I'll tell you how some people get upside down on their mortgages:

[CreekDog]

I bought 5 years ago with about 22% down. But the market in my area tanked (right near SF). After I bought, the value of my place surged over 25%, but has now lost about 40% of its value and voila I'm basically upside down (my mortgage is now more than my place is worth --i'm not facing foreclosure or anything like that).

Responsible people with 800+ FICO scores, stable incomes, etc. are hurt when the market tanks to the degree it has.

I have actually paid ahead on my mortgage from time to time.

I had no lines of credit, no adjustable rate mortgages, my neighborhood was fairly stable without many renters or speculators.

That's how a responsible person gets upside down on their mortgage.

Didn't buy a big house, didn't spend more than was prudent, bought 5!!! years ago, have high credit scores, didn't take ANY equity out of my place.

Stuff happens. Don't judge me and others unless you know what they actually did and how they contributed.

I'm not saying nobody is irresponsible, plenty of people from some banks to some homeowners to some speculators. I'm just saying it's not me and that there's lots of people just like me.

I say this as clarification to anyone who thinks the all upside down folks did anything imprudent to get in their situation.

(edited just now to say: i'm not complaining about my situation...i have lots to be grateful for. i just wanted folks to be aware that responsible people can be upside down...it happens)

[EFerrari]

1. In order to believe that a mass of home buyers created this mess

you'd have to believe that, against all evidence in the history of human behavior, the number of sociopaths in our society suddenly multiplied 5X for no reason -- just at the time when the Wall Street gangsters were let loose by deregulation. It doesn't even make sense.

[On the Road]

9. That is a Very Good Way of Phrasing It

If Wall Street and the financial press got caught up in the real estate bubble, how on earth could anyone expect average homebuyers to see through the overvaluations?

[gratuitous]

2. Thank you for this

My post generated more responses than any post I've ever made, which surprised me (I don't start posts very often). I don't think it was unreasonable for folks in 2004 or 2005 to buy a house with 20% down and expect to see their property lose 60% or more of its value by 2009. Sure, there's risk to any investment, but purchasing a primary residence is supposed to be safer than, say, investing in junk bonds or buying lottery tickets.

[CreekDog]

4. and i wasn't criticizing you

but i think there's not enough recognition that just as with layoffs affecting people through no fault of their own, that the real estate market has affected people through no fault of THEIR own.

:hi:

[billyoc]

6. It's advertised as being safer, yes.

[CreekDog]

8. IT IS in fact safer (it's not simply advertised as safer)

for my 22-23% down i have had a place to live for 5 years, so i'm not complaining except against the theory that everyone or even most who are upside down somehow did something irresponsible to get in that situation.

the same amount on junk bonds or lottery tickets would have left me homeless.

[tech3149]

27. I bought into a townhouse in NJ in the late 80's that doubled it's value

by the time I sold. I never considered it an investment, it was just some place to live that the ex and I could enjoy. I felt guilty for the price the buyer was willing to pay, but I knew he had it covered and was a nice guy. For the price at the time, it wasn't a bad deal. I bent over backwards to provide all documentation on all the appliances, modifications and repairs to be sure they knew what they were paying for. I even gave them my # so they could check with me if they had any problems.

These are two guys that seem to be well-grounded and pretty savvy. I'd be happy to help out if they need it but I don't think I could help if the value of the property ends up being 1/2 of what I paid for it.

[JVS]

29. The thing is that those pieces of paper have no use other than value.

People who "lose" money on a home are really not doing any worse than people who rent and thus never gain equity.

[CreekDog]

33. deciding to buy should be based on more than financials

because you can't predict what the market will do. for the past 30+ years, the decision to buy was financially successful until about 2 years ago. now on paper, renting comes out ahead compared to buying within the past 5 years or so.

but one doesn't know which calculation will yield the better result when they buy.

which is why other things should be considered.

i bought for stability so that i could live near family, friends and work, and to have a short commute that i could either drive or easily take public transit to (i do).

the money i put down was from my previous place across the bay which appreciated wildly. i used the runup in the real estate market to pay for me to move back across the bay where prices kept me from living originally.

[phantom power]

3. I thought this was a well-put summary:

Not exactly the same point you were making, but related.

