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

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[quote=Anonymous][quote=Anonymous]
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.[/quote]

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?[/quote]

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