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Classic Example

post #1 of 31
2/23/09 at 7:09pm
Thread Starter 
http://hotair.com/archives/2009/02/2...-me-out-obama/

A bus driver buys a $800,000.00 house that they can not afford ()
and now wants a bail out.

This is America.
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post #2 of 31
2/23/09 at 7:31pm
People shouldn't be bailed out as result of their own stupidity. America is increasingly throwing out the concept of taking personal responsibility. Losing your job due to the economy and not being able to make payments is one thing. Being a dumb and buying a house you can't afford is your own fault.
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post #3 of 31
2/23/09 at 7:43pm
A more typical classic example would be my friend. Got laid off 9 months ago and can't even get a job at McDonalds. He's about to be foreclosed on his house, which he bought at a price where no more than 30% of his income would be used for the mortgage.

That is the classic example. What you found is an extreme example.
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post #4 of 31
2/23/09 at 9:18pm
Quote:
Originally Posted by ckblv View Post
http://hotair.com/archives/2009/02/2...-me-out-obama/

A bus driver buys a $800,000.00 house that they can not afford ()
and now wants a bail out.

This is America.
I am just NOT believing this whole story. Even tho the woman drove a school bus, that's besides the point. What did her husband do for a living? What was HIS salary? What kind of down payment did they make? What was their total take home pay? I mean, come ON, banks and mortgage companies are in the business to MAKE money, NOT to get loans for people who are obviously going to default on them! Banks don't WANT your house you know, 'cause you're more trouble to them than what it's worth! THAT doesn't any sense at ALL to me! That article is sorely lacking in particulars.
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post #5 of 31
2/24/09 at 6:23am
Quote:
Originally Posted by Momofmany View Post
A more typical classic example would be my friend. Got laid off 9 months ago and can't even get a job at McDonalds. He's about to be foreclosed on his house, which he bought at a price where no more than 30% of his income would be used for the mortgage.

That is the classic example. What you found is an extreme example.
Absolutely.
Here's another: Homeowners insurance premiums in Florida skyrocketed (or were not renewed, forcing homeowners to buy more expensive insurance) after the 2004 hurricanes, resulting in homeowner's monthly combo mortgage/insurance payments being MUCH higher than they anticipated.
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post #6 of 31
2/24/09 at 6:55am
Quote:
Originally Posted by PookieBoy View Post
I am just NOT believing this whole story. Even tho the woman drove a school bus, that's besides the point. What did her husband do for a living? What was HIS salary? What kind of down payment did they make? What was their total take home pay? I mean, come ON, banks and mortgage companies are in the business to MAKE money, NOT to get loans for people who are obviously going to default on them! Banks don't WANT your house you know, 'cause you're more trouble to them than what it's worth! THAT doesn't any sense at ALL to me! That article is sorely lacking in particulars.

Something isn't right about that story. No bank would give a bus driver a mortgage for that kind of money - at least not a Canadian bank. Something smells very fishy about that story. Even if it was on the internet, I doubt it is true.
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post #7 of 31
2/24/09 at 7:40am
Thread Starter 
I thought that was one big reason for this stupid mortgage crisis, at least at first. That people got these adjustable interest rate mortages and when their interest rate and house payment went up after a few years they couldn't afford it. I have read where people got in houses for NO down payment whatsoever.

I don't understand the posts here, we all know that hundreds of thousands of people got in houses they couldn't afford, how did they do it?
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post #8 of 31
2/24/09 at 7:41am
Thread Starter 
Quote:
Originally Posted by Momofmany View Post
A more typical classic example would be my friend. Got laid off 9 months ago and can't even get a job at McDonalds. He's about to be foreclosed on his house, which he bought at a price where no more than 30% of his income would be used for the mortgage.

That is the classic example. What you found is an extreme example.
I am not talking about the people that have lost their job due to lay offs.

