How people get trapped in bad mortgages.

[donco6]

I realize the meme these days is "irresponsibility" - i.e., people who entered into unaffordable loans made their own bed and now they should have to lie in it.

That, however, is very much unfair. I personally feel more of the blame lies on predatory lenders, and in turn, deregulated lending practices.

No, I'm not defending myself - I have a 30-yr fixed at my own insistence because I'm 50 years old and know better. I remember the days of 13% interest. Most first home buyers probably do not.

Here's what happens: Renter dreams of owning home. Renter calls a popular mortgage lender and asks what it would take to get a loan. Mortgage lender gives a bucketload of options, all the way from fixed to ARM to interest-only. Renter is assured that every option is valid in certain circumstances, that property values will "always increase" and that you can "always refinance later."

So renter sets a goal and claws his way into a house with a mortgage. And mortgage insurance. And property taxes. And homeowner's assoc. fees. And credit card debt to buy furniture for the house. And more gas because of the long commute he now has to make. Yes, yes, he should have thought about all of that, but he wouldn't have incurred it in the first place if he'd not been lulled into believing that ARM was a good idea.

And so now, he's in debt to his eyeballs, the credit card companies have trashed his credit so that he couldn't get refinanced if he could, his house is upside down, his neighbors have already walked and his property value is declining by the day.

But we choose to bail out Bear Stearns, Freddie and Fannie, AIG et al and watch their CEOs walk off with millions. Yeah, THAT'S responsiblity.

[liberal N proud]

1. I remember when we moved 8 years ago...

The mortgage company was nearly irate with us because we didn't purchase a house worth the maximum they would lend us. And that we wanted a 30 year fixed rate.

They pushed hard for all the other options and told us we need to look for a more expensive house. We were strong and stood up against them and got what we wanted. What worked for us.

But many people are lured to the new homes, with all the glamor and manicured lawns and told no problem, we can just set you up with a interest only loan and set you out there in suburbia until we come and take it away.

[donco6]

3. They tried that with us, too.

We actually downsized into a different neighborhood. I think our first realtor was in cahoots with a mortgage lender (Countrywide) who was handling most of the RE in that redevelopment. We told him what we were looking for, the price range, etc., and he proceeded to show us houses $100k higher than that! "Look at the vaulted ceilings! Room for a chandelier! Huge yard! Mother-in-law cottage!"

"We don't want any of that."

"But think about resale!"

"We're going to die here"

"Think about your kids."

"We're gay and don't have any."

"uh . . . fine."

[sandnsea]

6. Modular homes cost $200,000 here

Not everybody is living in a glamor home and manicured lawn, even though they have $1800 mortgage payments.

[no_hypocrisy]

2. My clients' story.

Young couple ready to get married. Found a house on a lake. Home inspection report made the structure something between the "Money Pit" and "Mr. Blandings Builds His Dream House". The asking price was waaaay to high for all the budgeting of repair and restoration to make it merely habitable. Think black mold everywhere for starters.

The Seller wouldn't budge on the price. My clients' own realtor begged them to break the contract and look at other houses and they refused. They had to get a mortgage plus a piggyback mortgage to pay for it and find money to fix the place.

I later found out why the Seller wouldn't lower the price. He paid initially a sum to buy the house, let it deteriorate, got a refi but for $160,000 more than he paid for it four years prior. My clients were subsidizing his windfall that the mortgage company inappropriately gave him.

Yes, they went on to buy the house, but have great financial pressure and argue about finances due to the house payments.

[donco6]

4. And then there's the divorce - like that would solve anything.

Throw in divorce into all this mess and you're only left with the bankruptcy option.

[sandnsea]

5. Renter does not get "a bucketload of options"

Renter is given ARM and interest only variables, as they are told that's what they qualify for. They're asked a series of question that leads the mortgage "adviser" to recommend an ARM interest only loan. They would be fools to do it any other way.

People have no idea what's been going on in the mortgage industry. It's not like it was 20 years ago, not in any way. I was going through Wells Fargo, and they just kept juggling the monthly payment estimates when the terms of the loan changed for various reasons. No matter what the variables were, they just kept juggling the numbers so that good faith monthly payment stayed exactly the same. Crooks.