What I don't get: When people complain that they are drowning because their house is underwater

[Anonymous]

it is the bank's fault. They loaned the money and didn't turn down the people that couldn't afford and also rated mortgages as non risky when they were a risk. So what happened was prices went down because everyone defaulted who should never have gotten the loan to being with, increasing the inventory and driving down prices. FUCK THE BANKS, too big to fail my ass I want them all to fail.

[Anonymous]

I have a hard time being empathetic for people who bought more than what they could afford, have interest only loans (meaning, you shouldn't have bought in the first place) or balloon loans. Come on people, if you're that niave about your finances, then you have no business buying a home - period. I'm all for assistance for job loss, death, etc. but that's about as far as my sympathies extend.

The housing market sucked in the 90s. My ex-husband and I bought a condo in '93 that was underwater for years. So, when we split up, I kept it, kept paying for it, until I sold it in '06 and made a profit. I wasn't financially well enough to come to the table with 50K to unload it after my divorce in '95. This is life. So, you've outgrown your home that is underwater- purge, pare down, and live. What is so hard about that?

[Anonymous]

Anonymous wrote:it is the bank's fault. They loaned the money and didn't turn down the people that couldn't afford and also rated mortgages as non risky when they were a risk. So what happened was prices went down because everyone defaulted who should never have gotten the loan to being with, increasing the inventory and driving down prices. FUCK THE BANKS, too big to fail my ass I want them all to fail.

Banks were definitely greedy as hell, and knew they struck gold with creative financing. But come one, you're telling me that people are just ignorant of their finances? They were being greedy as well. Both parties were at fault.

[Anonymous]

Anonymous wrote:I agree. Not sure why that would make a difference. Just that you can't move?

This is pretty hilarious. You think labor-market mobility is trivial, either from a personal or macroeconomic perspective?

[Anonymous]

After all the wailing and gnashing of teeth over those evil banks which gave out all these terrible loans (and I don't totally disagree with that, by the way), you suggest that lending institutions be permitted (or even required) to refinance a loan no matter what the value of the underlying collateral is.

Some form of mortgage cramdown should've been a requirement of the bailout. These guys made the shitty loans, and they were the experts. So they should be required to eat some of the losses along with the homeowner.

[Anonymous]

Anonymous wrote:

Anonymous wrote:it is the bank's fault. They loaned the money and didn't turn down the people that couldn't afford and also rated mortgages as non risky when they were a risk. So what happened was prices went down because everyone defaulted who should never have gotten the loan to being with, increasing the inventory and driving down prices. FUCK THE BANKS, too big to fail my ass I want them all to fail.

Banks were definitely greedy as hell, and knew they struck gold with creative financing. But come one, you're telling me that people are just ignorant of their finances? They were being greedy as well. Both parties were at fault.

I always find this attitude to be a bit puzzling: you've got a multi-hundred billion dollar industry that is entirely oriented around mitigating risk while lending money on the one side, then on the other, you've got some schlub who probably has a hard time doing his taxes. In that context, sure you can argue "both parties were at fault". But one party is about 99% at fault, and the other 1%. Which one should we completely insulate from the consequences of their *professional* malpractice? Of course, it should be the banks.

Just irrational--and morally convoluted.

[Anonymous]

But come on -- it doesn't take a PhD in economics to know that you shouldn't be buying a house if you have to pay more than 40% of your gross income on interest alone in the hope that the house will appreciate enough so you can refinance.

I agree the banks deceived people. But you were awfully willing to be deceived if it meant you could live in your dream house.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:it is the bank's fault. They loaned the money and didn't turn down the people that couldn't afford and also rated mortgages as non risky when they were a risk. So what happened was prices went down because everyone defaulted who should never have gotten the loan to being with, increasing the inventory and driving down prices. FUCK THE BANKS, too big to fail my ass I want them all to fail.

Banks were definitely greedy as hell, and knew they struck gold with creative financing. But come one, you're telling me that people are just ignorant of their finances? They were being greedy as well. Both parties were at fault.

I always find this attitude to be a bit puzzling: you've got a multi-hundred billion dollar industry that is entirely oriented around mitigating risk while lending money on the one side, then on the other, you've got some schlub who probably has a hard time doing his taxes. In that context, sure you can argue "both parties were at fault". But one party is about 99% at fault, and the other 1%. Which one should we completely insulate from the consequences of their *professional* malpractice? Of course, it should be the banks.