I don't think what I posted was an extreme example at all.
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post #9 of 31
2/24/09 at 7:50am
It's common knowledge to me now, that people in general are not smart. But why dont' bankers realize this? What kind of a bank gave him a mortgage for that kind of money, given his salary? My dad was approved for a $400,000 mortgage, he doesn't make more than $40k per year, and that was based only on his income. He didn't take it, but had he wanted to, he could have. I think the maximum someone with this kind of salary can afford is probably $100,000 or less.. Someone less responsible most definitely would have taken all that he can get, and I don't think we can rely on people to always make the most responsible decisions in general.
EDIT
What I don't understand about your post is, you say the bus driver wants a bail out, but it's the bank that's getting a bail out....The person is going to get away with foreclosure and likely not lose anything, except for probably the few payments they made, but I dont' think that's a big loss if any at all because given there was probably no downpayment, and the monthly payments were no more than what would have been rent for that kind of house...
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post #10 of 31
2/24/09 at 7:58am
Quote:
Originally Posted by ut0pia View Post
It's common knowledge to me now, that people in general are not smart. But why dont' bankers realize this? What kind of a bank gave him a mortgage for that kind of money, given his salary? My dad was approved for a $400,000 mortgage, he doesn't make more than $40k per year, and that was based only on his income. He didn't take it, but had he wanted to, he could have. Someone less responsible most definitely would have taken all that he can get, and I don't think we can rely on people to always make the most responsible decisions in general.

That's the big difference between the banks here in Canada and the US banks. I heard on the news that our banks weren't in trouble like the US banks and now I think I understand why. The banks here will only give you a mortgage in proportion to your income, and with what you already owe taken into consideration. As I said in another post some months ago, when we moved and were getting a new mortgage, she told me that even though I had a zero balance on each of my department store credit cards that the bank considered them to be maxed out because as soon as the mortgage papers were signed and approved I could have gone out and maxed them out so because each had $2,000 limit I was considered to have $6,000 debt on the 3 cards. She said it was better to just have one credit card - usually a Visa or Amex. I immediately cancelled my department store credit cards and cut them up.

My hubby and I both have good jobs and make decent money but I can tell you right now there is no way any Canadian bank would give us a mortgage for an $8,000,000 house. That is just ridiculous. I cannot imagine how that couple would even be able to afford the taxes on that house never mind the mortgage payment.
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post #11 of 31
2/24/09 at 8:04am
Quote:
Originally Posted by ckblv View Post
I am not talking about the people that have lost their job due to lay offs.

I don't think what I posted was an extreme example at all.
Actually I do think that is an extreme example. I honestly don't think many bus drivers would buy a home (or even try) in that price range. That's probably an exaggerated example put out there by someone to grab some attention and it did get some attention.
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post #12 of 31
2/24/09 at 8:15am
Quote:
Originally Posted by Yosemite View Post
That's the big difference between the banks here in Canada and the US banks. I heard on the news that our banks weren't in trouble like the US banks and now I think I understand why. The banks here will only give you a mortgage in proportion to your income, and with what you already owe taken into consideration. As I said in another post some months ago, when we moved and were getting a new mortgage, she told me that even though I had a zero balance on each of my department store credit cards that the bank considered them to be maxed out because as soon as the mortgage papers were signed and approved I could have gone out and maxed them out so because each had $2,000 limit I was considered to have $6,000 debt on the 3 cards. She said it was better to just have one credit card - usually a Visa or Amex. I immediately cancelled my department store credit cards and cut them up.

