Obama's housing plan triggers outrage

[JudyJudyJudy]

As details emerge on President Obama's $75 billion housing rescue, many homeowners who don't qualify for help are angry at being left behind.
(http://realestate.msn.com/article.aspx?cp-documentid=17965053&gt1=35000)

Thoughts?

[HIJKMommy]

I need a summary. The link is blocked at work.

[JudyJudyJudy]

Here it is:

President Obama's new foreclosure-prevention plan is already sparking outrage from some Americans who won't qualify for federal aid — and from those who resent having to foot the bill for those who do.

"What do you expect from the government?" said David Newton, 46, proprietor of DJN Management LLC, which owns 232 rental apartments in the Atlanta area. "The government isn't out there to help people who obey the law and follow the rules."

Obama "told everybody, 'I'm going to spread wealth around,' and that's what he's going to do," Newton said.

The housing plan, which Obama outlined Wednesday in Phoenix, will allow homeowners who have little or no equity to refinance their homes, something that has been nearly impossible to do under current rules. It also establishes standards for government-subsidized loan modifications for borrowers in subprime loans and endorses a provision that would allow bankruptcy judges to reduce the principal on primary residences.

While real-estate professionals applauded the refinance provisions, which the White House says could help 4 million to 5 million homeowners, lots of borrowers wouldn't be eligible. For example, the refinance provision is limited to borrowers whose mortgages are owned or securitized by Fannie Mae or Freddie Mac, the government-backed mortgage companies.

Read: Obama's $75 billion housing fix (http://realestate.msn.com//article.aspx?cp-documentid=17907545)

That essentially shuts out wealthy borrowers who would like to refinance but can't because they own expensive homes financed with so-called jumbo mortgages, which are too large to be owned by Fannie Mae and Freddie Mac.

Steve Rosenberg, a 44-year-old institutional stock broker in Chicago, has been trying to refinance his $815,000 option adjustable-rate mortgage for months. But his bank is requiring him to put an additional $150,000 of equity into his home, something he is reluctant to do because his income has been cut in half over the past year. For jumbo borrowers, he said, the government's message is, "You're on your own." Rosenberg saw little consolation in the president's initiative. "The only recourse I will have is a bankruptcy judge."

Congress has endorsed a provision that would allow bankruptcy judges to modify all types of loans. The White House's proposal would limit such write-downs to existing mortgages under Fannie Mae and Freddie Mac loan limits.

Some borrowers in hard-hit markets say they also are excluded. That is because the foreclosure-mitigation plan allows borrowers with little or no equity to refinance a first mortgage for up to 105% of the property's current market value. For some affluent borrowers heavily underwater in markets like California, that isn't enough. "We can afford to make our payments, so no one is going to help us," said Jill Wong, who has watched the value of her Modesto, Calif., home drop to around $350,000, from the $605,000 she paid four years ago. That wiped out her 20% down payment and has left her with a mortgage that has a 125% loan-to-value ratio.

Wong said she is considering walking away from her current residence since she doesn't expect that the home will ever recover its value. "What's to stop me?" she said. "Years ago you would have thought it was immoral."

The housing measures have also upset a range of homeowners who say they shouldn't have to subsidize those who bought more than they could afford. "We've lived a conservative life," said Tim O'Brien, 61, a retired CPA from Los Angeles. "We've paid our house off and saved our money, so you kind of find yourself on this issue not agreeing with everything."

O'Brien believes that Obama's approach will prove inflationary — a hardship for those, like him, on fixed incomes. "It's kind of like they've chosen the bloc they want to support with the packages and we're going to end up paying for a lot of it through the losses we've suffered in the market and through inflation over the next 10-15 years," he said as he worked on a project restoring an 80-year-old, two-masted wooden schooner.

The White House says even those who don't benefit directly could benefit indirectly if the effort boosts the housing market and lifts the economy.

Brenda Gilchrist said she feels like she is being punished twice, first by watching foreclosures depress the value of her three-bedroom condominium in Santa Rosa, Calif., and now by subsidizing borrowers who bought more than they could afford.

The price of her condo has fallen to the mid-$300,000 range, down so far from the $510,000 that she and her husband paid for it four years ago that their 20% in equity is gone. She said they decided to buy a less expensive home even though they had qualified for a $1 million loan. "We said, 'Absolutely, no way.' We chose to buy within our means," said Gilchrist, a 39-year-old managing partner of a human-resources firm. "The 'good guys' are getting a raw deal," she said.

Jim Stoll, 67, of Stafford, Va., said tax cuts would be more equitable. "I look at all the spending in this bill, and I don't see it going to the normal taxpayer," said Stoll, who spent 26 years in the Marine Corps and an additional 16 in civil service. "If they have to spend money, then it would be easier to put it in consumers' pockets and let them do with it what they will," he said.

Others are skeptical that the plan will work. "Twelve months down the road they're going to say, 'We're going to need to throw another $50 billion at the problem,' " said Newton, the Atlanta property owner. "They should just foreclose on the properties, auction them off on the courthouse steps and see who buys them."

