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  #1  
Old 09-09-2009, 12:01 PM
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Mortgage idiocy

Edward and Maria Moller are worried about losing their house — not now, but in 2013.
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Sandy Huffaker for The New York Times

Edward and Maria Moller and their son, Isaac, at their La Mesa, Calif., home, which was financed with an interest-only loan.
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The Economix Blog: What We’ve Learned: Ugly Truths About Housing

That is when the suburban San Diego schoolteachers will see their mortgage payments jump, most likely beyond their ability to pay.

Like millions of buyers during the boom, the Mollers leveraged their way into a house they could not otherwise afford by taking out a loan that required them to make only interest payments at first, putting off payments on the principal for several years.

It was a “buy now, pay later” strategy on a grand scale, meant for a market where home prices went only up, and now the bill is starting to come due.

Rest here:

http://www.nytimes.com/2009/09/09/business/09loans.html?_r=1&ref=business

These people appear to be homebuying idiots to me. Why would anyone agree to an interest only loan and why would the lender think that when the principal payments kicked in, the borrowers would not be in trouble?
The journalist seems just as idiotic, describing their current plight in which they can't buy new windows the house, are forced to buy a used car instead of a new one, and shades of horror, can't buy a new flat screen TV.
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Old 09-09-2009, 12:28 PM
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I agree, they are idiots, welcome to reality. Appears he had enough money for that bad tattoo on his leg.
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Old 09-09-2009, 12:49 PM
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It's a shame the American public has become a nation of bufoons who "must have it" when they can't afford it. This is the root of the finnancial crissis, which has obviously spawned these interest-only loans. And this poor guy (“Everyone out here always preached to me, ‘Buy real estate. It’s the best investment you’ll ever have,’ ” said Mr. Moller, who grew up in Iowa) is doing nothing more than renting. He has no equity.
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Old 09-09-2009, 01:09 PM
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Multiply that story by 10,000 - in the same paper today ....

Buyers of Huge Manhattan Complex Face Default Risk

Three years ago, the sale of the 110 red brick apartment buildings at Stuyvesant Town and Peter Cooper Village in Manhattan amounted to the biggest American real estate deal of all time.

Now the buyers are running out of time and money. Jerry and Rob Speyer and their partner, BlackRock Realty, who together paid $5.4 billion for the quiet middle-class redoubt near the East River, have nearly exhausted an additional $890 million set aside for apartment renovations, landscaping and interest payments. Rents are down 25 percent from their peak.

Real estate analysts say that the partnership’s money will run out as soon as December and that the owners are at “high risk” of default on $4.4 billion in loans. Two real estate executives who have been briefed on the finances insist that the owners can hold out, but only until February.

On Thursday, the partnership will go before the Court of Appeals in Albany to try to overturn a lower court decision that could force them to pay hundreds of millions of dollars in rent rebates to thousands of tenants.

Regardless of the outcome at the Court of Appeals, Stuyvesant Town and Peter Cooper Village are in trouble. City officials have been monitoring the looming crisis, worried that the financial problems could eventually lead to default, deferred maintenance and disinvestment at a complex that has served as an oasis of affordability in Manhattan for middle-class New Yorkers. Some 6,875 of the 11,227 apartments at the two adjoining complexes are rent regulated.

Rest here...http://www.nytimes.com/2009/09/10/nyregion/10stuy.html?hp

Didn't anyone have any brains????????
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Old 09-09-2009, 01:21 PM
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Interest-only loans can work if property values keep rising and you're planning to resell in the short-term. Trouble is, not only did property values not keep rising, but some idiots also seem to have used these loans to purchase their primary residence and worry about paying for it later. Mortgage idiocy indeed.

For me, buying and paying off my house was probably the best investment I ever made. Real estate can indeed be a great investment, but it has to be done right.
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Old 09-09-2009, 01:23 PM
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It goes to a serious flaw of Laissez Faire economics. It has too optimistic an Enlightenment view of human rationality, thinking that in a completely free market, rational decisions will be made. Just ain't so. Rationality is a difficult human achievement and often unobtainable. Too many stupid decision in a free market can undermine a whole society.
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Old 09-09-2009, 01:24 PM
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The lender probably figured that the family would not be able to afford the payments and would sell the house. Barring that, it would go into foreclosure and the bank could sell it and recoup any losses.

