Comments on: Maybe People Should Listen to Their Gut

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» Weekly Roundup: $190,000 Cartier Diamond Necklace — Mon, 31 Aug 2009 03:01:46 +0000

[...] JLP says you sometimes might want to listen to your gut. [...]

By: Foobarista

Foobarista — Sat, 18 Aug 2007 06:45:56 +0000

Part of the problem is the loan originators don’t hold the notes anymore. Mortgages are bundled up into massive “funds” that have collections of various sorts of mortgages (these categories are called “tranches”), from good mortgages made to prime borrowers to liar and ninja loans made to people who couldn’t afford what they’re borrowing. The problem for the funds is they have far more junk loans in them than the rating companies thought – and what was thought to be good loans ended up being more junky than the rating companies imagined.

If it were 20 years ago, there would be a bank that could redo the mortgage into something that could be serviced; it’s cheaper to do this than to spend the major bucks to kick out the guy and try to sell the house into a crashing RE market. But since these are pooled into vast, anonymous “funds”, there’s literally nobody to negotiate with anymore.

By: MIKEY

MIKEY — Fri, 17 Aug 2007 17:36:39 +0000

MONEYMONK SAID IT ALL, “Making $90K and able to buy a house for $567K. Who underwrites these kind of loans. It should have never gone through underwriting!!!!”
Mikey, Certified Netoworked Advisors (CNA).

By: Tim

Tim — Fri, 17 Aug 2007 17:23:21 +0000

kitty, and the other option is to rent when you can’t afford a house or the commute is too long.

there are plenty of times when renting is financially sound versus getting a mortgage.

By: Kitty

Kitty — Fri, 17 Aug 2007 16:32:55 +0000

“2nd Moral: Cali is expensive…move to another part of the county that you can better afford. Why does everyone act like CA is the only place to live & everything else sucks? ”
One word – jobs. For computer scientists, software engineers, other engineers there are lot more opportunities in California than elsewhere.
I live in Westchester county, NY which is just as expensive than California. The average house price in 2006 – 650K, down from $740K in 2005, not sure about now. I own a two bedroom townhouse-style condo; I bought it for 180K in mid-90s, now people are selling similar places for 400K (down from 460K a couple of years ago). But for people who work in NYC, it is pretty convenient. I don’t work in NYC, but I work in Southern Westchester for a research lab of a Fortune 500 company. I am a software engineer, but while I could find work in many places, it would not be nearly as interesting as the one I have as I can do both development and leading edge research. It is a very nice area as well close to all the cultural attractions of NYC yet quiet and very pretty. New Jersey is cheaper but not nearly as nice. I’d imagine the same holds true for California. There are so many more opportunities in Silicon Valley then in other places. Everything depends on the type of work one does.

But there are better ways around the prices than getting a mortgage one can’t afford. One way is to buy condos or co-ops. Another is to move to places with longer commute but cheaper prices (here in Westchester it would mean moving North to Putnam or Dutchess counties or to New Jersey). Given the cyclical nature of the real estate market, waiting and saving money is a reasonable option as well.

By: Meg

Meg — Fri, 17 Aug 2007 15:50:29 +0000

In these situations I think sometimes the homeowners are more to blame, but sometimes the mortgage companies are. If you don’t know much about the markets or about how mortgages really work (and many of us don’t), then you naturally trust the “experts” to tell you what you should do and what you can afford.

Yes, you should think for yourself, but it used to be that banks wouldn’t lend you money if you couldn’t afford the payments. A lot of people had that ingrained in them, especially older people. They assume that if they’re approved then they should be OK–especially when these “experts” are assuring them that it’ll be just fine.

Sounds like these folks need to get 2nd or 3rd jobs to support their mortgage. If they can hang on a year or two and pay their mortgage on time, they should have enough equity to refinance and/or sell and start over.

By: David

David — Fri, 17 Aug 2007 03:32:25 +0000

I cannot for the life of me figure out why people buy houses they clearly cannot afford…I would rather rent the rest of my life than be in that deep of a hole.

By: Roy

Roy — Fri, 17 Aug 2007 02:02:06 +0000

“Why does everyone act like CA is the only place to live & everything else sucks?”

Well, I got family in Northern California and we go all the way back to the stealing of the state from Mexico. Doing well in North Carolina but my heart is west of the Sierras.

Agree with Tim, it’s not too late for them if they can sell the house ….fast, and pay off the balance.

By: Johnny

Johnny — Fri, 17 Aug 2007 00:16:38 +0000

Just went to BankRate. For 90k yearly salary, a 6.5% mortgage with no downpayment, no other expenses, no property taxes, etc would qualify the buyer at about $323K. How does somebody get buy a 576K house with not much of a down payment? I am assuming there wasnt much of a dp because of the lack of equity. What a mess.

By: Tim

Tim — Thu, 16 Aug 2007 20:42:59 +0000

let’s stop blaming the mortgage companies. sure they took on added risks by selling subprime loans, betting on making money off of interest only loans etc; however, it comes down to the individual responsibility. I have no sympathy for these people, because they did it to themselves. come on, they wanted to be home owners again even if it meant no vacations or eating out as often? i’m not sure what kind of rational leads people to this. sure, companies will do just about anything to make money off of these people, but people need to have common sense. their budget simply didn’t allow for them to be going into a house at that price. did these guys even read their contract before signing on the dotted line? probably not. they are in a pickle for sure, and hindsight is 20/20. the critical thing now is to sell the house and pay off the upside down portion of their mortgage while renting. that’s going to be tough, but so is paying down other debt.

let’s just cool down about the subprime mess anyways. subprime accounts for less than 5% of home loans and even among the 5% subprime loans, not everyone is going to default or foreclose on their loans.