WP: Was the Mortgage a Mistake?

[FourScore]

Was the Mortgage a Mistake?
They Bought the House They Wanted, and Now Everything's Changed

By Michael S. Rosenwald
Washington Post Staff Writer
Sunday, August 19, 2007; Page F01

Two years ago, my wife and I sat at a long conference table in a mortgage-title office in Bethesda. Sitting next to us: our real estate agent, who drew up our bid on a townhouse in Germantown two days after showing it to us. We didn't get an inspection, and I don't recall going back for a second look. We had to act fast or someone else would get it.

Our bid won the house -- our very own first home -- and now we had to close the deal. The owners sat across the table. They seemed more nervous than we did, perhaps fearing we would have second thoughts -- about our risky interest-only mortgage, about seeing them walk away with a $120,000 profit, about buying a house just as "bubble" was entering the regional lexicon.

They signed. We signed. Price tag: $459,275.

And then, as the saying sort of goes, the stuff hit the fan. The sizzling home market almost immediately began to cool off, which my wife and I sort of ignored. Interest rates started to creep up, and we sort of blew that off, too. We have time. This too shall pass. No worries. Life is good! We bought a flat-panel television, took a nice vacation, bought a dog, hired him a daily dog-walker, and then we got pregnant. We have time. This too shall pass...

http://www.washingtonpost.com/wp-dyn/content/article/2007/08/18/AR2007081800089.html?referrer=digg

[Robbien]

1. Interesting that his financial planner said maybe, maybe not

That he didn't know. Best chance is that the WaPo staff writer hope for a recession, or so said the financial planner.

I wouldn't want to be that guy's stomach.

[WorseBeforeBetter]

2. Ah, yes, the entitlement mentality...

"we deserved a nice home." Yes, if you can AFFORD it. (Warning: I'm a bit of a crank this evening and this post is going to reflect the mood!)

--No inspection or second look? That's insane. Yes, I know it was the DC way, but you could choose not to get wrapped up in it...

--"bubble" was entering the regional lexicon" should have raised a major red flag with them.

--"We bought a flat-panel television, took a nice vacation, bought a dog, hired him a daily dog-walker..." Any actual saving/investing going on? Bet they bought a designer dog as well, rather than adopting one from the animal shelter.

--Interest-only loans are - DUH! - extremely high risk. You'd think a journalist and physician would know this. They could be locked into a 30-year fixed at what ... about 6.25%? Of course, that wouldn't have allowed them to "buy a house in an expensive county -- Montgomery -- where we wanted to live and eventually send our children to school." If I remember correctly, Germantown is pretty close to the Frederick County line. And isn't Frederick County at least somewhat less expensive than Montgomery? He didn't mention commute, but 70/270 sucks, so I can sympathize for wanting to live closer in. And the Red Line still only goes to Shady Grove?!

--"I did what I probably should have done before signing the loan. I called some financial planners." <Insert smilie for "shakes head.">

--"Well, you now own a house. You have a place for your family." Indeed, but it could have been a "lesser" home that they could have comfortably afforded. What sort of quality of life do you have if you get up every day and worry about the possibility of losing your home?

--"They are moving to North Carolina..." That's what I did two years ago because I saw this coming, but we're out of room now. Seriously. ;-)

[Gormy Cuss]

14. It would be hard to find a less sympathetic individual to illustrate the mortgage crisis.

Is this guy a humor writer?:eyes:

[WorseBeforeBetter]

20. Business or Real Estate, naturally! ;-)

I honestly don't know, but I would have been embarrassed to sign my name to that article.

[maxrandb]

67. BushCO and the CON-serrvatives have made me kind of cynical

but I think being "less sympathetic" is precisely what this writer wanted. This way, anytime there's a story about a family that's been devastated by greedy, shady and corrupt "lenders", or is facing financial ruin because they are about to be "foreclosed" upon for ANY reason....the "talking heads" on the right will pull out this "chestnut" for the "they were just stupid, greedy, uneducated people who 'overextended' themselves" agrument.

Mark my words. This story will become the norm among the right wing blogs, talk radio and cable news.

You're right Cuss...they couldn't have found a less sympathetic individual if they tried.

It's even a "two-fer" for the right. They get a story to "muddy" the waters, and they get to slam an "elite 'liberal' journalist and a physician". If the physician turns out to be an OB/GYN, they'll have hit the trifecta!

[DangerDave921]

36. Exactly!

Couldn't have said it better. The ignorance, the vacuousness, the entitlement mentality, the complaining. F--k you, WP writer. Seriously. My wife and I bought a 1957 run-down rancher on 1/2 acre because that's what we could afford. Get it? We could actually afford it. And we took a 30-year fixed at 6.25. We did not buy a house twice as expensive on the HOPE that we could afford it someday. And we didn't go out and buy luxury toys either. What an ass.

I can't wait for this guy's follow-up article on how he went to Las Vegas and bet $100,000 on roulette and lost, and is now investigating the gambling world to decide if he made a mistake.

