patrick.net

I'm still trippin about the banks not even having the slightest thought of what will happen if home prices decrease!!

caliinreality says

Everyone has unique circumstances and it is WRONG to harshly assume you know it all when you don’t.

May I point out that you're posting on a real estate board dedicated to being prudent? That many of the people here didn't buy because it wasn't prudent, or didn't cash out phantom equity and remain in their homes?

We don't know it all. But we do have opinions about making poor choices regarding housing. My opinion is that if people suffered a crippling job loss or disease, they should have a chance to modify their loans. But if they gambled and lost I have no sympathy for them.

Either way, we're gonna state our opinion here and you shouldn't be too surprised. The title at the top of the page says that Now just ain't the time to buy.

TT says

Time for interest rates to go back up to more sane levels.

This is not going to happen. Because then they'd give you the opportunity in the future to refinance at a lower rate making you a winner and them a loser. They've learned their lesson already. They made you sign the dotted line to enslave yourself for 30 years. That's the way they want it to remain. Maybe in the future if interest rates rise, they'll amend the contract to levy huge penalties for early pay off.

TT says

Don’t blame appraisers. They just compare the latest sale of a similar house in square mile area from the house for sale. It’s not rocket science. Expecting them to stop the housing bubble is just silly. Banks that made the loans had internal appraisers and auditors who double checked every appraisal. The bank’s own appraisers all signed off on the prices. The Fed and Congress created this bubble.
Everyone was making lots of money. Everyone knew the deal and made hay while the sun shined. The Fed and Congress held the sun up over the farm for too long and we ended up with a Mount Everest of hay. Now it’s just sitting there composting (or maybe burning?).
Time for interest rates to go back up to more sane levels.

I disagree completely. Appraisers definitely share the blame--more than the Fed or Congress. They basically committed fraud--they would come up with whatever number was necessary to close the deal.

Vain says

This is not going to happen. Because then they’d give you the opportunity in the future to refinance at a lower rate making you a winner and them a loser. They’ve learned their lesson already. They made you sign the dotted line to enslave yourself for 30 years. That’s the way they want it to remain. Maybe in the future if interest rates rise, they’ll amend the contract to levy huge penalties for early pay off.

Banks don't set interest rates. True-they can determine the interest rate they will offer on a mortgage based on your credit history and prevailing rates, but "interest rates" are really determined by market forces. The FED can influence it by various means, but only so much...

But it just seemed too easy. Take a look at my parents. In 1996, they bought a $140k home with a $110k loan. They paid about $1200/month to the banks, but recently, they refinanced to a 4.75% loan making their payment $500/month. Anyone who bought a house back then seems so well off now because of them being able to escape slavery like that due to lower interest rates. There are probably works in the back end to ensure that this does not happen again. Levying a huge early payoff penalty will probably stop it. Keep in mind they were working near minimum wage at the time. I do not think their income situation improved that significantly, but they sure as hell are better off than a family with $150k income trying to buy a home now.

Vain says

But it just seemed too easy. Take a look at my parents. In 1996, they bought a $140k home with a $110k loan. They paid about $1200/month to the banks, but recently, they refinanced to a 4.75% loan making their payment $500/month. Anyone who bought a house back then seems so well off now because of them being able to escape slavery like that due to lower interest rates. There are probably works in the back end to ensure that this does not happen again

Huh? slavery? Not sure what the conspiracy is that you are trying to imply, but I'm not buying it... Banks loan money to make money, end of story.

I cribbed this link from CR. Looks like purchase money refies in California could soon be getting the same anti-deficiency status as purchase money loans.

tatupu70 says

Vain says

But it just seemed too easy. Take a look at my parents. In 1996, they bought a $140k home with a $110k loan. They paid about $1200/month to the banks, but recently, they refinanced to a 4.75% loan making their payment $500/month. Anyone who bought a house back then seems so well off now because of them being able to escape slavery like that due to lower interest rates. There are probably works in the back end to ensure that this does not happen again

Huh? slavery? Not sure what the conspiracy is that you are trying to imply, but I’m not buying it… Banks loan money to make money, end of story.

Exactly. So why would they want a system where you can refinance and get away with much lower payments? They'll all unite and find a way to make you carry on your 30 year commitment.

