Mortgage defaults
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Not being in the US, there is something that makes me scratch my head. I have read a number of articles on the web about the massive number of foreclosures going on. But very often, it is described as if people are going into default because of the declining value of properties. It totally makes no sense, because as long as someone can make mortgage payments, the value of the home has nothing to do with it (as long as you do not move). They should be talking about people going into foreclosure because they have lost their job and cannot pay their bills, not people losing their home because it has lost value.
You can't turn lead into gold, unless you've built yourself a nuclear plant.
There's a couple reasons (based my limited understanding): Complex: People bought houses at low interest rates for a specific term limit, and are now faced with the term expiring and either a balloon payment or higher rates. People expected property values to increase, so they could either borrow against their equity or sell for a profit when the term limit comes up. Of course, this is just stupid, and I don't think these people should be bailed out, but on the other hand, these kind of loans should never have been legal to begin with, as it's basically a form of gambling. Simple: Lots of people are losing their jobs. They simply can't afford to make their mortgage payments with no income. They can sell their house, but then they still have some remaining debt because the value of their home is less than the loan amount. And renting is tough when the monthly rent payment is equal or greater than the mortgage payment, and you still don't have a job to pay the rent. Marc
Available for consulting and full time employment. Contact me. Interacx
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Pierre Leclercq wrote:
But very often, it is described as if people are going into default because of the declining value of properties. It totally makes no sense
I have a £5 note here. Would you like to buy it for £7? No? That's effectively the situation some of these people are in. The value of the house is less than the value of the mortgage, so they are deciding to walk away and cut their losses, rather than keep paying for something where the cost is more than the value. I would imagine it affects their credit rating in the future, but I'm not in that field, so I really couldn't say how much of a problem that would be if they wanted another mortgage later on.
Graham Bradshaw wrote:
I would imagine it affects their credit rating in the future, but I'm not in that field, so I really couldn't say how much of a problem that would be if they wanted another mortgage later on.
All black (and white) marks stay on your credit report for 7 years. Dunno if foreclosure is like bankruptcy in that it's something you have to answer truthfully for the rest of your life when applying for major loans.
Today's lesson is brought to you by the word "niggardly". Remember kids, don't attribute to racism what can be explained by Scandinavian language roots. -- Robert Royall
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Not being in the US, there is something that makes me scratch my head. I have read a number of articles on the web about the massive number of foreclosures going on. But very often, it is described as if people are going into default because of the declining value of properties. It totally makes no sense, because as long as someone can make mortgage payments, the value of the home has nothing to do with it (as long as you do not move). They should be talking about people going into foreclosure because they have lost their job and cannot pay their bills, not people losing their home because it has lost value.
You can't turn lead into gold, unless you've built yourself a nuclear plant.
Rodger's post above is pretty accurate as part of the problem. I'd like to add that it's not just developers but people who just went crazy trying to make money on rising home prices. I live in a gated golf community, very popular in Florida (and elsewhere I imagine). I bought there 7 years ago or so, nice house. Let's say I paid $100,000 for it back then and most homes in our community were at that same price. After a year or so, our surrounding area started to grow RAPIDLY and of course thousands of people started to move into the area. Supply and Demand!. To many people, not enough homes...prices went straight up. At this same time, people took notice that the Mortgage companies had all these new, cheaper monthly payment option mortgages, such as ARM's and Interest only. So, people would come in and buy homes with the only intent of keeping it a year or two max, and then sell at a hefty profit. And it worked...for awhile. I knew people making 100%-200% PROFIT on thier homes. These folks do this as a "living" moving from home to home constantly buying low, selling high...just like the Stock Market. Problem was that it topped out, people had invested in homes that were already inflated in value hoping that the market would continue and they'd make lots of $$$, but it failed. So, now these ARM's and Interest only loans start coming to marurity because folks can't sell for what they bought the house for much less that HUGE profit...they just leave the house there, stop making payments and forclose. Again, it's just part of the overall problem.
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Not being in the US, there is something that makes me scratch my head. I have read a number of articles on the web about the massive number of foreclosures going on. But very often, it is described as if people are going into default because of the declining value of properties. It totally makes no sense, because as long as someone can make mortgage payments, the value of the home has nothing to do with it (as long as you do not move). They should be talking about people going into foreclosure because they have lost their job and cannot pay their bills, not people losing their home because it has lost value.
You can't turn lead into gold, unless you've built yourself a nuclear plant.
Pierre Leclercq wrote:
I have read a number of articles on the web about the massive number of foreclosures going on. But very often, it is described as if people are going into default because of the declining value of properties. It totally makes no sense, because as long as someone can make mortgage payments, the value of the home has nothing to do with it (as long as you do not move).
And if you move? You end up with two Mortgage payments and a house that cannot be sold. Or rather a house that cannot be sold for the remainder on the note. Most people can't afford to continue, and can't sell. I just started a business and worked 2 jobs to pay for the other house.