[karlrschneider]

38. "...you now own a house..."????? Oh, really, how much equity do they have?

They might own the light bulbs.
:eyes:

[Retrograde]

79. darn, you beat me to it, but one more point

"buy a house in an expensive county -- Montgomery -- where we wanted to live and eventually send our children to school."

We decided to buy a much smaller house in a pricier part of town rather than a largish one in a saner area for a few reasons: the cultural amenities, having just about everything we need within walking distance, short commute (a real quality of life issue in Silicon Valley, especially during the boom times). The commute was a big issue for us, since by buying where we did we could get by without a second car, which I figure saved us enough to cover the first couple of years of larger mortgage payments. So IMHO price doesn't have to be the only decision point.

Other posters have cited the entitlement culture. At the risk of sounding like an old curmudgeon (which I am more and more these days), what happened to saving for a future goal? I like nice vacations too, but they come after house necessities (taxes, utilities, upkeep - we paid off the adjustable mortgage early by almost always making the highest payment), health insurance, and having a financial cushion on the list of stuff to be funded.

No inspection? When we bought the agent wrote an inspection clause into the offer, even though it was supposedly a "hot" market and the seller would be likely to get other offers. Don't they do that in the DC area?

[Inkyfuzzbottom]

3. I'm SO confused...

Am I really supposed to feel sorry for this guy?

Sounds to me like he and the little doctor wifey have a perverse sense of entitlement that is glaringly obvious in his little "article".

They ask "did we mess up?" Um, YEAH!

I have mixed feelings about this whole subprime, creative loan crisis I keep hearing about. Some folks were just ignorant and not sophisticated enough to understand they were getting screwed by unscrupulous lenders. This clown and his wife should have known better. It's a tough call when it concerns the poor schmuck who didn't quite understand what he was getting in to. I feel bad for the folks in that group, yet there should be some element of personal responsibility. I'm torn when it comes to them. However, this guy in the article gets absolutely no sympathy from me. He had the knowledge and resources to know better.

Bottom line...people need to live within their means. Just because you want something doesn't always mean you need it, especially when you can't afford it.

[Iris]

25. me, too. His interest only rate is the same as my 30-year fixed

We bought our house around the same time. Of course, my house is less than half the price of his, but it's what we could afford with a small payment and a legitimate mortgage loan.

[SheilaT]

4. I find it hard to believe

that anyone with half a brain would go for an interest only mortgage. What part of not accruing any equity do they not understand? And reading further into the article, I'm appalled at the entitlement mentality represented. The part about acquiring a nice dog, hiring a dog walker, on and on. What's so awful about renting, if it's actually financially more sensible then renting?

And what part of the housing melt-down of the 1970's is lost on these people? Maybe it's as simple as they're all too young to remember 35 or so years ago, when mortgage money was truly tight. I recall friends who were angry because banks would not count both incomes (his and hers, in an era when the expectation was that she'd get pregnant probably sooner than later, quit her job and stay home, which meant the bank wasn't keen on counting her paycheck as real income) and so could not qualify for a loan. I remember the real shortage of money available back then, and the "creative" financing that became popular, including balloon payments which came due when no one had the money to pay the balloons and re-financing wasn't possible.

The lesson I took away then, which still applies now is quite simple: don't buy any more home than you can afford, and don't take on a mortgage payment you can't afford out of current income.

[Mayberry Machiavelli]

8. The reason is contained within: it was a "starter" home they didn't intend to own long, and also

it was based (as most of the ARM type mortgage racket was IMHO) on the fundamental assumption that the market would keep going up:

But that wasn't really on our minds two years ago. For us, and I suppose others who signed such deals, the lower payments afforded by an interest-only loan helped us buy a house in an expensive county -- Montgomery -- where we wanted to live and eventually send our children to school. Our payments were significantly lower than what they would have been with a 30-year fixed-rate mortgage, meaning we could buy a nicer, larger home. Also, with the real estate market then booming, we planned to sell the house within five years anyway -- for a big profit, just like the previous owners got from us -- so why pay principal on what was essentially a starter home?

Could we have lived farther from the District for less money, perhaps allowing us to get a less risky mortgage? Yes. Could we have continued to rent, waiting, perhaps, for the market to even out and our salaries to increase? Yes. But we already make nice livings. We pay taxes in the highest bracket. Our parents bought homes at our age. It may sound crass, but we deserved a nice home. We did what we had to do to get one.

This last part is what really frosts me. Several years ago I was living in SoCal in one of the most overheated housing markets in the country. As a highly paid professional I was tired of renting tiny ratty old homes or condos but I didn't see my way towards affording a mortgage on 700K or so worth of home. I, also, felt like I deserved a nice home, but what I did was move to a part of the country much less desirable where housing was MUCH cheaper. I don't like living among wingnut Bush lovers, so I'm not sure other than financially this was the right move, but taking a chance on an adjustable rate mortage where I might eventually not be able to afford the payment was not a conceivable option for me, to me that means "you can't afford the house".

