461,000 May Foreclosures
July 3, 2008 by Tracee Sioux
Filed under Parenting
Evidently, there were 461,000 foreclosures in the month of May.
CNN is complaining that Congress went on vacation for July 4th weekend (when they need to look patriotic wearing their lapel pin at the fireworks show at home to be reelected).
The thing is - those people couldn’t afford those homes. They couldn’t afford them when they got them and they can’t afford them now.
Essentially here’s what happened:
On the bank’s side they changed one crucial rule. They USED to care whether the borrower could pay loans back. This gave the borrower a level of security, “If the bank feels secure about my ability to pay them back then I’ll probably be able to do it.”
Lenders stopped caring. In fact, they KNEW the borrower couldn’t pay it back. And they intentionally approved millions of loans knowing the borrower didn’t make enough money to pay them back.
They unloaded those bad loans, which the knew were bad, to other lenders and investors as soon as they got their commission checks and their quota bonuses.
On the borrower side, people didn’t get the memo that the rules had changed, seemingly overnight. They didn’t understand their loans.
They believed key people - the realtor and the mortgage lender - when their loans were explained to them. They were naive and trusting and financially uneducated.
They bought houses they didn’t think they could afford. But, houses they wanted to be able to afford. So, when the realtor and mortgage broker and banker, who were motivated by their own commission checks, said, “Sure you can afford a $500,000 loan on a graphic designer and nurse salary, you can just refinance the loan in two years,” the borrowers allowed themselves to be seduced.
The American Dream! They thought. Just what we’ve always wanted. Just what we’ve worked for.
This foreclosure crisis isn’t shocking. It’s not mysterious. It was preventable. It wasn’t inevitable. I’m no economist, and I knew this was coming. If you really think about it - so did you.
Think back, how many times did you see someone you know buy a home you knew they shouldn’t be able to afford.
You did the mental math and said to your spouse on the way home after a social occasion … Let’s see, they have two new car payments and a $250,000 house and all their furniture is new. How is that possible? Doesn’t he work in your department?
The truth is they couldn’t.
The fact that those banks gave them loans knowing they couldn’t pay them back is fraud. The government should never have bailed those banks out. That’s the Free Market isn’t it? Those banks took a crap in their own food bowl and that’s stupid. It’s suicidal, unless of course, you know the government will bail you out.
They should have let them sink. Look around, does it look like bailing banks out “saved the economy.” No. It’s too late. Too many people owe too much money they can’t afford to pay back. The economy is going to do what it’s going to do at this point and the government shouldn’t be bailing out the big businesses who caused this problem without foresight.
Some people think the government should offer the borrower, about to be foreclosed on, a new loan with a fixed interest rate.
We have that. It’s called an FHA loan and I got one. If you’re about to be foreclosed on, you should apply for an FHA loan ASAP.
If you don’t qualify for an FHA loan, it’s probably because you bought more house than you can afford.
There is no way the government should take on the bad debt that banks are currently holding, to keep people in homes they couldn’t afford in the first place.
Here’s the thing- this is an opportunity to become a more sophisticated consumer.
We’ve been bankrupt, my husband and I. Mostly we were just plain uneducated about how money works - didn’t really understand interest rates, didn’t really understand budgeting and minimum payments and saving. We made a lot of stupid mistakes. A lot. And it cost us. Everything.
But, here’s the good news. We figured it out and in December we bought a great house. We took our knocks, we paid off our debt, we changed our money habits. Most important of anything we did - we changed our THINKING about money. We EDUCATED ourselves about it.
We have climbed out of our bankruptcy in 4 long/short years. They felt like a long living hell. But, the fact is that in the United States of America few failures are permanent. You can climb out of a bankruptcy in 4 short years. If you live 80 years and you spend 4 of them climbing out of financial hell, it’s not the end of the world. Really.
Next time those foreclosed families hopefully, will be very, very careful to take a loan they can afford and understand the terms of their loans.
If we bail out all those people, it’s like feeding the nasty habit of people living beyond their means (defining who they are by what they have). The same people holding the bad mortgage, in many cases, also took a loan on two new SUVs they drove off the lot and financed the furniture and have $10,000 credit card debt.
All lenders stopped caring whether their borrowers could pay them back over that last 5-10 years. Credit card companies and finance companies are equally to blame for our bad economy.