Blaming people for accepting these mortgages is like blaming people for filling out prescriptions and taking them as indicated by their doctors. People put their trust in mortgage lenders, and why shouldn’t they? You have to apply for a loan, and you can get rejected, which says to the person applying that the mortgage lender is interested in making sure they can pay it. And since the lenders understand money better than you, Average Joan, why shouldn’t you trust them? That’s why you hire professionals. For anyone who’s ever bought a house, there’s a lot of people you pay a lot of money to in order to make sure you don’t make mistakes. You feel, if you’ve paid that, your ass should be covered.

The notion that everyone should be an expert in everything to protect themselves from unethical professionals---instead of having systems to keep the professionals ethical---makes no sense. Our society would come to a complete halt if we didn’t work on systems of trust, systems based in no small part on regulation. If you take the “you shoulda known better than your lender” logic to its logical ends, then medicine, law, teaching, even selling food would all become unmanageable systems. The every man for himself ideology probably couldn’t even work in a completely agrarian society where most people get everything they need from their own land, but if it could work at all, that’s how it would have to be. Unfortunately for libertarian fantasists, the completely agrarian society was overrun by population hundreds of years ago. There’s billions of people more than the world could handle in a your land/your life/don’t need no one else system.

http://pandagon.net/index.php/site/comments/cant_be_an_expert_in_everything/

[dem mba]

66. i like that line of reasoning

it also is a good rationale for universal health care. The average layman (myself included) should be not be expected to navigate the legalese and bureaucracies of insurance companies and their in-network/out-of-network switcheroos. There is a certain level of knowledge a citizen must acquire on their own, but certainly the state should provide some guarantees of fair play and equal access (no English PhDs required to read through a contract or insurance form).

[Triana]

5. Thanks CreekDog. Very well put and....

...whatever happens, I wish you and your family all the best.

[CreekDog]

12. Thanks. I have nothing to complain about, really.

It was just to make sure that people understood that lots of people affected by the housing crash are just regular people who never did a thing to tempt fate.

The people who have a right to complain, unlike me, are those facing homelessness, lack of healthcare, bankruptcy and so forth.

[Avalux]

7. When you bought your home 5 years ago, how long did you intend to live there?

I'm asking because if you bought it with the long haul in mind, chances are it will regain it's value and your mortgage will right itself. At least I hope so. Sorry this has happened to you.

[CreekDog]

10. i'm not complaining about being upside down (it happens), but about being thought irresponsible

...for being upside down.

that was my point.

being upside down sucks, with home prices lower, i would love to buy another place but may be locked into my current place for a while. but on the other hand, if i'd waited, i wouldn't have had the benefits i've had at my current place these past 5 years (close to family, friends, short commute with lots of options, etc.)

i thought i'd be here at least a few years. i bought because rents were increasing so fast the past 10 years and rentals are really hard to find here (and then get!) with perennially <2% vacancy rates.

[Coyote_Bandit]

11. Meanwhile

I lived in a small one bedroom apartment in a less than trendy neighborhood. I worked and saved my pennies. When I was 40 I bought a tiny 60+ year old home in need of significant repair and I paid cash for it. Even with the repairs, my home has lost value just like yours. My property taxes have doubled in the last 18 months and are expected to increase substantially again this year. I was laid-off from my job along with over 30% of my co-workers and have exhausted my unemployment benefits. I've been remarkably unsuccessful in my quest for employment. I will likely realize a significant loss when I am finally forced to sell my home. I didn't do anything irresponsible either. But I'm still f*cked. There will not be a knight in shining armour riding to my rescue. Right now, I'd be delighted to have the ability to make that payment on that upside down mortgage.

[CreekDog]

22. now you have cause to complain

not that it will do you much good. i'm sorry to hear about your situation, that's awful.

my situation is not bad.

the overall point remains the same, responsible people did responsible things and still got screwed over by what's happened to this economy. i'm not saying nobody's at fault (many, many in fact are culpable...). i'm saying that you aren't at fault for the situation you are in. you made reasonable decisions and tried to do the right thing.

a proper economy and nation would reward that kind of behavior so as to encourage it. our does not.