The other part that kills me is that the answers to his question ("did he mess up" etc.) are obvious, but he is still not facing the reality in his article. He probably still has the option to sell without taking too much hit on the value if at all but be saved from his mortgage payment doubling or whatever, but I bet he'll just ride it out and hope for the best, housing prices will go back up, interest rates back down or stay stable, and he'll sell for a big profit and move into his next, more expensive, home. Everyone wins! :sarcasm:

[Yupster]

10. I feel the same way

If you need an interest only loan, then you can't afford the house.

I can't imagine taking an interest only loan -- or an adjustable rate loan for that matter.

[Eurobabe]

13. Exactly, and we made profits on our houses and then scaled BACK

because we didn't want the debt. Which meant we OWNED more of our home everytime. And now thank GOD, we don't own any real estate.

[SoCalDem]

16. Interest only loans are what drives "flipping".. and they do work

for people who move a lot.. If you have nothing IN the house in the way of equity, and the prices are going UP..and you know you won;t be in the town for more than a year, you are basically "renting" a cooler house than you could have afforded otherwise, and when it's time to move along, you pocket some profit..

I know of people who have been doing this for a while now, and a few were frugal with the "profits" of 3 houses and paid cash for a house when they stopped moving around..Most people just live big and end up renting a regualr old apartment, like they used to do.

[Mayberry Machiavelli]

23. But it's based on the assumption that the home prices must continue to rise. Otherwise it makes no

sense to get such a mortgage instead of renting. It implies the profit must be there to be taken.

It's a "bet" on what's going to happen in the market.

[SoCalDem]

28. For a while it did work.. and many of the people taking these loans

out were too young to have remembered that for every boom, there is a bust.. and my guess is that when their parents/older friends warned them, they thought that THEY would get out in time.. :silly:

[BadgerLaw2010]

22. Interest-only mortgage was, *was* meant for yuppies with skyrocketing saleries

They were never meant for general consumption or stable income buyers. Very unethical and stupid to offer them like they were.

[Mayberry Machiavelli]

24. Please explain. If the salary is skyrocketing, then they should be able to buy the home with

a conventional fixed rate mortgage with the high salary.

Unless what you are saying is, the yuppie is going to make the big money in a year or two, but they want to get into the fancy house/great neighborhood NOW so they take this loan on their lower salary.

This is based on two assumptions:

1-Nothing is going to happen to their career or financial situation by the time the payment could go up

2-The housing market will not decline

Why can't they just wait until their salary supports the home purchase with a regular mortgage, without taking the gamble?

[BadgerLaw2010]

27. You don't get paid $140K all at once.

Someone coming out of MBA or law school probably has very little money in the bank. Even if they are from a wealthy family, they likely do not have personal financial resources in line with what they will earn.

Until several months of paychecks are pocketed, making big principal payments would be very painful and difficult. Making a big cash down payment would also be a problem, as this money probably does not exist.

So he gets an interest-only and doesn't make principal payments until he's gotten several checks, then makes the principal payments because he finally has some real money.

It is indeed risky and a bet that nothing negative will happen to their earning potential (first year associate at major law firm gets fired), but if you don't want to rent, this was indeed available.

The problem is that, just like how alt-A (no documentation) mortgages were intended for clearly wealthy people who didn't want to go through the hassle of stating assests and were known to their bank as being wealthy people, interest-only is intended for someone who is getting a lot more money in the future than they are worth now, enabling them to tread water in something expensive they can easily pay down or pay off entirely well before the end of the mortgage.

These products DO NOT work for people whose income is not increasing, or for people who don't actually have the financial means to make the payments if they have to. They are absolute disasters when you use them to put "normal" people into too much house, because there is no way they could ever pay it off.

They're upper class products, not working class products. At least, that's what they were supposed to be. Both alt-A and interest-only assume honesty on the borrower's part and professionalism on the lender's part. When you have a borrower who wants more than he can ever afford and a lender that does not care so long as he gets the deal and can sell it to Wall Street, that breaks down.

[SoCalDem]

29. Why they didn't wait?

Because SAVING for things we want is anathema to our "culture of consumption".. Many people today have NO idea what it was like before "everyone" got credit.

When we were just starting out, we bought used appliances (stove $free, refrig $25, washer/dryer $50) and SAVED until we had the money to buy new ones..

We also SAVED to amass a down payment for our first house (although my aunt & uncle loaned us the last $2k we needed)..We had to put down ONE THIRD, and only ONE income was allowed in the figuring mix.

But the flip side was that we could always "afford" our house. (at least on paper).. A first child that came with huge medical bills and multiple trips to Mayo Clinic did in our "budget" ,. but we still were able to pay all our bills..

[CreekDog]

46. I didn't wait in 2000 because the cost of housing

was increasing faster than I could save for a downpayment.

