Joe Bob and Jim Bob are not happy with their sub-prime home loans.Like any wiseguy out there I have a couple of theories...one would be that the 95% of people on time have mortgages from many many years ago and are not upside down. They did not go out and buy a Hummer with their home equity. The other would be that the 5% that are late make up a huge part of outstanding debt since a lot of these loans given were given to people who should have never had a loan to begin with, and their houses were in the $400,000 range and above. The 95% on time might owe 50% of value on a home and have resonable payments, and the poor 5% have dug a HUGE hole for themselves.
What do all of you experts say?
4 comments:
I guess I don't know why I'm commenting other than out of pure frustration. I own a home in a major metro area, a townhome, bought 5 years ago with a regular fixed rate mortgage, money down, did everything the right way. Pay all bills on time, good credit. Had to move out of state for a job and now looking to lose 40k on the house, we had an offer and the guy backed out two weeks before closing (I know, awesome). I want some "expert" to tell me what we're supposed to do, foreclose like everyone else or pay off 40k for the next 30 years on a house we don't live in? Seriously, we bought a house because rates we're good, and normally houses are investments, every payment we make on it now we may as well be burning for heat. It's losing value every day. Anyone have any ideas, and things we could have done in the past are not helpful. Thanks.
A good way to understand why that "small" 5% is a BIG deal is to watch this video series, "Money as Debt". I'll link the first and you can find the rest easily enough.
http://www.youtube.com/watch?v=cy-fD78zyvI
It's important to understand how fractional reserve banking works to understand just how bad a 5% rate of default can be, particularly with mortgage-sized dollar amounts.
Yes, 95% are paying on time. The 5% will lose their houses soon, and another 5% of people will start missing payments. That 95% figure is misleading because it doesn't count the people already foreclosed on.
If you have a run rate of 5% of homedebtors losing their homes every 3-6 months, then you have the crisis we have today.
5% are killing the investment banks because the investment banks are leveraged 30+:1 in those "AAA" investment vehicles created out of those crappy loans that people are now defaulting on.
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