Saturday, April 5, 2008

Housing stories

 Dynamic Maps of Nonprime Mortgage Conditions in the United States
from the New York Federal Reserve Bank web site...

The housing crisis which started in the subprime sector has precipitated a slump in housing prices. With ARM resets set to peak this year and the next and Option ARMs in 2009 the housing "bubble" may yet have a lot more downside and the housing slump may continue for a while before the bottom of the market is reached. With record foreclosures across the U.S. calls for relief have been multiplying; politicians have been jostling each other to be in the forefront of putting forth proposals of governmental assistance; 'community activists' are coming out of the woodwork to lambaste greedy financial institutions for tricking innocent people into signing up for loans that they could not afford; and sob stories abound in the newspapers, magazines, on the radio, and on television. This blogger has been amazed by some of these stories….

After many years of renting this blogger purchased a house in the first quarter of 2007. Although not the best example of market timing, a number of factors mean that the housing downturn should not be disastrous:

First, when buying a home this blogger did not over-extend, choosing to incur a mortgage expense approximately only 60% of the amount that would have been acceptable to most financial institutions i.e. buying much less house than this blogger qualified for in order to have a more comfortable monthly payment (PITI). Second, this blogger put an appreciable amount down, rather than the minimum. Third, this blogger also bought the house as a place to live in, not as an investment vehicle (although if the place appreciates massively this blogger would not be one to complain!). This blogger also paid attention to the paperwork. If house prices keep dropping it is conceivable that this blogger could end up ‘upside down.’ However, with a comfortable payment there is no reason to panic, you continue to live in the house, and hopefully prices eventually rebound.

So, when reading the stories of some people in difficulties (e.g. the ones referenced in some of the links below), this blogger finds it hard to find sympathy in many of these cases. Take for example:

The Sinclair family featured in Marketplace’s Ghost Town USA piece. They apparently felt the need to purchase a 3,600 square foot, four-garage home using an ARM. After their $3,000/month payment reset to $4,000 they decided to stop making any payments at all, as the house’s value had fallen below what they owed. Reprehensible – first purchasing too much house and incurring a level of payment they could not sustain, apparently convinced that they have an inherent right for their property to continually appreciate, and then ready to just stop any/all payment vs. at the least continuing to pay the amount that they had been able to afford (the $3,000/month) while talking to the mortgage holder.

The Goslins from Marketplace’s “Nothing left to do but walk away” who a) bought too much house, financed it 100% with no money down, started off with an ARM and then refinanced into an Option ARM (paying only interest so that their obligation actually increased as prices slid); and apparently gambled that the home would continually appreciate and allow them to come out ahead… Bad bet, that didn’t pan out.

The Clavons, who refinanced their home just two years after they bought it and were “tricked” into a signing an interest-only ARM

The Shearons, who while making $30,000/year apparently thought it was reasonable to buy a $335,000 house.

With all the government-mandated disclosure this blogger has a hard time believing that people didn’t understand their loans. He remembers being notified of the payments, the APR, the total amount that he will have paid if he completes 30 years of scheduled payments, and much more. Granted, there probably are real cases where home buyers were victims of skullduggery and in such cases these folks should be protected, but this should only be the case where they bear no culpability themselves. This would not include cases where buyers were approved for home purchases based on falsified documentation of inexistent income – although we hear cries of fraud that paint such buyers as victims, this blogger would argue that in such cases the fraud was perpetrated conjointly by the borrower and agent (whether of the loaning institution or a third party broker) against the lender.

Minorities Hit Hardest by Housing Crisis
How Will the Housing Crisis End?
The Truth about the Housing Market
Fighting Back Against Foreclosure
Amid Hard Stories, Help for Fighting Foreclosure
Changing From Subprime to Alt-A and Option ARMs
Housing Crisis? How About Buying a House You Can Afford!
It's unfair prices, not unfair loans (Regarding Housing Crisis in California and US)

04/15 update: a couple more stories that also have folks who brought their miseries upon themselves:
Suffering in Silence Over Foreclosure
'My House. My Dream. It Was All an Illusion.'

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