The problem is that before these buyers could not buy and once one underwriter starting doing the loans, the others followed because there was a huge untapped market to profit off of. Granted there are some shady ass mortgage brokers in the industry today. I am pretty tight with one MB and he has been known to be creative but when I went to get a loan he advised me not to get an ARM and did not try to force it. His underwriters have different ways of approving loans. I know someone who only showed $3600 total income on their last 3 1040's and this guy got them approved for 100k loan based solely on 3 years of rental history that showed they were never late paying $800 a month rent.
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Less than 20% fall in home prices will destroy the banking system?
- Thread starter moo
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The problem is that before these buyers could not buy and once one underwriter starting doing the loans, the others followed because there was a huge untapped market to profit off of. Granted there are some shady ass mortgage brokers in the industry today. I am pretty tight with one MB and he has been known to be creative but when I went to get a loan he advised me not to get an ARM and did not try to force it. His underwriters have different ways of approving loans. I know someone who only showed $3600 total income on their last 3 1040's and this guy got them approved for 100k loan based solely on 3 years of rental history that showed they were never late paying $800 a month rent.
Quote from jficquette:
Plus a lot of those when out and got equity lines to buy second homes to flip.
John
So do you really think they are going to walk and lose the invesmtent property and their primary residence ? My guess is they might be forced to take a hit when selling the second house and end up taking years to pay the loss in that heloc.
Quote from volente_00:
What don't you understand ?
For those with these arms, what does the rate change to ? The one I was offered 3 years ago was a 3/1 and it started at 4 back when 30 year rates were 5.25. So if I had taken it 3 years ago, my rate would jump to 6 % right now or I could just refinance it at a fixed 6%. On a 500k loan, your payment will now be roughly $600 more. I agree there are those who maxed out their loan because they figured they would be able to pay it later and perhaps through job changes that is not the case but you act like everyone who bought a house is in an ARM and is going to default.
Glad you didn't get offended my friend/.....
ok so you considered the reset in monthly payments...
now what about the property taxes increasing ?
No offense, volente, but
1) many people that used to qualify won't now because they have tightened credit
2) many houses are no longer worth what they were when they were bought, so the lenders won't want to lend on them unless you give them the difference in cash
3) some people took negative amortization or interest only loans, and in a declining market with higher rates and tigher credit, they are way underwater and have to live with whatever terms they have
That's not to say that everyone is in trouble. Its mostly people that took ARM's and/or couldn't afford the home in the first place.
Will this "destroy the banking system"? I think not. I don't think the overall foreclosure rate wil get over 5 or 10%, and I think we'll find that the banks made relatively few of these crazy loans as compared to the mortgage brokers, etc.
1) many people that used to qualify won't now because they have tightened credit
2) many houses are no longer worth what they were when they were bought, so the lenders won't want to lend on them unless you give them the difference in cash
3) some people took negative amortization or interest only loans, and in a declining market with higher rates and tigher credit, they are way underwater and have to live with whatever terms they have
That's not to say that everyone is in trouble. Its mostly people that took ARM's and/or couldn't afford the home in the first place.
Will this "destroy the banking system"? I think not. I don't think the overall foreclosure rate wil get over 5 or 10%, and I think we'll find that the banks made relatively few of these crazy loans as compared to the mortgage brokers, etc.
Quote from volente_00:
So do you really think they are going to walk and lose the invesmtent property and their primary residence ? My guess is they might be forced to take a hit when selling the second house and end up taking years to pay the loss in that heloc.
Take a hit ? That's if they can sell.......so if you sell for less that what is owed......they have to come out of pocket with the difference......Not an affordable option for many, because there is a little uncertainty on what is the difference between what is owed versus what was realized from the sale.
my guess is that if they bought the investment property with an ARM (which I personally know many that have)...
yes....they may have no choice but to walk away.
Speculators will lease out at market price...whatever that may be....that cuts the "carrying cost" down...sit and wait it out...tax benefits also help close the gap...
A lot of people don't realize that "walking away" has some unintended consequences....
Loan is for $200,000.....lender forecloses, sells house for $150,000 at auction....lender sends you and IRS a 1099 for $50,000...forgiveness of debt is considered "income" for tax purposes....
Also, for a country ready to go into a deep depression, there sure seems to be a lot of buyers at the foreclosure auctions.....
I guess they haven't read the postings on Elite Trader, LOL
SteveD
A lot of people don't realize that "walking away" has some unintended consequences....
Loan is for $200,000.....lender forecloses, sells house for $150,000 at auction....lender sends you and IRS a 1099 for $50,000...forgiveness of debt is considered "income" for tax purposes....
Also, for a country ready to go into a deep depression, there sure seems to be a lot of buyers at the foreclosure auctions.....
I guess they haven't read the postings on Elite Trader, LOL
SteveD
Quote from thriftybob:
No offense, volente, but
1) many people that used to qualify won't now because they have tightened credit
2) many houses are no longer worth what they were when they were bought, so the lenders won't want to lend on them unless you give them the difference in cash
3) some people took negative amortization or interest only loans, and in a declining market with higher rates and tigher credit, they are way underwater and have to live with whatever terms they have
That's not to say that everyone is in trouble. Its mostly people that took ARM's and/or couldn't afford the home in the first place.
Will this "destroy the banking system"? I think not. I don't think the overall foreclosure rate wil get over 5 or 10%, and I think we'll find that the banks made relatively few of these crazy loans as compared to the mortgage brokers, etc.
I agree, those that stretched themselves thin will get screwed and those in cash are going to get some great deals but this is just in select areas. It has to happen to complete the real estate cycle.
Quote from 2ez:
Take a hit ? That's if they can sell.......so if you sell for less that what is owed......they have to come out of pocket with the difference......Not an affordable option for many, because there is a little uncertainty on what is the difference between what is owed versus what was realized from the sale.
my guess is that if they bought the investment property with an ARM (which I personally know many that have)...
yes....they may have no choice but to walk away.
Not on a house they bought on a heloc from their primary home.
Your friend is a huge idiot. My buddy just rented a house for $1700 a month in san diego that is worth 600K.
Mortgage payments are about 2X rent here in san diego, I have no idea what you are talking about.
Mortgage payments are about 2X rent here in san diego, I have no idea what you are talking about.
Quote from volente_00:
Down in Texas, rentals bring around 1% of their value monthly. I have a buddy out in San Diego and he pays $3500 rent on a house that is appraised at 350k. I don't have any friends renting in the east so maybe someone can chime in what rent is running out there. I think that the subprime issue is overblown. Most people put something down on their house, 3 to 5 % plus closing costs. People hate to sell anything for a loss, don't believe me ? Go ask all of the folks that held from the crash of 2000. If all these people walk, they still have to rent and from what I have seen for most renting is going to cost nearly as much as their mortgage. I am sure there are some cases where people did interest only or crazy arms but I think that is a minority when you look at the whole picture of outstanding mortgages. The corrections in RE will be in specific areas and not a nationwide epidemic.
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