[JVS]

13. I have no criticism for people who are upside down. My criticism is for people...

who are quite able to make their payments (i.e. haven't lost their jobs) and decide to walk away from mortgages that are upside down because they "Don't see the point in paying so much for a house that isn't worth it" If you don't think a house is worth $X, then don't borrow money to buy it at $X

[scisyhp1]

15. So you are criticizing the people who made an entirely rational

decision to benefit themselves and their families and refused
to subsidize the banks with their hard earned money? What fool
would keep paying a bank $400k for a house worth $200k, depriving
his own children of all the comforts and opportunities that extra
$200k (+ interest) would afford them? How can anybody be blamed
for putting his family before a soulless evil corporation? Are
you freaking serious? Instead, those who out of some misconceived
"moral obligation" turn themselves into indentured servants of their
overpriced mortgages should be criticized and ridiculed. Paying those
mortgages is just one of the ways of kicking the wealth up the ladder.
Walking away from them is the surest way of redistributing it back
where it belongs. And there is a lot of redistributing to be done
before we are out of this mess.

[JVS]

19. I'm blaming people for agreeing to the price and then not paying despite ability to pay.

Fuck them. I hope they never get a fucking mortgage again and their creditors pursue them to suicide. They're fucking up our country.

Anyone who agreed to pay the 400K for a house over time should be willing to pay that money for that house.

Sympathy to those who are unable to pay it due to layoffs (caused in large part by the actions of those fuckwads)

[scisyhp1]

32. They agreed to pay $400k for a house which is actually worth

$400k, not for one worth $200K. And they all would keep paying
if $400k remained the price. That's not their fault that the
price went down like that, that's the fault of those fuckwads
who are hoping to shame them into keeping to pay. Fuck them,
they can hang, they are not gonna see that money ever. They
have fucked up the country, not those onto whom they pushed their
overpriced mortgages. The more people walk away the faster
this whole mess gets resolved. Those who keep paying are the true
assholes, who are making the adjustment more prolonged and painfull
for everybody. Not to mention, giving the banker fuckwads the idea
that they could pull the same stunt again in the future with the same
impunity. Screw those bozos, they need to be taught a lesson, no fucking
money for them. And also screw those who blame and want to punish the
victims instead of the perpetrators. Those can go to the same hell their
criminal banking buddies will soon occupy.

[JVS]

38. Yeah, God forbid the bankers ever lend money to people who want to buy a house again

Homeowning is done. We will all have to rent from the wealthy because people who were already quite comfortable decided that they should make money by simply living in a house for a few years.

[scisyhp1]

46. I certainly hope the bankers never get to lend money again,

as they very conclusively demonstrated that their unlimited
greed prevents them from doing that responsibly. There are
solutions for credit beside predatory for-profit banking
corporations. I hope all of those burn, never to be heard from
again. Fuck them, we don't need those parasites to build houses
and live in them. They have sucked enough of our blood already.

[lumberjack_jeff]

49. They bought a place to live.

I assume that it still serves that purpose.

Anyone who bought into the "house as investment" bullshit really only has themselves to blame.

[moc]

61. It's the risk you take when you buy a house. Values go up. Values go down.

For some reason, we (the American people "we") have gotten the crazy idea that housing values can only go up. Assuming so is naive.

People in upside down mortgages aren't necessarily "victims". They made a bad investment decision. They bought when prices peaked. Just because values declined doesn't mean they don't owe what they borrowed.

FWIW, I'm old enough to remember the real estate crash in Texas in the 80s. I know people who got stuck not being able to sell houses and just had to sit on them until values rebounded. It's one of the reasons why when we bought our house 10 years ago, we specifically bought in a neighborhood that had very stable housing values during that time period.

[scisyhp1]

71. By the same token, the risk that a borrower will walk away

from his mortgage is the risk a bank takes issuing that mortgage.
It is written into the mortgage documents which both sides sign.
There is no reason for a borrower to assume all the risks associated
with his house value fluctuations. For some reason the American banks
have gotten the crazy idea that they can make all the profits without
taking on any risks. That was not just naive on their part, but criminal.
When this borrower makes a rational business decision to walk away, he is
not breaking any law. Attempts by some people to shame him into abandoning
his and his family's interests in favor of those of a bank, make no legal
or economic sense. Borrowers responsibilities are first and foremost to his
family, then to the federal and state laws, and only then to some
vague moral norms business-dominated society tries to impose on him.