By Nick Timiraos and Michael M. Phillips, The Wall Street Journal

[Justicedog]

This is a tough one. I feel a lot like those who say, I'm not getting anything, I was financially conservative and responsible and my money is going to bail out those who weren't. It's not fair.

However, as the government seems set on throwing out money and bailing out folks, I'd prefer to see families who made poor choices stay in their homes than I would to see bank executives getting bonuses.

I somewhat like the provision that bankruptcy judges can change loan terms. Hopefully they will be conservative and not go all California judges and keep it reasonable. Mortgage companies are required to do foreclosure mitigation and many of them have dragged their feet and not really performed this duty in good faith. Perhaps knowing that the bankruptcy judges can lower the rates, will make them more inclined to cooperate with struggling homeowners.

[PiccoloRose]

Bold mine.

This is a tough one. I feel a lot like those who say, I'm not getting anything, I was financially conservative and responsible and my money is going to bail out those who weren't. It's not fair.

However, as the government seems set on throwing out money and bailing out folks, I'd prefer to see families who made poor choices stay in their homes than I would to see bank executives getting bonuses.




Not everyone needing help now are people who made poor choices. Some people were very responsible, did everything right for the past ump-teen years, and then had bad things happen that were out of their control. Like, for example, losing their job because the small business they were working for went under, and they are in an area with an unemployment rate way above the national average so even though they have applied for literally hundreds of jobs, can't get a new one.

So many people talk about how these people were just irresponsible and made poor choices and now the average taxpayer has to pay for that person's mistakes. That really isn't always the case.

And *many* of those people who did fall on hard times and need help aren't going to be able to get it anyway because they do not meet all of the criteria.


As for the plan itself, I personally feel that if that much money is going to be spent to help people with their houses, then it could be a heck of a lot better. I think a lot of people are still going to lose their homes and end up on the streets because they don't fit into a certain box. Really, though, I don't know how on earth he could write it. How on earth do you choose who gets to keep their home and who doesn't?

I hope I'm making sense. This is a very sensitive topic for me, and I feel like I'm not putting my thoughts together coherently through my emotion.

[Aeonkat]

Not to mention that stopping foreclosures will slow down and even lift plummeting house values which these people DO benefit from.

[hidesome]

The entire bill encourages bad behavior. I oppose it. Who ever said housing prices must continue to go up over time? That is a uniquely, modern, American fiction that should not be bankrolled by the American taxpayer ... and their children ... and their grandchildren.

[Sunnie]

I don't begrudge anyone getting help who needs it. I'm just thankful I don't need it. Mostly because I dont' own a home yet. LOL

[hidesome]

I don't begrudge anyone getting help who needs it. I'm just thankful I don't need it. Mostly because I dont' own a home yet. LOL

Me either. I "begrudge" people using the US Government as a mechanism for taking money from people like me to pay for their stupidity, bad luck, and lackluster spending habits in the name of "spreading the wealth". This bill spreads the poverty.

[Sunnie]

As mentioned above, not everyone is losing their house due to bad choices and horrific spending habits. In the current economical climate, I'd wager that's actually in the minority. I'd rather a few people who made bad choices got bailed out than a family who did everything right lose their house.

[Justicedog]

As mentioned above, not everyone is losing their house due to bad choices and horrific spending habits. In the current economical climate, I'd wager that's actually in the minority. I'd rather a few people who made bad choices got bailed out than a family who did everything right lose their house.

However, as someone mentioned above, the money isn't going to help many of the people who were responsible and just fell on hard times. It's designed to help those who made poor choices.

[Gigi]

I'm more than a little miffed by it.

I lost my house. I tried for two years to save it. No one would work with me to refinance because I was paying the bills on time.

The only way they would work with me was if I stopped paying and let the mortgage default. And even then I didn't get to keep the house. I had to sell it in a short-sale deal where someone else got to buy my house for $70,000 less than it was worth (well, her rich daddy bought it for her, but I digress).


ETA: I don't know if I would've been one of the ones who qualified for this "bailout." I don't really think that's the point. The point is that, regardless of bad luck or bad choices, a mortgage is a personal responsibility. Just like a car note or a credit card. If the person who signed the promisary note cannot pay what is required to keep the item or the line of credit, then they will lose it.

I couldn't pay so I lost. Did I think it was fair that I lost my house? No.

But I had a personal responsibility and I could not uphold it. The consequence was that I lost.

[tata]

I agree with hidesome and Gigi. I am pissed about the government bailouts altogether. I think that people - whether one person/family or a business - should be accountable for themselves and their decisions. I realize that not all people made bad decisions, some just had shit-luck. I just don't think it's fair for the rest of the country to pay for that.

I have no idea what the right solution is. It's obvious to me that something needs to happen, but what that is - it's a mystery to me.