My hubby and I both have good jobs and make decent money but I can tell you right now there is no way any Canadian bank would give us a mortgage for an $8,000,000 house. That is just ridiculous. I cannot imagine how that couple would even be able to afford the taxes on that house never mind the mortgage payment.
Yes, that's why many Americans are angry at the banks, because they were making irresponsible decisions when it was their responsibility to check and make sure each person who gets a mortgage can afford it. They just let their greed for collecting a lot of interest get in the way of their decisions and became careless, thinking that giving as much loans and mortgages as they possibly can will get them the most interest..Well that's what a lot of people are saying anyway. I think what's closer to the truth is there was lack of information of what these properties are actually worth, based on their demand. Because if the properties were worth the amount of money they were sold for, there really wouldn't be a problem. If someone can't pay and forecloses, then someone else will come along and buy the property for that same amount and the bank will actually be at a gain....but there is a surplus of houses and their value is lower, so that isn't really happening. But although there are many people who made irresponsible decisions, they are not the ones getting bailed out. The banks were being more irresponsible than the people IMO.
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post #13 of 31
2/24/09 at 8:55am
Quote:
Originally Posted by ut0pia View Post
Yes, that's why many Americans are angry at the banks, because they were making irresponsible decisions when it was their responsibility to check and make sure each person who gets a mortgage can afford it. They just let their greed for collecting a lot of interest get in the way of their decisions and became careless, thinking that giving as much loans and mortgages as they possibly can will get them the most interest..Well that's what a lot of people are saying anyway. I think what's closer to the truth is there was lack of information of what these properties are actually worth, based on their demand. Because if the properties were worth the amount of money they were sold for, there really wouldn't be a problem. If someone can't pay and forecloses, then someone else will come along and buy the property for that same amount and the bank will actually be at a gain....but there is a surplus of houses and their value is lower, so that isn't really happening. But although there are many people who made irresponsible decisions, they are not the ones getting bailed out. The banks were being more irresponsible than the people IMO.
I have a problem with the thinking that the banks are the only ones to blame. Yes, they are in the business to make money but some of the onus needs to be on the person borrowing the money. I, for example, am a logical, thinking, educated adult. I know how much money I make and how much of that money I actually take home. Knowing that, I surely also know that I cannot afford an $800,000.00 home nor could I afford a Mercedes Benz or Ferrari. Surely I would also be responsible if I were to take out a loan that is far more than I can afford. A house and car are probably the most expensive items we buy in our lives. It doesn't take a genius or rocket scientist to know that someone making $40,000 per year cannot afford a $400,000, or expecially an $800,000 home. We, as consumers, need to be more realistic in what we buy - need versus want especially. If I overspend, I honestly don't think I have the right to blame anyone but myself. And, having said that, it is up to me to get myself out of the hole I dug myself into. Should the banks have loaned money to those people? No. But I don't think the bank went and searched these people out and offered to lend them money to buy that house either. There is such a thing as sound mind and free will.
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post #14 of 31
2/24/09 at 9:04am
Quote:
Originally Posted by Yosemite View Post
I have a problem with the thinking that the banks are the only ones to blame. Yes, they are in the business to make money but some of the onus needs to be on the person borrowing the money. I, for example, am a logical, thinking, educated adult. I know how much money I make and how much of that money I actually take home. Knowing that, I surely also know that I cannot afford an $800,000.00 home nor could I afford a Mercedes Benz or Ferrari. Surely I would also be responsible if I were to take out a loan that is far more than I can afford. A house and car are probably the most expensive items we buy in our lives. It doesn't take a genius or rocket scientist to know that someone making $40,000 per year cannot afford a $400,000, or expecially an $800,000 home. We, as consumers, need to be more realistic in what we buy - need versus want especially. If I overspend, I honestly don't think I have the right to blame anyone but myself. And, having said that, it is up to me to get myself out of the hole I dug myself into. Should the banks have loaned money to those people? No. But I don't think the bank went and searched these people out and offered to lend them money to buy that house either. There is such a thing as sound mind and free will.
That's true, but while the actions of an individual can lead to consequences for that individual only, like having to face foreclosure, which is their problem and I have no sympathy for them... The action of the banks however, have consequences on the entire economy. We expect banks to be more responsible, while I can understand how some people can be irresponsible, I see stupidity every day in the streets and it doesn't surprise me these people were trying to get things they couldn't afford...Now everyone has to suffer, even the ones who didn't make stupid mistakes to get huge amount of loans..
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post #15 of 31
2/24/09 at 9:10am
Quote:
Originally Posted by ut0pia View Post
That's true, but while the actions of an individual can lead to consequences for that individual only, like having to face foreclosure, which is their problem and I have no sympathy for them... The action of the banks however, have consequences on the entire economy. We expect banks to be more responsible, while I can understand how some people can be irresponsible, I see stupidity every day in the streets and it doesn't surprise me these people were trying to get things they couldn't afford...Now everyone has to suffer, even the ones who didn't make stupid mistakes to get huge amount of loans..
I cannot disagree with that thinking. It's the old case of the few that spoil things for all the rest.
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post #16 of 31
2/24/09 at 9:30am
First, not everyone who is in troouble with their mortgage is going to get help. Only those that can afford their home under more favorable terms.