[Warren DeMontague]

23. Apparently, at SOME point they agreed that the house was worth the $400K.

In fact, I'm pretty sure they had to sign a piece of paper essentially to that effect.

If they're living in it and not treating it as an investment/atm, what difference does it make what anyone says the value is?

[JVS]

24. It shouldn't make a difference.

And basically they get to own the place after spending $13,333 per year on the place as if it were rent for 30 years. That sounds like reasonable cost for shelter. Except they wanted more. Fucking greedy shits

[scisyhp1]

42. They didn't want anything more than to buy a house which

will be worth at least what they paid for it. How is that unreasonable?
If they wanted to rent for 30 years, they would have rented. That was
not the deal they were sold. They were told that home ownership is the
surest way to creating personal wealth and financial independence. Should
they not have believed that? How were they supposed to foresee the coming
crash? What experts did foresee it? They generated trillions of dollars in
interest payments for the bankers, and now they are supposed to bend over
and take it up their ass for the principal too? They may have been foolish
in buying into this "American dream" crap, but they are not such fools when
it comes to counting their money. More power to them. Just walk away and
screw you banker buddies. Those fuckwads can squeal all they want, they can
kiss their money good-bye. Poor things will have to make do without a new boat.
Boo-hoo, how cruel.

[alstephenson]

54. How is that unreasonable???

To buy a house and expect it to be worth at least what they paid for it? Real estate is cyclical - historically housing prices go up and they go DOWN. It IS UNREASONABLE to expect that the value of your home will only go UP. I'm old enough to have lived through several of these real estate cycles, my guess is that you are not.

Oh, and I'm upside down, too. My situation is similar to the OP. But every homeowner in my neighborhood that "bails" on the bank just because the current market value of their home is down, even when they can afford the payments, pulls the value of my house down further and I'd have to classify those homeowners as deadbeats.

A home is not a guaranteed investment.

[lumberjack_jeff]

58. Exactly. They call it "speculation" for a reason. n/t

[we can do it]

41. They Are Fucking Idiots and Are As Much A Part of the Problem As the Banks

The idea that your house will make you rich in 3-4 years is just ridiculous. Walking away because you don't make money off your house that you agreed to pay for (I am talking fixed rates here not deceptive ARMs) has exacerbated the problem. Just as a run on the banks or stock market panic does. IMO- they deserve to never get credit again....

[lumberjack_jeff]

48. "What fool would keep paying a bank $400k for a house worth $200k"

A credit-worthy one?

For some people, even unprofitable promises are still binding.

[kristopher]

14. Some questions...

What was your understanding of the nature of the real estate market when you bought? Most of the people I interact with recognized by 2004-5 that the growth of home value wasn't occurring at a natural rate and, in fact, referred to the overall phenomena by the term "bubble".

Did you recognize the jargon at that time and what did it mean to you if you did? Had you ever had occasion to pay close attention to previous "bubbles" and how they play out - especially bubbles in real estate on other places (ex.Japan)?

Your actions are all reasonable when looked at within a time frame focused immediately around the the point of purchase; but within the context of a market that was appreciating at an astoundingly abnormal rate they (your actions) might lead to a review of how much emotion (the desire to buy) is guiding your decision making on such an important issue.

[CreekDog]

16. i think you are raising the bar unreasonably high on what constitutes responsible behavior

of course the market seemed inflated, i'm basically in San Francisco and it's been inflated my whole life. if i'd followed your logic nobody in my family would have bought anything over the past 30 years!

i don't get where you are seeing "emotion" in my decision some 5 years ago. :shrug:

i bought a place to be nearer to family, friends and work. i bought one within my means, i even put enough down to make sure i had a conforming loan (and the attendant lower interest rates that go with it).

rentals are hard to come by out here, they are hard to get even if you can find a good one and they are hard to keep (rents go up rapidly and properties get sold out from under you all too frequently).

like i said, i don't know where emotion is figuring into this.

my salary has gone up over 700% over the past 12 years, an astoundingly unsustainable rate. should i live on the pittance i had as a student based on that?