[EvilAmy]

I'm wondering who they define as wealthy. I do wish that since they are doing this that there was a way to weed out the stinkers that knowingly got loans that in the end they knew they could not pay. I think the housing market would best benefit if everyone was allowed to refinance. I think it's also think it's a bit stinky that if you needed help but managed by the skin of your teeth to not get behind, you can't get help. My liberal and conservative sides are in conflict about this. My capitalist side think it bizzare to expect the housing markey continually rise and never go down, it goes against the way markets work in reality. I also shake my finger and congress and loan companies. I shake my finger at congress for demanding loan companies to make loans to people who really could not afford it. It also blame loan companies because they used that to their advantage and artifically inflated their portfolios using predatory practices. I know of several people that got homes they could barely afford knowing that in ten years their payments would start to ballon yet didn't care because they would just move when it would happen, figured "Well, we'll worry about that when it happens" and a couple that we're doing all they could do to prepare for it and looking to refinance before that happened. So I've seen all kinds. I do know of one extreme case that DH talked to them that they should wait, they were renting a nice house but wanted something brand new they did not have to work on. DH begged them to wait (it was a close cousin). The house was outragously priced (in the 380,000 range), their payments were a little over 3,000 dollars a month and they had talked her brother into using his VA status to get a VA loan. Him being the softie he is, he agreed. Well less than two years later they ended up forclosing and now he is having to declare bankruptcy to avoid being stuck with the loan. All were unwise descisions.

I would love to see the reinstatment of having a certain percentage down. I would also love to see the abolishment of McMansions. I've known to many people that think they need these overgrown homes instead of opting for something realistic.

[crystal555rose]

I have a good job but I do not have $40,000 in cash- so I can't get a mortgage. I wish the government would have loaned money to working Americans rather than give it to the banks (who were supposed to in turn loan it to us but they are not).

It is hard for me to decipher how good or bad the mortgage bail out is. As other have mentioned- it seems hard to fit all of their criteria.

[KerryS]

I'm bothered that we won't qualify (we're "underwater" too deep - the provisions allow for people who are underwater by no more than 105% to refinance, and we're underwater by more like 120%), but I certainly don't begrudge the people who DO qualify. My mentality is that I feel fortunate that we have jobs and can afford to pay our mortgage every month. Most of the people who qualify for this program aren't as fortunate as we are.

[GuysAndDoll]

I have a good job but I do not have $40,000 in cash- so I can't get a mortgage. I wish the government would have loaned money to working Americans rather than give it to the banks (who were supposed to in turn loan it to us but they are not).

It is hard for me to decipher how good or bad the mortgage bail out is. As other have mentioned- it seems hard to fit all of their criteria.

Why do you need $40,000 in cash? I work for a real estate attorney, and I close loans every day for people who don't have nearly that much down payment. Even in today's market.

It's an especially good time to look towards buying something that is in short-sell, or has gone into foreclosure.

[Justicedog]

Don't blame the McMansion. I'd love to have one. We'd have been able to get a loan for one, likely squeaked by paying it, but we got the more reasonable house. My feelings could be jealousy - I'll own that. :) But, I think a sense of unfairness is thrown in there too.

[RaisingThemLeft]

This is a tough one. I feel a lot like those who say, I'm not getting anything, I was financially conservative and responsible and my money is going to bail out those who weren't. It's not fair.

However, as the government seems set on throwing out money and bailing out folks, I'd prefer to see families who made poor choices stay in their homes than I would to see bank executives getting bonuses.



This is how I feel too. The article seems to be implying that the wealthy are left out in the cold, but that isn't really true. Look at the Wall Street bailouts. The wealthy are getting more than the middle class homebuyers who screwed up. Also, you don't have to be wealthy to have a jumbo loan.

[RaisingThemLeft]

I'm just glad that these bailouts didn't happen until AFTER I bought my house. We benefitted because of someone else's bad choices. We bought the house in a foreclousure. These things are cyclical. My dad said that the same thing happened in the 80's with houses. Real estate has ups and downs. People lose. It's an investment.

[Justicedog]

I agree RTL. It's a cycle. Housing prices cannot skyrocket forever. The housing market boon was the dangerous thing and if government wanted to do something about it, they should have slowed that down rather than patting themselves on the back saying that more people own their homes than ever before.

[Ilovemonkeys]

?

[steelady]

This is a tough one. I feel a lot like those who say, I'm not getting anything, I was financially conservative and responsible and my money is going to bail out those who weren't. It's not fair.

However, as the government seems set on throwing out money and bailing out folks, I'd prefer to see families who made poor choices stay in their homes than I would to see bank executives getting bonuses.

I somewhat like the provision that bankruptcy judges can change loan terms. Hopefully they will be conservative and not go all California judges and keep it reasonable. Mortgage companies are required to do foreclosure mitigation and many of them have dragged their feet and not really performed this duty in good faith. Perhaps knowing that the bankruptcy judges can lower the rates, will make them more inclined to cooperate with struggling homeowners.

