Saturday, February 21, 2009
Why There Are Mortage Problems
A little over four years ago I bought my house with zero percent down. I bought a modest three bedroom, two bath fixer upper that still needs some fixing up. This includes a large detached metal garage, an acre+ of land and a creek at the back of the property.
Primarily, I bought this real estate for my kids to have a better place to stay while with me. There's a basketball goal in the driveway with plenty of room to shoot and play. The backyard has a large flat area for running, throwing baseball and footballs, practicing archery and whatever. And, of course, the creek to fish in.
Although I had no down payment, I made sure to purchase a house I felt confident I could pay for comfortably.
Looking at the housing bailout plan, the first thing of substance I notice is that qualifying mortgages' payments will be reduced to monthly repayments of 31 percent of gross income of the borrower. I did some checking on my mortgage payments.
My monthly payments are already less than 31% of my gross income. My monthly payments are only 19% of my gross income. In fact, my monthly payments are only 26% of my net take home pay. This is not because I have lots of money. I live very modestly. My annual income is only a few thousand dollars per year than the national average per household.
How irresponsible are many of these people that lowering their monthly payments to 31% of their gross monthly income is going to help them? Did they really think the could make house payments of greater than 31% of their gross monthly income comfortably? Why is our money being used to bail out these irresponsible people and irresponsible lending companies?
This is the malignant caring that I was talking about in a previous post. The under-performers are rewarded and the performers penalized. The lesson taught is that poor judgment and poor performance pays. Let the houses be foreclosed upon and help the under-performers find a decent place to rent and let them start over. Hopefully a little smarter and a little wiser this time.
BTW - That will help the depressed rental property market.
Primarily, I bought this real estate for my kids to have a better place to stay while with me. There's a basketball goal in the driveway with plenty of room to shoot and play. The backyard has a large flat area for running, throwing baseball and footballs, practicing archery and whatever. And, of course, the creek to fish in.
Although I had no down payment, I made sure to purchase a house I felt confident I could pay for comfortably.
Looking at the housing bailout plan, the first thing of substance I notice is that qualifying mortgages' payments will be reduced to monthly repayments of 31 percent of gross income of the borrower. I did some checking on my mortgage payments.
My monthly payments are already less than 31% of my gross income. My monthly payments are only 19% of my gross income. In fact, my monthly payments are only 26% of my net take home pay. This is not because I have lots of money. I live very modestly. My annual income is only a few thousand dollars per year than the national average per household.
How irresponsible are many of these people that lowering their monthly payments to 31% of their gross monthly income is going to help them? Did they really think the could make house payments of greater than 31% of their gross monthly income comfortably? Why is our money being used to bail out these irresponsible people and irresponsible lending companies?
This is the malignant caring that I was talking about in a previous post. The under-performers are rewarded and the performers penalized. The lesson taught is that poor judgment and poor performance pays. Let the houses be foreclosed upon and help the under-performers find a decent place to rent and let them start over. Hopefully a little smarter and a little wiser this time.
BTW - That will help the depressed rental property market.
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It's infuriating, isn't it? I guess I should have gone ahead and bought my dream house instead of buying sensibly.
In most cases their original payment was much lower than what it balooned to be at above that 31%
Most of them I didn't understand the concept of a balloon payment, didn't realize how much it was going to balloon, or didn't even know it was in their because all they knew is that they were getting a house and didn't bother to read.
But the fact that most people are this ignorant, financially unsophisticated, or lacking in proper diligence and self-restraint isn’t the least bit surprising. We already knew that this is how most people would behave under the circumstances. It’s easily predictable human behavior; that’s why financial systems should be regulated; because the banks understood completely the loans they were giving out, and that the people they were giving them to couldn’t afford them (which is why they were subprime and used “stated income” which is not verified) but they made tons of money upfront by bundling and selling the loans, so they didn’t care.
~Yobachi
www.blackperspective.net
Most of them I didn't understand the concept of a balloon payment, didn't realize how much it was going to balloon, or didn't even know it was in their because all they knew is that they were getting a house and didn't bother to read.
But the fact that most people are this ignorant, financially unsophisticated, or lacking in proper diligence and self-restraint isn’t the least bit surprising. We already knew that this is how most people would behave under the circumstances. It’s easily predictable human behavior; that’s why financial systems should be regulated; because the banks understood completely the loans they were giving out, and that the people they were giving them to couldn’t afford them (which is why they were subprime and used “stated income” which is not verified) but they made tons of money upfront by bundling and selling the loans, so they didn’t care.
~Yobachi
www.blackperspective.net
Good points, Yobachi. I consider much of this banking failure to be regulatory failure. Indeed, in some ways government was encouraging bad banking and financial practices. Eventually it caught up with all of us.
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