Taxpayers defeat ourselves if we bail them out. Tax payers will be holding bad mortgages, a debt to pay off.
Leave the banks who created the problem holding the bad mortgages.
Consumers need better, more sophisticated defenses now.
Here’s what people should learn from this, and I believe this is new and different and very, very important for consumers to get - big business will crap it its own food bowl for short-term profit . The rest of us will pay the long-term price.
Take a Dave Ramsey class to learn how money works and how to climb out of your foreclosure.
Personally, I’m relieved home prices are coming back down. On what planet is an ordinary two bedroom home worth half a million dollars? What family CAN afford that? I don’t care what neighborhood it’s in. That’s crazy! Good riddance to that market, maybe I’ll be able to upgrade eventually.
Photo Source: Empowering Girls: So Sioux Me (This is our house, which we bought with an FHA Loan - which we could afford after Dave Ramsey’s class and 4 years climbing out of our financial pit.)
More on our Financial Struggles - it might help you find your way out.
I Saw Satan on TV (and he’s a little dork)
Orman and Ramsey Duke It OUt (in my head)
Soccer Mom Transformation Complete
I’m with you on this one. The mess was caused by both parties. This should be a big wake-up call to people trying to chase the Jones’. Mr. and Mrs. Jones’ house just went back to the bank, they’re sharing a fancy SUV now and they had to go bankrupt on credit card debt. Too many people are not taking the time to understand their debts.
I too am thankful that housing prices are going back down. I am among those that didn’t have a pot to piss in before all this and so we have pretty much not been effected. Maybe now that the bubble has burst we can afford a 2 bedroom in the next few years.
It seems completely asinine for the government to step in and fix this. It is the equivalent of the parent who steps in and pays off all their irresponsible child’s credit cards. We all know you never learn if someone will clean your mess up for you.
If you are so dumb that you can’t figure out how much of a mortgage you can afford, you probably need a good smack in the face, not a bail out.
To be fair - I don’t think borrowers were necessarily “so dumb.” I recently took out a mortgage and the process is so full of red tape, legal jargon, fees up the ying yang, technical financial terms, that it was about 100 pages long.
I literally spend 6 months researching mortgages and understanding how not to screw it up. I spent HOURS in my mortgage brokers office and HOURS more online looking up his answers and how payments are calculated.
If you take the average person and they don’t have any financial background it’s not surprising to me that they got bamboozled on their loans. For one thing, they didn’t understand that the mortgage lender didn’t care if they couldn’t make the payments.
I’m sympathetic to how the average person would not understand the different types of mortgages and loans.
That said, the only solution is that they have to become more educated about it.
To me it’s asinine that they only stepped in to bail out one child and left the other to learn the hard way.
Okay, my comment was harsh. I do have sympathy for anyone losing their dream, and I agree that predatory lenders are awful.
I have a friend who got an adjustable rate mortgage and the loan officers really misrepresented what that meant to get the sale (although the truth was in the contract if she had read it).
But that’s part of the lesson - you have to research and read and do leg work and be your own advocate before you enter into the biggest loan of your life.
I’ve been in the bankruptcy place myself before, and it sucked, but I dealt with it. If there was an easy way out, I never would have learned my lesson. That lesson is why I don’t own a house - I can’t afford it right now, and thanks to my prior misfortunes, I know that.
Big Business - all those lenders - is no child.
They are full grown adults with lots of power and no moral compass. They completely understand what they did. They intentionally did it. And they funnel a lot of money into the government - OUR government - so we will let them keep doing it.
I’m telling you - read about Andrew Kahr - the evil genius many say are behind this shift where he realized lenders can make more money if people DON’T pay than if they do and how he intentionally manipulated those least ABLE to pay with the least knowledge about finances: http://traceesioux.blogspot.com/2007/01/i-saw-satan-on-tv-and-hes-little-dork.html
I did this, only with a car, not a house. It was repossessed. I knew I couldn’t afford it. I told the dealer I couldn’t afford it. I even called the bank where I got the loan and asked them to not let the loan go thru so I would have to take it back. She said okay and then put it thru. I allowed myself to be pressured into it and kept it for about a year, then it was repossessed. Which was one of the happiest days of my life. No more laying awake at night wondering how I’m going to pay the monthly payment plus all the months I’m behind.
Now I use public transportation and a bike and I walk and I’m just fine.