One year, prices went up 20% on 200k properties, from 200k to 240k. I saved a lot that year, but only about 10k, but my house got 30k farther from me.

So I dove in thanks to FHA, put down 2.5%. My second place's down payment 20%/84k was paid for with the bubble profit, with 63k as a security cushion afterwards.

It's weird, almost all my cash and real estate security was paid for by a 7,000 down payment and 4 years in Walnut Creek, CA. Of course, now I'm trying to sell, but it's not the selling that's a problem so much as the price you get and that I have no confidence right now that two things can occur simultaneously: 1) I can get a jumbo loan I can afford with rates spiking on those after going up already in early summer 2) my buyer, a first timer, can get their loan approved, closed and funded in this crazy market.

So, now I'm on the sidelines, hoping the waves will calm. But I won't be greedy, at least I have a place, it's affordable and it's fixed rate. I used my real estate gains from my last place to return to my absurdly expensive hometown, and don't even have as nice a property.

It bothers me that a lot of the runup in prices, which will crash a lot faster than they went up, was because people who had no concept of money were bidding for houses and for a while, only the person with the wildly outlandish bid got the property --or in my case, got a fixer upper for not too much above asking.

I don't miss those days and the problem with low interest rates are the high prices that saddle you with a big mortgage that doesn't shrink with rising interest rates and falling prices.

[SoCalDem]

52. You should just sit tight.. You were also lucky to have moved to Walnut Creek

We only made anything on ONE house.. We have usually had to sell in a buyers' market and then buy again in a sellers' market :grr:

[CreekDog]

54. I'm in South S.F. now, I used the equity to move back to this side

Where family and friends are --mostly. Walnut Creek was nicer, but this is closer to work and folk. ;)

[SoCalDem]

55. My son lives in Concord.. they love it there:) n/t

[BlooInBloo]

35. No it wasn't. It was meant for speculators.

[CreekDog]

45. Actually, yes go for the interest only mortgage, but pay principal

The interest only 30 year fixed loans are barely higher than the standard p & i loans. The only reason I would get that is in case I lost a job and then and only then, it would be easier to make the minimum payment.

That said, I have the standard 30 yr fix P & I loan.

[mountainvue]

5. Didn't get an inspection? You NEVER

buy a home without first getting an inspection.
Also since they are only paying interest now and have been in their loan a short time, they should just go ahead and convert to a 30 year fixed rate. It sounds like they could afford it. The rates are still pretty good.

[CreekDog]

47. Oh, you don't need no stinkin' inspection, I didn't get one

It was no problem. I just had to fix everything that was broken. I mean, everything WAS broken.

Oops.

[HughBeaumont]

70. I've had a few.

They're sort of required for refinancing at a lower rate, which I thankfully did 5 years ago (now at 5.375%!). It's economical for us, since I work for a mortgage bank.

Each inspector told me the same thing about my house - "even though it's 50+ years old, it's built way better than those homes in the rush-to-sell developments down the street."

[cliss]

6. I think the point here,is the writer

wants to make the point: it's all Ok. This will blow over = meaning, real estate prices will go down for a few days, and then they will stabilize again.

Then they will start going up-up-up....as they always have.

.....or will it be different this time? Maybe real estate prices will crash, and it will take years for them to recoup. And maybe thousands of jobs will be lost while the economy recovers.

Meanwhile, this foolish man who bought a CONDO for $459,275 is making his monthly mortgage payments of, what? $4,592.00 per month???? Good luck baby Cuz you're gonna need it.

[Tansy_Gold]

7. This reminds me of Eleanor Roosevelt

Mrs. Roosevelt, long before she became First Lady, wrote an article for a women's magazine about how to run your house in tough times. How to manage with fewer servants, etc. She was roundly criticized for not realizing that MOST PEOPLE DON'T HAVE ANY SERVANTS AT ALL. She was, in fact, totally clueless.

I don't feel sorry for this schmuck at all, and I have a feeling WaPo is going to get lots of letters from lots of people who have even less sympathy than I do.

I only feel sorry for the dog: it's not a pet, it's a status symbol.


Tansy Gold, who gets only the status of "crazy dog lady" from her four mutts

[Iris]

26. You're right. The dog will be low man on the totem poll after the baby gets here. n/t

[tkmorris]

9. Could they POSSIBLY have been stupider?

Well maybe. But only if ........... damnit, I got nuthin'. They are as stupid as it is possible to be.

[Name removed]

11. Deleted message

Message removed by moderator. Click here to review the message board rules.

[matcom]

17. now THAT is a great 'progressive' attitude

:eyes:

I can't have mine so i'll revel in your misery because you have yours.

[tomreedtoon]

32. Scadenfreude is all we have left.

We're all going to hell before we die, so sneering at the people who sent us there is about the only pleasure we can have. And all the people who decried "materialism" in the 60's and became DINO's in the 90's deserve the impoverishment they helped cause.

