?? for someone who actually understands our economy.

[Antonia]

I imagine that there is a whole range out there. We are in debt for things like car repairs, healthcare, clothing, etc. We haven't ever lived an elaborate lifestyle.

 

Absolutely agree. I'm thinking more of the folks who can *never* have enough or who are desperately trying to "keep up with the Joneses," like some in my own family who are constantly whining that they can't pay their bills and are in debt up to their eyeballs even while they program the tivo attached to their 50" flatscreen with their freshly-manicured fingertips!

[astrid]

did a lot to convince mortgagees that they could qualify for much more house than they should have.

[Scarlett]

did a lot to convince mortgagees that they could qualify for much more house than they should have.

 

How? I mean just because someone says to me, 'Scarlett, on your $1000 a month salary you qualify for a mortgage of $500! Congratulations!' I would say, 'uh, thanks. I'll take this house that will give me $250 mortgage instead.'

 

From the time I was about 10 I watched my very very poor single mother sit down with pen and paper and write out the bills that would be due the next month. And then she paid them. We ate on what was left. It is really not all that complicated. Easy? Nah, not always. I remember sometimes we couldn't go visit friends who lived 10miles out in the country because to do so would have used gas that had to last us through the end of the next week. We didn't buy expensive clothes and we didn't have new furniture. However, we always had a phone, always had a car and always had a roof over our heads. And we always had food. Never one time did we have a utility turned off...not even our phone.

 

So I have very little sympathy for people living outside of their means. When you look around and think everyone has more than you, it can be rough. The fact is it probably is only an illusion in most cases.

[Robin in Tx]

How? I'll tell you how...

 

I've seen it a lot, particularly at new builder sales offices. They convince you that it's safe going into an adjustable rate mortgage. You can afford the mortgage now, but in a few years when the rate adjusts up is when you are in trouble. But the builders convince the buyers not to worry about that because by then you can refinance at a fixed rate. These are usually people who have less than stellar credit (or maybe they have no credit, new home buyers) who would be subject to higher than regular interest rates. They are told that after a few years of establishing good credit on their mortgage that they can refinance in a few years at the better rates, in time to avoid the balloon note or the adjusting rate. They go into the loan treating it like a temporary loan. Then, what actually happens is they borrower doesn't qualify for the better rates in a few years, or they can't refinance because guess what? Their property has depreciated in value and now it is NOT worth what they owe on it, and no one will refinance them. And so they're stuck with the original loan, and they can't afford the new payment which has almost doubled because of their scheduled interested rate adjustment.

 

I saw a 60 minutes (or maybe it was a 20/20) where the people were in this exact situation and they were willing to pay back the loan, if they mortgage company would just work on refinancing the interest rate. The rate had adjusted up to something like 12%, making their payment out of reach. Finally, after months of going back and forth, the mortgage company agreed to refinance at 7% fixed (still higher than going rate), just to keep them from going into default. An economic advisor on the show said that it would have been wiser for them to walk away from the loan completely !!! because they owed more than what the property is now worth. Trying to come up with programs where people can borrow more against a house than what it's worth and still have an affordable interest rate is the problem. People are just walking away from their houses, because the adjustment is happening, they can't refinance, they can't afford the new payment, and they can't sell because they don't have thousands of dollars to spend at closing to cover the loss.

 

Yes, people are sometimes naive and don't make the wisest of choices, but often their only crime is trusting the sales pitches and overly optimistic mortgage lenders when all they're trying to do is provide a decent home for their children in a safe neighborhood. There are plenty who abused the opportunity, but caught up with them are the people who are painfully walking away from their home, with their children in tow, because the options they were told would be there are not.

 

And loan officers knew this would come to a head like this. It was a loan officer who told us several years ago that if we'd just hold on for a couple of years before buying, that we'd likely get ourselves a really good deal on one of these types of foreclosures because he knew that they were coming, and sure enough he knew what he was talking about. But he didn't care. He got a commission for every loan he closed,.

[Surfside Academy]

I think there should be jail time for some of the leaders of the lending institutions that started this whole mess. Here in California, it was literally a "feeding frenzy" for about 3 years. People were paying up to 10% - 15% above the listed prices for a house just to get into a home. Lenders were allowing buyers to put down payments, upgrades, closing costs, etc. onto a second mortgage, relying on the fact that housing values would continue to rise. I know "many" people who purchased homes for around 1 million (not a typo) and had house payments of around $6000-$8000/month! Many others took the option of some crazy interest-only loan and now the million dollar house is worth about 20% less and the payment is scheduled to almost double and they can't afford it.

