<p>Who is going to jail? I think we have a problem.</p>
<p><a href=“http://cbs5.com/30minutes/local_story_266005029.html[/url]”>http://cbs5.com/30minutes/local_story_266005029.html</a></p>
<p>They don’t teach this at business school.</p>
<p>Oh, I think they do. The not so fine print on mortgage apps and closing papers reveal that signing a fraudulent statement is a felony. While the mortgage brokers were wrong in the “stated income” category and definitely not acting in the best interest of their client, the client still signed to receive the proceeds of the loan and purchase the home. The borrowers should not only lose the property if they can’t pay the loan, they may go to jail for fraud. What the State does to the brokers and their licenses and livelihoods will probably not be as severe. That will depend on how much the banks lose on these properties and whether or not the brokers stay where the law can find them once this gets really ugly.</p>
<p>This is troubling on so many levels. You have to wonder how people think they can afford houses whose monthly payments are more than their income. Is this a product of some kind of “everyone has it why shouldn’t I” mentality that our culture fosters? Is it a function of rampant innumeracy, where people don’t comprehend that the payments are not in the realm of the possible, given their incomes?</p>
<p>I just don’t get how they have assented to something so blatantly undoable. Whether or not they knew the falsity of the stated income, how did they think they could afford half a million dollar houses? I, if I stretched and fretted enough, might be able to pay for one, but I just wouldn’t. I couldn’t take the stress.</p>
<p>I guess it might be argued that they feel they have no choice, because of high housing prices, but that doesn’t resonate either. If you don’t have the money, you don’t. Here in Northeast Jersey, a high priced market, it is possible to buy a house for half that price–if you’re willing to live in a tiny fixer upper in a not so great neighborhood (oh wait, that’s my house.) Or to rent, which is what most of my students’ families do, because they know they cannot afford such ridiculous mortgages.</p>
<p>I truly don’t understand the thinking of the people who do assent to these mortgages, though I also do feel for them in the position they are in now. I think someone’s got to figure out how they got there (figuratively and physically.)</p>
<p>The buyers thought prices would go up forever, and so they had to buy or they would never own a place.</p>
<p>This isn’t even the half of it. The people who engage in “flipping” get me…some of them have made substantial profits, too, to the extent where some realtors in some areas of the country, that’s all they do anymore…</p>
<p>It is going to affect everyone one way or another because the costs are ALWAYS passed on to society via higher taxes, higher prices, or whatever. It is VERY upsetting and disgusting.
We experienced a milder version of this back in the late 1980s, when the HI housing market was very “hot.” We had a realtor who told us to bid on whatever we wanted, regardless of what we could afford. He even made an offer on our behalf–fortunately we were able to convince the banker that we couldn’t afford the monthly payments (it did take considerable doing to convince him), so we were allowed out of the deal & switched brokers to one who would work with us & help us figure out what we could comfortably afford & what steps we needed to take to make everything work. This included selling investments which we needed for the down payment!</p>
<p>Not sure where the other broker expected us to get the monthly mortgage payments out of thin air?!!?!?</p>
<p>Surely, this has the potential to be a huge class action suit against the realtors & lenders.</p>
<p>If you had bought the bigger better house how much more money would you have made? $250K, $500k? You might have been able to retire early off of the extra profits.</p>
<p>I think pure fliiping if over. Finding a rehab and doing it for a profit can still work in most areas–except taxachusetts I guess.</p>
<p>I agree that pure flipping is probably done. But a lot of people made obscene amounts of money…</p>
<p>Never have read anything illegal about making obscene amounts of money–those pro athletes & CEOs certainly don’t seem to find anything wrong with it. For those who make money, there are countless others who lose.</p>
<p>Not to be sarcastic, but if mortgage companies want to engage in a practice (i.e. stated income loans) that are detrimental to their businesses (for obvious reasons), they why not let them? No need for government regulation - the market will take care of itself. If people don’t qualify for mortgages that are enough to meet the home prices, the home prices will drop. If a company has too many mortgages outstanding that cannot be paid back, it will sink into the red and have to either change its practices or go out of business (possibly requiring foreclosure of the homes). Either way, the desired result occurs.</p>
<p>Aries, when the homeowner falls behind, they lender forecloses and then recoups its loss by selling the house - so it is really the homeowner who is messed up by the lending practices. As you well know, in the early years of a mortgage, almost all of the payments go to interest, so a homeowner may have lived in a house for several years, exhausting their savings and picking up other debt in order to make payments, and then they lose the house. The lenders do not lose money because they end up with the property and with the benefit of all payments that were made before the point of foreclosure.</p>
<p>It’s not that easy ariesthena. Mortgage companies, and hedge funds beyond that, still make their money. The consumer is a mouse on a spinning wheel, gaining no equity, or even back loading interest by paying less than interest due each month. Home buyers who would like to live within their means, say the old mortgage of two and a half times their income maximum, find their choices quite limited if not impossible depending on the market in their area.</p>
<p>“No need for government regulation - the market will take care of itself.”</p>
<p>Then we wouldn’t need to pay the Attorneys General salary.</p>
<p>“If a company has too many mortgages outstanding that cannot be paid back, it will sink into the red and have to either change its practices or go out of business (possibly requiring foreclosure of the homes). Either way, the desired result occurs.”</p>
<p>Unfortunately, ariesathena, in this age of securitization of mortgages (and pretty much any other financial product), that just won’t happen. Within days, if not hours, after most mortgages, particularly higher risk and higher interest rate mortagages, are signed up, they are packaged with many similar mortgages and sold to third party buyers who then sell shares or other securities to pension funds, mutual funds or to the public at large. Therefore, the bank that makes the initial loan often does not the pinch. Now, I suppose that if rates of default went through the roof as a result of various lending practices, that there might be a trickle down effect where third parties who buy securitized loans might no longer be willing to buy those loans or might demand better terms, such as additional discounts on the price for the stream of revenue represented by the loans, but until then, the banks just don’t feel the pain. Only the consumers get hurt (though I have a difficult time feeling too badly for someone who didn’t bother to inquire when buying a house as to what the monthly payments and other terms would be).</p>
<p>Mom of Four, I really don’t think of the consumer as a mouse on a spinning wheel. I’m with garland. If you can’t comfortably afford it, don’t buy it because you feel you “deserve” it. </p>
<p>My modest NJ home has tripled in value in ten years. We bought it because we liked it, we could swing it on one salary, & it is in a nice neighborhood near NYC. Colleagues were buying bigger homes in fancier towns, but we didn’t want the stress. And the problems with schools systems seem to be universal. If we sold it tomorrow, where would we go? It’s our home. We see it as more than an investment. My zip code is not prestigous, but that’s not how I measure a person’s worth.</p>
<p>I must be foolish and ignorant because I never knew there was such a thing as stated income. When I did my mortgage for my new home two years ago, we had to provide scores of pages of documents.</p>
<p>Me too, Zoos. It was an endless papertrail.</p>
<p>When we REFINANCED our home a few years ago, with the SAME lender, we had to present all the same documentation as we did the first time.</p>
<p>But at least we felt we could afford the mortgage and have done so just fine. That should matter, right?</p>