[kristopher]

68. The salary increase came without changing your level of productivity?

I'm not trying to cast you as irresponsible or to talk down to you. It is just that a large part of the problem is the way people think in relation to risk and "wants". Blame isn't the point, and I understand that you feel you played by the rules and got shafted. I guess that is the crux of my point - the lesson is an old one and hard learned - caveat emptor.

[sinkingfeeling]

17. You should read response #3. Why should any person looking to buy a house have a greater

understanding of the 'market' than the 'professionals' you pay for advice? Why didn't the real estate agents, mortgage broker, and bankers, etc. recognize the 'bubble'?

[kristopher]

67. Those people stand to profit from perpetuating the bubble.

They make a profit and move on.

[NightWatcher]

18. would it ever be ethical to walk away?

I keep hearing anecdotes about people walking away from fine homes only because they owe more than they are worth. Then depending on how they get financing, they can buy a previously foreclosed property for less than it's worth.

Could you, would you ever walk away, just to save a few bucks? Isnt that the Capitalist-ic thing to do? profit at any price

[CreekDog]

20. if you accept the consequences, then i think it can be an ethical decision

also big decisions on particular items in one's life (house, job, family, etc.) are not made in a vacuum.

one frequently is weighing multiple ethical dilemmas simultaneously.

it could be that letting the house go makes the most sense overall.

and besides, everyone knows now that the bank buys your mortgage, slices it up and sells it to investors who take a risk on the investment knowing some pay off some don't.

[JVS]

25. That's stealing and should be punished by the removal of the hand!

Ok, seriously though. People who walk away should never be given enough credit for even a gas card again.

[CreekDog]

28. stay out of Leviticus

:rofl:

oh and Leviticus makes no mention of Chevron. :eyes:

[Xithras]

43. I'm "walking away" from two homes right now.

It's really no different than bankruptcy. We, as a progressive society, long ago decided that people shouldn't be financially enslaved because of bad debt decisions or chance. In my case, my household income has been halved as of this month and I'm having to make some "do or die" financial choices. One of those choices is to give up two homes that I own (and rent out). The homes are up for sale right now and I'm HOPING that the lender will short-sale them, but I skipped the mortgage payments this month and will let them go to foreclosure if a buyer isn't found.

Asset-wise, I could easily tap my remaining savings and empty my primary residence of equity (or sell it outright) and keep the homes, but it would be stupid of me to do so. My first obligation is to my family, to provide a good and stable home for them. I will not make my kids suffer poverty just so I can make a bank a bit wealthier.

Arguments against people making "selfish" financial decisions and abandoning debts they willingly took on sound suspiciously similar to Republican arguments against bankruptcy provisions. Lenders of all sorts make loans with the understanding that there is RISK involved for them. The law and lending contracts specify their options if the borrower defaults. Morality shouldn't even be a consideration here, because it's PURELY A BUSINESS DECISION. If a borrower determines that the lenders collection options are less financially damaging than paying off the debt, then that borrower has a contractual right to exercise those options. The lender signed the same contract as the buyer, and the lender was fully aware that a loss could occur if the buyer chose to default. The lender accepted that risk just as willingly as the buyer did when he/she purchased the home.

Besides, I don't really feel all that sorry for the banks anyway. The banks were more than willing to encourage a fraudulent system that artificially inflated prices to unsustainable levels, and they want buyers to spend the next few decades suffering for it. I disagree, and have a hard time finding pity for their financial situation.

[ieoeja]

21. One question: is this a problem for you?

I don't care if the value of my house goes up or goes down. In fact, I would prefer that it go down as I am tired of paying higher property taxes every three years when they reassess property values.

I can sort of understand that it might be a minor irritant to you that you are paying more for the house than it is now worth. But that just makes this average individual's largest purchase no different from the average individual's second largest purchase: a new car.

The value of a new car plummets the second you drive it off the lot. But nobody complains that they are still making payments on the original value.