Both the customer and the bank were making the same bet on the market. Both will lose.
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Old 09-09-2009, 01:39 PM
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Quote:
Originally Posted by kerry View Post
It goes to a serious flaw of Laissez Faire economics. It has too optimistic an Enlightenment view of human rationality, thinking that in a completely free market, rational decisions will be made. Just ain't so. Rationality is a difficult human achievement and often unobtainable. Too many stupid decision in a free market can undermine a whole society.
Political systems, economic models, almost anything, in theory work great. Add the human element and a little me,me,me,more,more mentality that seems to be always present and none last for long.
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Old 09-09-2009, 02:03 PM
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I was shaking in my boots when I signed for a measly 67,000 for my home.... I cant even digest how someone could pull a loan out for 400k on a 1,000sqft home!

My mortgage payment is 327.00 a month. I pay 750 because that is what my fiance and I were paying in rent before we bought.

People who live beyond their means deserve to be homeless..
That guy could have bought a cheaper house, but he must have thought he deserved to live in the "burbs"
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Old 09-09-2009, 02:11 PM
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Originally Posted by lorainfurniture View Post
I was shaking in my boots when I signed for a measly 67,000 for my home.... I cant even digest how someone could pull a loan out for 400k on a 1,000sqft home!

My mortgage payment is 327.00 a month. I pay 750 because that is what my fiance and I were paying in rent before we bought.

People who live beyond their means deserve to be homeless..
That guy could have bought a cheaper house, but he must have thought he deserved to live in the "burbs"
I'm sure I could find plenty of $67k homes here in san antonio, but I don't think there is a lot of those in Cali. Is there?
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Old 09-09-2009, 02:15 PM
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Im sure there is something.. Maybe not 67k but not too far off.. Everything in cali is more, including the paycheck.. imho, its the same thing, just bigger numbers.
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Old 09-09-2009, 02:34 PM
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Originally Posted by E150GT View Post
I'm sure I could find plenty of $67k homes here in san antonio, but I don't think there is a lot of those in Cali. Is there?
67k.??


That would get you like a 500 sq ft lot...
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Old 09-09-2009, 02:36 PM
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Originally Posted by lorainfurniture View Post
Im sure there is something.. Maybe not 67k but not too far off.. Everything in cali is more, including the paycheck.. imho, its the same thing, just bigger numbers.
Lived in San Diego county for 45+ years (up til a couple years ago). La Mesa is in the eastern part of the county - closest you can get to San Diego State University and afford to breathe, mostly older neighborhood, mostly nice enough middle to lower middle class, some seriously sketchy sections.

It's really not the same thing in San Diego as it is in most of the US. Pulling from memory here (sure I can dig up the data if anybody really wants it): when Darling Wife and I fled the state in 2007, median home price in the county was something like $515k. Median income something like $55k. Do the math - it doesn't work out pretty.

Realtor friend at the time said she had 6 houses in active deals - SMALLEST number of "homeowners" going in on one of those was 4, one had 9 (i.e. can't qualify for a mortgage on one, two, or three incomes - needed all four +).

Reports were that ~ 15% of the county's residents could afford to buy a house in the county.

Another data point that indicated the bottom was gonna give out: $600k cottage (sub-1k sq ft) we were renting in south Oceanside (NOT a desirable neighborhood) was renting for $1,900 per month - no where close to covering the cost of a new mortgage on the place. This condition - rental prices can't support mortgage costs - was typical.
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Old 09-09-2009, 03:13 PM
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School Teachers both....... Aren't they supposed to be semi intelligent?
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Old 09-09-2009, 03:20 PM
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School Teachers both....... Aren't they supposed to be semi intelligent?
Take a look at the college class rankings of most education majors. There's a big difference between the US and other industrialized countries.
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