 

We also had the situation where every other person you came in contact with was getting into the mortgage industry. At the time, mortgage brokers were making big $$ and many found loans for buyers even though their house payment would be almost what the person was bringing home per month (net)! Unfortunately, we are now paying the price for such questionable business practices.

[Scarlett]

How? I'll tell you how...

Yes, people are sometimes naive and don't make the wisest of choices, but often their only crime is trusting the sales pitches and overly optimistic mortgage lenders when all they're trying to do is provide a decent home for their children in a safe neighborhood.

 

And I guess this is my point. People have to learn to read the fine print, research options and offers and be willing to walk. away. when it reveals itself to be a unwise choice.

 

I think the unethical sales people should be ashamed too.

[Robin in Tx]

But they could not have possible guessed that the values would fall the way they did. Everyone was confident that in a few years, they would be in a perfect position to refinance into a permanent, affordable loan.

 

Let's say you make that $1000 a month. And let's say that rent is costing you $350. And a decent home would cost you about the same. But let's say you paid a credit card late a couple of times, and for that reason you can't get a very good interest rate, and the same house that costs every one else $350 will cost you $450, which you can not afford. So your lender shows you a loan that starts out at a lower interest rate and your payment will only be $300 the first coule of years, and then go up to $450 after that. And he advises you to take that loan now, and in two years the bad credit will off your record and you can refinance into a good permanent loan to keep your payment affordable. Two years comes along, your credit has improved and still can't afford $450, but there's a real estate bust in your area and your house has depreciated in value... something that no one expected... and now you can't refinance the balance on your mortgage because you are undercollateralized. You lose the house and go back to paying $350 rent, when you are more than willing to pay $350 for your mortgage.

 

To me, this is a lot like elderly people who are taken advantage of by scammers who present themselves as contractors, etc. (take money for a roof job then disappear, etc). Yes, they were foolish for trusting someone without properly checking them out, etc., but I still feel very, very sorry for them. They put their confidence in someone they trusted, and end up loosing everything.

[Renee in NC]

Reminds me of one of the Extreme Home Makeover a month or so ago. They showed a family who has lost their house to foreclosure (and a special needs daughter - but I am not addressing that.) My dh was FLOORED at the "stuff" in their new rental. There were boxes and containers and rooms full of expensive stuff. And this was BEFORE the network gave them all their NEW stuff!

 

I am SOOOOO thankful that we never used our equity to pay off debt. I am SOOOO thankful that we have managed to stay ahead of our mortgage. I can't imagine losing my house and keeping all my stuff (not that I have any, but if I did!) I would have sold every single last thing before letting my house go.

 

I know the road back will be even more painful for us than the past 10 years would have been. However, I still have a house to live in, and now we make enough to pay for it, but not without sacrifice.

[Scarlett]

To me, this is a lot like elderly people who are taken advantage of by scammers who present themselves as contractors, etc. (take money for a roof job then disappear, etc). Yes, they were foolish for trusting someone without properly checking them out, etc., but I still feel very, very sorry for them. They put their confidence in someone they trusted, and end up loosing everything.

 

I too feel very very sorry for them Robin. I just see the example of the mortgage you gave as people taking a risk. And I'm not a gambler. Maybe the real problem is that people are not educating themselves about financial matters.

[Renee in NC]

That is exactly how it happened - when we bought our house it was a STRETCH monthly to make the mortgage payment. My mother kept saying, "It'll be okay. Every year you will make more and the payment will get easier. If you don't buy now you will never be able to buy." We had good credit, so we got a low rate and by doing some of the work ourselves, we ended up with enough equity not to need a down payment.

 

The problem was that wages never went up - my dh was making last year roughly the same as he was 4 years earlier. We kept making the payment on time, but more and more day to day expenses went on the credit card so that we *could* make the payment. We couldn't sell the house because no one wants to buy it (it is too small - only about 1300 square feet.) So we are stuck - I am not really willing to walk away from my obligation anyway.

 

I just figure that our dc are learning some VERY valuable lessons!

[Renee in NC]

It can happen - most mortgages have a clause that lets them call the mortgage whenever they want.

