see how well this type of thing has worked in the past... http://www.crainsdetroit.com/apps/pbcs.dll/article?AID=/20070604/SUB/706010372/-1/toc Subprime mortgage lending still bad for city Subprime mortgage lending decimated many of Detroit's older neighborhoods 40 years ago as an ill-conceived federal response to the 1967 riot. Today, private lenders are promoting the same potentially damaging practice threatening the city's remaining stable neighborhoods, as well as older ones in the region. An investigation by the state is needed. The practice of subprime lending appears to be as American as apple pie. Buyers excluded from home purchases with lower credit ratings or incomes, traditionally tenants, can experience the American dream of home ownership. The dream, however, can become a nightmare as interest rates rise, property values fall or jobs are lost, leaving many subprime borrowers unable to make payments or sell their homes. Detroit's riot capped the urban rebellions of the 1960s. Slumlords and the lack of home ownership were seen as root causes by nearly every blue-ribbon commission. Shortly thereafter, a simple, but naive solution was instigated by HUD: Provide subprime loans to lower-income tenants with weak credit histories to buy houses in older neighborhoods, particularly in cities where disturbances occurred. Banks participated because loans were 100 percent insured by the FHA, and much of their profits were obtained in up-front fees and charges. Buyers paid only $200 down, which left no equity in the home. Detroit was picked as the principal target. HUD directed tens of thousands of subprime loans into the city's changing neighborhoods to individuals who could not afford the cost of maintenance or resale, resulting in massive foreclosures, abandonments and wide- spread destruction of stable blocks of housing. These neighborhoods have never recovered. Today, history is repeating itself. Detroit leads the nation in foreclosures, and subprime lending is seen as the principal cause. With property values down, many subprime borrowers cannot resell their homes without a loss. Nor can they pay the broker's fees, repair costs or closing expenses involved in a resale. Homes are repossessed by lenders, offered at distressed prices or sit vacant, driving down values of other property on their blocks. The spiral of neighborhood decline takes hold once again. Michigan cannot afford a repeat of the HUD subprime lending debacle of the 1970s now being orchestrated by private lenders. The governor and Legislature must conduct a full and fair investigation of the mortgage industry, its recent heavy involvement in subprime lending and the impact on borrowers and their communities. John Mogk is a professor at the Wayne State University Law School.
IF talking about buying a home, that is a myth. Nobody "just walks away". The mortgagor always has contract language that allows them to go after the individual for the difference. And the court backs this up completely. And they attach the legal fees in so doing.
My famous loan was a 3/27 LIBOR ARM 497 middle score 75% cashout refi. We did a lot of stated stated 1% MTA Option ARMs with ~4% ysp. Countrywide didn't pay any YSP, but boy did AMNET. Ok, I'm done, I'm probably going to hell for all that.
Everyone in Congress seems to be crying about homeowners losing value in their homes. Nobody seemed one bit worried a few years ago about home prices going up 25-30%/year for several years running in many areas of the country. I guess all the no-down payment and teaser rates were just a convenient way to continue cramming first-time buyers into homes they couldn't afford while simultaneously allowing existing owners to continue the fantasy of what their home was "worth". Home prices should and probably will continue to correct back to some kind of equilibrium price, and maybe further, now that lenders are overcorrecting in their lending standards. I'm starting to hear more talk from congressmen about the government buying up foreclosures in some feeble attempt to continue propping up home prices. WHY? SO THAT SOME IDIOT CAN GET A HOME-EQUITY LOAN TO BUY GAS FOR HIS ESCALADE? STOP THE MADNESS! LET THE FREE MARKET DO ITS JOB.
They are walking away en masse here in San Diego, and no one is going after these people. The banks are taking back the properties and auctioning them. That's it. There is a very popular website based here in SD called youwalkaway.com. Its to help people get through foreclosures, and help people just walk who are way under water on their loan, but not in foreclosure. Its not a myth. People do walk, and the banks aren't going after them. At least not here.
Can not generalize everything as empirical fact. Most Americans are not walking away from homes. Home is a place to live and recuperate. Only a handful have foreclosure notices and few dead beats have walked.
All this really is is that the fed gov't is going to take over sub-prime lending so that you and I are directly on-the-line instead of the banks (that would be bailed out anyway). Didn't we just get done with the great push the subprime/no down payment experiment?
More lame generalized statements that are not facts. Lenders have more than higher defaults than last year but its not a national phenomena as if masse exodus is taking place. There are always defaults in all types of markets now the level is higher.
Last year around this time, my friend was telling what kind of loans they were processing. I was shaking my head in disbelief. What did he care, he was making good coin getting these loans done. I guess you have to strike the iron while its hot, I don't blame them....Well by the Fall, they let go half the office. He just re-entered the mortgage market with some other company in Jersey. I just don't see the point in it. Lending standards are tightening, etc...but maybe the suicidal FED actions will bring down the mortgage rates sooner or later. I just know that you won't be able to rape them on points like the good old days of that scheme.
Stocks can go to zero, real estate does not. A stock is an intangible asset while real property is tangible commodity. You can't take real estate anywhere its stuck to the ground its built upon.