Home Affordability Modification Program

[wilser]

Some of you may have been keeping an eye on the news for the newly released piece of legislation aimed at helping struggling home owners stay home.

I'm not gonna go into the details of my involvement but I will say that I am working for a firm that will have a first hand role in the actual execution of this thing.

In a nutshell the program is designed to try to get the monthly payments of distressed loans to 31% debt to income ration. In this case, debt only applies to the mortgage itself (mortgage insurance, real estate taxes, property insurance, loan balance etc), not anything you owe or monthly payments for other things.

The bill will certainly help people who have lost their jobs or are going through any kind of financial hardship that has rendered them unable to keep up with their mortgage, but the people that otherwise irresponsibly got into mortgages that they could not afford (and I truly believe this to be the majority) basically gambling will be dealt a helping hand.

There are at least 3 other players here:
a) the people who have seen their home value go down dramatically and have been faced with basically paying for a much bigger mortgage and having a huge negative equity on hand and have simply decided to let the property go to forclosure.
b) The bill is also applicable for the so called "imminent default" loans in which the buyer is still current but for some reason will be delinquent on his loan in the near future.
c) most of us that while struggling keep up with our mortgages still see a steep decline in value but are still keeping current.

Now, I can see all kinds of problems with the B's as they relate to the bill and some of these folks will certainly try to sneak in to the program in order to lower their burdens. Granted there are provisions for ensuring only really qualified loans go through the modification, there is still room for unethical (to say the least) use of this program. Granted there are true cases of B out there (loss of job, ARM has increased, etc) the potential for problems still exists.

All I can say is that as one who has recently received the county's real estate property assessment document for 2009 and seen a value drop of about 21% in my home, but yet paying for the original amount like a most people in America, I am extremely concerned about our nation's situation.

[Relic]

I was in the market for a new house about a year, year and half ago. I had very nearly got caught up in the same trap as so many others have..we had the house, we had the ridiculous mortgage and just before we were going to pull the trigger...I thought "what the hell are we doing, we really can't afford this!???"
Now when I look back, I can't decide if I should be proud for not getting caught in that trap to begin with or stupid now that we could have had help in paying for it??
My stupidity could have been nicely rewarded for once in my life

[MakiSupaStar]

Originally Posted by Relic

I was in the market for a new house about a year, year and half ago. I had very nearly got caught up in the same trap as so many others have..we had the house, we had the ridiculous mortgage and just before we were going to pull the trigger...I thought "what the hell are we doing, we really can't afford this!???"
Now when I look back, I can't decide if I should be proud for not getting caught in that trap to begin with or stupid now that we could have had help in paying for it??
My stupidity could have been nicely rewarded for once in my life

Now, you can probably by the same house for a hundred grand less with a nice 9k kickback in taxes for buying your home.

[Relic]

Originally Posted by MakiSupaStar

Now, you can probably by the same house for a hundred grand less with a nice 9k kickback in taxes for buying your home.

True that, but now I'm hesitant as I'm not sure if my job will still be here in a month or two or three...sucks..

[MakiSupaStar]

Originally Posted by Relic

True that, but now I'm hesitant as I'm not sure if my job will still be here in a month or two or three...sucks..

Yeah. Then there's that. Sigh. You're living the dream buddy. Living the dream.

[Philbiker]

Friggin' jerks around here raise the tax rate when housing prices go down. Grumble grumble....

[Pilgrim]

Originally Posted by Relic

...and just before we were going to pull the trigger...I thought "what the hell are we doing, we really can't afford this!???"

YOU were smart! That's the single most important issue - and you recognized it.

What I can't understand is why so many people got stupid and bought houses they couldn't afford! If you can't make the payments now, then you darn sure can't make the balloon payments 5 years down the road...and even if you plan to sell it before then, do you REALLY want to bet bankruptcy on it?

You did good, Relic.

[RWP]

All I want to know is where is my 401k bailout? Seems like people that made mistakes are getting help and
the people that did the right thing are paying for it. Sucks.

[Relic]

Originally Posted by Pilgrim

YOU were smart! That's the single most important issue - and you recognized it.

What I can't understand is why so many people got stupid and bought houses they couldn't afford! If you can't make the payments now, then you darn sure can't make the balloon payments 5 years down the road...and even if you plan to sell it before then, do you REALLY want to bet bankruptcy on it?

