Mortgage crisis still got plenty to go...

[Ddrak]

Some interesting points:

http://www.slate.com/id/2188982/

In a massively deflating market, it may certainly be a lot smarter to eat the mortgage default and walk away than it is to even bother attempting to pay on a house that is worth far less than your mortgage - especially when there's a bunch of houses up on foreclosure sales just down the street...

Just two banks, Washington Mutual and Countrywide, wrote more than $300 billion worth of option ARMs in the three years from 2005 to 2007, concentrated in California. Others—IndyMac, Golden West (the creator of the option ARM, and now a part of Wachovia)—wrote many billions more. The really amazing thing is that the meltdown in California is already happening and virtually none of these loans have yet reset.

Dd

[Klast Brell]

I could almost see a situation where someone walks away from their house, then waits for the bank to put it on clearance sale and buys it back.

[Ariannda Kusanagi]

Don't you still have to have a cash down payment of a certain amount, like 10 percent of the purchase price or a set amount of 5-10-15k when you purchase a foreclosed home ? Also with a classic loan the house has to be inspected and approved for a certain loan amount, correct ? How does it work in this case ? Do you just ge a personal loan for 50k to buy a foreclosed house ?

I can see how right now is certainly THE TIME to buy, IF you can get a loan (I guess those with a VA loan option are sitting pretty for a while) but would it be worth it to buy back your own house ? I mean yeah the mortgage rate is right, but would you even be able to get the loan to re-buy the house ?

Not being a home owner myself, and not being really very interested in it right now, I really don't know.

[Embar Angylwrath]

I could almost see a situation where someone walks away from their house, then waits for the bank to put it on clearance sale and buys it back.

How would they get financing with a big DEFAULT on their credit score?

[Klast Brell]

I said I could almost see it.

[Rsak]

I can see how right now is certainly THE TIME to buy, IF you can get a loan

That is the kind of thinking that got us into this mess to begin with. It might be a good time to buy if and only if you can afford the loan, not if you can get it.

Regardless of interest rates or buyer's market the right time to buy is when you have the down payment and the ability to have a mortgage payment of roughly 30% of your monthly income.

[Ariannda Kusanagi]

That counts for any time though Rsak, and if you can get the loan and such but you were waiting for a great time with a lot of choices, this is the time. You're more likely to find the right house for you, at a more affordable price then you could have before, and the rates just keep dropping... which is good for now

[Rsak]

But that is the point of the whole sub-prime mess. People took loans they could not afford from people that should not have been giving them.. using lenders to determine if you are ready to by is not a step in the direction of financial security.

I agree it is true for any time, but we just went through a patch of lots of people not following that advise.

[Partha]

If there's a massive number of 'walk-aways' that occurs in the near future, housing will collapse. Inventories are at record highs of unsold houses already, and the *cough* middle class *cough* won't be able to buy all that property in the case of a severe credit crunch.

That said, it's a wonderful time for me to find a house.

[Ddrak]

I could almost see a situation where someone walks away from their house, then waits for the bank to put it on clearance sale and buys it back.

How would they get financing with a big DEFAULT on their credit score?

Pretty easily if they walked out with enough in the bank to put down on another house - especially if the banks are desperate to recover anything they can from the properties. The rates may be a little higher, but that's still going to be less than the jump from the option.

Remember - the option APR mortgages were marketed to the higher end of customers, not the ones who couldn't really afford it. Even with a foreclosure, it's not the end of the world in a buyer's market when you have sound finances behind you, especially if you can explain in dollars and cents exactly why you did it.

Dd

[Embar Angylwrath]

That said, it's a wonderful time for me to find a house.

Absolutely. And all the other people sitting on the sidelines over the last few years weill have a tremendous opportunity to stop renting and acheive home ownership. For most purposes, speculators are out of the game for the next 7 years or so, as they have to deal with negative credit from walking away from houses. This will really help stabilze the market. That, and lending guidelines are being restructured. This is a really safe time to get into the market if you are a W-2 employee, have good credit, and can scrape up 5%-10% for your downpayment.