Hey, we have a conservative judge...somewhere. I think they let her out once a decade or so...

:p

[steelady]

I agree RTL. It's a cycle. Housing prices cannot skyrocket forever. The housing market boon was the dangerous thing and if government wanted to do something about it, they should have slowed that down rather than patting themselves on the back saying that more people own their homes than ever before.


ITA!

[steelady]

I think what I'm trying to keep in mind (note: I don't own a home, so I can't use this program) is the continual decrease in home prices and increased foreclosures are definitely going to hurt ALL homeowners (at the least), not too mention retail businesses, etc.

I think since those not "needing" this as well as those who are desperate, hate it, it's probably a fairly good compromise.

[Justicedog]

I think since those not "needing" this as well as those who are desperate, hate it, it's probably a fairly good compromise.

Just so long as no one is happy. :)

[JudyJudyJudy]

I agree RTL. It's a cycle. Housing prices cannot skyrocket forever. The housing market boon was the dangerous thing and if government wanted to do something about it, they should have slowed that down rather than patting themselves on the back saying that more people own their homes than ever before.
I totally agree.

I haven't even answered my own thread. I think this is a very bad idea. I thought the first bailouts were a bad idea, and I think more bailouts are an even worse idea.

Buying a house is a gamble just like playing the stock market. Sometimes you win big, and sometimes you lose your ass. It's a risk you take. I feel absolutely awful for those who are losing their homes, but I don't think the government is handling this appropriately. We were close to losing our house at one point and likely will be again if this bailout passes, so I can certainly have compassion. Since Atlanta was recently ranked #3 for "emptiest cities," it isn't looking good in this area.

This type of thing can't continue. It will snowball. You help one area of the economy, and others are harmed. When will it stop? We can't continue to create money out of thin air.

[steelady]

Just so long as no one is happy. :)


Isn't that the mark of a good compromise?

[Justicedog]

Isn't that the mark of a good compromise?


Nah, it's something where people can sit back and say, "I can live with that."

However, that's what we basically tell our family law clients where mediation is appropriate, wouldn't you like to be the one who helps decide what you can live with (rather than what you want) than let a judge decide?

[paper_]

Who ever said housing prices must continue to go up over time?

I can see 2 reasons why the price of homes should go up over time.

1) inflation. The government (that issues the money supply and therefore has the ability to cause macro inflation) wants to have sustained low-grade inflation, therefore over the long term it will happen. Maybe not gracefully... but it will happen over the long term. Note that this does not mean value of real estate will increase.

2) Increasing population. The amount of land is largely fixed. (minor increases by fill in, levy projects, and land improvement projects, as well as potential loss due to global warming) With the supply of land fixed and an increasing demand for it from an increasing population, the value of land will continue to increase with it.

Also Note that this doesn't even require an increase in US population - increased population will need increased food and raw materials, therefore the price of land will incease over the long term.


I want to mention that while prices and values are almost certain to go up over the long term, this does NOT mean that it will be continuously increasing. A post bubble drop will cause a depression in land prices/values. Given that housing prices were very high in many places in the country, it could be a long time before prices reach their previous mark.


There are also some historical reasons for an expected increase in land values in the US. As people moved to the frontiers and started inhabiting previously "uninhabited" land they started making improvements. As the productivity of the land increased, so did the transport capability of the area. As the transport capacity of the area increased, the profitability of the land increased, which increased the value and price of land.
The increased transport capacity of the areas around cities increased demand for housing near the cities, as people wanted some land of their own but work in or near the cities. This collective move to new land increased the price of that land (higher demand than before). These suburbs spawed newer burbs and the process continued. This does not mean to say that the trend is oneway. If people start collectively moving back to cities, then the burbs will go through the same blight that cities have for the past 20 years.

[QuiltyConscience]

The cost of homes should reflect the economy in the area . The demand for affordable homes and income limits on the working population is what should have driven the housing market, and the housing prices should have gone up only slightly when an area's economy improved.

But for years the market has been artificially inflated because of ridiculous lending practices. People had access to loans that they simply should not have qualified for, and have grown accustomed to, and even deem "necessary" lifestyles far beyond what their actual means are.

It took us years to get in this mess, and getting out of it is going to take years to get out of it.

And I think the stimulus bill is just putting it off for a few short months, if even that.

[QuiltyConscience]

Why do you need $40,000 in cash? I work for a real estate attorney, and I close loans every day for people who don't have nearly that much down payment. Even in today's market.

It's an especially good time to look towards buying something that is in short-sell, or has gone into foreclosure.

Not crystal, But I'll throw in my 2 cents.
We are currently saving for a house. We may have qualified for a house with out a big downpayment, but we made the decision not to mainly because we didn't want to get in over our heads and because buying a house and having little equity in it seemed like a bad idea.

Seems like it has been a bad idea. For a whole lot of people.

