classic malinvestment attributable to easy money and artificially low interest rates.

[LN2Campy]

there was a bit of a correction in the late 80's / early 90's -- a lot of people lost big money if they had to sell then.

[Mamzelle]

re: Freedom is full of perils.)))

I do not agree that we should change our courts to accommodate what amounts to loan sharking. If an institution lends money to people it knows likely can't pay it back, it not only shouldn't get our help in bankruptcy court, it oughta land 'em in jail. It's fraud--to the borrower, and to the stockholders of the bank, and to the banking public.

[arete]

And the Congress is once against about to consider that bastard change to the Bankruptcy Laws which holds individuals to lifetime account for bad debts but lets the directors and officers of corporations do the same thing -- borrow money they can't pay back -- with personal immunity. A rotten law full of miseries that would be.

As a country, we used to work to get ahead. In the future, we will work to get even. Fewer good jobs, less opportunity, destruction of the middle class and personal savings and national wealth all for the NWO central planners.

Richard W.

[Prodigal Son]

worse yet, what will he say when we won't or can't provide the pump to bail him out?

It might sound cruel, but you might want to sign an agreement now that you won't help then. At least have it out in the open verbally. I would sit them down and talk them about it and explain exactly why I was taking that step too. That a few extra years don't just add up to age but wisdom as well and you seem him about to make a mistake.

It might be just the thing they young man needs to open his eyes before it's too late and he's gone off and signed himself up to something that's going to kill him financially.

[FITZ]

By working with her, she probably means much more time than 3 months. On $25,000, she's having big trouble making any payments --- much less 3 months payments plus interest.

I think some of these people are better off walking away ---- there is no way they can keep these mortgages going.

[bvw]

Especially since the Fed, the Treas, the Exec, Freddie and Fannie and the banking houses have all conspired to hop up the economy on the Nitrous of very low rate fiat money. (As Mr. Brinker has pointed out that rate is negative -- they are paying you to take it, when adjusted for inflation.)

Much of that that borrowed "equity" from mortgages and credit cards sluices into the stock market were it pumps up valuations beyond any reasonable reckoning. The beneficiaries of that roll-up of fiat money in stocks are the very people exempted from the harshness of the proposed bankruptcy laws -- the corporate officers who draw down the fiat wealth in blue-sky salaries and other cash-out mechanisms.

A meteoroligist would call the pattern a developing massive inversion. The kind of weather in which F4 and F5 tornados sprout like onion grass in the spring lawn.

[gunnedah]

Fannie Mae & Freddie Mac are going to be bigger than the great stock market scandal and even the depression!

[FITZ]

Texas also has ridiculously high school taxes.

That's one thing people don't always consider when they buy a home --- they see the monthly payment and figure they can make it --- but they don't consider that in states like Texas, especially certain regions, their property taxes are going to be very high and go up a lot every year, even though their paycheck is apt to be declining.

[Prodigal Son]

If an institution lends money to people it knows likely can't pay it back, it not only shouldn't get our help in bankruptcy court, it oughta land 'em in jail.

But doesn't this assume that the individual is incapable of making decisions for himself? If we accept that as a premise it has profound implications for a free society.

[hopespringseternal]

I do not agree that we should change our courts to accommodate what amounts to loan sharking. If an institution lends money to people it knows likely can't pay it back,

Loansharking? If a financial institution lends money to those who can't pay it back, they lose it. Nothing happens to the consumer other than a worse credit rating. No fingers are broken, they aren't beaten up.

Ever hear "a fool and his money are soon parted?" Sometimes the fool is the consumer, sometimes it is the bank. If a bank buys a loan held by someone with a 10 to 1 debt to income ratio, the big loser is the bank.

Sometimes we do need corrections to flush the chumps, but capitalism is not about people ripping each other off. A builder that builds shoddy, overvalued homes to people who can't afford them is eating their seed corn. It won't be long before nobody will give them the time of day.

Plus, a lot of these people complaining about property values fouled their own nest. Which comes to another reason why a bargain house may not be such a bargain. If you wind up surrounded by people who can't be bothered to mow the lawn and keep their property up, you will be just as bad off as if you spent too much.

[apillar]

Yes, that's what I thought too when I read it. The financial instituition has come to the conclusion that there is no possible way she can catch up or make the payments. But the tone of the article makes it sound like she just needs a little time to catch up and the mean ol' bank won't work with her. Most people don't realize that banks usually end up losing money on forclosures and only do it as the very last resort, most will bend over backwards to avoid one.

[FITZ]

But many won't give over 3 months --- I can see where if this woman is having trouble coming up with one month's mortgage, she got herself 3 months behind --- to stop foreclosure you usually have to pay this month's plus that last 3 months. These high mortgages have been given out to people with very low or no down payment, there is no evidence they can ever save money or have access to gifts of that kind.

[AD from SpringBay]

A number of inexperienced buyers now face foreclosure, complaining they didn't realize the high cost of homeownership -- everything from adjustable rate mortgages to hidden taxes to construction defects.

Live and learn. Next time do your homework: figure out how to find a payment schedule before signing on the dotted line, get a calculator and play with the percentages, and remember what mom always said - sometimes our eyes are bigger than our stomach (or, in this case, our coveting runneth over - live within your means).

[Mamzelle]

re: Loansharking? If a financial institution lends money to those who can't pay it back, they lose it. Nothing happens to the consumer other than a worse credit rating. No fingers are broken, they aren't beaten up. )))

The banks are pushing for new laws that won't allow people to go through bankruptcy--this is so they can make bad loans and pursue people throughout life.

In ordinary circumstances, if the lenders were doing what they were supposed to in establishing credit-worthiness, I might be on the other side of the issue. (And, BTW, I am not in debt.)

I did have the advantage of establishing my own credit during a time when lenders hadn't gone crazy.

[CharacterCounts]

Our overheated consumer society has created an instant gratification mentality. My wife's son in law wants us to take him to see homes that are way out out of his price range due to income. Yet he's got financial institutions that will lend him the dough. We're now on his sh*t list because we keep telling him he should be looking at lower cost homes.

This is so typical. The concept of a "starter home" went out the window long ago.

the next step will be to use charge cards to furnish the home. He will keep up with the minimum charge payments for a while by using his check to make the card payments and still purchasing more with credit cards.

Eventually, he will end up in a bankruptcy attorney's office with a large house with zero equity and a huge credit card debt and little else.