http://www.latimes.com/news/printedi...,3812685.story

Quote:
One part would allow borrowers whose homes have lost value to refinance their mortgages at today's relatively low interest rates, even if the homeowner has little or no home equity left. To be eligible, borrowers must live in their homes and have a loan that is owned or guaranteed by Fannie Mae or Freddie Mac.
The borrower would have to be able to make the payments at a new, lower interest rate.

Quote:
The second part of the plan is a loan modification program designed to keep troubled homeowners out of foreclosure and to keep "at risk" borrowers from defaulting in the first place. It would accomplish that by offering new incentives to lenders and mortgage servicers to modify loans.

If the lender agrees to reduce the monthly payment to 38% of a borrower's monthly income, the government will pay half of the additional cost of lowering the payment to 31% of the borrower's income.

Furthermore, the plan doesn't require lenders participating in the loan modification plan to reduce the principal of mortgages on houses that have lost value. The modifications will lower monthly payments, but the homeowner's outstanding debt will probably not change.
So 38% of the borrowers monthly income would have to cover the interest and principal payments on the original loan amount. Some people in mortgage trouble won't have monthly incomes that will meet this,

Quote:
Originally Posted by PookieBoy View Post
I mean, come ON, banks and mortgage companies are in the business to MAKE money, NOT to get loans for people who are obviously going to default on them!
What happened in a lot of cases was the lenders didn't need to care whether or not the borrower could repay the money. Soon after making the loan they could sell it and others in mortgage backed securities to investors and the problem of whether the loan could be repaid was no longer theirs. The lenders made their profit off of loan origination fees. And there wasn't complete transparency with regards to how many high risk mortgages those securities contained.

I refinanced my house several years ago and within a couple of weeks my mortgage was sold to a different lender.
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post #17 of 31
2/24/09 at 9:51am
Quote:
Originally Posted by mschauer View Post
What happened in a lot of cases was the lenders didn't need to care whether or not the borrower could repay the money. Soon after making the loan they could sell it and others in mortgage backed securities to investors and the problem of whether the loan could be repaid was no longer theirs. The lenders made their profit off of loan origination fees. And there wasn't complete transparency with regards to how many high risk mortgages those securities contained.

I refinanced my house several years ago and within a couple of weeks my mortgage was sold to a different lender.
And you may find that a lot of those mortgages were sold to investors overseas (in Europe and Asia).

So technically, the American Banks do not even have the rights to repossess the houses since they don't hold the mortgages on them in the first place. Might be worth pursuing in court!
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post #18 of 31
2/24/09 at 10:35am
Quote:
Originally Posted by Yosemite View Post
And you may find that a lot of those mortgages were sold to investors overseas (in Europe and Asia).

So technically, the American Banks do not even have the rights to repossess the houses since they don't hold the mortgages on them in the first place. Might be worth pursuing in court!
They had a real estate lawyer on Glenn Beck on Fox News saying just that. Simply asking them to produce the actual mortgage, and when they can't because they've sold it off into little pieces to get their money, it at least stalls the whole procedure.
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post #19 of 31
2/24/09 at 10:52am
Quote:
Originally Posted by neetanddave View Post
They had a real estate lawyer on Glenn Beck on Fox News saying just that. Simply asking them to produce the actual mortgage, and when they can't because they've sold it off into little pieces to get their money, it at least stalls the whole procedure.
Exactly! It should do more than stall the procedure - it should halt it. Those banks do not hold those mortgages so they have no rights to the property. The only ones that should be able to take those houses are the companies overseas that are holding those mortgages. The American banks have already been paid for those mortgages by the overseas investors so if they get to take back the house for resale, then essentially they are being paid twice for the same property and stiffing the real holders of the mortgages. A good gig if you can get it!
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post #20 of 31
2/24/09 at 12:50pm
Quote:
Originally Posted by Yosemite View Post
And you may find that a lot of those mortgages were sold to investors overseas (in Europe and Asia).