[KerryS]

Not crystal, But I'll throw in my 2 cents.
We are currently saving for a house. We may have qualified for a house with out a big downpayment, but we made the decision not to mainly because we didn't want to get in over our heads and because buying a house and having little equity in it seemed like a bad idea.

Seems like it has been a bad idea. For a whole lot of people.

Indeed. Our next house, we will not buy until we've saved up 50% for a down payment (and then we plan to pay off the mortgage within five years). The house after THAT (which will hopefully be our final retirement home) we plan to pay for with cash.

[paper_]

Not crystal, But I'll throw in my 2 cents.
We are currently saving for a house. We may have qualified for a house with out a big downpayment, but we made the decision not to mainly because we didn't want to get in over our heads and because buying a house and having little equity in it seemed like a bad idea.

Seems like it has been a bad idea. For a whole lot of people.


Wihile I think it is bad form to do so, with the current laws it might be in your best financial interest (assuming you can get nearly as low interest rates) to borrow with as little of your money in the house as possible. If the crap hits the fan, you would still have the money you didn't put towards the house to pay the mortgage for the next few years. If you DID have to move with a house underwater, you could just give it back to the bank or allow a short sale. It WOULD (rightfully so) hurt your credit, but you wouldn't have lost the difference between the purchase price and the sale price.

I agree with paying off a house as soon as possible, but it DOES engender more risk to the owner (while saving interest rates).

[SingingMom]

Not crystal, But I'll throw in my 2 cents.
We are currently saving for a house. We may have qualified for a house with out a big downpayment, but we made the decision not to mainly because we didn't want to get in over our heads and because buying a house and having little equity in it seemed like a bad idea.

Seems like it has been a bad idea. For a whole lot of people.


Seriously.

We WAY underbought with our house. We could have qualified for TEN times what we spent. And we did it on purpose. We didn't want to have all our money tied up in a single piece of property. We wanted to be in a position where, if bad stuff happened, we wouldn't be at much risk for losing the house.

It's hard for me to sympathize with the guy who wants to refinance his eight HUNDRED thousand dollar house and can't. If you don't have the assets to cover an eight hundred thousand dollar house lifestyle, you are certainly acquiring a large risk by purchasing so much house.

I don't want him to lose his house. But why can't he persuade a lender to refinance for him? Is it possible that he is just not a good lending risk? I've got people calling me every day to offer me refinancing packages.

Mortgage brokers were playing very loose with their risk assessment criteria. Those days are over, I hope for a looong while.

I do have a great deal of sympathy for folks who lose their houses in the bad-string-of events situations.

I agree with Hidesome. I think that bailing folks out isn't a good idea in the long run. I'm afraid that it will do more damage than good.

Just before the housing bubble burst, an ACORN representative came to my door, looking for support for some program or another. This nice young man told me very seriously how wrong it was that people were being denied the benefits of home ownership just because they couldn't save a down payment or had negative credit histories.

Well, if I were writing loans, I'd worry A LOT about people who don't have enough room in the budget to save a down payment and don't pay their bills on time...

[JudyJudyJudy]

It's hard for me to sympathize with the guy who wants to refinance his eight HUNDRED thousand dollar house and can't. If you don't have the assets to cover an eight hundred thousand dollar house lifestyle, you are certainly acquiring a large risk by purchasing so much house.
While I understand and agree with your general argument, $800K doesn't buy much at all in some areas (especially when the market was inflated, and people got these loans). Here it could buy a mansion, but in some areas of California, it buys/bought little.

[SingingMom]

It's true. But if I were buying in those areas, I would make some different choices. A townhouse, a condo, or a flat. If you aren't capitalized for buying into an area, maybe you shouldn't, that's what I'm trying to say. It's too risky, at least for my financial taste.

I think that what is wrong with the housing market, the securities markets, and life in general, is that people have been essentially saying, "Well, what else could I do?" as if there were no other choice than to take on a huge risk.

The reason developers build large expensive homes is because they know people want to buy them. As a nation, our eyes are bigger than our pocketbooks. And if the ONLY way you can buy a house is by spending $800K on a 5 year ARM, maybe the path of wisdom is to walk away.

[JudyJudyJudy]

And if the ONLY way you can buy a house is by spending $800K on a 5 year ARM, maybe the path of wisdom is to walk away.
Again, I am NOT in favor of this bill. However, I still feel the need to argue this because this is just an assumption people are making about those scummy people who lost or are losing their homes. Many people who are losing their homes did not make bad choices, but rather, bad circumstances fell on them. When someone loses his/her job, it's difficult to keep a home no matter how wise the decisions were initially. Bad things can and do happen to good people.

[Justicedog]

Sometimes the townhomes and condos are that much.

[JudyJudyJudy]

Yep.

