The mortgage bomb looms

[Texsox]

While the money might be easy to get - which I don't believe from what I know - getting into the auction is not. Those interested must meet a set of qualifications to participate. There are registration materials and a collateral or a bond must be provided.

 

The money depends on your credit history and resources. Buying a home with a good downpayment, decent credit score, and work history is easy if you aren't stretching too far. If the bank loans you $175,000 on a $200,000 home, it is almost impossible for them to lose money on the mortgage. Remember, they keep the equity.

 

I agree on the auction route. IMHO those auctions are not for amatuers. Too easy to get caught up in the auction excitement and really over pay.

 

Best route is finding a good Real Estate Broker who will actually look out for your interests. They are out there.

[Steff]

The money depends on your credit history and resources. Buying a home with a good downpayment, decent credit score, and work history is easy if you aren't stretching too far. If the bank loans you $175,000 on a $200,000 home, it is almost impossible for them to lose money on the mortgage. Remember, they keep the equity.

 

 

 

No bank is giving anyone $5 without some type of collateral no matter what your credit history, job history, or credit score to take to an auction and maybe buy a house.

[Texsox]

No bank is giving anyone $5 without some type of collateral no matter what your credit history, job history, or credit score to take to an auction and maybe buy a house.

 

I should have been clearer, the $25,000 difference was the down payment. And I was thinking more along the lines of conventional purchase than auction.

 

At auctions, and I have known a couple people who have been in this line of work, the bidders I've known have lines of credit established, secured by other equity. You are correct, getting approved for an auction sale would be almost impossible without independent collateral.

[Steff]

I should have been clearer, the $25,000 difference was the down payment. And I was thinking more along the lines of conventional purchase than auction.

 

At auctions, and I have known a couple people who have been in this line of work, the bidders I've known have lines of credit established, secured by other equity. You are correct, getting approved for an auction sale would be almost impossible without independent collateral.

 

 

 

Thank you for the clear up

[Chisoxfn]

ANyone know of any good places to look for forclosures?

I'd be careful. Very rarely do you find anything other than pure filth or houses that aren't any good deal at foreclosure sales. Plus you got to really be up with things because the original owners (depending on state laws) usually have a good deal of ability and options to reclaim the home even after you think you have it.

 

Except they don't. And actually, I don't agree anyway. I learned that stuff from my parents because I needed to know. Great - I was fortunate. But secondary education is supposed to prepare kids for adult life. To me, finance is just as important as math or English or history. It should be included.

 

I am NOT saying we need to teach home maintenance or meal plans.

You have to remember that some parents aren't capable of teaching these sort of things because they may not know them themselves. I was lucky enough to have an old man that was shrewd in business and that was able to pass on some of that type of stuff, but other people aren't that lucky.

 

There parents may not have learned how to save or learned other concepts and because of that the kid will never know unless he talks to other people that are in the know. Where better than school to teach this.

[AbeFroman]

I actually think this could be the "Big Story" of 2007. There are going to be a lot of people in really really bad shape. The blame falls heavily on the banks and mortgage companies who write these rediculous mortgages. Something is wrong when a Bum can afford a 250,000 condo.

 

As for that lou dobbs comment, I always thought he was a conservative... I am wrong?

[NorthSideSox72]

I actually think this could be the "Big Story" of 2007. There are going to be a lot of people in really really bad shape. The blame falls heavily on the banks and mortgage companies who write these rediculous mortgages. Something is wrong when a Bum can afford a 250,000 condo.

 

As for that lou dobbs comment, I always thought he was a conservative... I am wrong?

I'd disagree on the blame. There is nothing illegal or, in my opinion, outright wrong with ARMs and other high-risk debt instruments. They are safe in the RIGHT HANDS, for the right reasons. Therefore, I feel most of the responsibility sits with the individual borrowers.

 

Which is why I suggested better educating the borrowing public. And as Jas pointed out... many parents won't know enough to teach their kids. Better to do it in the schools.