Vain says

Exactly. So why would they want a system where you can refinance and get away with much lower payments? They’ll all unite and find a way to make you carry on your 30 year commitment.

Because they make money every time you refinance--through fees. That's why there are so many people trying to get you to refi...

And making money is the name of the game.

I suppose if you refinance through the same lender, that'll work. For a $300k loan, they want to make $300k from you throughout a timeframe of 30 years - not $30k in 5 years. If they are willing to give a 'discount', then all these short sales will get approved since many of them have recovered money from the initial payments that included mainly 'interest'.

Vain says

I suppose if you refinance through the same lender, that’ll work. For a $300k loan, they want to make $300k from you throughout a timeframe of 30 years - not $30k in 5 years. If they are willing to give a ‘discount’, then all these short sales will get approved since many of them have recovered money from the initial payments that included mainly ‘interest’.

OK--maybe we're talking about different things here. What do you mean about short sales? A refi isn't a short sale. And banks understand that the vast majority of loans are paid back early--they factor that into their decisions. They don't expect to make $300K over 30 years.

True. Ideally the bank would like to keep you on the hook making payments. If you refi, then another lender will be earning closing costs. I used short-sales in the example to show how they do not like to give discounts on their product (loans).

I was calculating this because I was bored and the numbers are fairly accurate. I am under suspicion that the banks have done this and have planned it as well.

I guess this is somewhat irrelevant, but I'll spill some numbers here. Assume all 3 scenarios as $300k loans, 30 year @ 5%.

Scenario 1: A loan which carried out over 30 years with $1610.46/mo payment.
Throughout the course of the mortgage, the bank would have earned $279,767 interest throughout the entire 30 years.

Scenario 2: Short sale in 5 years.
Payments for 5 years @ 1610.46/mo = $96,627
House depreciates from 300k to 200k
Principal remaining: $275,365.80
The banks want to call it a $75k loss since it would be sold for $200k.
Once it sold, they'd net $200k + $96,627 = $296,627. If you add in all the closing costs and points the borrower has bought initially, it seems like they are breaking even. Though they may be losing interest paid out to others to loan you the money initially, they probably loaned out the payments made to them out as well to recover some.

Scenario 3: It starts to look much better if the borrower short sales at year 7
Total payments made @ 1610.46/mo = $135,278
Principal remaining: $263,481
House depreciates from $300k to $200k
House sells for $200k
Claimed loss: $63,481
Payments + proceeds from sale: $335,278
Profit: $35,278 in 7 years.

Is this why the banks designed 5/1, and 7/1 loans? They figured that even if homes depreciated 33%, that year 5 would be their break even point, and at 7 years, is starting to look bright? These are the discounts I was referring to. The banks are holding the borrowers by their balls to get $279k, when they can really come to a small profit at year 7.

Vain says

Is this why the banks designed 5/1, and 7/1 loans? They figured that even if homes depreciated 33%, that year 5 would be their break even point, and at 7 years, is starting to look bright? These are the discounts I was referring to. The banks are holding the borrowers by their balls to get $279k, when they can really come to a small profit at year 7.

Banks don't make decisions assuming their collateral will decrease in value.

I was implying that they could care less if it declined. As long as they gave you a low enough rate for you to keep on making payments for the first 5 years, it's okay with them.

They win some, they lose some. But I really think it's a case where a senior executive is yelling about not having enough profits. Even the new short-sale program. Really, the US Government gives them $1000 to approve a short sale? $1000 is a joke if you think the banks are really "losing" all that money.

I would really like to see folks "walk away" en masse. There's not enough sheriff deputies in the land to do anything about it, and besides even if there is, probably lotsa them have the same negative equity problem at their own residence.

A gigantic walk away will be so disruptive to tax revenues that it will force some reforms of Prop-13 and also of the fringe benefits for "civil" servants.

You guys who think the sky will fall if you walk away are dreaming. My cousin walked away from a condo in Fremont and bought a house twice the size for half the money. I know several people who have walked away.

People have been talking about how the banks would go after borrowers in recourse situations since at least 2005. It has never happened on any significant scale that I've seen. Now Fannie is talking about it like the Financial n00bs they are. I can't wait for those same borrowers to turn around and class action them for rubber stamping the loans in the first place. It's like begging someone to shoot you and then suing him when he does. The reason you haven't seen the mass lawsuits is because there is blame on both parties hands.