[Scarlett]

My mother kept saying, "It'll be okay. Every year you will make more and the payment will get easier. If you don't buy now you will never be able to buy."

 

DQ, I'm glad you've been able to hang on. I'm not picking on you and I'm sorry things have been tough. But when I look at the above statement your mother made, I have to wonder what she meant. Did she think the prices would just keep going up and you couldn't afford the higher prices? If so, I'd just like to say, that's faulty reasoning. Even if it were true, if you can't afford a house, you can't afford a house.

[Scarlett]

It can happen - most mortgages have a clause that lets them call the mortgage whenever they want.

 

Yes....but why would they do that? If someone is making the payments...and the bank is getting their interest...why would they do that?

[Renee in NC]

That, and she thought that interest rates would never be so low again. We were living for free in a trailer park we managed and not managing our money well at all. She even paid off some debt for us so that we could qualify for the mortgage. It really boiled down to the fact that she did not want her grandchildren living where we did - she didn't feel that it was safe (and it really wasn't - there were several scary incidents right before we moved.)

 

It was stupid. Here we are 4 years later with a tremendous amount of debt and a house we can't sell. Stupid, stupid, stupid!

[Mrs Mungo]

Help me understand this. Your friend got a mortgage and is paying on said mortgage. And without missing payments or being late or things like that, the bank just looks her up, does comps in the neighborhood and says, 'oh your house isn't worth as much as we thought so cough up some more money, so that our investment is safer.'

 

I just.....can't imagine that happening. Am I missing something? Or having a blonde moment?

 

No, that's correct. If a home falls too far below what people paid then the bank doesn't consider the house to be enough collateral to cover the loan and they can take the house. My friend never missed a payment. Why would the bank do it? I don't know but at the time they paid the money to keep their house there were 27 houses in her neighborhood in foreclosure.

[Renee in NC]

The only thing I can think of is that the bank felt they better get it now or there would be a problem later. Foreclosed on houses are usually in disrepair. Who knows? It worked! The bank got their money and reduced their risk!

[Scarlett]

No, that's correct. If a home falls too far below what people paid then the bank doesn't consider the house to be enough collateral to cover the loan and they can take the house. My friend never missed a payment. Why would the bank do it? I don't know but at the time they paid the money to keep their house there were 27 houses in her neighborhood in foreclosure.

 

Wow. That is scary. What state is this in?

[Mrs Mungo]

Wow. That is scary. What state is this in?

 

California but I think it will spread to other big cities and overpriced areas. We have other friends who live just outside of Chicago who wanted to move because the hubby had been offered a new job. He wound up turning it down and taking a different job locally because they couldn't sell their house. Or take where we live (Oahu) the house we are renting was on the market for over a year because houses in this area are overpriced that's why they decided to rent it out. We got it for about $800 less per month than some of our neighbors pay because we came in when houses had been sitting empty forever.

[pixelroper]

I catch myself often enough, so I'm not pointing a finger... my diagnosis-

This country is afflicted with 'your spoon is to big for your bowl' syndrome,

[Rhondabee]

There's a reason you are where you are. And, I don't mean the actual logisitics of how you got there. I mean that even if you acted unwisely, and even if your mother gave you advice out of fear, that God wants you where you are. He must, or you wouldn't be there. Maybe your mom was right - you don't know what might have happened to you or one of your children if you had stayed where you were.

 

Thank God you are where you are (and I know you do!). He will bless.

 

DD crying - gotta go

[Robin in Tx]

This is the most sensible post in this entire thread :). Rhondabee is right. Listen to her.

 

Robin

[Scarlett]

There's a reason you are where you are. And, I don't mean the actual logisitics of how you got there. I mean that even if you acted unwisely, and even if your mother gave you advice out of fear, that God wants you where you are. He must, or you wouldn't be there. Maybe your mom was right - you don't know what might have happened to you or one of your children if you had stayed where you were.

 

Thank God you are where you are (and I know you do!). He will bless.

 

DD crying - gotta go

 

Do you really believe that everybody is where they are because God wants them there? Wow. :confused:

[Renee in NC]

No, I imaginse she was just offering me some compassion. ;-)

 

The only reason I am sharing all this is so that others don't make the same mistakes we did. If the only way you can afford to stay home is with debt, you can't afford to be a SAHM. And if you stay home anyway, it just gets worse!