[sandnsea]

42. They're going to be bailed out

Some people want to force banks to rewrite all the mortgages to current market value. So while you and I were terrified we were going to end up homeless, as we watched housing and rents skyrocket, these people who flipped homes and lived high on the hog and slapped their credit cards onto their homes to do it all over again - they're going to be bailed out. And they're going to blame it all on those riff raff low income people who lied their way into mortgages and ruined it for everybody else.

And then they wonder why we laugh at politics and don't bother to vote.

[1932]

72. Sounds like a better option than sending people into bankruptcy, disrupting neighborhoods, and

allowing banks to keep their loans for larger amounts that they knew didn't match the likely value of the home going forward.

[MissB]

49. Wow.

[Eurobabe]

12. Another financially irresponsible yuppie couple

:nopity:

Didn't get a home inspection, never went back for a second look, took out an INTEREST ONLY loan on an almost $500K TOWNHOUSE: went out bought the obligatory big screen teevee, got a dog, got pregnant -- Jesus, Mary and Joe Cocker!

Why? BECAUSE WE DESERVED IT.

(I hope this fool used a nom de plume to pen this tale of woe, if his wife has the last name, her career is toasted on bad judgment alone.)

[spotbird]

30. It was a townhouse? nt

[Mayberry Machiavelli]

15. Check out the rage against this guy in the comments section of the article. Worth the admission.

http://www.washingtonpost.com/wp-dyn/content/article/2007/08/18/AR2007081800089_Comments.html

[WorseBeforeBetter]

19. "Is Dumbya contagious?"...

sums it up pretty well. LOL

[depakid]

21. Nine Freakin' pages of them!

One of them mentions that they were only doing what national newspapers (presumably the Post) were telling them to do....

:rofl:

[OnceUponTimeOnTheNet]

41. 12 pages now. I liked the one that

berates the writer for wanting to keep up with the Jones. Then goes on to say the Jones filed for bankruptcy last week.

[Eurobabe]

68. I ,of course posted a nasty comment on WaPO

I have no pity for idiots like this.

[riderinthestorm]

18. At least it showcases a RICH couple to blame.

I have been sick and tired of how the media is persistently blaming the subprime mortgage crisis on the poor. The astoundingly misplaced focus has me pissed.

Poor people don't have mortgages cause they can't afford to buy their own homes!! I am so glad WaPo spotlighted idiots like this guy and his wife! It's about time. Cry me a fucking river that this couple may lose their home. In a couple of years, after learning their lesson, they will have saved enough to responsibly purchase a home. Poor people will never be that fortunate.

[yardwork]

31. I notice that he assumes that a recession would affect everybody but him!

This guy feels that the rules never apply to him.

[Blue_Tires]

33. ugh...this quote just tears it:

"Could we have lived farther from the District for less money, perhaps allowing us to get a less risky mortgage? Yes. Could we have continued to rent, waiting, perhaps, for the market to even out and our salaries to increase? Yes. But we already make nice livings. We pay taxes in the highest bracket. Our parents bought homes at our age. It may sound crass, but we deserved a nice home. We did what we had to do to get one."

The 'what about us', keeping-up-with-the-joneses uber-entitlement mindset, especially when talking about material wealth usually ends this way more often than not...He does a decent job explaining his motivations behind this big whinefest, but of course he neglects to mention the real truth: "Mommy mommy mommy!!! But all my other friends, co-workers and other cool grownups have gotten houses in trendy areas; why can't WE when we have the money??

Great job of doing your research beforehand, Rosenwald, just because you wanted to be with the exurban in-crowd up in Gaithersburg or Germantown or wherever (let me guess, Prince George's Co. was not the kind of place 'your people' like to settle?)

And another news flash: If you get a dog and instantly have to hire a daily dog-walker, you: 1. have no business owning a dog, and 2. do not have your financials in good order...And I'm not even going to get into the latest high-dollar, high-tech amenities you KNOW you crammed your new home with...And I know I'm opening a can of worms, but don't get me started on having a kid before everything is locked down, because you and your wife know where babies come from...25 years from now, someone needs to show this piece to your kid so he/she realizes what an ignorant jaggoff you are...HOW DID you ever get hired by the WaPo, anyway??

[CreekDog]

48. BUT their parents made less money and had a down payment

These two well to do folks didn't even have a downpayment, despite professional, high paying jobs --though I wouldn't argue they were wealthy.

I just don't understand how you don't have any savings for such a long period of time. I didn't have a dime saved after I bought, but before I had 20k, most of which was used to buy down my mortgage to a teaser rate of 5.875 for a few years. I guess that was old fashioned.

[Eurobabe]

69. He got his come-uppance in the comments section

Not one person that I read had ANY sympathy for this moron.

[BlooInBloo]

34. Contrary to other DUers, I've had trouble this entire time.....

... whipping up much sympathy for those who take out loans they shouldn't.

