From Middle Class to Under class

[SoCalDem]

BBC America just did a piece about the End of the American Dream & profiled some down & out people in Nevada, but it could have been about people anywhere.

The thread tying these people together was real estate.

One guy was 50-ish and had gotten a $320K + loan for his place, and commented on how he thought things would be fine because he was making $4800 a month when they "bought" the place. If they had a 5% loan, their P&I would have been $1918.00 & change a month and then they would have to add taxes & insurance. There is NO way their total payment was less than $2200.00 a month. Even being able to deduct interest from taxes, they could not afford that place.

$4800 a month only comes out to 57,600 a year, which is probably not enough to realistically carry a loan for so much. He did not say if that was before taxes or after, but in any case their income was not enough for a loan like that.. If they planned to eat & pay bills & guy gas for cars & dress their kids.

Of course he lost his construction job in Vegas, so they lost the place. They moved to Lake Tahoe because he got an offer for a "couple of weeks' work".. They have two kids and are on public assistance now.

A 30 year commitment for a home loan , when employment is in doubt, is a sucker's bet, and many people are losing that bet.

[Stinky The Clown]

1. Your compassion is duly noted.

[SoCalDem]

3. I did not do the report on BBC. Compassion is not lacking

but there is also math:(

[jtuck004]

10. People are losing the bet because soul-less mortgage cos and brokers

play on their hopes and dreams, knowing that they will get paid regardless of what happens to the sucker customer...

Typical subprime underwriting standards, low enough to scam some unsophisticated folks, quick enough to grab some money and run.

I wonder what the interest rate and up front fees were, and whose pocket those are in?

These companies held out so many promises to so many people who just wanted a home. Lots of broken dreams.

[Robbien]

11. You didn't pay close attention. They bought the house ten years ago

The temporary job only came later after he lost his original long term job.

[SoCalDem]

12. regardless of when they signed the papers, the income they earned was insufficient

:(

[Robbien]

13. Then of course you are oh so right to distain them

and they deserved to lose their ten year old job
and then lose the temp job
then lose the house and live in a junky old trailer.

SoCalDem has made a determination that they are dumb. They should be spit upon.

[SoCalDem]

16. It's disdain..and I don't ..merely pointed out that their income did not support their loan

the shame is on the bank or lender who convinced these people, and many like them that they could afford it..

I am not a "spitter"..just a relayer of information from the BBC and Bankrate mortgage calculator..

Sorry if this makes YOU spitting-mad:)

[Robbien]

18. Elitist viewpoints

are something with which I firmly disagree.

As always, we will have to agree to disagree.

[alcibiades_mystery]

2. There is no "middle" class

And never has been.

[virgogal]

5. Could you clarify that please. I really don't understand your statement.

[Warpy]

4. Many more people are afraid of making that bet now

because they realize no job is safe when the economy is in the process of crashing down.

My employment was per diem, but I took on the 30 year commitment on less house than they told me I could afford and as a hedge against rising rents. In my case it paid off and now the house is paid off.

It's not much of a house, but it's mine.

Buying a house should never be seen as an investment because it's such a poor one. Over the life of a 30 year mortgage, you'll be paying 2-3 times the price of the house and there's little chance, especially now, that the price will inflate that much over the course of the loan. Buying shelter should only be undertaken if you know your market and your job is secure enough that you'll be able to afford it, and that you'll be able to afford it for 6 months or so if you lose your job.

The 30 year loan is a sucker's bet if people are likely to move in under 5 years, if rents are cheaper and/or rising slowly, and if their budget will be stretched to the breaking point by the payments, with no possibility of saving for the occasional disaster.

[girl gone mad]

7. Our current housing model doesn't match our current jobs model.

A mortgage is a long term commitment, but most people change jobs every few years now. It doesn't make sense to potentially render yourself immobile by signing a 15 year or 30 year housing contract.

I don't think the jobs picture is likely to change over the next decade, so our housing model will need to shift to accommodate the new flexibility requirements. I don't know how that's accomplished, though. Renting isn't the ideal solution for everyone since it doesn't allow for accumulating equity.

[Warpy]

9. No kidding about the need for flexibility in relocating now

I was lucky in that there were a lot of different alternatives for my job classification in this town. I knew as long as my body held out, I could find something.

Accumulating equity was secondary to me to a stable monthly payment. I made the right bet because rents outstripped my monthly PITI payment within two years, and I'm talking about crummy apartment rent, not house rent.

All people can say now is what worked over the last 20 years is not likely to work in the near future and quite possibly ever again.

[Curmudgeoness]

6. What makes you think that this person was in doubt about

employment at the time the loan was taken out? You don't say when this loan was done. Either way though, you are right that this was not the brightest move. The loan amount is definitely out of his league.

[laughingliberal]

14. That was my question. The trades were booming here for years before the crash hit.

Also not mentioned in the OP is whether the wife had income in addition to the husbands $4800. One of my stepsons has a $2400 mortgage payment. He makes about that kind of income and, with his wife's income (a little over $2000), they seem to do fine.

[tularetom]

8. I have relatives that went through this experience

They didn't lose their jobs, they just took out a loan with higher payments than they could realistically afford.

But they are now facing long term consequences involving their credit and possibly even tax liabilities on the home they walked away from

[noamnety]

15. It doesn't seem like their loan was all that extraordinary.

Maybe the house was excessive, I don't know prices in that area. But my point is whether it was affordable on their salary.

Using your estimates: If they made $4800 a month and paid $2200 a month for their mortgage and property taxes, that leaves $2600 a month.

A lot of people support their families on $2600 a month including housing. To have that left after housing expenses is something to be grateful for, and should allow for putting something away for savings in addition to living expenses.

I am amused with the OP because it's judging their spending habits while I'm thinking the OP must not be very frugal if they can't conceive of getting by on $2600/mo after housing.

[SoCalDem]

17. If the 4800 is the gross amount (which they implied) it's not enough.

His wife NOW works, but their Nevada home was way out in the boonies & the implication I got was that she did not have a job.

30 years is a very long time & there is no job that is impervious to the vicissitudes of the job market. The problem I saw was that the bank or lender should have never loaned them that much.

People in the construction industry, no matter how big the boom, have down-time when the weather's against them or if they get hurt.

Be "amused" if you like, but I can assure you that this family has managed on far less than $2600.00 a month and has had more than our share of financial storms, including paying bazillions of dollars of medical bills throughout 28 surgeries for our oldest....and we are quite frugal..thankyouverymuch. paying cash for our remodel that's ongoing, and hopeful that we will manage our piddly retirement in our old house, as we have for the 40+ years of our marriage.

If the lenders had said NO, there would be millions of people who would be a lot happier right now.. It's hard to turn down money when you are offered it, and you really want that house.

[noamnety]

19. If you've lived on far less than $2600 a month

then you know it can be done.

So why the thread?

[SoCalDem]

20. I thought it was interesting how BBC was announcing the end of the American Dream

and I never thought I needed permission to start a thread that others might find interesting as well, but then I've only been here since 2001, so chalk it up to a newbie mistake :rofl: :hi:

[noamnety]

21. Many people, including yourself at one point apparently,

get by on as much money total as he had left over after paying his mortgage and property taxes.

So I don't see the purpose in blaming him for living within his means - until he lost his job.

Lots of people lose their jobs. It's a function of the economy and blaming the victim is poor form. Post it if it makes you happy, but I think a lot of people will recognize that most of us can't pay our mortgage indefinitely if we lose our jobs.