[CreekDog]

26. that's not why i posted this

i just posted my example as an example of people who were responsible and followed the rules and are upside down on their mortgages. no funny business involved in getting there (no 125% HELOCs, etc.), just a tanking market beyond almost anything seen before.

it's basically not a problem for me, although if i need to move it could become a big one in a hurry. but my situation is fine now, in fact, i got a reassessment that reduced my property taxes $40/month and probably will get it reduced another $100/month next year.

[backwoodsbob]

36. here's what I think should happen

if you are reworking your PRIMARY residence because of upside downs or exotic mortgages I'm cool with that.It's worth it to stabilize the market.Lets get people struggling into livable loans on fixed rates.A lot of honost people are hurting over this mess and need the help AND it will stabilize the market.

NO bailouts to investors and flippers not living in the house as a primary residence.If you are willing to put up your money to try and turn a buck on the property then you should have been smart enough to research the market and the loan you were getting into.As far as I can remember there are no guarantees when you take on real estate as an investment

[Xithras]

44. No, but investors routinely dump bad investments.

It's called writing off a loss. If an investment goes south, you get what you can out of it and walk away. That's true whether you're talking real estate, stocks, or your cousin Vinnie's brilliant idea that "will make us all millionaires if you'll just loan me $10,000 to perfect it".

Taking losses are a normal part of investing.

[scisyhp1]

53. That is not a "minor irritant" at all.

You owe it to your family and your children to provide them
with the best life comforts and opportunities you can procure.
Instead of living in (and paying for) an overpriced house, it
is, in fact your responsibility, to walk away from this unfair
mortgage. You can buy a similar house for its real price, and
let your family use the money saved, rather than just giving
it away to the bank. It's really just that simple. It is a choice
of who gets that money - your family or the bank. In my view,
it is a very easy choice. I don't see how any other decision
can be justified without resorting to some quasi-religious
"morality and responsibility" arguments.

[W_HAMILTON]

30. I don't get it.

Are people just buying homes to "flip" them or something? If not, I assume you purchased your home with the intent on living them for many, many years (maybe the rest of your life). If so, why is it such a bad thing if your home drops in value? It's still your home; it's where you are going to live. I can understand the problem if everyone purchased homes expecting to live in them a few years, then turn around and sell them for a profit.

I know it stinks to be paying for something that is worth less now than when you bought it, but that happens all the time (granted, on a smaller level) with things like cars, or televisions, or computers, etc. You buy something, then it drops in price a few weeks or months afterwards.

Again, am I missing something? If you are planning to live in your home a good portion of your life, how does having an upside-down mortgage affect you? Outside of the psychological effect, I guess. Is it somehow harming you financially?

[Xithras]

34. The average American owns their home for 7 years.

That's why it's a problem. We take out 30 year mortgages because that's what we can afford, but it's fairly uncommon for a person to buy their first home and live in it for 30 years until it's paid off. I'd like to retire in my current home and don't care that it's losing value, but owned and lived in two other homes before buying this one, and never had any intention of staying in them for more than a few years. If I were in one of THOSE and the values plummeted, leaving me stuck in the home, I'd be pissed.

America is a highly mobile society. We move a lot, and it's generally presumed that we can sell our homes and move whenever the need arises. As a society, we don't like to be told, "You're stuck here now, deal with it."

[W_HAMILTON]

40. Well, I guess it's just a different mindset.

I'm more of a "status quo" person, so maybe I'm different than everyone else. But I'm one that would like to settle in an area, find a job that I am content with, then look to purchase my "dream" home with every intention to live in it the rest of my life.

Again, I was thinking I was just missing something, but it sounds like from what I was thinking and from what you said, that's basically all there is to it. People were essentially gambling that their homes would continue to rise in value, which is why they made these sort of decisions, rather than simply rent if they weren't planning to stay in one place for more than a few years.

I see why people would be angry, but it seems no different than me being pissed that I just recently got into the stock market (at its high point, ugh), and have since lost over 50% of my savings. It sucks, but it's a risk I took when I entered into the market. It's the same for people that enter the housing market expecting to bounce from house to house, making money each time because the housing market usually is going up.