[MadHound]

37. I'm in agreement with you

Sure, these ARMs were tempting, almost too good to be true. But anybody with a lick of common sense can see that interest only, no money down is a sucker's bet, and would surely come back to bite you.

I waited until I was thirty two to get my first starter home, a little nine hundred square foot house that I worked on and improved. After ten years I sold it for a decent profit and bought my current country abode. All with traditional fixed mortages, and twenty percent down. Yeah, I know, it isn't glamorous but I'm not sweating the credit crunch and rising interest rates either.

I think that many, many people began to believe the hype, that they deserved a house of their own, and not just a starter home either but that McMansion on the hill. Fools and their money. . .

[BlooInBloo]

40. "almost too good to be true" - 'nuff said.

[sandnsea]

43. Here's the thing

That little starter home? Yeah, it's been selling for $200,000 for about 5 years in most of the country. Remember income disparity?? Yeah, the median income that used to qualify for that 900 sq ft home - doesn't anymore.

This mortgage thing went two ways. The types in the OP. And the median income earner. Contrary to what a lot of people understand, it was near impossible to GET a fixed rate mortgage in the last few years. I know many people who tried and they just couldn't get one. The debt/income ratio just doesn't add up for the median starter home anymore. So working people did what they could to just get into a house and hope they could qualify for a fixed after a few years of paying steadily on a home, that they would then have the credit to get the fixed loan.

Let me tell you something else. Real low income people, $25,000 a year or so - they don't qualify for the FHA low-income loans because housing is so high. You have to be median income to make enough money to qualify for the mortgages on the homes that are available, even in the low-income home loan program.

Things are not like they used to be. And you do not know what it is like to know you'll never make more than that $25,000 (if that), and wonder what in the hell you're going to do if housing and rent doubles again in 5 years.

You just do not know. It isn't a question of people thinking they deserve anything. It's a question of knowing if you don't get into something and SET your monthly payment, you're going to be homeless some day ANYWAY.

[BlooInBloo]

50. Bullshit. 30yr fixed has been the most common mortgage BY FAR for a looong time...

... orders of magnitude ahead of the next closest.

(To pre-empt authority-challenge: I work in prepayment modeling for MBS.)


"it was near impossible to GET a fixed rate mortgage in the last few years."

Not even REMOTELY close to true.

Imagine your statement here: XXX


























































































The truth: HERE.

[sandnsea]

57. Yeah, for boomers & retirees

I'm telling you that young median income workers have had a helluva time qualifying because housing prices are skyhigh. How much is a house in your neighborhood?

[BlooInBloo]

58. Let's just recall what you said...

"...it was near impossible to GET a fixed rate mortgage in the last few years."

It's false.

100% false.

Completely false.

I don't know why you're trying to defend something that's so patently lacking in anything remotely resembling truth.

[sandnsea]

59. "the median income earner"

Yeah, it was near impossible for the median income earner buying a starter home to get a fixed rate. That's what my post was about.

What's the median home price in your neighborhood? Maybe the median price isn't $200,000+ where you live. It really isn't where I live either. Everything under $150,000 is a 30 year old 14 x 70 on a lot. There hasn't been an actual house on the market for under $200,000 in several years, until recently.

[BlooInBloo]

61. Ah. A phrase from an entirely different paragraph. (shrug) okie.

[sandnsea]

63. one sentence after the other

"And the median income earner. Contrary to what a lot of people understand, it was near impossible to GET a fixed rate mortgage in the last few years."

:shrug:

[BlooInBloo]

64. That first sequence of words terminated by a period isn't a sentence....

... And the second was, and remains simply false. Perhaps the sentence you *intended* is true, but not the sentence printed and quoted.

[sandnsea]

65. You're kidding, right?

:crazy:

Median income, skyrocketing market. These young families didn't qualify for fixed rates and saw their chance to plan a home for their future slipping away. They could get in on a teaser rate, but that was it. That's all many of these families could get.

That's what I said. And, it is not false.

[1932]

73. Isn't the problem that banks were willing to lend to anyone, even if they couldn't

prove they could afford the loan, so that you couldn't bid for a house and beat anyone else's offer unless you too were willing to do the same, and that everyone presumed that, if the bank was willing to lend them the money, then they could afford the loan?

Everyone could qualify for the 30 year fixed (the banks weren't checking your ability to pay it off). However, it wasn't the thirty year fixed that was going to give you the most money for the lowest initial monthly payments.

[sandnsea]

75. No.

If that were true, then what's with the 32% who still don't own homes?

People who would have qualified for conventional loans 30 years ago, could not get one in the last few years. People who were not a risk 30 years ago, suddenly have become a risk and shoved into these loans for the benefit of the lender. That, and a housing market completely out of balance with median income earners, has created the illusion of irresponsible buyers.

[1932]

80. Anyone who could qualify for nothing down could have qualified for 30 year fixed

the problem wasn't qualifying, it was that people needed to offer the most money possible in order to get a house, so they took out the loan the bank pushed on them that would get them their high offer.

