Why is it such a surprise that everyone is defaulting on their mortgages?

Question

Please if you thought you could afford a 500,000 dollar house and you only make 50,000 a year, you are just too stupid. Throw all the bums in jail

Answer 1

Most people that are defaulting on their mortgages are not people who bought 500k homes on 50k salaries. Most of the people who are defaulting are consumers who were pre-approved by their lender for more than they should have been and to keep their payments within their budget they were sold on ARM's, Pay Option ARM's w/ negative amortization and interest only loans. Now that the market has turned and rates have increased and no down payments were put down on most of these loans, they can not afford their payments and they owe too much to sell their homes.

Answer 2

I'm not surprised at all. Unfortunately, people are naive and will believe anything they hear. In Florida we heard that property values would continue to soar for 7 years because there is no more coastal property in Cali so this would be the new California. Let me tell you, Florida is hardly California.

People got themselves into bad loans , i.e. interest only/Arm loans because they didn't have great credit and their lenders told them that they could keep the loan for 2 years, and as long as they had a positive payment history, they could re-finance and get a fixed rate mortgage. What they didn't know is that this doesn't work if property values fall. And fall they did. The people with a house to sell that closed on properties before the first property sold didn't end up selling the first property...or if they did sell, it was for a lot less than they ever imagined.

Honestly, I personally don't think anyone should by a home unless they can put 20% down and qualify for a fixed rate mortgage.

People lie to themselves too. They look at an adjustable rate program, and say, yeah I can afford this for the first 2 years, and I'm sure I'll be making more money by the time my loan adjusts and becomes more expensive.

I had a guy call me up the other day crying that his lender deceived him at the closing table and told him that the prepayment penalties on his first and second mortgages would be less than $5,000. In reality, the prepayment penalties for paying off the loan early and refinancing were $21,000 on the first mortgage and almost $6,000 on the second, and now his adjustable rate is adjusting and his escrow accounts are being increased because of the tax increase, and that he just found out he's in a wind zone and needed a hurricane policy and basically he's going to lose his home because he believed what his lender supposedly told him, instead of reading the paperwork he signed at closing. If you signed it, and didn't read it...sad to say, you're the only one to blame.

Answer 3

I totally agree with what you are saying. I HATE the fact that every one wants to make the people that are defaulting the victims. Every one is blaming the lenders, loan officers, mortgage brokers, etc but are rarely placing the blame on the buyer. People need to grow up and accept responsibility for their own actions and stupidity. A sales man is a sales man. They'll promise you the moon and stars but at the end of the day it is YOUR responsibility to see if what they are selling you is acurate and legit. It's unfortunate that most people do not have enough common sense to see when some one is feeding them garbage.

Most people are unrealistic on what they can afford. Perfect example my husband went to show one of his previous co-workers some rental homes because their lease was up & they called him (my husband's a realtor). After my husband showed them the properties he wrote up lease and application. When he asked his co-worker for the first, last & security she answered him that she did not have the money right now & would have it in a week or two. Who looks for a rental without a dime in their bank account? Needless to say it has been close to a month & they still have not come up with the money & the house we showed them has already been rented.

A buyer has NO ONE to blame except for himself. When they go to the closing for their purchase or refi all of their loan information is in front of their face in back and white. Who signs 100 + documents without actually looking at them? Their rate, term, etc is all listed there. If they do not agree with the terms and/or were promised something different then they should not sign. The problem is that most buyers will see the difference at closing and because they want the house or money so bad they give in and sign. Then when they cannot afford the payments they start pointing fingers at every one when they know that they should have never gone through with the closing.

If we're playing the blame game make sure we name ALL of the players.

Answer 4

It's not a surprise to me, but then I am in the business of real estate. I have always cautioned buyers to determine for themselves what they can afford, and not let themselves be guided by the amount they can be approved for.

Sad to say, most of them ignored my advice and went right to the top end of their mortgage qualification amounts. Many of them now are losing their homes because they got in way over their heads.

The current foreclosure scenario is a combination of naive buyers coupled with an overly loose mortgage underwriting situation. That has now been rectified, since lenders are finally learning what happens when their criteria are too generous.

Answer 5

Human nature: Greed.

The sub-prime morgage lenders should be ashamed of themselves but they most likely are not.

They have moved onto other areas like holding Stock option courses on how to make a million dollars a year trading options on the stock market.

The next big thing. A boom, then bust in the stock market taken down by the sub-prime mess that the banks are now trying to hide.

Terry S.

Answer 6

People are defaulting on loans (that you see advertised on Yahoo! Answers all the time), mostly because of subprime and 2/28 loans to people that couldn't afford them to start with.

Too many people in the business ripping customers off. There is nothing in the law that says you can't verbally lie to a client to get them to sign loan documents, b/c buried in the stack of loan papers you sign, it says that all oral agreements are void, and there are too many loan officers that will do anything, SAY anything, to get someone to sign.

Any LO that trolls the message boards for business, you can rest assured, works for a fly-by-night company.

Legitimate people in the lending business don't get their business that way...they are not that desparate.

Answer 7

Because most Buyers tend to believe what some Mortgage "Experts" tell them. By the time they realize they were mislead,its too late and they end up in foreclosure.

It's the people who prey on emotions of those who so badly want to own their own home who are the culprits.