[HuskyCaucasian]

I learned that stuff from my parents because I needed to know. Great - I was fortunate. But secondary education is supposed to prepare kids for adult life. To me, finance is just as important as math or English or history. It should be included.

 

Ding ding ding! I learned my budgeting and financial skills from my dad. A quick story, my wife and I are going on vacation with my parents in a few weeks and my parents want to pay for our hotels on the way down (they are flying, we are driving). I gave my dad a very detailed list of our hotels, cost of gas, meals, ect. Privatly, he told my wife that he is very proud of me and is glad something rubbed off on me.

 

With that being said, I had a great father and family. i was lucky. Some are not so lucky or are never taught! A single consumer Ed class in HS is NOT enough.

Edited October 11, 2006 by Athomeboy_2000

[Texsox]

I have two kids in High School. If you look at their course load, there is no time for classes like this. The parents have to be parents at some point. Sorry kid if your parents suck, but guess what, the teacher you get may suck also.

 

Some parents can't teach ethics, so the school should.

Some parents can't reach consumerism, so the schools should.

Some parents can't teach nutrition and fitness, so the schools should.

Some parents don't talk to their children about drugs, so the schools should.

Some parents don't talk to their children about sex, so the schools should.

 

I have to disagree. Who is raising these children? The schools are not a replacement for parenting. TV is not a replacement for parenting. Parents have to be parents.

 

And imagine this. Kids, today we will talk about ARMs. ARMs are a great way to buy your first home. They allow you to buy the home that will accomodate your growing family, while preserving you cash to pay back the student loans and VISA debt you will rack up in college . . .

[NorthSideSox72]

I have two kids in High School. If you look at their course load, there is no time for classes like this. The parents have to be parents at some point. Sorry kid if your parents suck, but guess what, the teacher you get may suck also.

 

Some parents can't teach ethics, so the school should.

Some parents can't reach consumerism, so the schools should.

Some parents can't teach nutrition and fitness, so the schools should.

Some parents don't talk to their children about drugs, so the schools should.

Some parents don't talk to their children about sex, so the schools should.

 

I have to disagree. Who is raising these children? The schools are not a replacement for parenting. TV is not a replacement for parenting. Parents have to be parents.

 

And imagine this. Kids, today we will talk about ARMs. ARMs are a great way to buy your first home. They allow you to buy the home that will accomodate your growing family, while preserving you cash to pay back the student loans and VISA debt you will rack up in college . . .

You are lumping in personal and family issues (ethics, drugs, sex) with issues that can be educated (finance, consumerism, nutrition and fitness). The latter category belongs in the schools. The former does not.

[AbeFroman]

I'd disagree on the blame. There is nothing illegal or, in my opinion, outright wrong with ARMs and other high-risk debt instruments. They are safe in the RIGHT HANDS, for the right reasons. Therefore, I feel most of the responsibility sits with the individual borrowers.

 

Which is why I suggested better educating the borrowing public. And as Jas pointed out... many parents won't know enough to teach their kids. Better to do it in the schools.

 

 

I think we can all agree that lending practices in the past 10 years have greatly loosened. 25 years ago, you couldn't get a mortgage unless you could put 20% down. Today, its a much different story.

 

I agree that there is nothing illegal about them in safe hands. However, all of these idiots who aren't smart about everything are going to have a massive affect on the national economy. Its no just a microeconomic problem.... These loans, and the subsequent problems that follow have a Macroeconomic affect. GDP will fall, responsible home buyers will suffer if they sell now because of the bubble that has built up in real estate values.

 

 

Its just simple economics. It affects everyone.

[Balta1701]

I think we can all agree that lending practices in the past 10 years have greatly loosened. 25 years ago, you couldn't get a mortgage unless you could put 20% down. Today, its a much different story.