If anything they'll pursue it like credit card debt collectors, I think. They'll try to intimidate and bully to get people to dig through the couch for change. Legally their asses are too much in the fire to pursue it in the courts.

@sybrib, people ARE walking away en masse. I know people who are renting rooms from friends, moving back in with the parents, and going back to renting apartments. And the early walk-aways were able to trade up, in one case I know of, THREE TIMES. Yes, they moved THREE TIMES in two years, each time to a bigger and bigger house. She works for a RE Title Company (i.e. she is in the business).

thunderlips11 says

Tenouncetrout says

The Credit Report is being used as a Class division tool, and not a realistic calibration of ones credit worthiness.

Right on. Why is it that Electric Bills, Gas Bills, Water bills, Sanitation Bills and above all - Rent payments - are generally not reported?
Paying $800+/month in rent, month and month, year after year without missing a payment is a much better indicator of creditworthiness, than being 30 days late a couple of times in the past 3 years on a credit card.
FICO doesn’t take that into account. Why not? Renting is a kind of lease, no different than leasing a vehicle.

AMEN! This is completely true. It's not even a dirty little secret anymore.

You won't get a good paying job without good credit. So guess what? You're screwed. No social mobility for you if you are truly talented, full of integrity, intelligent, industrious, and loyal if you don't already have Mr. and Mrs. Moneybags for parents. Your credit will be used to allegedly prove that you don't have the right kind of moral compass that is required for the position. You just aren't their "kind" or "breed" of person. Get to the back of the bus. Never mind that people who need money make the best workers because they tend to be the most grateful for the opportunities that are opened to them.

Yet we continue to allow employers of all stripes do all sorts of things to potential employees. We allow illegal search and seizure of bodily fluids and or tissues for drug testing. We submit to physicals that reveal intimate details to the folks in HR about our "health." And we have absolutely no protection against privacy invasion when your potential employer goes on the Internet to dig up any dirt they can find on you.

But we don't need no stinkin' labor laws or unions.

Jon says

You guys who think the sky will fall if you walk away are dreaming. My cousin walked away from a condo in Fremont and bought a house twice the size for half the money. I know several people who have walked away.

Pretty much everything that I've read supports this statement. Even though people's credit rating scores are dropping, there are so many that are doing so that 600 is the new 750. It doesn't make sense to deny credit to someone who lost their house these days.

UnitedSocialistStatesofAmerica says

Thinking of buying a house NOW is like thinking of remodeling the kitchen while the rest of the house is burning.

But you gotta eat. ;-)

"The buyer is just renting it from the bank for probably twice as much as he would pay in normal rent AND he’s (she’s) responsible for the upkeep at their own expense in exchange for the privilege."

I know this isn't the case in Maryland. To rent a decent three bed room apartment will cost you $2200/month. I just bid on a house and the mortgage + tax + insurance + PMI will be $2200. After tax rebates the cost to own will be $1700 per month. Keep in mind this is a 5 bed room house vs a 3 bed room apartment. There is no HOA. But you are right about the repairs. No getting around that. But I will have an extra $6000/year for repairs. I don't see much down side unless of course the house loses 23% of it's vaue while rent remains flat (even though that would still force me to break even). If the house loses 30-40% then I'm upside down but I think I'd be willing to take the hit for the privelage to have two extra rooms, two car garage, my own yard, and extra rooms I could rent out. If values do go down 40% banks will begin collapsing, more stimulus will be pumped in, and the day of reckoning will be accelerated.
If there is no more stimulus interest rates sky rocket. I don't think it's a terrible time to buy, atleast in Maryalnd which has the number 1 per captia in come in the nation.

robertoaribas says

Newhomebuyer: the tax writeoff is NOT THAT BIG!!! don’t fall for the #1 real estate lie; you have to itemize to get the homeowner taxwriteoff, meaning you will lose your standard deductions… for a married couple, the standard deductions are what these days, $13,000? so if your monthly payment is $2200, what could your interest a year possibly be? $15,000? 15K -13K = 2K, which reduces your income.
Even at the 30% tax rate, a 2K writeoff drops your taxes by $600 a year. While everyone’s particular tax case is different, unless you have a ton of other allowable writeoffs, you will hardly see any tax advantage.

