On 60 Minutes...the foreclosure market

Parent Cafe
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<p>There was a segment on the national news yesterday about a family in NC who had bought a home, no money down. Teaser interest rate was 9%, bumped up to 14%. Both parents were working multiple jobs, putting $10 of gas in the tank at a time. The family was paying the mortgage first, even before food, and still was running about 2 months behind on payments. They are underwater on their house.</p>

<p>They contacted the bank and the bank gave them a 30 year fixed rate loan for 7.5%. The family thought they had died and gone to heaven!!</p>

<p>One thing that I had heard is that the banks are working to refi the subprime, crazy loans into “regular” loans. It is to their advantage because they can sell the “regular” loans to institutions like Freddie Mac and Fannie Mae. No one will touch the subprime stuff anymore.</p>

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<p>I’m happy for the NC family but I’m confused. If the loan was “underwater,” that means the balance was higher than the house price. FNMA & Freddie Mac require a certain percentage of equity before they will buy a loan. So did the bank refinance for a lower amount? Did someone give them some cash to buy some equity? </p>

<p>A subprime loan is subprime because it doesn’t qualify as “regular.” Either bad credit, or too large of a payment compared to income, or too little equity.</p>

<p>I hope the bank refi-ed for a lower balance and ate the loss.</p>

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<p>I doubt that the public will ever find out about the true nature of the mortgage industry. We will be very lucky if there will be Congressional Hearings. Remember, your broker, is looking for the best deals for you.</p>

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<p>At least in my neck of the woods, there will be some silver lining to this subprime mess: fewer trees will be chopped down to open up space for chicken coop-type housing (have you heard of “detached condos”?), and finally I might be able to hire a contractor or two to do some work on my property (they were all busy working on the “chicken coops”).</p>

<p>Speaking of detached condos, our cities fianlly realized that by allowing such developments, they created a huge fire hazard. Some of these condos do not have enough space for a fire truck to get close enough:</p>

<p>[Snohomish</a> County News | Tightly packed “air condos” rile critics | Seattle Times Newspaper](<a href=“http://seattletimes.nwsource.com/cgi-bin/PrintStory.pl?document_id=2003679444&slug=aircondo25n0&date=20070425]Snohomish”>http://seattletimes.nwsource.com/cgi-bin/PrintStory.pl?document_id=2003679444&slug=aircondo25n0&date=20070425)</p>

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<p>“Don’t forget that those who purchased the more expensive home and spent all their extra cash and credit on consumer goods pay more in property taxes and sales taxes, which benefits (subsidizes) everyone.”</p>

<p>Actually, they had their homes and lifestyles subsidized (mortgage interest rate deductions) by us.</p>

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<p>Many originators of those whole loans will lower rates to get people to start paying again. Once mortgagees start paying for 3 months on time, those loans become “performing loans,” then they are eligible to be securitized or sold to FNMA or FHLMC. If anyone out there is holding on to high adjustable rate, it’s worthwhile to renegotiate for a lower fixed rate with your lender now.</p>

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<p>On the contrary, property owners pay property taxes, subsidizing renters who don’t.</p>

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<p>“On the contrary, property owners pay property taxes, subsidizing renters who don’t”</p>

<p>That’s a bit of a stretch.</p>

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<p>Why should anyone be surprised that people think nothing of walking on a mortgage, or be upset that they can’t keep the house they can’t afford? This generation doesn’t want to save for anything, and wait until they can afford it. It is overall materialistic, and want it now! So, they didn’t want the smaller, less upgraded starter home - they wanted the dream castle right off the bat. After all, they are “special.” They have been told that all their lives, and didn’t even have to be much better than mediocre to be told that. They are “deserving.” And yes, there are some that aren’t like this, but they get shot down for excelling, etc. So the only way these people could buy the dream house is to get an ARM, banking on the fact that they would do so much better in 5 years. Well, 5 years is here, and their income has NOT doubled (mine sure hasn’t). They knew what they were getting into, and shame on the banks and mortgage companies that also bought into this idea. But I see it everywhere around me. More and more people deserve something for very little in exchange.</p>

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<p>Dstark, it’s no more of a stretch than what mini wrote.</p>