 

I agree that there is nothing illegal about them in safe hands. However, all of these idiots who aren't smart about everything are going to have a massive affect on the national economy. Its no just a microeconomic problem.... These loans, and the subsequent problems that follow have a Macroeconomic affect. GDP will fall, responsible home buyers will suffer if they sell now because of the bubble that has built up in real estate values.

Its just simple economics. It affects everyone.

Beyond just the housing value drops, something like 12% of the U.S. economy in recent years was fueled through the housing industry; construction of new homes, upgrades of them funded through low-interest rate home equity loans, and so on. As the manufacturing sector has died and the service sector has avoided raising pay rates, a very large portion of the growth in wages and jobs has come thanks to the housing boom. Cut that off, and it hurts the economy even more.

[Texsox]

You are lumping in personal and family issues (ethics, drugs, sex) with issues that can be educated (finance, consumerism, nutrition and fitness). The latter category belongs in the schools. The former does not.

 

Then what are schools currently teaching that you would take out to fit this in? You wouldn't mind in this example of teaching kids that ARMs are a great way to buy their first home? That getting a VISA as soon as possible is a great way to build a credit history? Once you put it in the schools anything happens.

[NorthSideSox72]

Beyond just the housing value drops, something like 12% of the U.S. economy in recent years was fueled through the housing industry; construction of new homes, upgrades of them funded through low-interest rate home equity loans, and so on. As the manufacturing sector has died and the service sector has avoided raising pay rates, a very large portion of the growth in wages and jobs has come thanks to the housing boom. Cut that off, and it hurts the economy even more.

Now that is a good point, which we have discussed before. Much of the quick recovery from the 2001-2002 recession was NOT from any government program, contrary to what some want to believe. It was people taking advantage of really low interest rates to take out equity or re-fi their mortgages or get into bigger, more expensive homes. That particular ingredient will not be such a dominant force in the coming decade.

 

 

Then what are schools currently teaching that you would take out to fit this in? You wouldn't mind in this example of teaching kids that ARMs are a great way to buy their first home? That getting a VISA as soon as possible is a great way to build a credit history? Once you put it in the schools anything happens.

As I said in the post... sex ed, for example, doesn't need the attention in public schools that it gets, in my opinion. I don't think it buys the students much. Just my opinion. As for other areas, I'd have to see a curriculum sample before giving you more ideas.

[AbeFroman]

Beyond just the housing value drops, something like 12% of the U.S. economy in recent years was fueled through the housing industry; construction of new homes, upgrades of them funded through low-interest rate home equity loans, and so on. As the manufacturing sector has died and the service sector has avoided raising pay rates, a very large portion of the growth in wages and jobs has come thanks to the housing boom. Cut that off, and it hurts the economy even more.

 

I agree completely Balta... GDP will fall; unemployment rises, etc. The whole economy is affected, including those people who took loans in a responsible manner.

 

Our lending practices require tightening. Its not inherently unethical to give a loan to someone who probably can't handle it.... Its probably unethical to give 50 million people loans they probably shouldn't have.

 

I DEFINTELY agree that its each person's responsibility to understand and manage their financial well-being. But there is also an institutional duty to set reasonable lending policies so as not to cause mass havoc in the financial sector.

Edited October 11, 2006 by AbeFroman

[southsider2k5]

Now that is a good point, which we have discussed before. Much of the quick recovery from the 2001-2002 recession was NOT from any government program, contrary to what some want to believe. It was people taking advantage of really low interest rates to take out equity or re-fi their mortgages or get into bigger, more expensive homes. That particular ingredient will not be such a dominant force in the coming decade.

 

Two things. #1, interest rates were low because a government program, the federal reserve bank, lowered them.

 

#2 If housing is such a huge key to the economy, how can we have a quickly falling budget deficit which has been factored downwards at least twice now in the last year? Also if this is such a huge force, how are tax receipts growing so quickly, while the housing markets is seeing declines like it hasn't seen in a long time?

