So much for the 99%

[retro]

Buffett says that homeowners took advantage of banks <--- that's a link

:24:

Oh man, that's hilarious... the banks that have gotten rich off of taking advantage of the "little people" were victimized by those same people. The people that were forced to foreclose due to their home values tanking because those same banks failed. Those same banks that all of the taxpayers paid to bail out because they fucked up. But this is the same Buffett that blamed the banks for causing the housing bubble in the first place. Talk about some awesome circular reasoning.

 

[Joe the meek]

Can you please explain how the banks took advantage of people those people followed 3 simple rules?

1. If you can't put 20% down, you can't afford it
2. Do not get a variable rate loan
3. Know your market and what your house is worth in a comparable market, and don't turn a blind eye just because someone is giving you money

I'm sincerely curious and dumb in this matter, so any information you could provide would be greatly appreciated.

Thanks!

 

[Accountable]

I've shopped for houses in only two markets: Las Vegas in 2003 when the market was two years from peak & collapse, and San Antonio every year or so since we moved here in '05. When we walk in ready to put 20% down and have outstanding credit, the salespeople actually look at us like we are some kind of museum piece - an artifact they read about in books but never dreamed they'd actually see in real life. One salesperson actually told us that we have the best credit of anybody that has purchased in the community. (We immediately pulled out of the deal.)

The housing situation was not due to one side taking advantage of the other. This was a consensual symbiotic clusterfuck. Everybody signed because either they thought they were getting the better end of the deal or thought that they could get out before it went south.

 

[Joe the meek]

The housing situation was not due to one side taking advantage of the other. This was a consensual symbiotic clusterfuck. Everybody signed because either they thought they were getting the better end of the deal or thought that they could get out before it went south.

My feeling as well, although I'm not smart enough to figure everything out.

I do laugh when I watch house hunters on HGTV (one channel my wife got me to start watching) and someone is buying a 200k home and they're putting 5 or 10 grand down.

What I did find funny is I didn't look for my first house until after I got married pushing 40. My federal credit union to my surprise, was willing to give me WAY more than I thought I'd qualify for per a loan at a decent rate. However, we were looking for some land with the house and the first house we looked at came with a kennel business along with 16 acres, which we were seriously thinking about buying. What I found surprising was that the credit union didn't want to loan money out on land, and it did become a issue. We found another place where we ended up buying with more land, but we had to go to the farm credit union for a loan on the land because the bank didn't want to give a loan out on the land. Again, I'm not a smart guy, but land in a decent area IMO is worth far more than a house.

Funny enough, we bought our place about 7 years ago, and although you can still find a good home at a decent price, land pricing has almost doubled or tripled in pricing, depending on how much you want to buy.

 

[retro]

Can you please explain how the banks took advantage of people those people followed 3 simple rules?

1. If you can't put 20% down, you can't afford it
2. Do not get a variable rate loan
3. Know your market and what your house is worth in a comparable market, and don't turn a blind eye just because someone is giving you money

I'm sincerely curious and dumb in this matter, so any information you could provide would be greatly appreciated.

Thanks!

#1 simply isn't true... I put 5% down on my first house and it was less expensive than my rent at the time.

That being said, my comment about the banks taking advantage of people was in response to Buffett supposedly supporting the 99%, and now attacking those same people for tanking advantage of the very institutions that the 99% was forced to bail out. The same organizations that Buffett himself owns large stakes in.

 

[Accountable]

#1 simply isn't true... I put 5% down on my first house and it was less expensive than my rent at the time.

Don't forget to figure in property tax, maintenance (hopefully you saved a sizeable emergency fund as well), insurance, association dues (if you have any), etc etc.
Lots more expenses in home ownership than in renting, and you're responsible for every dime.

 

[Joe the meek]

#1 simply isn't true... I put 5% down on my first house and it was less expensive than my rent at the time.

And exactly how much interest would you end up paying extra? I'm no accountant, but just because you mortgage payment was less then your rent payment is kind of like saying there is too much sugar in your coffee when you're talking about math. Really doesn't mean anything.

The thing about credit is that it's invisible to most people, and if they can get the loan, come heck or high water, they don't care how much they have to pay extra, just so they can get it.

Why do you think variable rates were so popular? Because people only saw their initial loan payment, looked at what they're current expenses were, and said, "heck, I can afford what I want to buy with that kind of payment" without EVER realizing that $1000 a month payment could skyrocket and throw their finances in a tizzy, AND then people started to complain that they were taken advantage of.

