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 ...
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.
I agree; it's hard to teach good decision-making skills in school. The only thing that could have saved him was the old-fashioned attitude that one should wait until one can afford something before buying it (seemingly a very unpopular idea in America today).
Thanks, we finally agree about something in real estate!
True. I wasn't able to see the photo at 1st, and only got the two jobs, vet part. But given the photo, you might have a point.
Just the 1st of many sob stories like this we will have to endure over the next 3 years. Next year (2007) over a Trillion dollars worth the mortgages will reset.
I have been saying this for two months here on FR. Many people have said I was nuts. (who would say that???) But the housing bubble is just starting to break. (Hope ex-Texan hasn't been holding his breath for three years) I posted a comment two days ago warning that California may face a similar fate soon and that right now housing is at it tip-top peak. (50% gains later) Again, people were telling me I was wrong. (you were)
Those pressures are clearly there. When I was growing up, my family always seemed to do without many of the things "normal" families had: we never had cable TV, we took road trips instead of going to theme parks, our cars were always older. At times I wished we had more, but it certainly didn't detract much from my childhood experience.
The interesting thing is that as I got older, I realized my family probably had considerably more money than many of the families that had all the "best" things; we just chose to spend it differently. We were never in debt, so we could always afford it if something unfortunate happened, and now my parents can help pay for college so we can graduate with very little debt.
Now that I'm in college, I see people all the time who can afford it less than I can, but still spend money far more lavishly. I really don't mind doing "without," though.
Blame Greenspan. He acted to hyper-inflated the bubble in February, 2004 by urging people to use ARM loans. I saw what was happening early and spoke out in March, 2003.
One of these days, you might wake up. Until then, just keep your head buried in the sand.
It takes too long to learn the things you need in life.
I've been blessed with good family and friends to give me good advice, but too many people have had to learn the hard way.
As a young homeowner many years ago, my first mortgage was 13%. I remember my Dad telling me that if it went up a quarter point before the loan came through I wouldn't be able to afford the house. I found that so hard to believe at the time.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.