[RaisingThemLeft]

Where I live, a typical condo costs $300,000 for a small 2 bedroom condo. A nicer one (not anything close to luxury, but one that a small family could comfortably live in) costs closer to $400,000. We bought our house for $450,000. That is bottom of the market for houses and we've kept looking and have not come accross another deal like the one we got, and we bought our house in Sept. Our house is a 3 bedroom 1987 tract home. It's about 1600 sq ft. And it's somewhat of a fixer upper. And it was considered an awesome deal. We bought it from the bank as a foreclosure. I think you'd be surprised at what $800,000 buys you here. It buys you a decent home that you can probably get for $250,000 in most parts of the country. For a very large newer McMansion type tract home you need 1.5 million.

[RaisingThemLeft]

Just to add to that, I live in Southern CA. There are good reasons for buying houses, even when you don't have much of a down payment. For one, the way taxes are structured, you will get screwed if you rent on a higher income. Also, rent here is high. We paid $1700 a month in rent on a very small, very old, and very shabby 3 bedroom condo. And you have to think about what will happen to you later in life if you continue to do this. You will have no equity and rent will continue to go up and you'll be paying more on rent than you would if you'd just bit the bullet and bought a house 10 or 20 years prior. Real estate will eventually go up and you will be priced out of the market. That happened to us. We should have bought 10 years ago, but we waited and were priced out of the market for 10 years, until this recent morgage crisis in which we were able to take advantage of the misfortune of others. My house payment is fixed. Right now it seems like a lot, but in 5 years it won't seem like so much. Before long, it will seem cheap and will be less than what most people in my area are paying in rent.

Around here, what killed people was either losing their job (the guy who owned this house prior to us was in the lending business) or those interest only loans where you pay the interest only for 5 yrs and then have to hope the value of your house goes up or you will not be able to refinance. Also, the balloon payments. People did some really creative (stupid) things with loans. It wasn't the 30 yr fixed loans that were the problem. The lending companies also were doing things like stated income where all you had to do to get a loan was show up and claim to make a certain amount of money, with no proof. Those days are gone. When we got our loan they wanted to know where every penny of our down payment came from and asked for all kinds of documentation on dh's job and even called his employer. We had to have signed statements from my dad, who gave us some money for the closing costs, saying the money was a gift and not a loan, and they even wanted documentation on his bank accounts, of where the money came from. This is how it always was with lending companies before, but then they got greedy and everything went to shit.

[Justicedog]

I think a big problem with lenders is that they stopped being the ones who would lose on the loan. Mortgages are typically sold the day of closing or shortly thereafter. If it were the local bank who lent the money and to whom the money went, they'd be much more careful when lending.

[KerryS]

If a townhouse or condo is $800K and the only way a person can afford it is with a risky 5-year ARM or interest-only mortgage, then perhaps they shouldn't be buying. Not every person can be or has to be a homeowner. Sometimes renting is a very valid and financially sound decision.

[steelady]

If a townhouse or condo is $800K and the only way a person can afford it is with a risky 5-year ARM or interest-only mortgage, then perhaps they shouldn't be buying. Not every person can be or has to be a homeowner. Sometimes renting is a very valid and financially sound decision.


Currently, renting is getting to be quite expensive. Because of the amount of house foreclosures, etc, the renting market has greater demand, and, in some cases, lower supply.

[JudyJudyJudy]

Currently, renting is getting to be quite expensive. Because of the amount of house foreclosures, etc, the renting market has greater demand, and, in some cases, lower supply.
Yes, and it's often more expensive to rent than to buy, especially when you consider that you get a break on taxes when you buy.

[Justicedog]

Plus, with renting, you're at the whim of a LL. Not only do you have to worry about making your rent payment, you have to worry about the LL making his/her mortgage payment. There are a lot of renters being evicted because of foreclosure as well. Depending on the state, there may or may not be much, if any notice given to the renter.

[JudyJudyJudy]

Plus, with renting, you're at the whim of a LL. Not only do you have to worry about making your rent payment, you have to worry about the LL making his/her mortgage payment. There are a lot of renters being evicted because of foreclosure as well. Depending on the state, there may or may not be much, if any notice given to the renter.
Dh is dealing with evictions, and he's had to present notices of evictions in a lot of these cases. Unlike homeowners, they don't have months to look for somewhere else to live, and they've saved no money since they've been paying that money in rent. It's really sad.

[Justicedog]

Dh is dealing with evictions, and he's had to present notices of evictions in a lot of these cases. Unlike homeowners, they don't have months to look for somewhere else to live, and they've saved no money since they've been paying that money in rent. It's really sad.


And, they're looking at a big chance of not getting their security deposit back. They're also in limbo. They owe the LL rent until the property is transferred (foreclosure sale ratified - don't know if that's the same in each state). They're liable for the term of the lease, maybe LL will come up with the $ at the last minute, maybe he won't but until it's foreclosed, they still have to abide by the terms of the lease.

With this economy, I'd much rather own than be a renter.

[JudyJudyJudy]

With this economy, I'd much rather own than be a renter.
Absolutely. There is no security in renting.

[hidesome]

Absolutely. There is no security in renting.

