Friday, April 3, 2009

4 Sale

This article on Cnn.com talks about how a $500,000 home is now being sold for $200,000. Now besides the fact that you can't "call" it a 500k home if it's selling for 200k... I think the one thing that these articles fail to point out is how awful it is to have to short-sell or foreclose on your home because the loan you have on it is $300,000 more than your neighbors who just bought the same house next door for $300k less.

We have the same problem here in the metro Washington DC area. Homes that were valued at 500k are now going for 250k-300k. Now people are able to buy those homes at 250k because the person who owned the home previously had a loan for $500k that they couldn't pay so they were foreclosed on. So the first family is forced to leave because they cannot afford the loan they took out for 500k and another family moves in paying on a much more affordable mortgage of 250k.

So my question is this - why can't they find a way for the first family to stay in their home but pay on a mortgage that reflects the market rate for the house?

I know - it's not what we do here in America - it would totally screw up the already screwed up system of lending and borrowing - and it's not our fault that the first family bought over their means - but what good is it going to do to have a bunch of empty run down houses? What good will it do to have another family renting instead of taking pride in home ownership? Or worse yet, be on the street?

30 comments:

  1. This article is just salt in the wound of the home owner who is now screwed. It is awful to show these smiley faces in the wake of loss for the previous homeowner.

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  2. That's what I thought too! It's kind of tasteless of CNN to show that pic.

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  3. Not only do we have a bunch of vacant homes worth 1/2 of what they were before, but we now have families with children that no home to live in. Add to that the fact that their credit is wrecked now and the chance of owning a home in the near future is gone.
    Many got themselves into this problem by not understanding what they could really afford and when the economy tanked they were doomed.

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  4. It is just like a previous person said, added salt to the wound. People buying dream homes at a fraction of the price while others with children having no home to live in. I am not jealous. I just think CNN needs a different spin. It's great there are first time buyers, time to buy a home. But smiley faces on human tragedy is painful. People happy and People homeless. Need to write this in a more creative way.

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  5. I don't even want to see an article like this any more. I own a home and the value of it has been cut in half, I am also unemployed. The only people who gain by this are the realtors and the "smiling people in this article". Let me assure you that you have nothing to smile about you are greedy people who more than likely stole this home from a foreclosed family. You need to hang your heads in shame. This is certainly a fine thing to teach your children.

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  6. These are not $500k homes selling for $200k. These are $150k homes selling for $200k.

    They were all over inflated to begin with. If you bought a $500k dollar home when the market was at it's peak...ready to pop...then you made an unwise choice.

    Me and my wife waited, knowing the housing market was going to crash...and we will still wait, as the prices continually decline to where they actually should be.

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  7. Paul - that is what we are doing as well. When we buy it will be what we know we can afford, not what the bank tells us we can buy.

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  8. Give me a break you whiners. If these idiots hadn't bought houses they could not possibly afford, they wouldn't have been in the position to be foreclosed on. Yes, I'm sure some of these people were in complicated mortgages they didn't fully understand, but to blame it all on the lenders and real estate agents is just absurd. These people were both greedy and foolish, and the fact that the market corrected and left them owing more than their homes were currently valued at is just the standard risk anyone takes when they purchase property.

    As for the family described in this article, I say good for them. They were fiscally responsible, and they should be congratulated, not ridiculed.

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  9. The first thing I thought of is "ouch..that hurt". For CNN to profile a family who is "grateful" for the housing market collapse is tasteless. Millions of people have lost their homes because of that collapse that they are "grateful" for. That's not only heartless but borders on obscene to me. I personally now owe about 25 percent more on my home than it's assessed value because of that decline. I choose to hold on because I love my home and God has blessed me with the means to pay my mortgage. There's a whole bunch of people who aren't as fortunate and my heart breaks for them. "Grateful" is the last thing that comes to mind during these times......