You did good, Relic.

Thanks, man.
I can't understand it either.. how so many people allowed themselves to be caught up in that trap. All it takes is just some rudimentary math to figure that it's a bad deal. I guess people were just assuming that their financial situation would keep on improving/the economy would stay stable and healthy?... I dunno.

[Philbiker]

Originally Posted by Relic

Thanks, man.
I can't understand it either.. how so many people allowed themselves to be caught up in that trap. All it takes is just some rudimentary math to figure that it's a bad deal. I guess people were just assuming that their financial situation would keep on improving/the economy would stay stable and healthy?... I dunno.

I can't comprehend how anybody could say "they can't understand" how people got into these bad loans. Have you been living in a cave? "Rudimentary math" like how low the payment is made people figure it was a good deal, and looking at home prices skyrocketing added to the urgency! The mortgage lending community was putting the HARD SELL on these things for YEARS. Lots of people were getting them, they allowed people to get the home of their dreams for the same payment as a 30 year fixed on a little townhouse. They seemed to make a lot of sense, if you did due dilligence and research, there was LOTS of positive articles by financial experts talking about how great these fancy new loan vehicles were. It was everywhere. Lots of people got these for their first home buy. They didn't know what they were getting into, and the so-called "experts" they called upon for help couldn't say enough great things about the latest "interest-only" or "5 year ARM" program - "look how low your payments will be!" "The interest is tax deductable!". The real estate agents, people packaging the morgage securities, and rating agencies were in on it! It was industry-wide collusion.

Read this: http://www.portfolio.com/news-market...tid=true#page1

You guys knew better. Good for you. For the average American they only got good advise if they happened to have a very conservative financial advisor. - If they were smart enough to ask a financial advisor for help when they bought.

It's like why did so many people buy so many stocks in the tech bubble. Everybody was buying stocks and saying how great they were - talking heads on TV were talking up stocks that were for sham companies and people were making money hand over fist. This is the way bubbles always work, going back to the Tulip Bulbs.

Geez Louise.

[Relic]

Originally Posted by Philbiker

I can't comprehend how anybody could say "they can't understand" how people got into these bad loans. Have you been living in a cave? "Rudimentary math" like how low the payment is made people figure it was a good deal! The mortgage lending community was putting the HARD SELL on these things for YEARS. Lots of people were getting them, they allowed people to get the home of their dreams for the same payment as a 30 year fixed on a little townhouse. They seemed to make a lot of sense, if you did due dilligence and research, there was LOTS of positive articles by financial experts talking about how great these fancy new loan vehicles were. It was everywhere. Lots of people got these for their first home buy. They didn't know what they were getting into, and the so-called "experts" they called upon for help couldn't say enough great things about the latest "interest-only" or "5 year ARM" program - "look how low your payments will be!" "The interest is tax deductable!". The people packaging the morgage securities and rating them were in on it! It was industry-wide collusion.

Read this: http://www.portfolio.com/news-market...tid=true#page1

You only got good advise if you happened to have a very conservative financial advisor. - If you were smart enough to look up a financial advisor when you bought.

It's like why did so many people buy so many stocks in the tech bubble. Everybody was buying stocks and saying how great they were - talking heads on TV were talking up stocks that were for sham companies and people were making money hand over fist.

Geez Louise.

sheesh! easy there, killer! All I'm saying was that in MY case, rudimentary math did the trick. End of story. I don't proclaim to know it all..

[hbarcat]

Originally Posted by Philbiker

It's like why did so many people buy so many stocks in the tech bubble. Everybody was buying stocks and saying how great they were - talking heads on TV were talking up stocks that were for sham companies and people were making money hand over fist.

This is a good point. Prosperity gets to be a habit and in the U.S. we've had almost continuous prosperity for decades with only a few tiny recessions that last for 16 months before everything is back to normal. It becomes easy to believe that there is no real price to pay for taking risks and living at the edge of your means and it's always possible to keep piling up debt because there is always time to pay for it later.

After we get through this current mess (and we will, eventually) people will be a lot wiser about how much they spend and how much they save.

[nortonrider]

Man....don't even get me started!!!

Bailouts, BAH!!! You made your bed, now go lay in it.

[Pilgrim]

Originally Posted by Relic

sheesh! easy there, killer! All I'm saying was that in MY case, rudimentary math did the trick. End of story. I don't proclaim to know it all..