I disagree. A renter can move on a month's notice. A home owner generally cannot. A renter need not pay insurance. A home owner would be crazy not to. A renter is not subject to six-figure changes in their equity as home owners are. A renter has a wider choice of options and can change their mind without consequence. A renter can earn equity in CASH. A home owner can earn equity in property. The only real advantage of home ownership is the tax relief on mortgage payments - which isn't much. Overall, the law of supply and demand gives little financial advantage to owning vs. renting. The advantage of owning is largely supplied by current tax laws which were put in place to encourage home ownership. Frankly, as a matter of financial security, I felt far more secure as a renter (of 16 years) than I feel as a home owner (of 8 years). When you factor in the fact that most people are not home owners at all, but mortgage owners, I can hardly see why that would make them feel secure at all, let alone more secure.

[JudyJudyJudy]

Most renters can not move with a month's notice. Most contracts I've seen recently are a minimum of 60 days, and that's only if the renter has satisfied his lease contract. Also, he can't "change his mind without consequence." His credit can be negatively affected just like a home buyer's credit can be negatively affected.

It usually takes at least three months to begin the eviction process of a home buyer. The eviction process can begin within days of a renter not paying his rent. However, even if the renter is paying his rent, he can still be evicted if the home buyer isn't paying his mortgage.

While a home buyer takes the chance of losing equity, the chances are far greater that he will gain equity. A renter earns no equity yet is often paying the same as he would if he were buying (and often more). As for insurance, the person from whom a renter rents includes that in the cost of rent.

I feel more secure buying, not the least of which is that I don't have to worry about being screwed with by the owner, and I know whether or not the mortgage on the home in which I'm living is being paid.

[Justicedog]

I disagree. A renter can move on a month's notice. A home owner generally cannot. A renter need not pay insurance. A home owner would be crazy not to. A renter is not subject to six-figure changes in their equity as home owners are. A renter has a wider choice of options and can change their mind without consequence. A renter can earn equity in CASH. A home owner can earn equity in property. The only real advantage of home ownership is the tax relief on mortgage payments - which isn't much. Overall, the law of supply and demand gives little financial advantage to owning vs. renting. The advantage of owning is largely supplied by current tax laws which were put in place to encourage home ownership. Frankly, as a matter of financial security, I felt far more secure as a renter (of 16 years) than I feel as a home owner (of 8 years). When you factor in the fact that most people are not home owners at all, but mortgage owners, I can hardly see why that would make them feel secure at all, let alone more secure.

Perhaps, in some areas, it's easy to find decent, affordable rental housing, not so in many areas.

I don't know why it would be easier for a renter to pack up all their stuff and more than it would be a home owner. Perhaps that needs some explaining to me.

Renters should have insurance as well, it's stupid not to be protected, they're just insuring their belongings and not the physical dwelling. I don't understand the difference there as well.

While a home buyer takes the chance of losing equity, the chances are far greater that he will gain equity. A renter earns no equity yet is often paying the same as he would if he were buying (and often more).

This too. While lots of people who bought in the boom are having issues of their homes being valued less than what they paid for them, those who'd bought before still have homes worth as much, or more than when they bought. We bought our home 6 years ago. It's worth about $75,000 to $100,000 more than when we bought it. Granted, 3 years ago, it may have been worth about $200,000 more than when we bought it, so we lost about $100,000, but we're still ahead of when we bought.

[KerryS]

I disagree. A renter can move on a month's notice. A home owner generally cannot. A renter need not pay insurance. A home owner would be crazy not to. A renter is not subject to six-figure changes in their equity as home owners are. A renter has a wider choice of options and can change their mind without consequence. A renter can earn equity in CASH. A home owner can earn equity in property. The only real advantage of home ownership is the tax relief on mortgage payments - which isn't much. Overall, the law of supply and demand gives little financial advantage to owning vs. renting. The advantage of owning is largely supplied by current tax laws which were put in place to encourage home ownership. Frankly, as a matter of financial security, I felt far more secure as a renter (of 16 years) than I feel as a home owner (of 8 years). When you factor in the fact that most people are not home owners at all, but mortgage owners, I can hardly see why that would make them feel secure at all, let alone more secure.

I completely agree with all of this. In our current economy, IMO there is much more security in renting than home "ownership." Right now, even though we'd like to move to a different state, our options are either to be tied to a home with very high mortgage payments for the next 4-5 years, or bail and financially ruin ourselves. Not a lot of security there.

[SingingMom]

The cost of homes should reflect the economy in the area . The demand for affordable homes and income limits on the working population is what should have driven the housing market, and the housing prices should have gone up only slightly when an area's economy improved.

But for years the market has been artificially inflated because of ridiculous lending practices. People had access to loans that they simply should not have qualified for, and have grown accustomed to, and even deem "necessary" lifestyles far beyond what their actual means are.



ITA.