So technically, the American Banks do not even have the rights to repossess the houses since they don't hold the mortgages on them in the first place. Might be worth pursuing in court!
At a practical level, I'm not sure I understand your point. A home owner always has the option of refinancing their mortgage and a mortgage holder has always been able to foreclose on a home if need be. The inclusion of the mortgage in a mortgage backed security doesn't affect this process. It does affect the cash flow of the MBS. But as far as managment of the mortgage goes, it is irrelevant. Not that I know a lot about MBS but I don't see how any of this will affect the governments plan.

Am I missing something?
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post #21 of 31
2/24/09 at 12:59pm
Quote:
Originally Posted by mschauer View Post
At a practical level, I'm not sure I understand your point. A home owner always has the option of refinancing their mortgage and a mortgage holder has always been able to foreclose on a home if need be. The inclusion of the mortgage in a mortgage backed security doesn't affect this process. It does affect the cash flow of the MBS. But as far as managment of the mortgage goes, it is irrelevant. Not that I know a lot about MBS but I don't see how any of this will affect the governments plan.

Am I missing something?
What I am saying is that the local bank where the home owner obtained their mortgage is no longer the mortgage holder and therefore should not be able to foreclose on something they do not now own. The overseas investor holds the mortgage and has already paid the local bank for that mortgage, i.e., the local bank already received the total mortgage value from the overseas investor so why does the government need to bail out the local bank? That would be akin to me buying a new Mercedes, the dealership selling my contract to a third party who now holds my sales contract and then the government coming along and giving my Mercedes dealership more money for my Mercedes. The dealership would be getting paid twice for the same car and the third party holding my contract is getting nothing.
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post #22 of 31
2/24/09 at 1:16pm
Quote:
Originally Posted by Yosemite View Post
What I am saying is that the local bank where the home owner obtained their mortgage is no longer the mortgage holder and therefore should not be able to foreclose on something they do not now own. The overseas investor holds the mortgage and has already paid the local bank for that mortgage, i.e., the local bank already received the total mortgage value from the overseas investor so why does the government need to bail out the local bank? That would be akin to me buying a new Mercedes, the dealership selling my contract to a third party who now holds my sales contract and then the government coming along and giving my Mercedes dealership more money for my Mercedes. The dealership would be getting paid twice for the same car and the third party holding my contract is getting nothing.
I don't think we are talking about the same thing. I was referring to Mortgage Backed Securities (MBS). Investors in those securites don't own the mortgages. The value of the securites is dependent on the cash flow generated by the mortgages. If a bank forecloses on a property, that mortgage ceases to generate cash flow for the security and the value of the security declines. Same as when a homeowner repays a mortgage early, the repaid mortgage doesn't generate as much cash flow as anticipated and the value of the security declines.

The management of the mortgages that make up an MBS is independent of the investors in the MBS.

That's my understanding anyway...
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post #23 of 31
2/24/09 at 3:47pm
Quote:
Originally Posted by Yosemite View Post
Exactly! It should do more than stall the procedure - it should halt it. Those banks do not hold those mortgages so they have no rights to the property. The only ones that should be able to take those houses are the companies overseas that are holding those mortgages. The American banks have already been paid for those mortgages by the overseas investors so if they get to take back the house for resale, then essentially they are being paid twice for the same property and stiffing the real holders of the mortgages. A good gig if you can get it!
Well, that depends. I'm sure the investors overseas did this for a profit and not out of the goodness of their heart, so SOMEONE has to pay up. Either the banks have to pay them back with interest, or the owner has to give up their home. This doesn't end the problem, it just brings more people into it.
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post #24 of 31
2/24/09 at 4:18pm
Quote:
Originally Posted by mschauer View Post
I don't think we are talking about the same thing. I was referring to Mortgage Backed Securities (MBS). Investors in those securites don't own the mortgages. The value of the securites is dependent on the cash flow generated by the mortgages. If a bank forecloses on a property, that mortgage ceases to generate cash flow for the security and the value of the security declines. Same as when a homeowner repays a mortgage early, the repaid mortgage doesn't generate as much cash flow as anticipated and the value of the security declines.

