Consequences of Massive Bailouts

[30ashopper]

Here's the rub, Shopper. My friend thought he was making good decisions. In hindsight, renting instead of buying would have been a good decision. In almost any other moment in our lifetimes folks like my friend would have had as a worst case scenario having to sell their houses. Not an option when the market demonstrates that it is worth literally half of what one paid for it 3 years earlier.

Scooter, I completely agree with your distinction...

What's the rub? He bought high, couldn't sell low. Tried to hold on.. failed. Such is life. Lesson learned.

The long term consequences of all this should be a more tepid housing market. That's good for all of us (i.e., the folks who are capable of making good financial decisions and can actually afford to buy a house.)

 

[scooterbug44]

Here's my question -

You are upside-down because your home's estimated value has significantly dropped, so you decide not to pay knowing it will take at least a year to get thrown out.

But aren't you being incredibly shortsighted to not pay if you can? When the dust clears you will not have a house, not have all the money you paid already, AND your credit score will be shot to hell so everything from car insurance to a future mortgage will cost more.

I understand reaching a certain point and then making a hard decision and letting a house go before it bankrupts you, but IMO those thinking they will "work the system" are just going to hurt themselves more in the long run.

And my other question -
Are most of these because of a major income change, a perceived loss of value skewing the numbers, or should they have not gotten these houses/loans in the first place?

 

[Bob]

in a society where institutions are saved from themselves but individuals are required to bite the bullet, you will see more of this moral backlash. we can't have it both ways.

 

[Geo]

The rub is the way we are lumping many folks who bought high and got burned into a category of irresponsible/bad decision makers.

It was conventional wisdom that real estate was the smart play. Even conservative players didn't see it realistic that you could buy a place and three years later have the place two doors down sell at short sale for literally half.

When you are growing up you are told to get good grades so you can get a job, earn and save and buy a house because renting is throwing your money away. You aren't told that buying a house could be a horrible idea and you could lose everything and then folks will call you immoral and say you made bad decisions.

 

[30ashopper]

The rub is the way we are lumping many folks who bought high and got burned into a category of irresponsible/bad decision makers.

It was conventional wisdom that real estate was the smart play. Even conservative players didn't see it realistic that you could buy a place and three years later have the place two doors down sell at short sale for literally half.

When you are growing up you are told to get good grades so you can get a job, earn and save and buy a house because renting is throwing your money away. You aren't told that buying a house could be a horrible idea and you could lose everything and then folks will call you immoral and say you made bad decisions.

"It was conventional wisdom that real estate was the smart play."

:roll: It was a speculative play, and everybody knew it. Some just got caught with their pants down.

If it sounds too good to be true, it usually is.

"folks will call you immoral and say you made bad decisions."

Immoral? I think you meant something else. But yes to the latter part, bad decision were made. When we make bad decisions, we pay a price. Such is life.

 

[30ashopper]

in a society where institutions are saved from themselves but individuals are required to bite the bullet, you will see more of this moral backlash. we can't have it both ways.

True dat. Although the federal government is also bailing out homeowners currently, so a lot of individuals are currently getting a piece of free pie too.

 

[Alicia Leonard]

When I purchased my little house, my mom was livid with my choice. "You can afford better than that" she told me. I told her, " Mom, If I lose my job and have to work at McDonalds, I can still afford my house payment."
She tells me now, 14 years later, "You were smart to buy the house you got." My little abode has appreciated and as a home owner, I was able to qualify to get some improvments needed with a grant/low interest loan last year. My house payment was half what rent would have cost as well. Buy what you can afford, not what you want or others think you should have.

 

[Geo]

Shopper, I agree with what you said about it being speculative and everyone knowing it if we are talking about folks who got in high looking to flip property before the first payment was due on the note.

But what if we are talking about someone who bought a primary residence with the intention to live there full time indefinitely with the mindset that the worst case scenario is if they face financial hardship they could always just sell the house they love if necessary.

Very few on this forum besides SHELLY aren't speaking without the benefit if hindsight.

I have other friends who wanted to buy here but couldn't afford it/didn't qualify then because of bad credit/irresponsibility so they rented thinking they were throwing money away. And now their credit is good, they have cash and they are buying these same places from the bank.

 

[Geo]

Aleonard, what if you did everything exactly the same as you did but the outcome was the opposite. Your house was worth half and you couldn't sell it, you no longer had the income to cover the payment and it seemed apparent that the value wasn't coming back for 7-10 years. Your mom wouldn't tell you you were being speculative or that you were doing something immoral by trying to start over after your place got taken away, would she?

 

[Alicia Leonard]

Aleonard, what if you did everything exactly the same as you did but the outcome was the opposite. Your house was worth half and you couldn't sell it, you no longer had the income to cover the payment and it seemed apparent that the value wasn't coming back for 7-10 years. Your mom wouldn't tell you you were being speculative or that you were doing something immoral by trying to start over after your place got taken away, would she?

Since at the time I purchased my house I had saved more than 20 percent for the down payment and worked it so it would be paid for in 10 years, it would have been tough to screw it up. But lets say that I fell ill and could not make the tiny( compared to most) monthly payments I set up. I would have contacted legal advice about my options. No, I doubt my mom would have said those things, but if my lawyer advised me to sit in the house and not pay my bills, I would have probably gotten different advice, filed chap 7 or 11 or moved out of the house. I'm one of those people that dosen't like to leave things hanging over my head. I would worry too much that someone was going to show up and evict me.

I read this article last night and although I understand the frustration that some of these home buyers have, no one forced them to buy these houses. If the loan officers lied to them, that is a different issue. I got the feeling that a lot of these people were extracting revenge on the banks because they felt taken advantage of. I had a car loan officer do that to me once and I told them to come and get the car and I took the hit on my credit report because they switched interest rates on me. It was messy enough that they did not want to go to court. But, in the end, people have to live the best way they can. I love scooty, but I also know there are times when you are so screwed it's tough to find an honorable way out and a roof is a roof. Everything is not always black and white about the situations we find ourselves in. It would be nice if they were.

That was my only point. I would not buy something I could not pay for, even when my family offered me money (for the down payment)to buy something much more expensive. I wanted to be able to have a home that was mine and not worry that if something happened, I would lose it. My house payment was 350 a month. I could have dug ditches and made that and I did run an event crew along 30A for two years during my divorce to make it in the dead of summer putting up tents and stages during much leaner times.

(forgive me if I have misspelled anything, I don't have spell check on this computer and I am about blind from proofing today)

Maybe we should all move into one of these. I have been experiencing some wanderlust recently.

http://abcnews.go.com/Technology/Home/mcmansions-make-mini-houses/story?id=10793263