_________________________ John Andrew Holmes "It is well to remember that the entire universe, with one trifling exception, is composed of others." Proudly folding for Team Code Project!! and Keeping "Team Lavaboy" at bay since 2009-02-04
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Rodger's post above is pretty accurate as part of the problem. I'd like to add that it's not just developers but people who just went crazy trying to make money on rising home prices. I live in a gated golf community, very popular in Florida (and elsewhere I imagine). I bought there 7 years ago or so, nice house. Let's say I paid $100,000 for it back then and most homes in our community were at that same price. After a year or so, our surrounding area started to grow RAPIDLY and of course thousands of people started to move into the area. Supply and Demand!. To many people, not enough homes...prices went straight up. At this same time, people took notice that the Mortgage companies had all these new, cheaper monthly payment option mortgages, such as ARM's and Interest only. So, people would come in and buy homes with the only intent of keeping it a year or two max, and then sell at a hefty profit. And it worked...for awhile. I knew people making 100%-200% PROFIT on thier homes. These folks do this as a "living" moving from home to home constantly buying low, selling high...just like the Stock Market. Problem was that it topped out, people had invested in homes that were already inflated in value hoping that the market would continue and they'd make lots of $$$, but it failed. So, now these ARM's and Interest only loans start coming to marurity because folks can't sell for what they bought the house for much less that HUGE profit...they just leave the house there, stop making payments and forclose. Again, it's just part of the overall problem.
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Ironically it says INDOOR market, yet shows a picture of stalls outside! That's Stoke for you!
------------------------------------ "Your manuscript is both good and original. But the part that is good is not original, and the part that is original is not good." Dr Samuel Johnson
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Ironically it says INDOOR market, yet shows a picture of stalls outside! That's Stoke for you!
------------------------------------ "Your manuscript is both good and original. But the part that is good is not original, and the part that is original is not good." Dr Samuel Johnson
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Pierre Leclercq wrote:
I have read a number of articles on the web about the massive number of foreclosures going on. But very often, it is described as if people are going into default because of the declining value of properties. It totally makes no sense, because as long as someone can make mortgage payments, the value of the home has nothing to do with it (as long as you do not move).
And if you move? You end up with two Mortgage payments and a house that cannot be sold. Or rather a house that cannot be sold for the remainder on the note. Most people can't afford to continue, and can't sell. I just started a business and worked 2 jobs to pay for the other house.
_________________________ John Andrew Holmes "It is well to remember that the entire universe, with one trifling exception, is composed of others." Proudly folding for Team Code Project!! and Keeping "Team Lavaboy" at bay since 2009-02-04
El Corazon wrote:
I just started a business and worked 2 jobs to pay for the other house.
Who you trying to kid? We all know how you can afford it.[^] :) :) :)
Henry Minute Do not read medical books! You could die of a misprint. - Mark Twain Girl: (staring) "Why do you need an icy cucumber?" “I want to report a fraud. The government is lying to us all.”
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Graham Bradshaw wrote:
I would imagine it affects their credit rating in the future, but I'm not in that field, so I really couldn't say how much of a problem that would be if they wanted another mortgage later on.
All black (and white) marks stay on your credit report for 7 years. Dunno if foreclosure is like bankruptcy in that it's something you have to answer truthfully for the rest of your life when applying for major loans.
Today's lesson is brought to you by the word "niggardly". Remember kids, don't attribute to racism what can be explained by Scandinavian language roots. -- Robert Royall
dan neely wrote:
black (and white) marks stay on your credit report for 7 years. Dunno if foreclosure is like bankruptcy in that it's something you have to answer truthfully for the rest of your life when applying for major loans.
As long as I've paid my arrears debts, a default judgement only remains on my record for five years. :)
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El Corazon wrote:
I just started a business and worked 2 jobs to pay for the other house.
Who you trying to kid? We all know how you can afford it.[^] :) :) :)
Henry Minute Do not read medical books! You could die of a misprint. - Mark Twain Girl: (staring) "Why do you need an icy cucumber?" “I want to report a fraud. The government is lying to us all.”
Hmmmm... that must be where on of our ex employees went. :) Los Alamos is always missing stuff.... hard drives, computers.... scary.
_________________________ John Andrew Holmes "It is well to remember that the entire universe, with one trifling exception, is composed of others." Proudly folding for Team Code Project!! and Keeping "Team Lavaboy" at bay since 2009-02-04
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Hmmmm... that must be where on of our ex employees went. :) Los Alamos is always missing stuff.... hard drives, computers.... scary.
_________________________ John Andrew Holmes "It is well to remember that the entire universe, with one trifling exception, is composed of others." Proudly folding for Team Code Project!! and Keeping "Team Lavaboy" at bay since 2009-02-04
El Corazon wrote:
Los Alamos is always missing stuff.... hard drives, computers....
Los Alamos is always missing stuff.... hard drives, computers, Martians... scary. I've fixed that for you.
Henry Minute Do not read medical books! You could die of a misprint. - Mark Twain Girl: (staring) "Why do you need an icy cucumber?" “I want to report a fraud. The government is lying to us all.”