The management of the mortgages that make up an MBS is independent of the investors in the MBS.

That's my understanding anyway...
Well you brought in the MBS issue in response to my post. So if we aren't talking about the same thing then you changed the subject.

I'm talking in very simple terms (layman terms if you will) of what exactly happens to mortgages. The banks sell those mortgages so technically they do not own those mortgages anymore but they are still collecting on them which is not exactly kosher. I wish I could loan out money to someone, sell their contract to a third party and then collect more money from my government. Like I said, it's a great gig if you cfan get it.
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post #25 of 31
2/24/09 at 4:20pm
Quote:
Originally Posted by calico2222 View Post
Well, that depends. I'm sure the investors overseas did this for a profit and not out of the goodness of their heart, so SOMEONE has to pay up. Either the banks have to pay them back with interest, or the owner has to give up their home. This doesn't end the problem, it just brings more people into it.
Of course they did - that's a no-brainer - business is business. But does that mean they have no rights to collecting on the debt and that the institution they paid for the mortgage should get double payment and they should get nothing?

If those investors decide to collect you may see more problems in the US economy than you can imagine.
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post #26 of 31
2/24/09 at 4:45pm
Quote:
Originally Posted by Yosemite View Post
Of course they did - that's a no-brainer - business is business. But does that mean they have no rights to collecting on the debt and that the institution they paid for the mortgage should get double payment and they should get nothing?

If those investors decide to collect you may see more problems in the US economy than you can imagine.
Oh those investors are going to collect, I can almost guarantee you that. I think we are agreeing, just coming at it from two different sides.

Basically, the investors are going to demand payment for the mortgages they took over, the bank is going to have to fork over money paid by the US government to bail them out, and they probably won't have enough because of the interest based on the US dollar vs Europe/Asia currency (not to mention what they already spent on their own), and the banks will be basically up the creek without a paddle again. So, will that mean that they suffer, or more of the rest of the world will own property in the US?
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post #27 of 31
2/24/09 at 7:31pm
Thread Starter 
http://www.foxbusiness.com/video-sea...re-victims.htm

Oh good grief.
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post #28 of 31
2/24/09 at 8:03pm
I don't get it. If these people who are facing foreclosure got a larger mortgage than they can afford, why dont' they just move into a more affordable place and leave the foreclosed home to the bank?? Why make such a huge fuss about it? Just leave the house you didn't deserve in the first place and move into a trailer park..
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post #29 of 31
2/25/09 at 4:29am
Quote:
Originally Posted by ut0pia View Post
I don't get it. If these people who are facing foreclosure got a larger mortgage than they can afford, why dont' they just move into a more affordable place and leave the foreclosed home to the bank?? Why make such a huge fuss about it? Just leave the house you didn't deserve in the first place and move into a trailer park..

But, why on earth would they if someone is going to come along and bail them out? They probably believe (like milliions of others) that they deserve and should have that big house they can't afford. It's their right!

Seriously, I agree with you. As my dad told us when we were growing up, you make your bed you lay in it. They got themselves into this mess now they should get themselves out of it without any financial help whatsoever. Even an idiot like me knows I can't afford a $400,000 house on my salary so there's no excuse for them IMO.
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post #30 of 31
2/25/09 at 5:24am
Quote:
Originally Posted by Yosemite View Post
I'm talking in very simple terms (layman terms if you will) of what exactly happens to mortgages. The banks sell those mortgages so technically they do not own those mortgages anymore but they are still collecting on them which is not exactly kosher. I wish I could loan out money to someone, sell their contract to a third party and then collect more money from my government. Like I said, it's a great gig if you cfan get it.
Who "buys" a mortgage from someone but lets the original owner continue to collect the mortgage payments??? I've never heard of such a thing. Course there are lots of things I've never heard of. When my mortgage was sold I started sending my payments to the new mortgage holder, not the original one.

Who are these investors you are referring to?
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