[Texsox]

Now that is a good point, which we have discussed before. Much of the quick recovery from the 2001-2002 recession was NOT from any government program, contrary to what some want to believe. It was people taking advantage of really low interest rates to take out equity or re-fi their mortgages or get into bigger, more expensive homes. That particular ingredient will not be such a dominant force in the coming decade.

 

 

 

As I said in the post... sex ed, for example, doesn't need the attention in public schools that it gets, in my opinion. I don't think it buys the students much. Just my opinion. As for other areas, I'd have to see a curriculum sample before giving you more ideas.

 

Sex ed isn't split out, it's part of health, which also covers the nutrition you mentioned earler. There is a one semester required adult living class, but it doesn't go into much length but does talk about personal finances, but not to the depth of explaining the various types of mortgages. How much time would you spend teaching kids about mortages? One hour? A week? What is being proposed here is that every graduating high school student should know how to buy a house. They should be versed in the various ways to finance a house. SHould it go so far as to teach them how to evaluate market conditions and comparable values, etc.?

 

Again, if the text book talked about the advantages of ARMs, would you agree that teaching this stuff is a good idea in the schools? And which teacher would you hire to teach a personal finance course? The Math teacher? Social Studies? Football coach?

 

This is part of preparing your child to live on their own and parents have to be parents at some point.

IMHO, this is one of the best way for kids to learn personal management.

[Steff]

Kids are not concerned or interested with buying a house while still in school. That would be the "catch up on sleep class".

 

There should be a idiot proof packet that every bank, broker, and home builder gives out to any potential buyer. Pats them on the ass, sends them home to study, and they return when they can tell the bank, broker, and seller what they want.

[NorthSideSox72]

Two things. #1, interest rates were low because a government program, the federal reserve bank, lowered them.

 

#2 If housing is such a huge key to the economy, how can we have a quickly falling budget deficit which has been factored downwards at least twice now in the last year? Also if this is such a huge force, how are tax receipts growing so quickly, while the housing markets is seeing declines like it hasn't seen in a long time?

True on the interest rate. I should have been more specific. It wasn't changes in the tax structure as touted by some that made the difference. That is what I was referring to.

 

The housing market "correction" just got underway this year. We won't see the major economic effects for a few more years. People already took out the money and re-financed. But in 2, 3 or 5 years, when its time to sell or risk going too high on their rates, we'll see a big sell-off. And when people then find that they are upside-down or close to it in their homes, that will cause some panic and further selling. Plus, starting now, all the economic power of building new homes will slow (developers will slow their projects to match demand at some point). So it will all happen - but its just starting.

[Texsox]

Kids are not concerned or interested with buying a house while still in school. That would be the "catch up on sleep class".

 

There should be a idiot proof packet that every bank, broker, and home builder gives out to any potential buyer. Pats them on the ass, sends them home to study, and they return when they can tell the bank, broker, and seller what they want.

Absolutely right. In the auto industry they have the simple to understand form that is required by law. I guess I thought the mortage industry was also required to follow that.

 

However, even with that, ARMs would still attract a number of victims.

[Steff]

personal management.

 

 

 

Discussing family finances with a boy scout counselor.. that is just plain creepy, IMO.

[AbeFroman]

Two things. #1, interest rates were low because a government program, the federal reserve bank, lowered them.

 

#2 If housing is such a huge key to the economy, how can we have a quickly falling budget deficit which has been factored downwards at least twice now in the last year? Also if this is such a huge force, how are tax receipts growing so quickly, while the housing markets is seeing declines like it hasn't seen in a long time?

 

#1) I would hardly call the federal reserve a government program. Institutionally, it has practically nothing to do with the government at all. Its decisions cannot controled by Congress or by the President.