What really changed over the last few years that was different from any other period in the history of the American mortgage industry?

Banks used to care about borrowers having an ability to pay. The shift was that suddenly they didn't care if you could afford the loan, and were more interested in sending purchase prices as high as possible so that all the profit would come on commissions and interest and anything else that was measured as a percentage of the purchase price.

They decided short term massive gain was more important than long term stability. And a government that KNEW this was happening thought that that was a good plan that would shift a lot of wealth to the wealthy in the short term.

[Gormy Cuss]

78. Some lenders steered buyers to subprime products even when they could qualify

for prime rate 30 year fixed products (there is evidence that this was done disproportionately to certain racial and ethnic groups regardless of their creditworthiness, but that's a different issue) and expanded the use of Alt-A (no or low doc loans) to fudge the numbers and "qualify" people with less than perfect credit histories. There was also the use of piggyback second loans to bypass mortgage insurance --the theory being that the outlay was the same but the second mortgage had deductible interest, where mortgage insurance premiums aren't deductible. The subprime loans were issued disproportionately to lower income households, the Alt-A's to somewhat higher income households but many of those households did not have incomes anywhere near the level stated in the loan application (that's why these have been called "liar loans." Too frequently in both cases the loan agent is the one who did the lying, not the applicant.

The problem was worse in overheated markets where the pool of eligible applicants was shrinking rapidly.
Lenders were bending over backwards to find ways to keep the momentum on real estate appreciation. It's easy to say the borrowers caused their own problem by signing on for crazy products like Option ARMs, but some of the lenders were playing a giant version of Three Card Monte and many people fell for it.

Ultimately the twits like the WaPo writer won't suffer as much as the lower income buyers. Mr. WaPo and his wife still have the choice to sell at a loss and buy somewhere else. Many other buyers aren't so lucky.

[MadHound]

60. Friend, don't tell me what I do and do not know

You have absolutely know idea what I have or have not experienced. For you to presume such is foolish.

For your information, I know fully well the misery and despair that poverty brings, up close and personal. I've even known what it is like to not even have a roof over your head, to live in the streets, to know hunger day in and day out. I've lived in ghettos, I've worked my ass off and at each and every step along the way from homelessness to where I am now, I vowed to not be foolish or stupid, to lose what I had so far gained, whether it was a rental unit, a trailer, my starter home, my current home.

I grant you, I live in a part of the country that hasn't seen the heating of the housing market as much as other areas. However it is pretty self evident that if you're making $25,000/yr you can in no way afford a $200,000 home. So you rent, and if rent rises you either find creative low cost ways of paying for housing, or you move somewhere else in the country where housing and the cost of living is cheaper. Do such options suck? Certainly, no doubt about it, welcome to America home of the greedy. But what sucks more is getting into a mistake willingly, foolishly, only to let it suck away the rest of your life!

As far as being stuck at a low end, dead end job, yeah, been there, done that, all of my adult life. But there are ways to boost yourself up, and education is still and all the best bet going. Is it expensive, sure, but there are ways for even dead end grunt workers to get a degree. Colleges and university employ lots of unskilled and semi skilled labor and one of the benefits that most schools offer is either free or partial tuition for the employee, spouse and kids. Yes, it takes awhile to get your degree, but once you do your standard of living will most likely rise. Even in this economy, under this administration, in these days and times, it is still possible to get ahead in life if you work, if you think, if you use your common sense.

So yes, I know much of what you speak about, for I've been there, done that, walked in those shoes for a long time. The difference between myself and those of which you speak isn't the time period, nor the personal attitude, it is the simple fact that I realized that if I can't live within a certain housing budget, then the house I'm getting is too expensive. The traditional rules of thumb has always been a house payment no greater than 25-30% of your monthly budget, a fixed rate mortage(and despite what you say, they are available) and at least five percent down. If you can't match those parameters, then most likely you're going to fail and lose your house. But sadly, many people got caught up in the housing madness and lost their heads. Do they deserve this, I don't know. But they did bring it on themselves, for despite the high pressure sales tactics, the seemingly easy credit, the convoluted financing arrangements, it is still and all up to the borrower to have done their research, done the numbers, and look out after their own financial decisions. As in any segment of this corrupt, cronyist capitalist system, the words "buyer beware" apply in housing and finance also.

[sandnsea]

62. Everyone should get a job at a college?

Are you serious? That's your answer??

You are criticizing the people who are doing NOW, what you had to do to get where you're at. WORKING their way to a better life. You aren't in an area where it's starting to look like you won't even be able to get an apartment for $1,000 a month, let alone a home.

It is not 1980 anymore. Education grants don't cover education costs. It takes 3 people to afford the cheapest places to live, on full time wages. A decent used vehicle is $5,000. I don't even know what people do in states with $5.15 wages.

You don't get it. Most people on DU really don't, when it comes right down to it. I see it time and again. People are out of touch with the way it really is for the poor, they say they care so much about.

