Posted on 08/10/2006 5:31:16 AM PDT by Hydroshock
Millions of Americans bought into the real estate boom with adjustable mortgages and home equity loans. Now rising interest rates are forcing them into agonizing financial choices.
Aug. 8, 2006 - When Shawn Howell saw the house in the summer of 2004, he thought he couldn’t lose. The location-close to family and in an upscale subdivision in Louisville, Ky.,—was perfect; the three-bedroom plus loft was just right. The price was a little high at $217,000—especially as Howell's wife, Niki, had just given birth to their second child. But the couple learned they could purchase it with no money down by taking out two adjustable-rate mortgages. The monthly payments would start at a manageable $1,100. And Howell figured the value of their home could only go up in the five years they planned to live there. Instead, two years later, the family have put their home on the market for less than they paid for it—desperate to find a buyer before the bank forecloses on the property. "Looking back, I wouldn't advise anyone to do what we did," says Howell, an Iraq war vet who worked two jobs but still fell short on the monthly payments after they jumped by more than $300. "We just couldn't afford the house anymore."
(Excerpt) Read more at msnbc.msn.com ...
That's a great example of stupidity.
ping
Did anyone think that the rates would be adjusted to favor the borrower?
In many over valued markets you will see a lot of this in the coming few years.
"We just couldn't afford the house anymore."
Dude? You couldn't afford that house in the FIRST place.
(I see stupid people. They're everywhere. They don't even know that they're stupid.) *Rolleyes*
I hate to say this, but when you get an arm when the rates are at 40 year record lows, where do you think they are going?
Answer: UP!
bookmark
Shawn Howell gambled and thinks he lost. Would he have spent more money by selling after two years at a loss or by renting at nearly the same amount for two years?
Those who are being hurt by rising interest rates are miniscule in comparison to those who have been able to purchase homes due to low interest rates (fixed or variable).
Even those who lose their homes have the opportunity to regain their financial footing and purchase another home, one that they can afford.
Long term interest rates have gone up about 1%. They are still at historic lows. The real reason is that banks allowed people to borrow money on houses they clearly could not afford - this is the big change from 5 years ago.
Record low interest rates wouldn't seem to be the best time to take out an ARM. While some buyers are hampered by stupidity the average buyer generally doesn't have very much help in making major financial decisions or doesn't take advantage of what help is available. On the other hand he is dealing with an industry which spends hundreds of millions of dollars in research and bribing our representatives and other government officials.
If he planned on living there 5 years, why not a 5-year ARM? A 1-year ARM is insane when a $300 increase is going to bankrupt you. Most people are in fact better off with an ARM, because most people don't stay in a house for 5 years.
Did you read the whole article? I think they were short-sighted and naive but I wouldn't call them stupid.
Rates high, or you know you'll be able to handle the shift in a couple of years, get an ARM. Rates low, lock it in with a fixed.
If you want to gamble, go to Vegas.
people are really freakin stupid
What kind of ARM goes up that much that soon? I am thinking it was subsidized by the builder to move stock- now it's someone else's problem. Cold.
When I saw the tagline for the thread, I thought it was about a dog wetting on the carpet...
The home looks like a typical tract built home by one of the major big builders in the country. It probably was financed through their own mortgage company and immediately sold. Usually this builder buys down the interest rates which multiplies this problem. Some of their communities have a 20% default rate and the houses in these communities do not appreciate even in good markets.
... and go which way? Since 2004 was near record low interest rates, which direction did they think it would go?
What part of the word "adjustable" do they NOT UNDERSTAND?
With NO MONEY DOWN, they have probably twenty bucks in equity in the thing. So now if they sell it for say $200,000, they STILL OWE $17,000 (minus the twenty bucks), and they have no house at all.
Actually he was a good candidate for an ARM as he planned to live there only five years. The problem was a one-year ARM was the stupid part.
Not stupid, but definitely short-sighted. They made some mistakes (who hasn't) but if they learn from them, they will be in another house one day and older and wiser.
Deceptive word play aimed at the ignorant. When will it sink in? Stupid people do stupid things. Let them suffer so the lesson is learned.
If it is the builder I think it is, they tend to buy down interest rates and jack up the price of the home to compensate. Its great for the first year, but then they are left with overpriced poorly built house in a neighborhood with numerous foreclosures. Been going on for a while.
The standard motto of a loser.
Sad
It's all about income and expenses. It can be managed but the streams are what they are.
"(I see stupid people. They're everywhere. They don't even know that they're stupid.) *Rolleyes* "
These people aren't stupid, they're just ignorant, and thus, manipulated. Big Difference, IMHO.
For as long as our schools are more concerned with teaching a relative morality where Johnny gets 2 daddys or 3 mommys and everything is OK as long as it feels good, this will continue to occur. For as long as our schools (and the NEA, implicitly) are more concerned with stuffing our kids with communist and socialist idealogy, this will continue to occur.
When (not likely ever) our schools (which WE pay for) get back to the business of teaching the 3Rs, American Pride, Capitalism and good old fashioned common sense, we will begin to see a change. When Johnny learns (in school) about buying cars, houses, investments, insurance, loans, negotiating strategy, simple money management, and a whole host of other pertinent, relevant REAL LIFE issues, we will begin to see a change.
