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vitaly s asked:
I can only think of gas and food prices going up which makes it harder to pay rent but that can’t be the only reason. What is the simple answer?
I can only think of gas and food prices going up which makes it harder to pay rent but that can’t be the only reason. What is the simple answer?
Tags: Food Prices, Gas And Food, Reason, Simple Answer
January 24th, 2008 |
Tags: Food Prices, Gas And Food, Reason, Simple Answer
January 24th, 2008 at 6:40 pm
Try watching CNN at least once a month.
People with practically no income were borrowing 100% equity, carrying balances on credit cards, and financing vacations and furniture.
Like I heard a news reporter say, “people that should have been living in public housing were buying homes”.
January 27th, 2008 at 1:00 am
The simple answer is the same answer that got banks and investment firms in trouble - poorly thought out mortgages.
Back when housing prices were rising continuously, people thought it would continue indefinitely. People also thought the economic expansion would continue. So, since buying a house is the American dream, everyone wanted a house. However, many people either couldn’t afford a house, wanted a house bigger than they could afford, or were just plain bad risks. In a conservative lending environment, these folks would never have qualified for a mortgage.
However, banks and lenders saw a golden opportunity to make more money by lending to these people. In order to make the loans affordable, the lenders created new types of loans that catered to these folks and were based on future increases in housing prices and earnings. Usually, the way it worked was - person wants to buy house, but can’t afford normal 30-year mortgage. Bank says - don’t worry, here’s a 5/25 ARM with a low interest-only payment. In 4 years, when you are making more money and your house has appreciated, just refinance into a 30-year fixed (before the ARM interest adjustment kicks in). The banks were able to sell these loans to the underwriters because of the large interest rate increases built into the loans. Underwriters don’t build in what-ifs (what-if the loan is refinanced, for example). Since the low, interest only loan was affordable, the underwriters said it was okay to make the loan.
Fast forward 4 years. The economy has stagnated, the folks aren’t getting the raises they expected and the housing market has actually gone into a slump with decreasing prices (iistead of the increase they were banking on). SO, now, all these people with the ARM coming up go to refinance before the payment hike comes into play and they can’t. Since they had interest-only or low-principle payment loans, they have paid very little of the loan’s principle. And when they get appraised, the house value comes in below the balance owed. Well, no bank will lend above the appraisal value of the home, so the folks can’t get refinanced and they have to keep the original loan. Now the new payment kicks in and they find that instead of paying $1800 a month, they are paying $2800 a month. This they really can’t afford. Since they are “upside-down” on the loan (owe more than the house is worth) they can’t sell the house to get out from under, so the last thing left is foreclsoure or bankruptcy.
January 27th, 2008 at 7:30 am
About 10 years ago (or maybe even more) President Clinton and the Congress started posturing and claiming that banks were ‘Redlining’ minority neighborhoods and practicing racial discrimination. As a result there was great pressure on the banking industry to come up with new and inventive ways for poorer (and thus more minorities) folks to get mortgages. This led to an explosion in subprime lending to people who when the balloon payments came due or when the housing market dropped were unable to either sell their houses or keep up the payments.
So the short answer is that the politicians decided to get involved in the market and screwed it up like they usually do…
January 27th, 2008 at 5:12 pm
This has been happening for the past 2 yrs - nothing new - peope got adjustable rate and interest only mortgages and now the adjustable part is changing to fixed at a higher rate and their monthly payments are going up by $100’s per month and they can’t afford it - they never should have gotten the houses in the first place - the stupid mortgage companies make it too easy to get a mortgage and now everyone is affected