[Scarlett]

Sorry. I'll get off my soapbox now. I had no intention of picking on DQ. The original point of the thread was musings about the economy. And it seems to me the mortgage crisis is the direct result of people trying to live above their means. Oh and unethical lending practices making that process easy.

[Robin in Tx]

It's more about moving forward instead of looking back. I thought Rhondabee's post was sensible because it was sweet encouragement to shrug off the regret and find peace and happiness with where she is now, and move forward with optimism and lessons learned. Here we were discussing the economy and how stupid some people are/aren't, completely overlooking the fact that someone needed a little encouragement. Not pity and not chastisement, but encouragement. Regret and hindsight can ruin your life. And yes, I do believe that there is always a reason why things happen the way they do, even if we don't understand it. Often what we think of as a bad decision turns out to have a silver lining, etc.

[Renee in NC]

I don't think you were picking on me! I can handle it. ;-)

[Colleen]

All very good points, Robin.

[Colleen]

Fire away! :)

 

Nope, all I can do is nod in agreement :iagree:

[Colleen]

Maybe the real problem is that people are not educating themselves about financial matters.

 

Yes, it is a real problem. If I had my 'druthers, personal finance and basic economics courses would be required of all high school students.

[Soph the vet]

Absolutely agree. I'm thinking more of the folks who can *never* have enough or who are desperately trying to "keep up with the Joneses," like some in my own family who are constantly whining that they can't pay their bills and are in debt up to their eyeballs even while they program the tivo attached to their 50" flatscreen with their freshly-manicured fingertips!

:iagree: My receptionist at the clinic is always complaining about the cost of living and her husband's lack of work (he is a commercial roofer) yet she buys him a brand new ATV ($7000) on credit for a birthday. They have two children and no long-term savings goal, i.e. education funds, etc. She had a 200# dog to feed as well, not to mention cell phone, cable, etc. I don't get the mentality. My husband has a great job and I work part time. Our only debt is our mortgage which is less than 25% of our monthly income. We have 3 kids, no pets (for a vet that is sad), no cable, no cell phone, one small TV which will probably go the way of the Dodo when analog is no more in 2009. I am forty, my receptionist is 25. It is like young adults these days just expect to have everything they always wanted immediately instead of working, saving and waiting. We have got to teach our kids delayed gratification, and to not rely on the government for services it should not be providing for us, and to stay out of debt as much as they can:rant:!

[Scarlett]

 

I agree. I am trying to beat this into my niece's head right now. She is 19 and in her second year of college. So far she has incurred no debt. I keep telling her how proud I am of her. She doesn't even have a credit card! She told me the other day she was thinking about getting one 'for emergencies' and I begged her not to. I pointed out to her that she has plenty of people in her life that could quickly come to her aid for a true emergency. And that if she can stay out of debt she will be ahead of the majority of her age group by the time she gets out of college and starts working.

[Volty]

I agree. I am trying to beat this into my niece's head right now. She is 19 and in her second year of college. So far she has incurred no debt. I keep telling her how proud I am of her. She doesn't even have a credit card! She told me the other day she was thinking about getting one 'for emergencies' and I begged her not to. I pointed out to her that she has plenty of people in her life that could quickly come to her aid for a true emergency. And that if she can stay out of debt she will be ahead of the majority of her age group by the time she gets out of college and starts working.

 

They're convienient. She'd be better off getting one for emergencies and only running up a little debt that she can pay off completly at the end of the month. Or maybe a debit card.

 

Then she'd have both a record of good credit and the wisdom of how to use it properly.

[Scarlett]

They're convienient. She'd be better off getting one for emergencies and only running up a little debt that she can pay off completly at the end of the month. Or maybe a debit card.

 

Then she'd have both a record of good credit and the wisdom of how to use it properly.

 

I disagree. I think at 19 the temptation to use it unwisely is just too great.

 

Of course, a debt card is a different matter.

[Amy in NH]

I'm with you, Scarlett!

[Gailmegan]

I think it really depends on the person. When I went to college at 17 I got a credit card for convenience and I never once put anything on it that I was unable to pay at the end of the month. I use credit cards even now for all of my purchases. I get great rewards and I pay in full every month, so I've never had to worry about interest rates, etc. I think having a credit card can be a temptation to some, but for those who were taught to spend money wisely, it can be a convenience.

[Caroline]

To this day I have this irrational fear the police will start knocking on my door if I don't make wise financial decisions.

 

Me, too!