Home Forclosures hit record high

[Flipx99 5,000+ posts]

What is actually causing this boom in foreclosures? Is it just stupid people trying to buy more than they can afford or is it genuine economic problems?

Another issue is that people cannot escape from the mortgage.

Many people thought they could simple refinance when the rates rose to reduce risk. However, due to restrictions in the loans, they couldn't they are stuck with the loans they cannot afford.

Take the interest only loan....many times they have 20-30% prepayment penalities (also known as refinancing)....you take it out and at year 2, your employer transfers you to another state.

In ordinary circumstances, you would sell the house, pay down the loan and buy a new home.

However, these loans have covenants that practically prohibit it. If you sell the house and try to pay off the loan, they take on a huge fee to what you owe. You can't just sell. Your only real choice is to try and rent it out while you buy your new home elsewhere. Even if you knew what you were doing with the interest only (by alternative reinvestment of principal)...you could still find yourself in a horrible situatuion.

 

[2002XLT 5,000+ posts]

I just bought my first home last month, closed on the first of Oct. Have a 640 credit score and i got 100% financed, seller did 3% contribution towards closing so i only had to come up with about 2Gs for all the inspections, appraisal, etc. The only thing they really had me do that was wierd was i had to have 6500 in my bank to prove that if something did happen that i have some money to pay bills for atleast 3-4 months.

 

[Flipx99 5,000+ posts]

Well, if it comes down to people accepting ARM's, it does seem to be a bit their fault. The economy isn't exactly the best it's ever been right now. Granted, as Flip mentioned, no one can predict interest rate changes, but you better at least have a good idea of how the economy is doing right now. It's just dumb to risk $150k or more on an investment when the money is being loaned to you and you have done zero research.

If the economy is lagging, wouldn't they lower interest rates to stimulate the economy??? Thus not causing an increase in interest rates?

 

[IamDeMan 5,000+ posts]

I just bought my first home last month, closed on the first of Oct. Have a 640 credit score and i got 100% financed, seller did 3% contribution towards closing so i only had to come up with about 2Gs for all the inspections, appraisal, etc. The only thing they really had me do that was wierd was i had to have 6500 in my bank to prove that if something did happen that i have some money to pay bills for atleast 3-4 months.

I din't have to be in your bank. It ust had to be liquid assets. It isn't weird either. It happens all the time to satisfy the underwriters.

 

[2002XLT 5,000+ posts]

I din't have to be in your bank. It ust had to be liquid assets. It isn't weird either. It happens all the time to satisfy the underwriters.

Ya thats what it was for, underwriting. Well i guess it seemed wierd to me, but its my first home so what do i know?

And it had to be in the bank because it was the only way i could prove it to the underwriters, so they could see it was in my bank, and with my name on it.

 

[Flipx99 5,000+ posts]

For what I understand, these same loans that are hosing everyone also have a clause that caps the amount of money that can be used to pay off said loans per year. If someone was to win the lottery and then try to pay off their loan, they'd get hit hard with penalties.

Yes....that is called a prepayment penalty. Refinancing, lottery, inherence, found a suitcase full of cash, it's all prepayment and will all incur severe penalties.

 

[Chevillac 5,000+ posts]

I just bought my first home last month, closed on the first of Oct. Have a 640 credit score and i got 100% financed, seller did 3% contribution towards closing so i only had to come up with about 2Gs for all the inspections, appraisal, etc. The only thing they really had me do that was wierd was i had to have 6500 in my bank to prove that if something did happen that i have some money to pay bills for atleast 3-4 months.

pics of house? details of house? how much did you pay?

If the economy is lagging, wouldn't they lower interest rates to stimulate the economy??? Thus not causing an increase in interest rates?

I always thought like this, but its always the opposite.

I din't have to be in your bank. It ust had to be liquid assets. It isn't weird either. It happens all the time to satisfy the underwriters.

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[DejaWiz 5,000+ posts]

Sounds like horse shit to me.
Scamming way to make sure they come good on the interest they charge....

That's exactly what it is.

 

[Chevillac 5,000+ posts]

Sounds like horse shit to me.
Scamming way to make sure they come good on the interest they charge....

they are just trying to make sure they get their worth out of loaning you the money.

If you dont want to do it conventionally, do a hard money loan............

 

[2002XLT 5,000+ posts]

pics of house? details of house? how much did you pay?

3/4 acre, 2BR + 2 Bath, garage, carport, shed, 1300 Sq ft.

87K

 

[Flipx99 5,000+ posts]

Sounds like horse shit to me.
Scamming way to make sure they come good on the interest they charge....

I see it from both parties perspective.

On one hand, why would the bank lend the money in the first place if the know they may not collect.

On the other hand, they shouldn't trap customers.

However all banks anticipate prepayment.

In a portfolio or mortgages, they typically estimate i +2% of mortgages will prepay every month for 30 months, then 6% thereafter. The average 30 year mortgage lasts about 14 years based on the models I have seen.

 

[Flipx99 5,000+ posts]

We discussed these in my macroeconomics class... refer to them as NINJA loans... "No income, no job... APPROVED!"

Or your teacher could actually teach you something and call them Alt-A loans.