I'm not holding my breath.
R3
Well, sure...but a kind of stupidity heavily pushed by mortgage lenders. I'll bet 30-40% of homes sold in California over the last five years are occupied by buyers who used some similar trickery to "get your piece of the American Dream...before it's too late!"
If it becomes an epidemic, expect the Democrats to call for massive new Federal spending on "housing relief" - on the theory that it is unfair and disruptive to kick people out of houses they can't afford, and it would be better for the government to "help" them make their payments. Ultimately, the taxpayer will get stuck footing the bill, just like in the S&L meltdown of the 80's.
This was Mistake #1.
And Howell figured the value of their home could only go up in the five years they planned to live there.
This was Mistake #2. Ten bucks says the Howells owned a lot of dot-com stock, too.
It's interesting to see these sob stories all over the media these days. I don't have a shred of sympathy for these folks.
***Shawn Howell gambled and thinks he lost. Would he have spent more money by selling after two years at a loss or by renting at nearly the same amount for two years?***
He lost by buying. If the bank forecloses, it will sell the house for whatever it can get, which will be less than Shawn paid. Shawn still has to pay the difference in what he paid and what the bank sells for in order to satisfy his two mortgages. His two years of mortgage payments will have been interest on the loan only, as is the usual way with mortgage loans, believe it or not. In other words, he has no vested interest in the house.
If he had rented at the same price, he could walk away without any debt to repay.
R O T F L O L!
***The real reason is that banks allowed people to borrow money on houses they clearly could not afford - this is the big change from 5 years ago.***
Right. And the banks are irresponsible in doing so.
"Is this example the best the Bush-hating MSNBC could do?"
We may be looking at a second meltdown.
***Is this example the best the Bush-hating MSNBC could do?***
Notice that they posed Shawn in his army camies. THAT makes it Bush's fault. s/
You have.
I bought my first house that way in 1965. For $29,000. In California.
Owned it for 32 years...
Blah, blah blah, more real estate garbage:
Meanwhile our equity continues to climb as we continue to increase cashflow.
It is always a great time to buy.
r u watchin the inchoate fed pension insurance 'story', parable?
Ok, I'm a cold hearted bastard, but I really feel nothing for this guy. He got greedy and tried to buy more house than he could afford and now he's sucking.
Did YOU learn about investments, loans, insurance, negotiating strategy at school? I didn't, and I never heard of anyone else learning those things in school either. In addition to teaching the three Rs you're advocating schools begin teaching finance, too?
No, this was not something that could have been avoided by any high-school course in "business math" or "consumer finance."
As another poster astutely observed, it's not just the additional $300 for rising interest rates. It's also the jacked-up homeowners' insurance rates, the skyrocketing taxes, the skyrocketing utilities that suck up every nickel people can earn, and all of these hitting at once. Maybe ARMs are imprudent, but it's not the homeowner's fault if he suddenly has an additional thousand bucks a month in expenses above and beyond the mortgage interest.
My guess: check the house for expensive furniture and TV's. Check the garage - maybe one is an old pickup, what is the second car?
"I'm not holding my breath. "
And I'm not holding Publik Skrewel responsible. It's not the job of public school to teach common sense. You get that from your parents. And if they don't have it, you probably won't either.
However, I do agree that society as a whole pushes people into making stupid decisions, too. In our consummer-driven society, who doesn't want to look "normal" by todays acccepted standards?
I mean, the guy has the requisite wife and 2.3 kids. Of course he HAS to have a house too...and a second car, a boat, maybe an RV, and he certainly can't be expected to live without a flat-screen TV, two or more computers, Dish TV and every other luxury appliance his LACK of money can still, amazingly, buy!
I'll take back "stupid." "Ignorant" is more appropriate, but it's a fine line. ;)
Maybe, but I noted Howell was an Iraq war vet. Perhaps he was in the reserves or something, got called up, and his income dropped during the time he served.
I know people made a lot of dumb decisions about real estate and mortgages during the boom. (I did notice it said he took out two mortgages, whatever that means.) But in this particular case, there might be an extenuating circumstance.
In February, 2004, the Fed Chairman was openly urging home buyers to use ARMs to get "better deal". Without that open urging to use exotic loans, it is highly likely that the real estate bubble would have burst in 2004. *
We all know what took place next. People rushed to refinance their mortgages. They added in charges for purchases of new automobiles, furniture, fancy new televisions and to pay off their credit cards. Why was that? Because Congress had declared consumer debt in no longer deductible, but mortgage interest payments can be written off. Wait twelve months, one little year. Next Congress decides to reform the Bankruptcy Act. Making in tougher to walk away from all kinds consumer debt and refinanced mortgage debt. Thank Congress people.
How many millions was spread around Congress by lobbyists paid for by lending institutions? Nobody even knows. Were bag men running around D.C. with bags of cash? Nobody even cares. But a pattern is emerging slowly about abuses by predatory lenders. There are no coincidences. Just like our open border policy.
Check my FR page if you want to learn more. 'Nuff said.
____________
* Without Greenspan's active promotion of exotic loans, the housing bubble would have burst in 2004. For all you naysayers out there: Blame Greenspan.
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