Tell someone that they can pay $100 a month for 3 years for a $2,200 T.V, and they'll be all over it if they don't have that $2,200 in the bank to begin with, and don't care that they're paying over $450 a year for three years to play with someone else's money because they can afford that $450 a year.

Now, give me a 12 month same as cash with a competitive buy price, and I'm all over that, BUT you better realize that the bank is hoping your going to miss a payment because then they can compound the interest and nail you.

My point is people rarely realize what they can save by paying on the principal up front, and would rather pay out their butt over a longer period of time to keep their payments low so they can have what they want because they can "afford it".

Heck, 200 years from now it may not be money we're dealing with, but "credits".

 

[retro]

And exactly how much interest would you end up paying extra? I'm no accountant, but just because you mortgage payment was less then your rent payment is kind of like saying there is too much sugar in your coffee when you're talking about math. Really doesn't mean anything.

Illustration fail.

Hell, putting the 5% down on that house with the market low turned out to equal a slightly used 4Runner and $25k down on my next house when I sold that one for double what I paid two years later. That being said, I had a decently low fixed interest rate, and I'm factoring in my principal, interest, home owners insurance, PMI, and taxes all into my monthly figure. I was paying $800/mo in rent and my mortgage was $750/mo. I then put at least $25/mo as an extra payment on the principal every month. So I'd say that I could afford it, even with 5% down... that's the problem with generalizations, they don't hold true all the time, so it's best not to state them as facts.

People were taken advantage of when the banks were telling them that the interest rate on their variable loan could change, but then playing it off like it was a completely unlikely scenario. Were the buyers to blame? Absolutely. But the banks were partially to blame as well as far as I'm concerned... when you blatantly lie to someone (whether it be straight lie or a lie of omission) and tell them that something won't happen, or that the odds are astronomical... you're purposefully misleading someone. Hell, the government was to blame as well, because they're the ones that pushed the lenders to make home ownership available for everyone (thank you Clinton administration). When you combined all of those factors with a failing economy, it was a recipe for disaster. Banks profited off of pumping out as many mortgages as they could, even to people that they knew wouldn't be able to fulfill the terms of their mortgage.

Like I said... the borrowers were to blame for not doing their research and taking steps to be able to afford their mortgages... the lenders were to blame for giving out subprime loans.

 

[Accountable]

that's the problem with generalizations, they don't hold true all the time, so it's best not to state them as facts.

That's the problem with anecdotes, they only hold true once, so it's best not to use them to refute generalized statistical fact.

 

[Alien Allen]

Three lessons which will no doubt be forgotten


1. Buyers need to know what they are getting themselves into

2. Lenders need to give credit only to those who are credit worthy

3. The govt needs to get out of trying to dictate to lenders


Add all 3 and it is a total clusterfuck

If buyers had borrowed what they could truly afford there would have been no problem
If lenders would have lent only to those credit worthy there would have been no problem
If the govt had not coerced the lenders into lowering credit standards there would have been no problem

It was greed on a grand scale

Buyers wanted more than they could afford by taking variable loans
Lenders gave credit to those who were not good credit risks hoping things would stay as is and they would make money
The govt introduced laws because that is what they do. Pander to a given group so they get money for elections

 

[Mercury]

It was greed on a grand scale

Excellent post. It is easy for people to point fingers to one group than it is to look at the situation as a whole. I admit that my knee-jerk reaction was to curse the banks for their greed ... but ... the reality is that people have to be wise to their own decisions. Sadly I think you are correct ... the lessons here will most likely be forgotten.

 

[BornReady]

That's the problem with anecdotes, they only hold true once, so it's best not to use them to refute generalized statistical fact.

Maybe I'm missing something but I don't see the connection between how much you put down and whether you can afford the house. It seems to me if you can make your monthly payments then you can afford the house. Although it may be a good idea for banks to require 20% down. So they can get their money back if the person can't afford the house.

 

[Accountable]

Maybe I'm missing something but I don't see the connection between how much you put down and whether you can afford the house. It seems to me if you can make your monthly payments then you can afford the house. Although it may be a good idea for banks to require 20% down. So they can get their money back if the person can't afford the house.