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<p>Nope. Renters pay property taxes too - it is figured into their rent. They also subsidize the mortgage interest deduction, much as African-American males have been subsidizing my mother’s Social Security for the past two decades, along with undocumented immigrants.</p>

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<p>And we are loosing out on this subsidy because we have the mortgage paid off. Even the refi that we did to help finance kid’s education, was so small that we were unable to claim the deduction on interest. </p>

<p>A good policy is to eliminate this deduction.</p>

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<p>“Remember, your broker, is looking for the best deals for you.”</p>

<p>They look for the highest commission.</p>

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<p>“And we are loosing out on this subsidy because we have the mortgage paid off”</p>

<p>Not really. If you’re in a fairly high tax bracket for it to make sense, you can invest the amount you were paying in mortgage payments in tax free municipal bonds to lower your tax liability and receive tax free income</p>

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<p>“Not really. You can invest the amount you were paying in mortgage payments in tax free municipal bonds.”</p>

<p>:)</p>

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<p>While I agree that some of these people have nobody but themselves to blame for their housing problems, I have yet to see a post about people who have had to take out second or third mortgages due to catastrophic illness or job loss, just to pay their bills. I fit into this category and am neither greedy nor lazy.</p>

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<p>You’re getting into an interesting area here. Every single tax law and rule has two broad effects: it generates or eliminates a certain amount of revenue, and it influences the behavior of those paying the tax. The mortgage deduction has the effect of reducing federal income tax income, but it encourages private home ownership. The SSI tax (theoretically at least) raises money to pay Social Security benefits, but is brutally regressive on the the lowest income earners. SSI definitely favors the upper and upper-middle earners. The deduction for charitable deductions reduces income, but encourages charitable giving. </p>

<p>There is no tax change possible that does not have some specific, and frequently unforeseen, effect on the behavior of those paying taxes. One of my favorite examples is the idea of substituting a national sales tax in favor of the current income tax. The rate it would take is a subject of some debate, but there is little doubt that it would have a crippling effect on consumer spending (would you buy that new Roomba if it cost $450 instead of $300?, or television at $1,200 instead of $800?). Regardless, it would have a huge impact on the economy, good or bad.</p>

<p>I’m not a professional economist, and it’s been a while since I worked my way through all this, but here are some impacts that eliminating the mortgage deduction would have:</p>

<ol>
<li><p>Property values would drop, and instantly. It would have the effect of increasing the price of homes on the market, which would reduce demand.</p></li>
<li><p>The construction industry and construction suppliers would collapse even more. New construction would plummet.</p></li>
<li><p>Workers in all the supply chain industries of construction would be laid off – truckers, truck parts, tool makers, nail makers, screw makers, building supply stores, light bulb makers, landscaping companies, plumbers, electricians, carpenters, loggers, sawyers, shingle weavers, paint makers, paint can makers – the list is nearly endless.</p></li>
<li><p>With the drop in home values, people near retirement would find their equity nest eggs plummeting, and would have to either work longer, or have to move in with their families. If no families were available, they would end up as clients of social service agencies.</p></li>
<li><p>All the politicians who voted for the repeal of mortgage deductions would be voted out of office at the next election.</p></li>
</ol>

<p>etc.
etc.
etc.</p>

<p>There are a lot more, but I’m at work (earning money to pay my property taxes, partially subsidized by my mortgage deduction), and have to get back to increasing stockholder value.</p>

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<p>“While I agree that some of these people have nobody but themselves to blame for their housing problems, I have yet to see a post about people who have had to take out second or third mortgages due to catastrophic illness or job loss, just to pay their bills. I fit into this category and am neither greedy nor lazy.”</p>

<p>You haven’t read any posts about this because this thread is about greed, stupidity and ignorance and the above doesn’t apply.</p>

<p>Danhmom, I’m sorry to read about your situation.</p>

<p>Nobody should lose their house because of catastrophic illness. Our health care system needs fixing.</p>

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<p>Washdad, your reasons look good to me.</p>

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<p>AA males more than makeup for your dubious SS claim (AA on a whole actually come out ahead on SS as I have proven) by vastly over consuming their share of the judicial and penal system.</p>

<p>As to the deductions for homes, let’s worry about things that might actually change. Nobody who wants a political life would touch that with a 10 foot pole.</p>