I agree. I usually find Philbiker's posts very well written and on point, but I must disagree with him here.

It doesn't MATTER if the mortgage brokers pushed homes people couldn't afford. It doesn't MATTER if all the other lemmings rushed over the cliff. Although Philbiker is (as usual) 100% right when he says "It was industry-wide collusion."

Rudimentary math is all that is required. If you can't afford the payments, then you can't afford them. Every one of us has to do the same mental calculations every day when GAS strikes - for a bass, a car or a house.

I agree that many people were hoodwinked during this period, but it doesn't take major math skills to know that when you're paying to the limit of your ability, have a 100% loan and a balloon payment 5 years out, you'd better either get out before then or increase your income significantly before that event...or you're screwed.

There is also the point Philbiker makes: no one should have offered or made these loans. Even offering them to people was deceitful, unethical, and probably calculated to drive them into repos and bankruptcies with the intention of recovering those homes which would have increased in value...so the lender could re-sell them again and make even more money.

[Relic]

Originally Posted by Pilgrim

Rudimentary math is all that is required. If you can't afford the payments, then you can't afford them. Every one of us has to do the same mental calculations every day when GAS strikes - for a bass, a car or a house.

and that's exactly my thought process, it's exceedingly simple - despite anything that was being pushed on me, despite what any talking heads say, my bottom line is still my bottom line. If the numbers don't look good, then I walk. I've got too much at stake to risk it all.

[PSPookie]

In defense of ARMs, they were/are a good option for some. I bought my house zero down on a 7 year ARM in 2004. This allowed us to get into a house and start building equity much sooner than if we had gone with the traditional 10% down and 30 fixed. Now, we only spent about half of what we were approved for and we have been paying aggressively against our principal from the beginning. It also appears likely that we will be out of the house (hopefully for something bigger) before the ARM resets. If not, we can afford the higher rate. In the mean time we have accumulated about 20% equity.

The moral of the story is: ARMs are not inherently bad but spending more than you can afford on a house, regardless of the type of financing, is.

[NJL]

Originally Posted by Philbiker

Read this: http://www.portfolio.com/news-market...tid=true#page1

My boss and i have been sending this article out to A LOT of people since it has been online... interesting stuff..

[NJL]

i don't really have much to add here other than:

I bought my first home in Dec 07 - My realtor had me use his preferred Mortgage Broker. she was honest and VERY strict on all the information she requested. she seemed very anal and by the book - i really liked that. She found a nice program for me as a "first time home buyer" (fthb is a term used differently by each "program" all over). In this case, I got a great deal as a fthb with a plan through our county gov't. I had just been through a divorce and didn't really have much money, but wasn't entirely stupid - i HAD to get into the market SOMEHOW, i'm not getting any younger.. it was a bond program approved by a local referendum. there's a few million dollars available to fthb's (this program stated a fthb is someone who hasn't purchased a home within 5 years) through this program.

i showed up to the closing with a check for $190 (which the mortgage broker sent me back a $90 "refund" check a few weeks later). YES, i didn't put any money down and YES i have a PMI premium BUT i'm in the market now (woo hoo!!) and i actually had equity going into the deal since we lowballed him the PMI is set to be removed by the end of next year..

i sit with a 30 year conventional at a low rate (as mandated by the bond program i was apart of). as a requirement, i had to take a class about finances as a new homeowner for this program. it was actually very "real world" and very informative, even though i knew some of the stuff they were talking about already.. i'd actually go again just to see how they changed the seminar to suit the "new" times (even though, in 07, the economy was already looking like ass)..

i wasn't lucky - i just did my homework. that's all it boils down to.

the only thing i was disappointed in - it had to be a 30 year note, next home i buy, i'm going to push for a 15 year. i think that's the way to go.. til then, i'm putting extra money to principal each month.

flame away

[baalroo]

Originally Posted by nortonrider

Man....don't even get me started!!!

Bailouts, BAH!!! You made your bed, now go lay in it.

The problem is that the way economics work, THEY (the people involved with bad loans and speculations) made our bed and unless we all collectively do something about it we are all going to have to lie in it.

[PSPookie]

Originally Posted by baalroo

The problem is that the way economics work, THEY (the people involved with bad loans and speculations) made our bed and unless we all collectively do something about it we are all going to have to lie in it.

That's the unfortunate truth of it and it's a biatch.