If it were me, I wouldn't buy a home if I was only planning to live in an area 1-2 years. I would just rent. I would buy a home once I found myself in a comfortable situation that I would be content with for at least the next decade. If you are just using your home as a "less risky" form of investment, how can you be upset when something like this happens? Well, I can see why you would be upset, but I don't see why some people think they are entitled to some sort of relief.

[Xithras]

47. Why? I owned one home for two years.

When I finished college and got my first real job, most of my friends were moving into apartments. Me? I bought a quaint little 900sf two bedroom bungalow in a decent neighborhood. When I sold it two years later, I essentially got all of my "rent" back. I saw no profits after the fees and realtors were paid, but took no loss either. Had I rented, a comparable place would have cost me about $1000 a month at the time. That's $24,000 in rent that I DID NOT have to pay since I owned it.

With my second house, the market actually dropped a little. After four years, I had to bring about $10,000 to the table to sell the house. Painful, but still tens of thousands less than I'd have spent on a rental during the same period.

The trick is to THINK about what you're buying AND how long you plan on living there. You don't buy a 3000sf tract home in a brand new subdivision if you plan on selling in two years, and you don't buy a 750sf 1 bedroom with plans to live there for 30 years and raise a family. If you buy a home appropriate to your level of need and the amount of time you plan on living there, reselling to recoup your investment usually isn't an issue (the current market being the obvious exception).

[Fire1]

45. Thank you! Thank you! Thank you! I planned to retire and move

to another state. Can't now and don't know if ever! I've been trying to explain the sentiment you so eloquently expressed but some don't care to comprehend.

[alstephenson]

55. In real estate timing is EVERYTHING.

In a conforming loan market a 20% down payment and an amortizing mortgage would be a buffer against potential declines in value. And maybe folks that buy homes only planning to live there a couple of years would reconsider the decision to buy if they had something in the game - like a down payment. It's the 100% financing and interest only loans that made it TOO EASY for people to buy homes - and then get "stuck". I'm certainly not defending the predatory lending practices that took place - "standard underwriting practices" were thrown in the garbage so that more mortgages could be written and sold to the secondary market, over and over and over again, with everyone up and down the chain (real estate brokers, escrow/title companies, mortgage brokers, etc.) getting their piece of the action.

[CreekDog]

37. I don't get why you think I'm complaining about being upside down

My complaint was *specifically* that some would have you believe that people who are upside down were somehow irresponsible in getting there.

My ONLY point in posting this was to say that there are people who are upside down who were perfectly responsible in their actions and at the mercy of the market for their situation --I'm one of them.

I'm *not* complaining about my situation. Mine's pretty good overall actually.

[JerseygirlCT]

31. And hopefully, you won't have to move any time soon

and you'll be fine.

I'm not sure what my house would be worth now - I think we'd still be ahead - for now. But the key thing is we're not going anywhere, so it's all on paper, so to speak. Unless something cataclysmic happened - and of course, that can happen to anyone.

You're right and make a very good point. It's too easy to lump people together: sure there were plenty of irresponsible people thinking to make a quick fortune or buy a mansion and stay ahead of the game. But mostly, there are people at the mercy of the whims of the real estate market. You just do what you can do.

[cynatnite]

35. 92% of homeowners pay their mortgages on time...

I heard that on the Today show a few weeks ago.

[newtothegame]

39. I think people are complaining about the bailouts to foreclosed owners. But you're not a fc owner.

[pacalo]

50. I hate it that homeowners like you are put on the defensive because of slimy lenders.

My husband & I had a private mortgage deal, which was great in all respects, with the homebuilder. With 9 years to go on our mortgage, we found ourselves in a financial crunch. The interest rates had lowered & my husband's brother talked him into refinancing. We chose a 15-year loan.

We were able to get out of a bind with the extra money received from the new lender, but our house payments went up by $300/mo. for the first 11 years, then because of the rising insurance costs from Katrina, our payments skyrocketed up another $300.

Our house is now paid for, thank goodness, but I have ill will toward that lender because of my dealings with them. They were sleazy in so many ways.

I certainly don't blame people like you. You didn't buy a big showy house, living beyond your means & getting stuck with something you can't afford. You bought what was affordable to you in a time when everything goes up but the paycheck.