I'm open to being educated and appreciate your input. There is a lot I don't know. What I do know is right now I'm single with no write-offs. Last year I was in the 35% rate for taxes. I ran the numbers in turbo tax using the interest payments (from an Amortization table) and property tax and obtained an additional $5000 rebate according to the program. I'm not expecting free advice that I should be getting from a tax advisor but do you see anything that I may be doing wrong or missing? Does me currently having no tax write-offs change things in a big way? BTW you were spot on regarding the interest calculation. The number is $13,174.

Don't forget that he can deduct property tax as well. In Maryland it must be quite a chunk of change. He's single so it's worth it to him to buy with these numbers, as long as he has a stable job.

newhomebuyer7, so you bid on another house?

You're not missing anything. You're gonna get additional rebate because you're a single and getting a loan bigger than 200K. And property tax, yeah, $5000 rebate sounds possible. Getting over $20000 tax rebate is not uncommon when your reportable income is relatively low and the loan amount is relatively high.

But before you got overly excited about the tax rebate, you gotta think about the nature of the word "tax" and "rebate" itself. It means you need to earn first to be taxed, spend first to get rebate, thus, you have to be able to afford the cost first. Also don't forget the fact that you need to pay some other additional cost you don't have to pay while you're renting. So make sure you take your time to figure out all the cost vs rebate, and see if it's worth it. Sure, you're gonna get your tax rebate, but remember you can not spend it before you get it in sometime next year.

How much you got left in your hand after pay PITI for home, and all other expenses? It'd better be positive numbers, otherwise you're trying to catch bigger fish than you can handle.

newhomebuyer7 says

I know this isn’t the case in Maryland. To rent a decent three bed room apartment will cost you $2200/month. I just bid on a house and the mortgage + tax + insurance + PMI will be $2200.

Just a thought, but maybe you should bid on a what you can afford to pay 20% down on and ditch the pmi. PMI is pure profit to the bank and pure loss to you. With the front loading of interest payments on a mortgage it takes many years to get rid of PMI. Also the more down payment the better your leverage on getting a more favorable mortgage. The very best option is to be able to put 20% down and get a 15 year. The rates for 15 year are very, very low right now, probably a once in a lifetime opportunity. No pmi and fast equity building, perfect together. I have never had a 30 year mortgage.

Be smart and leave yourself some wiggle room. Don't buy the most house that you can mortgage. My friend was an appraiser and used to leave me laughing with tales of $500,000 homes (in NE PA no less) that didn't have any furniture, except a couple cardboard things from walmart distress sales.

The tax rebate is a one year, one time shot so it shouldn't enter into your calculations at all. Tuck it away for repairs, you will need it.

If the cost of owning is near the cost of renting, you aren't moving soon, your job is reasonably stable, and 3x your income is more than the house cost then owning certainly makes sense. All real estate is local. I am not a real estate bear, but won't own in my area at this time. I'm just banking the substantial difference between renting and owning.

seaside says

newhomebuyer7, so you bid on another house?
You’re not missing anything. You’re gonna get additional rebate because you’re a single and getting a loan bigger than 200K. And property tax, yeah, $5000 rebate sounds possible. Getting over $20000 tax rebate is not uncommon when your reportable income is relatively low and the loan amount is relatively high.
But before you got overly excited about the tax rebate, you gotta think about the nature of the word “tax” and “rebate” itself. It means you need to earn first to be taxed, spend first to get rebate, thus, you have to be able to afford the cost first. Also don’t forget the fact that you need to pay some other additional cost you don’t have to pay while you’re renting. So make sure you take your time to figure out all the cost vs rebate, and see if it’s worth it. Sure, you’re gonna get your tax rebate, but remember you can not spend it before you get it in sometime next year.
How much you got left in your hand after pay PITI for home, and all other expenses? It’d better be positive numbers, otherwise you’re trying to catch bigger fish than you can handle.