 

#2) You conclusion is eroneous. Government deficits are not a good measuring stick of economic performance. If the government spends less, then the budget will shrink even if tax revenues are the same. In 2005, spending by the Federal government did not grow as much as incoming revenue.... So the deficit shrank. Furthermore (and maybe more imporantly) remember that there is a lag in tax revenue. How the Housing market was in Jan 2005 is not indicative of how it is in December... and certainly not indiciative of how it is now. GDP is a much better indication of an economy's performance. And by all accounts GDP is going to be affected by the housing slump. Don't believe me, then just check this out: Bernanke says that we will see a 1% decline in GDP... which sounds minor, but isit has a massive effect on the US (and world) economcy. http://money.cnn.com/2006/10/04/news/econo...on=money_latest

[NorthSideSox72]

Sex ed isn't split out, it's part of health, which also covers the nutrition you mentioned earler. There is a one semester required adult living class, but it doesn't go into much length but does talk about personal finances, but not to the depth of explaining the various types of mortgages. How much time would you spend teaching kids about mortages? One hour? A week? What is being proposed here is that every graduating high school student should know how to buy a house. They should be versed in the various ways to finance a house. SHould it go so far as to teach them how to evaluate market conditions and comparable values, etc.?

 

Again, if the text book talked about the advantages of ARMs, would you agree that teaching this stuff is a good idea in the schools? And which teacher would you hire to teach a personal finance course? The Math teacher? Social Studies? Football coach?

 

This is part of preparing your child to live on their own and parents have to be parents at some point.

IMHO, this is one of the best way for kids to learn personal management.

You are again lumping things together that I wouldn't lump together. You asked what I would change... I told you... and you respond telling me it doesn't work that way. Yes, I know that. I am telling you what I would like to see happen.

 

You don't need a course on ARM or buying a home. You need a course on basic personal finance, with sections including buying and selling (and owning) a home, basic checkbook type stuff, time value of money, what interest rates mean, basic investing, etc. Give them the basics, and they will then have the vocabulary and general financial understanding when it comes time to deal with more complicated financial issues. This won't be a magic bullet, but it is a far sight better than not trying at all. Money is one of the most important aspects to life in this country - and the schools teach ZERO about it.

[Balta1701]

Two things. #1, interest rates were low because a government program, the federal reserve bank, lowered them.

 

#2 If housing is such a huge key to the economy, how can we have a quickly falling budget deficit which has been factored downwards at least twice now in the last year? Also if this is such a huge force, how are tax receipts growing so quickly, while the housing markets is seeing declines like it hasn't seen in a long time?

You know as well as I do that the housing market is a totally different beast from the normal economy, in that the economy in many parts can react vastly more rapidly than the housing market.

 

First, the new housing construction market is always going to be a lagging indicator of the state of the housing market, because housing units do not just pop up overnight. It takes months or years for houses that begin to be constructed to hit the market, and it's not exactly a logical move to begin construction on a house and then stop halfway just because there's a downturn in the market, so the jobs in the construction of housing created during the boom won't just all vanish this month because prices started to go down.

 

Secondly, the housing market can take years to adapt to a downturn in housing prices, because not everyone is interested in selling their house simultaneously. Because of the fact that downturns in the housing market only effect a limited number of people at any given time, the duration of the downturn is going to play a very large role in how big of an impact is has on the economy as a whole. A short correction or a soft-landing will have a much more reduced impact than a long period of stagnation in the housing market, because it would only effect the people who were selling at that specific time.

 

Third, at least thus far, the real estate and housing companies have been taking extraordinary steps to try to make sure they are able to sell the houses they currently have, steps which do not show up in housing prices and which have in fact served to provide some measure of economic stimulus on their own. Things like giving away timeshares and new cars to go along with the purchase of a house at a particular price.

 

In other words, its entirely possible that the economy will weather a temporary downturn in housing prices. But the longer and more extreme it is, the more effect it will have on the economy as a whole.

[Steff]

However, even with that, ARMs would still attract a number of victims.

 

 

 

If you have a severe comprehension problem, perhaps.