[Phoebe Loosinhouse]

51. The biggest key and clue for anyone buying real estate

is that the mortgage payment should approximate what you would be able to get in a fair rental market, because that is your saftey valve. If you are job transferred and unable to sell, you should at least be able to rent with little to no negative outflow.

Once a house becomes valued beyond it's rental value, then you know you have a problem, because your options as an owner have been lessened.

[JNelson6563]

52. Well done.

These complex issues deserve (demand!) civil and reasonable dialogue if anyone's going to learn anything. Thanks for taking the time to make a positive contribution to the discussion. :toast:

Julie

[Tatiana]

56. The market tanks - homes lose their value. That's how I understand it.

I'm not upside-down, thank goodness, but a good number of people who live in my neighborhood are facing upside-down mortgages and I've found three foreclosures in my area so far.

I bought about 7 years ago too, when the housing market was booming. There were many lenders courting me who were in partnership with realtors to finance me for houses I knew I couldn't afford. I ended up closing on a fixer-upper in a good neighborhood. Because there were so many issues with the home (the back stairs were rotted through, some re-wiring needed to be done, etc.), I got the property at a steal. The seller made no money off the deal and probably lost money. However, no one wanted to take the time to fix the place and the house had been on the market for almost 6 months. I only put down 15%, but i re-financed about 5 years ago at a lower rate, put in a little more money and moved from a 30-year to a 15-year mortgage at a low fixed rate. That was the best thing I ever did.

I know first hand how the brokers and lenders worked hand in hand to offer mortgages to good people, with good credit scores and yes... people do believe these lenders. No one talked about area property values and assessment rates to me. I had to do a LOT of research (almost 2 years) before I was actually prepared to purchase a home.

My own personal affordability test was if I lost my job and had to go on unemployment, would I have enough funds in unemployment to pay the mortgage and buy food.

I blame the bankers and mortgage company more than I do the people who are now in a position (due to a lousy housing market and horrible economy) where they are struggling to make payments.

[county worker]

57. This is a very interesting thread

It seems to me by reading these posts that the real determinate in what people will do is the situation they are in.

There seems to be no real rule that people will follow or code or anything. It's what is best for them financially.

So why the hell do they wonder when people wealthier then them do the same?

[tjwash]

59. Half the people in this thread have no fucking clue what they are talking about.

Everybody has great advice when they are detached from situations, and have never been through any type of adversity.

[county worker]

60. You got that right

[alstephenson]

65. How do you know what type of adversity other posters have faced?

That's a pretty broad brush stroke you are painting DUers with.

[slackmaster]

62. As long as you can make your payments, don't plan to sell, and don't need to borrow more money

Being upside-down is not a problem.

[marew]

63. I agree in these circumstances.

Isn't it a loss only on paper? Values will come back. I lost on my 403b and some other investments but if I hold on to them, they should come back even if it takes awhile. It is the speculators who tried to do quick flips on the properties who shouldn't get bailed out. They should have just gone to Vegas and gotten it over with. My lying, adulterous ex bought 4 condos in FL with very, very little down and has lost a bundle. :nopity:

[Fire_Medic_Dave]

64. How are you upside down?

If you put 22% down and the value went up 25% then dropped 40%, your mortgage should be at least 7% less than your house is worth. That's not even including the amount your mortgage has been reduced by payments.

David

[CreekDog]

69. no, because it rose 25% of the initial price

and after rising that amount (perhaps slightly more), it fell approximately 40%+ of the highest value.

it doesn't put me far underwater but it does put me there.

your math assumes all my percentages are based on the same initial price --no.

[Fire_Medic_Dave]

73. Unless you had an interest only loan, you should have paid down the principal enough...

so you would either barely be upside down or not at all. Of course there is a big difference in 40% and 40%+, when we are talking about just barely above water or upside down. Regardless I hope it all works out for you.

David

[tavalon]

70. Yeah, that's the lie that even Obama referenced in his speech

that homeowners caused this mess. They had nothing to do with it and aren't the best scapegoat because way too many of them will know they're being scapegoated. It was the CDOs and the various other creative instruments created by similar minds to those who lived at Enron.

[coalition_unwilling]

72. Great thread - Bookmarking for later - n/t