Thank you for the feedback. You and many others have been extremely helpful! I think I'm ready to make the move. I bid on a house in Clinton and the seller accepted. I got tired of looking at short sales that needed $30,000 in repairs to get them up to speed so I bid on a regular sale. If the house passes inspection I'll be moving in this August.

UnitedSocialistStatesofAmerica says

How heartwarming. A thread dedicating to offering advice to deadbeats on whether it’s more convenient to STIFF the first lender or the second. Or the 3rd, the 4th, the 5th …..

The thread has meandered to another subject. Happens sometimes. For those people who aren't too self-righteous and are able to change in mid-stream, it's not upsetting.

lmao .. now, you gotta laugh ellie .. that is funny.

USSA --- hard hitting points all around. Cheers.

I'm not attracted to incendiary assholes. He should tone it down and try again, I'm not that desperate (yet).

I can't get past his approach, haven't read much beyond the capital letters yelling at me and inflammatory language.

shrekgrinch says

UnitedSocialistStatesofAmerica says

Also, I’d like to point out that there are NO property taxes in Argentina.

Really? I am amazed by that. Is there some particular reason why they don’t have property taxes in Argentina?
Also, how strong is their land/property title legal apparatus over there?

Where did you get that? I emailed an Argentinian friend and he says that there most certainly is property taxes in Argentina. He did say that there is no property tax bills (maybe that is what you meant), you must go down and pay each year without being billed. There is also something called an ABL tax (got no explanation on what that is) on property that is in addition to the actual property tax. It's not called property tax but asset or personal goods tax. Foreigners pay a higher rate by the way. I also looked on a couple of expat websites just to double check and they all say the same thing.

He also pointed out that any economic statistics about Argentina are pretty much useless. There is a huge pervasive underground economy there with almost all businesses keeping 2 sets of books.

UnitedSocialistStatesofAmerica says

will NEVER EVER EVER respond to any of YOUR posts from now on, because you’re an IDIOT

Looks like Nomo was right. Step 2--The name calling has begun...

UnitedSocialistStatesofAmerica says

I will NEVER EVER EVER respond to any of YOUR posts from now on, because you’re an IDIOT.

I guess by "NEVER EVER EVER" you meant a little over an hour. :)

Can't we all get along? Sorry I could not resist.

UnitedSocialistStatesofAmerica says

these charges are levied by the provinces and are based on the assessed value of the property”

UnitedSocialistStatesofAmerica says

There are
N-O… P-R-O-P-E-R-T-Y… T-A-X-E-S… I-N… A-R-G-E-N-T-I-N-A.

huh? So, if my county calls it an asset tax based on property value then it's not a property tax? It's all in the name I guess.

A tax means less money in your pocket no matter what you call it.

UnitedSocialistStatesofAmerica says

inflection point says

A tax means less money in your pocket no matter what you call it.

Completely agreed. I was merely pointing out to these stunads that in one country the failure to pay them can result in your losing the house while in the other it DOESN’T.

Suggestion for YOU then. Say that--instead of saying they DON'T have property taxes.

People think that because Amazon or NewEgg aren't obligated to collect a sales tax, that there is no need to ever report any taxes for items purchased. However, your state income tax form may have a requirement for it. And to dodge it, is just a game of whether it's a piddling amount or not and whether you get a hard-ass audit.

Many consider property tax to be the fairest of all taxes. If you are using a piece of property to generate income, you can easily pay it. If you are letting the land lie fallow, that does not serve the greater good. Having to pay property tax is a small lever preventing this guy:

from hoovering up land during every downturn, and building a dynasty by virtue of eventually owning all the land.

UnitedSocialistStatesofAmerica says

It’s two completely different ways of collecting taxes.

So by your own definition it's a tax (property, asset, personal, whatever you want to call it) on your property, just with a different collection process and penalties. WTF are you splitting hairs over and why are you so fixated on this?

Consider these two scenarios:
1.Buy a property for $200K with 50% down @ 5%.Monthly $536.You will never see that down payment again unless you sell.
2.Buy the property with no down(VA if qualified) or 5% down(FHA if qualified).Ladder the $100K or $90K into CDs and make up the difference in payment($536) out of interest and out of pocket.If you have to default(job loss,etc.)you lose $0 or$10K and still have the CDs.
Why hand over $$$ to the lender?