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  10. Amen to all the above comments! I bought a home with my wife almost 5 years ago. I got into the market thinking that I was able to get in with an adjustable mortgage, then would refi into a fixed as the market went up. Well, the market went up, but they changed the rules. No refi, even though my house had a higher value then when I purchased it. They wanted an aditional 35k to fix the rate. They first gave us money to get into it, but then it became a risk to allow us to fix the rate. We were both employed made a decent living and paid on time. Well at that point we were stuck, or had to sell, but chose to ride it out. Now it is worth maybe 300k or so, and I am dead in the water. I made mistakes I suppose, but when they change the rules in the middle of the game you can't win. My question to banks is this, why not assist current home owners and allow them to continue to pay at a decent rate rather than punish them, and take a huge loss now? We all deserve some respect and a fair shot to stay in our investment. The only people who benefit are the people who did before; loan agents, brokers, appraisers and real estate agents. They all make money during each transaction. The New home owner also makes out, but I can't really blame them for taking advantage of the situation at all. The original home owners like me simply want a place to call home.

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  11. This is exactly the kind of article we need more of. Smart people managing their money correctly and now they are reaping the benefits of acting responsibly.

    Articles talking about the pain felt from the foreclosures and short sales should be framed in the same context: Look these people made bad choices, in a free country you are the only one responsible for your choices. Feel sorry for them a little but don't reward their poor decisions! What is that teaching anyone paying attention? Do what you want and don't think about the consequences.

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  12. I do however think it would make good business sense for the banks to lock in rates for people who are paying on time. Even if it means losing a little profit because it could have saved from the loses of a foreclosure. Maybe there are regulations against that I don't know.

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  13. Good way to lure people to California, but california will hit you with so much taxes, good luck to afford $30 000 home.
    So I say Thanks, But no thanks.
    I'll stay in midwest.

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  14. People who got into homes when the market was high are not the only problem here. The glut of homes on the market now has many causes. Bad choices made by freely run banks created a lack of lending because they sold bad loans over and over which broke the system. That lack of lending is what drove down prices by creating a surplus. If the banks had not made so many bad choices, which you and I then bailed them out of, prices would be higher today, supply lower and we would have a healthier market. People who purchased the higher priced homes with risky loans did not entirely create this mess. Be honest people. Pointing fingers at one group in this mess is not only unfair, but truly a mistake. Your tax dollars are rewarding banks for the mistakes they made many, many, many times over. Home owners in most cases made a single bad choice. Home owners are, for the most part, not getting bailed out, while the banks are.

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  15. You know what?

    My husband and I are currently renting and looking for a new home. When the housing prices hit where we want them to, we will buy. We manage our money and know what we can and cannot afford. We will not sign a ARM. We will lock in a good mortgage. We will not buy more house than we can afford. And we will have a lawyer present when we close. We won't be amongst the people who whine and complain that the banks screwed them over. You have to get the house that you can afford. I am not willing to feel guilty because someone is less fortunate than I. We want our home and we will have it. Sorry if that makes me greedy.

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  16. I don't think that makes you greedy, I think you are very sensible. My husband and I are doing the same thing. I think that article could have been written better. It's a shame that families are being kicked out of houses and then the houses are being sold for a price that the original family could have afforded - if given a chance to pay the reduced amount.

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  17. If the original homeowner bought the house for 500K then that means they had the means to pay a 500K mortgage, right? If so, then how does the fact that the house is now only worth 200K change their ability to pay the 500K mortgage? Buy a home to live in and pay what you can afford, not buy a house as an investment based on supposed, built-in equity. There are many people (a vast majority actually) who bought homes well within their means who now are in position to buy up to a larger home that was previously out of their reach. Why are we not allowed to be happy for them?

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  18. Just a comment about "whining" about banks. If you think that way, how is your 401k? Stock portfolios?? How about your businesses? Doing well? No?? Hmm... that is directly related to the banking industry. Home owners who paid too much, but could afford to pay, but now can't refinance didn't make such a big mistake, they got caught in a bum market created by those who knew better giving money to those who didn't. It is ignorance on the borrowers part sure, but borderline criminal on the part of the lender. They knew better. They get paid very, very to know better. They should never have given those loans, let alone bundle them with good loans over and over and over again to continue to make a profit on them. Maybe whining is not the issue here. Good business practices by the huge international banks went by the wayside for short term gains. Home owners, savvy or not, are suffering because of it on a large scale, as it every financial market on the planet. Greed is not wanting something, it is wanting it and foresaking basic morals and ethical business choices to get it.