Just irrational--and morally convoluted.

Assuming professional malpractice is quite a leap, though - if the bank lied or misrepresented something, I agree with you. For the sake of argument, I'll even throw in those that are too stupid to understand how a loan works (although I'm a little uncomfortable with the basic concept of relieving someone of a contractual responsibility based on intelligence, or lack of same). But if someone with a college degree is too lazy (likely) to educate himself as to the way the loan works, or (equally likely, around here) understood EXACTLY how it would work, but just banked on property values going up and refinancing (just as likely, at least around here), then your 99%/1% allocation of fault is quite a bit off.

[Anonymous]

Anonymous wrote:
I always find this attitude to be a bit puzzling: you've got a multi-hundred billion dollar industry that is entirely oriented around mitigating risk while lending money on the one side, then on the other, you've got some schlub who probably has a hard time doing his taxes. In that context, sure you can argue "both parties were at fault". But one party is about 99% at fault, and the other 1%. Which one should we completely insulate from the consequences of their *professional* malpractice? Of course, it should be the banks.

Just irrational--and morally convoluted.

So you're saying that even though the mortgage is 45% of the person's income, i.e. they could pay it if they chose to, the bank should not lend it to them. This means that for those people who want to buy the house in the right neighborhood for their kids, are willing to sacrifice cable, cell phones, Internet, drive 15 year old cars and pack their lunches should have been refused their loan because Joe Roller and his buddies buy a condo at 45% of their income, buy new sports cars, refresh their iPhone every 2 years with full data plan, has Cable, Internet, eats out every meal and then finds they can't pay their mortgage? RIIIGGGHHHT.

Banks evaluate loans. They don't evaluate peoples' lifestyles. They take the payment and compare with the person's stated income and as long as it meets their criteria, they loan. They do not tell people how to spend their money, only determine whether the person can afford it. If they didn't think the person could afford it, they wouldn't loan it. When I moved into my first home, I lived with Goodwill furniture in some rooms and other rooms empty. I put 20% down. It took me years to furnish the house. And I put extra money towards the principal every month. When I sold 13 years later, I owed $50K of which I could pay it out of savings if necessary. The people who bought it from me took a FHA loan, put only 3% down, made me pay the closing costs (they said they didn't have the money) and then immediately spent a few thousand on new furniture. How do I know? There was a plumbing problem on the day of closing. I told them to have it fixed, tell me the amount and I would drop off a check for the amount. The day I dropped off the check, they were having brand new furniture delivered. And when I went by after about 3 years, they had a fancy luxury car in the driveway. The house appreciated in the years I owed it and the neighborhood has depreciated since 2008. They are likely underwater on their mortgage now. And yet, they made me pay the closing costs because they didn't have the money and yet had money for $3000 worth of furniture? 3 years later, they had enough to buy a $35K car? And this is the type of person that ends up underwater on their mortgage and wants remediation from the government or wants to be able to refinance and I'm supposed to believe that they were rooked by the mortgage company?

[Anonymous]

I've been responsible for my finances - but I wasn't for everyone else's - as a result home prices in my area have plummeted - so I've lost the 90k I put down when I bought the house in '05 right before the shit hit the fan and am probably 150k MORE underwater. What do you assume I do there? I did not have a crystal ball - and sorely wish I did.

[Anonymous]

Not sure when the last time you bought a house was, but when we bought in 2004, most of the professional advice was to buy as much house as you could afford, and to use something like a 5-year ARM in order to stretch further. Then if you were still going to be in the house, you could refinance later with the equity you'd inevitably make on the increase in value. In retrospect was that bad advice? Yes. But housing bears were few and far between back then.

We bought a house we could easily make monthly payments on, and we financed with a 30 year fixed. If I had had a crystal ball back in 2003, I would have bought double the house we did buy (on the Hill). We'd have a bigger house and even more equity. If I'd followed that advice in 2006-2007, in Manassass, we'd be massively underwater and part of the problem.

It's very, very easy to second-guess people's choices when things go wrong, with the benefit of hindsight.

As far as professional malpractice goes: we have a home mortgage industry because they provide the positive benefit of using their expertise to mitigate risk. That they failed so spectacularly at that *is* evidence of professional malpractice.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:it is the bank's fault. They loaned the money and didn't turn down the people that couldn't afford and also rated mortgages as non risky when they were a risk. So what happened was prices went down because everyone defaulted who should never have gotten the loan to being with, increasing the inventory and driving down prices. FUCK THE BANKS, too big to fail my ass I want them all to fail.

