Pepper spray

[Gorgon]

It would have been pretty hard to predict that my condo would lose 75% of its value in two years. There was no precedent for that. Heck, if people could sell these properties anywhere near what they paid for them, we wouldn't be in this pickle.

It's hard to fault their logic here. They were given loans that would otherwise not have been possible because the goverment was the guaranteur and encouraged that this was a good investment. An economic policy that failed due to the de-regulation craze which allowed the brokerage firms to run wild.

Edited December 9, 2011 by Gorgon

[Hurlshort]

Ok, I've composed my thoughts a bit. I will preface by saying this, missing my first mortgage payments was one of the most difficult things I have ever done. I have never been late on anything, I had a sterling credit score, and I always pay off my debts. I wanted to take responsibility for this loan, but after almost two years of taking a loss on the property as a rental, I felt like my back was up against the wall.

 

I agree with Volourn that the homeowner has responsibility here. I signed the loan, and I knew what I was getting into. My big question is how much should I pay for that mistake? What is my penance?

 

Here are the details:

 

My loan was $350,000. It was a 30-year term, and if I paid it for 30 years I would end up paying about $600,000 total. The property has dropped in value to $100,000. I am currently trying to sell it at that price. I have an offer, I am waiting for the bank to approve a short sale.

 

I made payments on time for 6 years. This is how much I currently have paid into the property -

 

$15,000 down payment

$10,000 in renovations

$125,000 in interest only payments

 

After 6 years, with the way the loan is set up, I have managed to pay almost nothing off the principal balance. I have paid a huge amount in interest, more than the property is actually valued at. Interest rates have dropped tremendously in reflection of the market bubble bursting, but we cannot refinance into a better loan because our value is nowhere near what we owe.

 

None of this would really be a problem for me if this was my dream home. Sure, it would be a bad investment, but if I was able to keep living there for 30 years I would just keep making payments. It would cripple me financially, but who cares? I've got my house. But this is a small condo without room for my growing family. We can rent a huge house for much less than the mortgage payment. We tried renting it out, but we could barely cover half the mortgage with the rent we received.

 

Our options seemed pretty limited here. Our best bet seemed to be to short sale the property, rent a house for a good long while, and then maybe buy again with a lot more caution and knowledge. I mean like 10 years down the road, I'm not in a hurry to get another mortgage. The thing about a short sale is the bank will only grant it when you fall behind on your mortgage. So we rented a nice house that is great for our family and stopped paying. It sucks, but I saw little choice in the end.

 

So my question to Volourn is what would be a better solution to this situation? What should my penance be for getting into this loan? My situation is far from unique, it is almost standard for anyone who bought property during the high point of the bubble.

[Volourn]

It's obvious you could not afford and had no business taking such a loan. The bank/gov't should be ahsamed for their aprt in it but you were simply foolish to do so. The fact you knew it would take you 30 years to pay it off should be a warning sign. Any debtr that takes 30 years (which is ahuge chunk of one's life, he'll i've only been alive a little longer than that) should throw danger signs that the loan was too much for you.

 

Sure, it sucks you are in such a predicament but gotta tyake eprsonal responsibility. People need to be aware that house amrket can be flighty and it goes up and down quite a bit.

 

Don'tt ake out loans you aren't sure you cna't pay back within a reasonable time.

 

P.S. Even 'rich' people get into trouble ebcause of this silliness. I've heard of celebrities who make maybe 10mil a year taking out loans/mortages for a $20mil house. It's just foolish since there is no guarantee you'll be abkle to pay that back.

Edited December 9, 2011 by Volourn

[Tigranes]

And how do you determine what is a loan too big for you, what is a loan you should not be taking?

 

If it's like "takes 50 years, 100x your annual income", etc., it's pretty obvious. And we could go the other way and say really, the right way to live is not to spend more than you can afford. I like that philosophy, but I also know that the way our economies work make that practically impossible for most people, if they want to, you know, have a home and stuff.

 

So we know people have got to take out fairly big loans at some point or other. Of course they should be responsible and they shouldn't take loans that are too dangerous. But again, how should they decide how big is too big? If the banks are saying "go on, you can take this loan, we think you can", and experts you talk to tell you "Yes", practically speaking (instead of some nonsensical dreamworld where everyone has all the facts, makes rational decisions and it's only a question of allocating blame), what's the message here?

 

(Obviously, there are two messages implicit in this situation. (1) Everyone needs to be a financial expert as much as possible, given how important it is now. (2) You will never know enough to make the best decisions, stakes are high and loans are a necessary part of lower/middle class life, so borrow and hope for the best.)

[Volourn]

How about talking to multiple experts liek tlaking to someone who has no perosnal interest in you taking the loan. Doing research. Don't rush in. Listen carefully. Be smart. I don't have time to feels orry for fools who part with their money out of sheer ignorance.

[Calax]

Volo, hate to break it to you, but ALL house loans are based on either 15 or 30 year payment plans. The 30 year loan is what gives you the lowest interest rate on your mortgage as the Bank will make more money off it that way than if it was a higher interest rate. This includes my parents house that they just sold (and payed all their mortgages off with the sale earning *drumroll* 3 dollars in profit).

[Hurlshort]

Volourn, I don't disagree with you about the personal responsibility. The reason I gave you the particulars of my situation is I want to know WHAT I should do to take responsibility here. Have I done enough or is there more I need to do?