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  19. Yes we can afford the 500k mortgage, but we cannot upgrade to a larger house (even if it is less). How are we suppose to sell our current home without taking a tremendous loss? How will we be able to afford our current mortgage if we are out of a job?? The current unemployment rate continues to skyrocket. People in all job fields are getting laid off everyday without warning. Think about those issues before you go blaming ALL of the homeowners. I think it is completely horrible to blame ALL home buyers on "their mistake". You go to a mortgage broker to get advice on a home purchase and many gave you advice that would favor themselves and not the homeowner.

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  20. I got a 425,000 home for 172,000 in the DC area and putting a contract on my second home. If you did your homework you knew this was coming. I told people not to buy when they asked me 2 years ago. I mean I am Network Engineer/Economist. I just used numbers like salaries and basic financial knowledge to show people that those home where not a good deals. But they all answer me with "location location location" and yet heard from a realtor that brought me any any income risk investment numbers (any numbers besides one line zingers given by speculators)Oh well but there is new generation of investors made out of foreclosures on the rise. Is the economic cycle.

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  21. "You go to a mortgage broker to get advice on a home purchase and many gave you advice that would favor themselves and not the homeowner."..... Are you kidding me? With that logic, I suppose you walk into a car dealership and ask them for advice on whether you can afford a new car??? (Guess what?.. they will tell you anything to make the sale !) Man, society and the media have sure taught the masses how to blame everyone but themselves for their adult life choices.... You are not in Kansas any more, Toto...

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  22. You know what, you're right. You can't go to a broker and expect them to lead you in the right direction. However to the first time buyer, it is easy to make the mistake. You look to these people to help you understand the numbers and the loan programs. That is what they do. They look at your income, credit and history to qualify you for something you can supposedly afford. You must trust them to do so ethically. Many of brokers represent themselves as someone who can offer guidance and it is very easy to form a relationship with just such a person. The manner in which they do business is shrouded with personal trust and an assumption of professionalism, not for profit motivations. We all learn lessons in life, not knowing and making a mistake is part of life, it happens to everyone. Being thrown under the bus while banks skate by with your tax dollars and my tax dollars is not right. Some of these brokers manipulated numbers to make a loan go through,or going on "stated income", knowing full well the borrower couldn't pay, that my friend is a crime. There are plenty of bad borrowers out there, but open your mind and look at the whole picture. It is bigger than borrowers. Kansas, no. Not there anymore,obviously. However I believe even business owners outside Kansas should make ethical business choices, and not mislead customers. Our country was founded on dreams of freedom and opportunity. To do what many of these brokers did was wrong. It isn't good business, it's bad business and in some cases criminal.

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  23. Excuse me! We did make an educated decision. The mortgage broker said we would be able to afford a $800K, but we were smart about it and did not take it. We bought a house for $500K because we knew that was what we could afford. I think it is EXTREMELY rude of you to insinuate my (and many other in my situation) intellectual abilities. I think that you are the one that is believing what the media tells you. Most people out there that are involved in a foreclosure or having difficulty with their mortgages are not desolate uneducated people. They are hard working families that have come across hard times due to many factors in this economy. Is it right that 1000s of teachers are being laid off because the state can't get their budget together? These are the families that are loosing their homes. Do you know the story behind every family in these home foreclosure situations?? Probably not. Why don't you try educating yourself.

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  24. Congrats to all non homeowners whop can now afford dream homes. You have been given a golden opportunity. Don’t blow it. But proceed with caution. This economic superiority you are enjoying is temporary. Odds are if you used to have one of the lower paying jobs in your neighborhood, you probably still do. The housing situation will eventually shake itself out. Inflation will eventually start and your buying power will shrink. The price of maintaining a large home, the property taxes, and utilities can become a nasty burden. 5 years from now many of these people who perceive an advantage now will be the ones unable to afford this new standard of living and they will be selling their homes to those with the greater longterm well paying jobs. But don’t count on huge equity bouncebacks when you make those sales. To be frank, why a family of 3 needs 3,000 square feet is beyond me. (I’ve lived with 6 in no bigger than 1600 and it has made life much simpler). Those with extra money now might be best served to consider not buying a “dream house” but a very nice house that meets their actual needs (with a few extra perks perhaps) and then paying it off as fast as they can before the fortunes swing the other way.