[MadHound]

66. Wow, speaking of not getting it,

Your'e ranking right up there.

Getting a job at a college is but an example. Oh, and yes I live in an area where cheap apartments are $1000/mo. And for your information, I'm not getting any education grants, other than what I recieve for working at the college.

Apparently it is you who is out of touch. You keep insisting that we're all living in the eighties, when the reality of the matter pal is that we're all living in the here and now, just like you, simply struggling to keep ahead.

And why the fuck isn't that you're not touching the issue of personal responsibilty in this matter? What, do you not believe in personal responsibility?

It is a coward's arguement that you make. In your view, people who disagree with you are "out of touch" or "don't get it". Has it ever occured to you that yes, we do indeed get it, and that we simply disagree with you? No, no, your opinion is sacred and those of us who don't agree with your opinion are simply "out of touch":eyes:

Get over yourself pal, you are not the be all and end all when it comes to this problem. There are many people out there who have just as much, if not more, information, intelligence and planning on this issue as you. Perhaps it is you who needs to step back and listen, rather than blindly concluding that everybody else is wrong.

[sandnsea]

76. Well that's a real fact based argument

Call me a bunch of names, pat yourself on the back, sneer at those not as informed and intelligent and wise as you. As long as you feel better. :eyes:

[ThomWV]

39. I have no sympathy at all

Stupid people taking out stupid loans in the expectation of making money.

They think that at least they own their home - no they don't. They own the right to keep on renting it from whoever owns that idiotic loan they took out.

[CreekDog]

44. He's a Post journalist and his wife is a physician

Yet they had no downpayment.

Perhaps with school loans and closing costs they didn't, but still, it is quite stunning to consider.

When I bought my place in 2004, I had the same loan they had 5/1 ARM but at 5.625. It was the 20% down that enabled me to refinance into 5.5% for 30 years shortly after purchasing.

Anyway, these folks don't seem entry level to me, but it appears they were broke when they bought the house. Do people just take their paychecks and flush them down the toilet these days? It sure seems like it.

[Robb]

71. That's the thing, the down payment and lack of savings.

I live in a small town with a small paycheck, and I'd been squirreling away for years until my divorce, then bent everything I could to stay in my house.

Two things were drilled into me: save for a rainy day, and your home can be a good investment. Most of my net worth is tied up in the house, but at least it's there.

My fiancee has (to me) an incredible salary in the big city, and zero savings. Her condo's worth about what's out on the note. And she's got some debt out there too, which the big paycheck goes to servicing.

When I sell the house, we'll have a good-sized down payment, and be able to pay off her unsecured debt, and then be able to build again with her salary at least. But man, it took months to get across that we shouldn't get the BIGGEST HOUSE POSSIBLE with our combined forces.

Save that nut because winter always comes. Not taught anymore, I guess.

[bleedingheart]

51. People in this country have been dumbed down by Republicanism

and by that I mean they are not cynical enough and they do not have any common sense.

If you asked people today..."is there such a thing as a free lunch"...more than 70% of the folks would say..."yup there is"...

Folks are also losing their basic math skills....lottery ticket purchases are one example...taking an interest only loan is another...

There are very few...and I mean...very few people who benefit from an interest only loan...and those folks have a lot more money than most of us.

[MissB]

53. We bought a slightly more expensive home a few years back.

It was our second home, though. Our first home was a perfectly fine home (once we spent every weekend and every spare dollar to remodel it over a period of ten years) but it turned out that the school district wasn't that great (hey, when your district ends up being mocked by Doonesbury, you know it's fucked).

So we sold it in 2003. After sitting on it for more than a decade - and improving it a little each year - we sold it for more than six times the amount originally paid.

We plopped the profit down on another fixer upper in a different part of town (different school district) and we're slowly remodeling it as we can afford. If dh lost his job, I could go flip burgers and still make the house payment.

I don't have a flat screen. My dog doesn't get doggie day care. We don't take elaborate vacations - or even out of state vacations.

The people who bought our old house were first time home buyers. I don't know how they could afford it. It was close-in so the location alone meant big $$. It wasn't a home for first time buyers - it was for people who wanted to be closer to downtown and have a fully restored old home with all the updates.

The entitlement attitude is amazing. I will never have my dream house - but that's okay. If I wanted a dream house, I wouldn't have had kids. There has to be something that you don't get in life if you're not a millionaire. In my case, I chose to have another fixer upper and college funds for the kids. :shrug:

[tammywammy]

56. This is almost as good as the story a few months ago

Where the people had two homes and a horse and all kinds of crap. And I'm supposed to feel bad for them. They made stupid mistakes. Sorry, I just don't feel guilty that you're an idiot. :shrug:

[Craftsman]

74. They screwed up, they need to simplify their lifes to free up money and get this paid down

[GOTV]

77. Why the HELL did they think they needed a half a million dollar STARTER HOME n/t