Reply #12: 2 Problems

[mrsteve]

Okay, let's look at the original scenario -

"1) You buy a house, it's been a dream of yours since you can remember. You have enough to put 10 percent down on it. In California that is 40000 dollars out of your pocket that you and your wife have scrimped, saved, and kept yourself on an extremely tight budget for the past 15 years to come up with. Sounds crazy, I know, but in Southern California, 400000 dollars is actually a pretty inexpensive place, and it's the best you can do.

2) Since you did not have a 20 percent down payment (80000 dollars cash in California), the lenders all gave you 2 choices. The first choice, is you can get a fixed 30 year mortgage at 7.1 percent which would make the payments roughly 2500 dollars a month for the next 30 years, not counting the roughly 4500 dollars a year for property taxes, and the PMI that you are required to buy on top of it. The second choice is you get a 4.1 percent adjustable rate which would be around 1600 dollars a month for 3 years, and then it would start to adjust up.

3) While weighing these options, and seeing that the first one drains you of every penny you have in savings, and well as taking up a paycheck and a half every month for the next 30 years of your life, the lender is in your ear pushing option 2 hard, while telling you "no problem, you can re-fi way before it adjusts up", "the house will only go up in value", "if you get in dire straits you can put in on the market and sell it easily."

First - "A paycheck and a half every month for the next 30 years of your life." Well, that's way above the old rule of thumb that you shouldn't spend more than 30% net income on housing.

"the lender is in your ear pushing option 2 hard, while telling you "no problem.." Well, clearly you are easily led. Not my or societies' problem then, really.

So in pursuit of this "dream of yours since you can remember" you signed up for something that you could not afford and now feel that you should be considered sympathetic, and perhaps deserving of government aid.

Why?

How is this scenario different -

1) You buy a new Ferrari, it's been a dream of yours since you can remember. You have enough to put 10 percent down on it by spending your life savings.

2) You feel that you can afford the car because you attended a seminar on buying property repossessions and can make thousands per week on the deals. The inspirational speakers at the Holiday Inn conference center say "$2 thousand a week income - no problem."

3) The business is not nearly as easy as they say. It's been a month since the seminar, and you've not made deal one.

4) You scraped the first two car payments together, but you haven't payed any more and now it's three months later and the finance company calls you every day wanting a payment that you don't have.

5) One morning you walk outside and the car is gone.

6) The car was repossessed, and now a new owner gets a sweetheart deal on an almost new Ferrari and you still owe the complete loan.

Okay, I exaggerate.

But a Honda will get you to work as well as a Ferrari. Just a like a rented house can keep you just as warm and safe as a house on which you make payments.

I have had the choice for the last 2 years of buying versus renting. I continued to rent, simply because I didn't want to get over extended and upside down buying the house I want during the high point of a bubble. Maybe not as bad as Southern California, but Chicago prices were (and are) is still pretty bad. And for every banker that told me how some tricky ARM deal (I have been repeatedly pre-qualified since 2006) would get me in to a great place for 'less than I even though possible", I simply said NO.

There are many people in this country who in the last 5 years were lured into bad mortgage deals in through illegal means. Those people need legal recourse to get relief.

A great many other people were simply blinded by ambition or greed, and were led down the path by less than scrupulous (but not illegal) means. Those people are going to get hurt, but the government does not need to bail them out.

(Update - fixed typos)