 

Once I sell the place (and I'm hoping it will) I will no longer owe any money on the loan, even though it is selling for $250,000 less than I bought it for. That is obviously a great relief for me, but I can see where that would be considered shirking responsibility. Should I keep trying to pay off the quarter million to the bank?

 

Keep in mind, I've already paid $125,000 in interest on the property, and I am walking away from the $15,000 deposit and $10,000 in renovations I made on the place. I feel like that is a fairly steep price to pay as is, but I'm curious about your opinion here.

[Volourn]

If youya re trying to pay off your debt and trying to find legal ways to deal with a tough situation than there's no issue. The people I have an issue with are those who try to paint the banks/loaners as the big bad evil doers who deserve all ther blame.Youa re taslking responsibility for your mistakes. No issue there. PAeople make mistakes. That's apart of life.

[Walsingham]

Volo, is it too much to ask you to check your typing? Or were you just drunk?

 

~

 

On topic:

 

I was extensively boozed up and lectured to by the banking fraternity last night. They accepted that huge mistakes were made, but I thought it was worth forwarding a couple of points which seemed compelling, see what you chaps think.

 

1. Sub-prime selling was a politically enforced move originally "Poor folks must have homes"

2. A tiny number of CEOs took insane risks and managed to drag entire networks of perfectly stable well run banks down with them

3. The structure of the euro was not that of a technocrat but a political dream of union, based on a presumption that countries would magically refrain from exploiting the currency in ways which were the entire point of joining

 

It's an interesting case just for how they see the crisis. But I must say that there's something in it. The vast majority of banks didn't behave that badly.

 

I eventually sold them on the notion that what is needed is a not blanket regulation but psychological testing of chief officers. Reckless gamblers and sociopaths shot by Mega City Judges.

[Hurlshort]

If youya re trying to pay off your debt and trying to find legal ways to deal with a tough situation than there's no issue. The people I have an issue with are those who try to paint the banks/loaners as the big bad evil doers who deserve all ther blame.Youa re taslking responsibility for your mistakes. No issue there. PAeople make mistakes. That's apart of life.

 

Thanks Volourn, that genuinely makes me feel better about my situation.

[Tigranes]

1. Sub-prime selling was a politically enforced move originally "Poor folks must have homes"

2. A tiny number of CEOs took insane risks and managed to drag entire networks of perfectly stable well run banks down with them

3. The structure of the euro was not that of a technocrat but a political dream of union, based on a presumption that countries would magically refrain from exploiting the currency in ways which were the entire point of joining

 

Thanks Wals, it is rather valuable to have their perspective - they're far from stupid, after all.

 

(2), of course, is a nightmarish thing to consider, because you could argue it's the fault of the sector as a whole, both the personnel and the structure, to check those 'few insane CEOs', but in reality that's a pretty damn hard thing to fix or even evaluate properly. I'm also curious as to what kind of role CEOs have in the sector - i.e. how much of the commandeering adventurist, how much of the wheels-greasing bureaucrat, how much of the Hollywood style split decision go-to man, etc.

 

Same deal with (1), really. How do you go about resolving something like that? Give more autonomy to the financial sector to purely run the world of money by the laws of money? Surely not, both in the moral sense and that it would be politically impossible to enact short-term. Stop poor people getting homes? Well, that's a problem too, right there. What would the Occupy people say about that, in all their various stripes and colours? I wonder how many of them were personally effected by the housing crisis?

[Calax]

Well, from what I understand about Occupy, they want the old bill that required (in the US) investment banks to be separate from others to be put back in. Mainly to prevent the "to big to fail" mentality

[Walsingham]

Good rejoinders, Tigs. I'll try to tackle them piecemeal, since it's late.

~

Regarding point 2, I think that the answer might be something analogous to direct vetting for government officials. CEOs get checked out down to the floorboards, background, psychology, so on and so forth. Voluntary, of course, but akin to ISO9000 or whatever it is. A baseline check for suitability. Not sure who'd administer it though.

 

I guess all I'm really trying to do is move away from the 'sharp suit and dagger', jobs for the boys, method of choosing CEOs. All too frequently the people chosen are neither honest nor intelligent enough to do their job as head of 'state'. Moreover these are people who get bonuses for _failure_. Which alone should tell you the system is bollocksed.

 

I don't regard this as anti-capitalist. Good governance is good for capital. It's one of several reasons why London is a hub for corporate activity. It's seen as less corrupt and mental than elsewhere.

~

I don't have a problem with poor folks having houses. But to my mind if the government wants to do that it should simply build bloody houses. We call them 'council houses' in the UK. Rather than the cod-capitalist approach of forcing banks to lend on unsafe terms.

 

 

~

 

In general I'm often reminded of one of my earliest jobs processing loan applications. It made me seriously anxious to turn down mortage applications when I could see how much folks wanted them. But my boss would never stop telling us how ****ed up everything would get if the bank lent money to people who couldn't reliably pay it back. How right he was.

[Guard Dog]

Well, from what I understand about Occupy, they want the old bill that required (in the US) investment banks to be separate from others to be put back in. Mainly to prevent the "to big to fail" mentality

That was part of the Glass-Stengal Act, passed after the '29 crash to prevent that from happening again. Clinton repealed it when he signed the Gramm-Leach-Biely Act into law. 10 years later the banks crashed again. Go figure.