Not so good if you're a stated income person who wants to buy a house, or want to refinance to take money out of your house, or want to flip property. If I was in the market for a house, I'd be jumping in with both feet right now. I really don't see real estate depressing much more than it already has. Even if the porperty depresses another 3%-5%, you'll make that up in the first year when the market starts to heat up again. There really is a lot of pent-up demand out there, and I wouldn't want to be on the outside of the curb when housing starts to take off again.

Banks don't want the inventory.. they want to unload the property as soon as they can. Every month they hold onto a forclosed property, they lose money. Property taxes, maintenance, oversight.. all eat away at any margin the bank may have left in the house. There are some really good deals to be had in foreclosures.

[Embar Angylwrath]

I could almost see a situation where someone walks away from their house, then waits for the bank to put it on clearance sale and buys it back.

How would they get financing with a big DEFAULT on their credit score?

Pretty easily if they walked out with enough in the bank to put down on another house - especially if the banks are desperate to recover anything they can from the properties. The rates may be a little higher, but that's still going to be less than the jump from the option.

Remember - the option APR mortgages were marketed to the higher end of customers, not the ones who couldn't really afford it. Even with a foreclosure, it's not the end of the world in a buyer's market when you have sound finances behind you, especially if you can explain in dollars and cents exactly why you did it.

Dd

Nope, that's not how it works here, Dd. Fingle is probably better positioned to address this, since he's in the banking industry, but if you default on a mortgage, I don't care how much you have to put down on a house, you won't get a loan, at least not for a few years. That, and a mortgage default will drop your credit rating to the low 500s, and that pretty much excludes you from any type of reasonable loan.

[Ddrak]

I probably didn't spell it out, but I was meaning that the people walking away will wait 2 years before buying again. Real estate still isn't going to be doing much in the way of rising before then anyway. Despite the hit to the credit rating they will still be far, far better off without paying off a mortgage on double what their house is worth, especially if they have little or even negative equity.

As far as the market - I think it's still got a year or two of declines, especially in the markets that were ridiculously overpriced (CA). I wouldn't be shocked to see some areas still deflate 25% or more from their current levels if there are going to be people walking out on mortgages like the Slate article suggested. If it's as bad as was hinted there, Countrywide and WaMu could easily end up bankrupt with their creditors getting pennies on the dollar.

Dd

[Ariannda Kusanagi]

I can't even get a cell phone heh. The ONLY revolving credit i have is my car loan, and that I got... well I have no idea how I got that. I bought the car thinking I'd be getting a higher paid job, however the hospital never called, and this was 2 years ago. I could get a cell phone but I'd really rather not have to make a deposit. At one time Verizon wanted a 1k deposit from me. Now i'd get it back in a year, with interest, but if I had 1k to drop on a cell phone then I probably wouldn't have shitty credit to begin with.

My problem is that I had a credit card at 18 with a 1500 limit, once my husband enlisted we had even less money then we did before and we stopped paying on the credit card. 8 years later it's still being sold to various credit agencies and I've tried disputing it but it's still there. The original company actually harassed me about the payment on it...

anyway, I won't be signing for a house anytime soon which is ok with me. I know tossing money away in rent is stupid when I could be owning my own home, but now when something breaks I dont have to worry about anything, and when the apartment needs a new roof it certainly isn't my problem, same with termites, or plumbing etc etc etc. If i was still married then my parents would have co-signed a loan for us, however that not being the case, thats no longer the case

B/F has good credit, but he has NO credit. Everything good he had on hi credit has dropped off so he's back to having a good credit score but zero credit. He applied for a credit card due to lack of credit. We'll end up taking a home buyers class I'm sure, and we'd like to buy while the market is still flooded with homes, but we're a bit picky about somewhere we have to be for the next 30 years and we haven't found anything we'd love to own even just browsing. If we did then we'd certainly be looking into buying now, while the time is right.

My parents somehow managed to sell off a beach property for a very nice amount, a year ago. Some properties will be in demand no matter how the market looks.

[Ddrak]

Jeez Ari...