I know that homes (especially in SoCal) have vastly higher price tags than in other parts of the country. I get that. But if you are undercapitalized, you're undercapitalized, and it doesn't matter what the median home price is, or whether there is a lot of housing you can afford, or anything else.

You're just undercapitalized. Comparing renting to ownership is all very well, but taking on a $800K 5 year ARM because it's the only way you can afford a house is very risky. It's betting with your home, and sometimes people are going to lose.

We've struggled with these choices like everyone else, and had to do some stretching to NOT take on that level of risk. For instance, when DH lost his job and the only work he could get was in SoCal, he commuted down there weekly so that we WOULDN'T have to buy into that crazy market. So instead of buying a $800K house, we rented a room in an apartment.

[JudyJudyJudy]

I completely agree with all of this. In our current economy, IMO there is much more security in renting than home "ownership." Right now, even though we'd like to move to a different state, our options are either to be tied to a home with very high mortgage payments for the next 4-5 years, or bail and financially ruin ourselves. Not a lot of security there.
Key words are bolded. This is not typical. Typically, home buyers are at an advantage over renters.

[EvilAmy]

My understanding that different areas have different advantages when dealing with buying vs. renting. One area can be a renters market while the other would be a buyers market.


What has bothered me in this area is that people are well aware that we are getting a migration of people from Nevada, California etc. They know what those people are paying in those states and marketed their homes according to what migrants can afford which inflates it out of the affordable range for our area (or even rips off essentially the migrants). There is a home across from me they are asking 65,000 for two acres with a three bedroom one bath house. The land is not worth it and the house needs bookoo amounts of work. New roof (we help the elderly couple that rented it repair it several times) new plumbing including sewer pipes, new wiring (think aluminum wiring that is on old fashioned isolators), Parts of the house are sunken in (part of it was originally a cabin but you can tell from looking). No one here will touch it and yet someone from outside will think it's a great deal. Look up the market value that the assessor has it at and it's clear you being ripped off. They use a market standard that they admit inflates the price in comparison to the economics in this county.

[JudyJudyJudy]

Amy, in cases like that, an appraiser would have to do a bullshit appraisal in order for someone to even be able to get a loan on it. To do a legitimate appraisal, appraisers should use comparable houses that have sold recently within the area. Of course, we all know that there are scumbag appraisers just like there are scumbags in every business.

[KerryS]

Key words are bolded. This is not typical. Typically, home buyers are at an advantage over renters.

Of course not, but there's no point in discussing irrelevant hypotheticals. I thought we were having a discussion about the CURRENT economy and situation.

[JudyJudyJudy]

The discussion had turned to owning and renting in general. So, Kerry, since renting offers more security than owning (according to you and hidesome), does that mean that once you sell your house, you'll never buy again? As you said in this thread or in another one, you have equity in your house now, so you are one who as financially benefited from owing/buying even in the current economy, so your viewpoint seems odd. The fact is that we take risks in life; more often than not, we stand to gain rather than lose by buying.

[KerryS]

So, Kerry, since renting offers more security than owning (according to you and hidesome), does that mean that once you sell your house, you'll never buy again? As you said in this thread or in another one, you have equity in your house now, so you are one who as financially benefited from owing/buying even in the current economy, so your viewpoint seems odd. The fact is that we take risks in life; more often than not, we stand to gain rather than lose by buying.

You must be confusing me with someone else. I certainly do NOT have equity in my home - we owe $300K on a house that's currently worth $260K. Every day we wish that we had just continued renting, rather than becoming "coveted homeowners." Luckily we didn't buy all the house we could afford or were approved for (like so many others have done) or we would be seriously financially screwed right now.

In answer to your question - if/when we are able to get out from under this house, we will rent for several years until we have enough money saved in order to put down AT LEAST 50% on a down payment. We will never ever again buy a house with little down, in order to avoid the very scenario that we and so many others are in right now.

[JudyJudyJudy]

Yes, I must have you confused with someone else. It does make sense not to buy unless you have a huge down payment, especially if you aren't sure whether or not you want to stay in an area. For someone who buys and plans to live in his/her house forever (like many people where I grew up), even if a house decreases in value (which is highly unusual and happened in the current market because of a lot of scummy activities), the person is still more secure in that as long as he is making his payments, which are generally less than renting, he knows he has a place to live; he doesn't have to depend on the so-called owner of the property to make the payments. Dh, who deals with evictions for his job, has seen too many renters who were evicted due to the owners' nonpayment for us to in any way feel secure renting.

[KerryS]

I guess a lot of it depends on your personal experiences. When we were renting, it was a home that my parents owned, and we did not have any concerns about being evicted or having the house foreclosed upon due to my parents not making the mortgage payment. We were paying $1200/month to rent a 3 bedroom house, compared to $2500/month we're paying right now on our mortgage. All we can think about is how much money we would have in savings right now if we had just continued renting instead of buying a home (at nearly the peak of the bubble).

[JudyJudyJudy]

I understand what you're saying. However, most people don't have the option of renting from their parents.