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  25. Not all in trouble are uneducated greedy buffoons. I've spent 15 years in the military with kids moving from tiny government house to house. For the first time I could afford to buy my family a home of their own. A chance to not share aduplex or have to ask permission to put in a garden(we got a modest and small 3 bedroom). I'm in Las Vegas, ground zero for this mess. I bought at the peak and now am being transferred. Forget losing any investment - I wish it was that simple. You can't sell the home for half the mortgage and can't rent for half your payment. I accept the consequences for my family because it was our decision. But there is a big difference between being greedy and stupid and having the market collapse 50% on you. So, for every great bargain, or 2nd investment home you are buying, remember there are good families out there paying the price for your fortune(again, its our own responsibility - just don't act too smug at the misery of others.

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  26. Oh my god. Americans have gone stupid. The person who bought the house at 500K BOUGHT the house. They aren't renting it. If they were renting it, they would maybe have a case for paying less as the property goes down in value. However, just because the house is worth 250K now instead of 500K does not mean you get to start paying lower payments due to the economy. Remember, you already gave 500K to the seller. Now you are just paying back what you owe.

    If you buy a brand new top of the line cellphone, in several months, it will no longer be top of the line and will be worth 1/2 as much. Does that mean that if you bought it on a credit card vs cash that you should get to start paying back your debt at a lower rate? NO! However, if you sell that phone on eBay, some smart person will buy it for 1/2 of what you paid for it. That's how the trade/barter/monetary system has worked since the beginning of time.

    Whats amazing is there are people on here who could find this blog yet don't know how to do a simple google search and find out what they probably can afford is 25-30% of their family income. Anything over that is wasting too much of your income on shelter.

    The people who are smart and waited the boom out have the upper hand. The smart people alwasys prevail in the end. Those who wanted their Dream NOW in the 2000-2007 era got burned. They want their home regardless of how absurd it was.

    If they could afford to take someone else's money and throw 500K at a seller, they can continue to afford that now regardless of the day-to-day worth. A house is a home, not an investment. A house is no different than a car. It gets used up, worn out, damaged, and depreciates. Don't be fooled.

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  27. To the Las Vegas buffoon. Did you not stop and think before buying a house? What did you think was causing Las Vegas to boom during its peak?? Great schools? A thriving diverse economy?

    Any buffoon can see that if you settle in a crappy city that relies on one industry, (ie. Dangerous Detroit), you are setting yourself up for risky business. If you do decide to settle in that type of city, buy something that you can continue to pay for 2-3 years with your emergency fund. (Oh? you don't have an emergency fund?... You were overspending! You should be saving 10-20% of your paycheck. If not, move to a cheaper area and cut out that $100/mo cable bill)

    In the end, you bought in Las Vegas. Where mainly only casinos are thriving. That's no the markets fault. The market collapsed but you should still be able to afford what you signed a contract for. 30 YEARS of your original payments.

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  28. To Anon - April 3, 2009 12:39 PM:

    "they changed the rules in the middle of the game" - what rules would those be? Were you ever guaranteed a refi in writing? No, you weren't. You *thought* you'd be able to get one, but that just shows that you didn't do even the most basic research on refis. If you did, you'd know that they are *never* a sure thing. You should have purchased based on the very real possibility that you would never be able to refinance, and could you pay your mortgage at the highest rate once the ARM adjusted. It's just common sense. That you see home ownership as a "game" in the first place shows how messed up your thinking is - homes are not a game, they are not a guaranteed investment - they are a huge financial commitment that you should understand before you agree to. You didn't do your homework, and now have to accept the consequences.

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  29. I can't believe the folks here who think that banks should just let homeowners drop their mortgages down to $200K after the bank has already given them $500K to buy the house. Those homeowners, for whatever reason, have shown they are a financial liability. I understand completely why a bank would want to foreclose and sell to someone else that hopefully will keep up their part of the contract. And I am delighted for the wise families who have been steadily saving for years and are now in a great position to buy a home. You did it the right way, and should enjoy your success without guilt.

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  30. I agree that "Americans have become stupid". You are commenting on "our" stupidity when you don't even read the reason for the anger. No where does it say that I want to pay less money on my mortgage or even lower it. My comment was on the fact that it is not just the poor, desolate, and stupid getting caught up in these foreclosure situation. It is your dentist, your teacher, your mechanic, your electrician- the people that probably help you everyday.

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