Banks were definitely greedy as hell, and knew they struck gold with creative financing. But come one, you're telling me that people are just ignorant of their finances? They were being greedy as well. Both parties were at fault.

I always find this attitude to be a bit puzzling: you've got a multi-hundred billion dollar industry that is entirely oriented around mitigating risk while lending money on the one side, then on the other, you've got some schlub who probably has a hard time doing his taxes. In that context, sure you can argue "both parties were at fault". But one party is about 99% at fault, and the other 1%. Which one should we completely insulate from the consequences of their *professional* malpractice? Of course, it should be the banks.

Just irrational--and morally convoluted.

Agreed. The banks are in fact the people responsible for the economy and housing market crashing, almost single-handedly.

[Anonymous]

Anonymous wrote:Not sure when the last time you bought a house was, but when we bought in 2004, most of the professional advice was to buy as much house as you could afford, and to use something like a 5-year ARM in order to stretch further. Then if you were still going to be in the house, you could refinance later with the equity you'd inevitably make on the increase in value. In retrospect was that bad advice? Yes. But housing bears were few and far between back then.

We bought a house we could easily make monthly payments on, and we financed with a 30 year fixed. If I had had a crystal ball back in 2003, I would have bought double the house we did buy (on the Hill). We'd have a bigger house and even more equity. If I'd followed that advice in 2006-2007, in Manassass, we'd be massively underwater and part of the problem.

It's very, very easy to second-guess people's choices when things go wrong, with the benefit of hindsight.

As far as professional malpractice goes: we have a home mortgage industry because they provide the positive benefit of using their expertise to mitigate risk. That they failed so spectacularly at that *is* evidence of professional malpractice.[/quote] Are you under the impression that your relationship with your mortgage company employee or loan officer is the same as that with your doctor, lawyer, accountant, or shrink? It's not. Their "expertise to mitigate risk" works for the company, not you. They can't lie to you, but have no duty to tell you what is best for you, or to protect you from yourself. A malpractice analysis simply doesn't apply, and wishing it does doesn't make it so.

[Anonymous]

Anonymous wrote:Not sure when the last time you bought a house was, but when we bought in 2004, most of the professional advice was to buy as much house as you could afford, and to use something like a 5-year ARM in order to stretch further. Then if you were still going to be in the house, you could refinance later with the equity you'd inevitably make on the increase in value. In retrospect was that bad advice? Yes. But housing bears were few and far between back then.

We bought a house we could easily make monthly payments on, and we financed with a 30 year fixed. If I had had a crystal ball back in 2003, I would have bought double the house we did buy (on the Hill). We'd have a bigger house and even more equity. If I'd followed that advice in 2006-2007, in Manassass, we'd be massively underwater and part of the problem.

It's very, very easy to second-guess people's choices when things go wrong, with the benefit of hindsight.

As far as professional malpractice goes: we have a home mortgage industry because they provide the positive benefit of using their expertise to mitigate risk. That they failed so spectacularly at that *is* evidence of professional malpractice.

Are you under the impression that your relationship with your mortgage company employee or loan officer is the same as that with your doctor, lawyer, accountant, or shrink? It's not. Their "expertise to mitigate risk" works for the company, not you. They can't lie to you, but have no duty to tell you what is best for you, or to protect you from yourself. A malpractice analysis simply doesn't apply, and wishing it does doesn't make it so.

[Anonymous]

Because people look at underwater properties as a chunk of money they have lost. Regardless whether you still have mtg on it or have managed to even pay it off, it is still money lost should you attempt to sell it. You cannot get your money out of it unless you wait and this wait may take many years just to get what you paid for it. Not any appreciation, not to keep up with inflation, just to get dollar to dollar what you put into it, you must wait years. This is why people are upset. don't see how it is so difficult to understand. Mtg amount and whether you can afford it today has not much to do with it. It's the feeling of loss of your hard earned dollars.

Some people are walking away from their underwater homes as they simply don't want to continue paying into the hole regardless whether they can afford their mtg or not, especially if they have put very little equity into the house. They just want to cut their losses. Others, like my friends in CA were able to negotiate a lower pmt with their bank on their home that's lost half of its value. The bank have agreed to make an arrangement for some sort of refinancing to keep them in this house when they prepared to walk away from it.