- A car loan is not "revolving credit", unless you keep buying new cars each month or something.
- Not paying a credit card and continuing to not pay it will absolutely kill you. Should have called the agency and had them cancel the card and arrange a repayment schedule rather than just ignore it altogether. In fact, you should probably find out who you owe money to and fix it up right now so it doesn't keep screwing you over.
- Not sure what you were "disputing" about the credit card - you did say you didn't pay it, right?
- You can get a prepaid cell phone no problems at all - that doesn't involve a credit check.
- If your BF hasn't had any credit records in 7+ years, what the hell has he been doing? In any case, utility bills in his name still look ok and a steady job with a record of saving goes a long way to getting a bank to trust you.

Dd

[Kulaf]

She is disputing the CC being on her credit report after 8 years.......I think.

[Ddrak]

Right, and if she'd actually paid it off 8 years ago then it would have fallen off by now. If it's *still* an unpaid debt then it's not going to fall off (far as I know), and the mention that they still chase her for the money seems to indicate to me that it's still outstanding with no arrangements having been made. I could be way off base, but the only three ways I know of to clear the mark is to pay it off, come to some other arrangement with the company (also known as debt collectors come and take your stuff) or go bankrupt?

Dd

[Ariannda Kusanagi]

Bankruptcy isn't really an option. Really I only have like 4k in debt, the problem is it's all small little broken up pieces, minus the credit card. I do get the credit offers to pay it off "for a fraction of the price I owe" and of course a 1500 limit card is now running me around 4k, but that aside and the car aside (it's the only positive credit i have period) it's about 4k total. I just dont have the money to pay off the small bills until I can get the job, but we've discussed this recently/ I have a prepaid cell phone, it's an ok thing, but i hate the plan. I used to have a plan where i paid a flat 50 or 70 a month, calls were 10 cents a min to non verizon customers, i got free nights and weekends. Now i have to do the pay as you go per day plan. It's 2.00 a day when i use it, 5 cents a min to non verizon customers, no weekends but free nights. I dont use it every day but to call my mm on her Verizon phone i have to pay the 2.00 for the day. I liked paying my flat rate better but it's not an option.

I was under the impression I could dispute all debts and if someone can't provide the original documentation that I signed then they can't prove the debt and it has to be dropped from my credit report ?

[Embar Angylwrath]

Right, and if she'd actually paid it off 8 years ago then it would have fallen off by now. If it's *still* an unpaid debt then it's not going to fall off (far as I know), and the mention that they still chase her for the money seems to indicate to me that it's still outstanding with no arrangements having been made. I could be way off base, but the only three ways I know of to clear the mark is to pay it off, come to some other arrangement with the company (also known as debt collectors come and take your stuff) or go bankrupt?

Dd

There's one more... challenge the information.

Credit reporting agencies are bound by all sorts of rules (that they don't follow unless challenged). The primary rule is to ensure the accuracy of the information on a credit report. In Ari's case, a debt incurred over 7 years ago should not be reported on her credit file. It doesn't matter how many times that debt is bought and sold. The clock starts ticking on date of default. It doesn't reset in perpetuity as the debt is handed off to successive collection agencies.

[Klast Brell]

Jeez Ari...

- A car loan is not "revolving credit", unless you keep buying new cars each month or something.
- Not paying a credit card and continuing to not pay it will absolutely kill you. Should have called the agency and had them cancel the card and arrange a repayment schedule rather than just ignore it altogether. In fact, you should probably find out who you owe money to and fix it up right now so it doesn't keep screwing you over.
- Not sure what you were "disputing" about the credit card - you did say you didn't pay it, right?
- You can get a prepaid cell phone no problems at all - that doesn't involve a credit check.
- If your BF hasn't had any credit records in 7+ years, what the hell has he been doing? In any case, utility bills in his name still look ok and a steady job with a record of saving goes a long way to getting a bank to trust you.

Dd

I'm not Fingle so I'm not an expert on loans (or capsule movie reviews) but as I remember it from when I took my home buyers class.

A car loan is not revolving credit, but it is credit. It counts. Any loan counts that you are making regular payments on whether it is a credit card or a car loan, or student loans, whatever. The longer you have been making good on time payments on it the better.

They also told me that if you have less than 4 loans on your credit record. (as was the case for me) you can supplement it with utility bills, or rent.