4 ms·

The quoted lines do not state that the mortgage became exorbitant because the value of the price dropped -- you're reading that into it. On the other hand, a l

The quoted lines do not state that the mortgage became exorbitant because the value of the price dropped -- you're reading that into it. On the other hand, a lot of people bought houses on 3-5 year fixed interest mortgages during the housing bubble, on the grounds they expected to be able to resell or refinance when the fixed interest rate expired and the mortgage suddenly got a lot more expensive and -- because their properties were now underwater -- they could not sell or refinance. Back in the days when people just paid their mortgages, real estate was seen as a safe but boring investment, and interest rates were at 5-6% (2-3% above inflation). It's a bit rich when a mortgage lender lends money to a high risk customer and takes out insurance on their defaulting or the property losing value (PMI) and charges the customer for that insurance and then gets annoyed if the customer walks away from the wreckage.

bko 12y ago
The mortgage was 240k. Even with 0% down payment, a 3.92% rate would result in mortgage payments of ~$1,100 a month. The couple was making 120k a year combined. I think this is more than reasonable. I couldn't understand the gut negative reaction I had to this story. I understand why these programs exist and am not necessarily opposed to them. But I feel that people (within their means) should structure their financial affairs to not have to rely on these programs and not use them unless they have to. Unemployment for college educated workers barely crossed 5% at its worst so the two should not have been unemployed for years.[0] I would be hard pressed to accept food stamps even if I qualified but I would likely accept unemployment insurance. In that sense, it's funny that food stamps are faux pas, unemployment insurance is acceptable and tax minimization is applauded. Even knowing that, I can't help but hold those same biases though. [0] http://www.economicpopulist.org/content/what-happens-when-president-outsources-job-creation-multinational-corporate-executives http://www.economicpopulist.org/content/what-happens-when-pr...
- Tloewald 12y ago
  You're assuming the mortgage was for $240k (e.g. they may have paid $240k then pulled out equity on an inflated valuation -- a lot of people did this, although it was a silly thing to do) and that the interest rate was _very_ low (interest rates on 5/1 ARM loans pre-bubble were fixed at 5-6% and suddenly went up to 7-8% when the fixed period expired. If they paid 0% down then they may also have been paying PMI of around 1% on the loan (high risk borrowers effectively get punished twice on interest rates).
  - woobar 12y ago
    I am not sure where you get the rates for ARM loans that suddenly went up. Most ARM loans define the rate after fixed period as "An Index" + "Margin"(2%-3%). The rates for pre-bubble 5/1 ARM mortgages after five years of fixed APR either remained the same or went down. Just look at the LIBOR Index (most popular index for ARM mortgages) in 2008 and 2013. Jan 2008 - 4.18750% Jan 2013 - 0.84250%
    - Tloewald 12y ago
      Where do I get these rates? Personal experience. I bought a house in 2006 and already had a house purchased in 2004. Also your figures seem wrong to me: http://www.hsh.com/natmo2007.html http://www.hsh.com/natmo2007.html -- in 2007 a 1 year ARM was over 6% for most of the year, longer ARM loans would have been higher. Most people in 2008 didn't have loans taken out in 2008, but more likely in 2004-2006 when the market was hot and rates were higher. Incidentally, while the real interest LIBOR rates right now are close to zero, actual mortgage rates are considerably higher, especially on 30y fixed (we got a 15y fixed mortgage because with the difference in interest rates our mortgage payment was only about 40% higher than the 30y option).
      - woobar 12y ago
        Ok, so in your personal experience, what was the "margin" portion of the adjustable rate mortgage that you had? My numbers look wrong to you because you are comparing them to your APR. You shouldn't. As I've mentioned before APR = Index + Margin. If index goes down, and margin is fixed, what happens to the APR? You are correct, most people did not get their mortgages in 2008. But the family we are discussing here did. And for anyone with 5/1 ARM taken out in 2004-2008 the rate would have gone down after the fixed period.
FireBeyond 12y ago
Right, so they got a much better deal than they usually would, didn't factor in a contingency, took a bet... and lost.

bko 12y ago

The mortgage was 240k. Even with 0% down payment, a 3.92% rate would result in mortgage payments of ~$1,100 a month. The couple was making 120k a year combined. I think this is more than reasonable. I couldn't understand the gut negative reaction I had to this story. I understand why these programs exist and am not necessarily opposed to them. But I feel that people (within their means) should structure their financial affairs to not have to rely on these programs and not use them unless they have to. Unemployment for college educated workers barely crossed 5% at its worst so the two should not have been unemployed for years.[0] I would be hard pressed to accept food stamps even if I qualified but I would likely accept unemployment insurance. In that sense, it's funny that food stamps are faux pas, unemployment insurance is acceptable and tax minimization is applauded. Even knowing that, I can't help but hold those same biases though. [0] http://www.economicpopulist.org/content/what-happens-when-president-outsources-job-creation-multinational-corporate-executives http://www.economicpopulist.org/content/what-happens-when-pr...

Tloewald 12y ago
You're assuming the mortgage was for $240k (e.g. they may have paid $240k then pulled out equity on an inflated valuation -- a lot of people did this, although it was a silly thing to do) and that the interest rate was _very_ low (interest rates on 5/1 ARM loans pre-bubble were fixed at 5-6% and suddenly went up to 7-8% when the fixed period expired. If they paid 0% down then they may also have been paying PMI of around 1% on the loan (high risk borrowers effectively get punished twice on interest rates).
- woobar 12y ago
  I am not sure where you get the rates for ARM loans that suddenly went up. Most ARM loans define the rate after fixed period as "An Index" + "Margin"(2%-3%). The rates for pre-bubble 5/1 ARM mortgages after five years of fixed APR either remained the same or went down. Just look at the LIBOR Index (most popular index for ARM mortgages) in 2008 and 2013. Jan 2008 - 4.18750% Jan 2013 - 0.84250%
  - Tloewald 12y ago
    Where do I get these rates? Personal experience. I bought a house in 2006 and already had a house purchased in 2004. Also your figures seem wrong to me: http://www.hsh.com/natmo2007.html http://www.hsh.com/natmo2007.html -- in 2007 a 1 year ARM was over 6% for most of the year, longer ARM loans would have been higher. Most people in 2008 didn't have loans taken out in 2008, but more likely in 2004-2006 when the market was hot and rates were higher. Incidentally, while the real interest LIBOR rates right now are close to zero, actual mortgage rates are considerably higher, especially on 30y fixed (we got a 15y fixed mortgage because with the difference in interest rates our mortgage payment was only about 40% higher than the 30y option).
    - woobar 12y ago
      Ok, so in your personal experience, what was the "margin" portion of the adjustable rate mortgage that you had? My numbers look wrong to you because you are comparing them to your APR. You shouldn't. As I've mentioned before APR = Index + Margin. If index goes down, and margin is fixed, what happens to the APR? You are correct, most people did not get their mortgages in 2008. But the family we are discussing here did. And for anyone with 5/1 ARM taken out in 2004-2008 the rate would have gone down after the fixed period.

FireBeyond 12y ago

Right, so they got a much better deal than they usually would, didn't factor in a contingency, took a bet... and lost.