When Will Homeowners Realize They Have Some Responsibility For What's Happening?
I'm just starting to catch up on a few things that caught my eye (and in some cases got my blood pressure up) over the past few days.
This story by Nancy Trejos from the December 21 business section of The Washington Post definitely got my attention. To my mind, the money quote was from a homeowner who was complaining about his situation, especially about his inability to refinance his second loan on a home that is now worth much less than when he bought it:
It's no fun when your house is upside-down by $80,000. I didn't create it.
Th emphasis in the above quote, which is mine, is my BIG complaint about the current housing situation. Even though many, or perhaps even most, people who bought a home over the past decade did so as an investment, that is, because they thought it was a can't-lose way to make money, they are refusing to take any responsibility for the fact that their decision turned out to be bad.
Another quote in the story from a financial advisor says this directly:
"Roland is like most investors in that he can't seem to grasp the concept that real estate, like any asset, has periods of highs and lows, and we just happen to be in the beginning of a period of lows..."
Put all this together and, in direct contrast to what this homeowner said, in many cases each problem was indeed caused by something she or he did.
For example, this homeowner bought his home at what appears to be the top of the market and did so with a financing plan that included less than 20 percent down and a piggyback second mortgage at a high interest rate. Given where the housing and credit markets were going, he did everything wrong.
Of course he couldn't know any of that at the time; he was, after all, simply doing the same thing that many others had done and were doing. But that doesn't mean that he's not responsible for what turned out to be a series of bad decisions.
Did he cause all of these bad things to happen? To a certain extent, the answer is not just "yes" but also "absolutely": The many homeowners who did the same thing this one did collectively created the situation. That is, after all, almost a textbook definition of "market."
What's also interesting about this particular story is that this homeowner isn't in trouble and in danger of losing his home. He is not behind in his mortgage payments and has the same financial advisor quoted above said is "a decent mortgage."
This homeowner is upset not because he needs help and can't get it, but because the assistance homeowners in trouble are getting isn't available to him.
That's nonsense.
Been lied to
Probably some real estate agent sold him the property at bubble prices by telling showing him how much the property value had increased and how certain it was to increase by a similar amount over the next 3 years. The agent lied and the homeowner is stuck.
Real estate agents are not trustworthy and that is why the buyer always should get his own appraisal, his own lawyer, etc. Many home buyers wrongly trust them.
Have to be on the brink of foreclosure -- obvious loss Gain?
His bank's refusal to work with him on refinancing--if we are to take his word for it--is more troubling than his failure to qualify for the programme.
8.5% is rather high in the current market, and all the moreso if all are agreed that it supports an asset that is not worth even half it's amount. (Round-figures, the 8.5% loan is on $80K, which is about the overvaluing.)
At the blended rate ((5.75*4 + 8.5)/5) of 6.3%, he's probably still high in the current market, and refinancing that down to 5.75-5.5% would be in the bank's best interest as well, not to mention cutting probably a couple hundred dollars a month off his payment.
If he wants to be excused for buying at the top of the market, otoh, he's going to have to default, approach foreclosure, and impair his credit record.
The first is clearly within both his and the bank's best interests; the latter seems a decision he's not willing to take.
So far, the bailout is working as it should be, judging by that data point at least.
The trouble is the well
The trouble is the well intended and responsible suffer from the irresponsibility of others. If lenders hadn't done so much bad lending, prices would not have risen so high and fallen so low. He may have acted entirely rational based on the information he had only to have had his plans turn askew due to this contamination of the data. Just because some homeowners are fault and some lenders are at fault by no means means all are, but all suffer.
The other side of the story
Though I am sure people walked into buying houses with all good intentions and expectations that the price would continue to go up. Many bought the houses like they bought stock, hoping for a 15% gain per year or at least a gain well in excess of their mortgage payments. Many of the people that are in trouble bought second homes in vacation spots, expecting these places to gain as much as 35% in a year, and many did for a few years. The mantra of how can I lose was out there big time. The builders pumped up the potential so much that people were making extraordinary investments. Kind of like buying stock on margin when you take out a loan on your primary house to buy a second house.
Now the game is over, the "stock" is down, and many are in deep trouble. Yes, lenders came up with very creative financing techniques, no interest, no payment for a year type things, no down payment, and everyone was happy. But in the end you took the risk and lost, now everyone suffers.
Don't ever buy something when the terms sound too good to be true. They likely are.
The only time a lending practice is illegal, is when they have you sign a document that is not true, like they have in writing that you will pay only 2% interest for the loan, and do not state that the interest will go up to 1% above prime after a year or two. This is generally very clearly written in the contract.
As for those that got into mortgages where false earnings were reported to qualify, that is fraud on your part, even if the lender either decided to not verify it, or even encouraged you to write down an incorrect number. It is your signature on the contract that states that the information is correct If it is not, that is your fraudulent entry, no one elses.
Responsability is a Two Way Street
You can,t put the blame entirely on the Homeowner...yes we made an investment but I don,t think any of us ever thought in a million years even when times got bad we,d be anywhere in the minus, let alone minus 80-100K! And what about the unscrupulous lenders that way, way over appraised our homes just to line their pockets...what about their responsability? I do think many of us have paid the price, even if the lender was itself unjust by having to lose our homes, by having to cut out every single solitary minute luxury by having to file bankruptcy and destroy our credit...we,ve been paying for it! This in investment terms is also not your typical low...our economy right now is an absolute historical disaster! People are losing jobs at an alarming rate and unable to find jobs to replace them! If I had our home for 11 years and I hit a low...I,d be happy if my home value broke even...then at least I could afford to survive and then some. I,d still would,ve lost all the equity...but I could,ve lived with that...but this goes way beyond that...and its showing all over the nation. If banks could just re appraise people who are strugglings homes and give them a new loan after absorbing the difference I garuntee the housing market would start to move again and people would start spending again.No matter what we do in a stimulus package , unless we help these homeowners...we will not see any monies coming back into the economy...homeowners are tapped just trying to keep their heads above water!It takes two to tango...we,ve paid our price now how about all these lenders who gave us these loans we never in a million years should,ve had in the first place? It.s never cut and dry...it,s allways a two way street!