If you can make your monthly payments then you can afford the payments. That's all that means.
You mentioned yourself that you pay PMI. That's mortgage insurance you have to pay to the mortgage company because you're at risk of reneging on your mortgage payment, evidenced by the minimal sum you put down. How much is your PMI? Add up all the PMI you're going to end up paying. Now look at how much that 20% would have been. Unless I miss my mark, you're not only paying more in PMI than the 15% you "saved", that 15% would have been that much more equity in your home, rather than paying your insurance company's electricity bill.

 

[BornReady]

You mentioned yourself that you pay PMI.

Sorry. I jumped into the middle of your discussion with retro. I don't pay PMI.

 

[Accountable]

Oops. Okay, switch all the pronouns around & the point should still hold.

 

[retro]

If you can make your monthly payments then you can afford the payments. That's all that means.
You mentioned yourself that you pay PMI. That's mortgage insurance you have to pay to the mortgage company because you're at risk of reneging on your mortgage payment, evidenced by the minimal sum you put down. How much is your PMI? Add up all the PMI you're going to end up paying. Now look at how much that 20% would have been. Unless I miss my mark, you're not only paying more in PMI than the 15% you "saved", that 15% would have been that much more equity in your home, rather than paying your insurance company's electricity bill.

What you're not considering is the fact that I moved from living in a rental apartment to living in a house. Living in an apartment didn't do anything for me (just like it doesn't do anything for me now renting my current house), I paid to live in someone else's property. When I bought the house (or agreed to the mortgage, depending on how you want to view it), I was at least building equity in something... despite paying PMI and having a longer loan term. For the record, I refinanced less than a year later and got rid of the PMI because my home's value had risen so significantly in 9 months and interest rates had dropped. Buying that house when I did put me into a position to be able to afford my house in Texas and put a large chunk down on it, buy a car, etc., etc., etc.

But fuck, if y'all think it was an irresponsible decision, then I guess I fucked up.

 

[Accountable]

Yes, it was an irresponsible decision. I'm glad you got lucky. I hope you stay lucky. I got similarly lucky when I sold my house in North Las Vegas right before the housing bubble burst there. The value of my house had doubled in less than 3 years. That gave me so much equity that when I moved here to San Antonio I bought a house here outright. It's good to be lucky.

 

[Joe the meek]

Yes, it was an irresponsible decision. I'm glad you got lucky.

Nail on the head with luck. Problem is, there were a lot of people who bought just prior to the bubble bursting and they weren't so lucky.

I'm not a real smart guy, but I had to shake my head when working with some national home builders 8 years ago. They were putting up $130k homes on the market in less than 90 days after the slab was poured. I can assure you, they were built as cheap as possible, and the kicker was, first thing up on the "For Sale" sign was "NO MONEY DOWN!". Hmmm....no money down on a 100k plus home? Don't have to be a rocket scientist to know that something could go horribly wrong. But...people went for it, in droves.

Just bought a new TV for $500 at a box appliance store (not Best Buy, their customer service really peeved me off). I took their 12 month same as cash deal through GE (given the opportunity to play with someone else's money, I always will). I laughed really hard, they have a 29.99 finance rate. If those people think I'm that dumb to miss a payment, I almost feel like paying it off in full on the first payment and tell them to stick it up their butt and dash their hopes that I might miss a payment. Just got a credit card in the mail. Nice front cover with a guy and hot girl dressed in black leather standing in front of a helicopter wearing sun glasses. They want a $500 a year annual feel with some high finance rate, BUT they will give me all this "free" crap if I become a member. Kicker is, people fall for it.

 

[retro]

I'd really like to understand how deciding to put equity into property (regardless of how much or how little) rather than pay someone to live in their property is "irresponsible". However, buying more house than you could afford by taking out a second mortgage immediately to make a down payment... that was a bad idea. But there's a very big difference between what I did almost 9 years ago, and the variable rate bonanza that burst the housing bubble. Hell, I bought my house before the bubble ever even started.

 

[Accountable]

It's not the act, but the timing. Jumping before you're ready runs the risk of losing it all over a relatively small hitch in the plans, then you lose the house and don't have enough for a security deposit on an apartment. It's best if you have a job you can be relatively sure will be there for the next 10 years or so, save up a 20% down payment, plus have several months' pay in savings for emergencies. That way when shit happens, and it will, you'll have a big enough shovel to handle it.