Are you folks kidding me? Who's to blame? How about the folks who took out loans that they knew they could not afford? Or bought houses they couldn't afford? Or took out two or three loans to "afford" the same house?

Just because the bank says that you can afford a loan of $200,000 ($300,000, $500,000), does NOT mean that you SHOULD.

Just because the Realtors say that a house is worth a half a million dollars, doesn't mean that you have to spend that. Every house, in every state, in every part of the country, is only worth what a buyer is willing to pay. Period. No matter what the seller wants for it, no matter what the realtor says it's worth, no matter what the bank, the assessors, or anyone else determines it's worth, it's only really worth what a buyer will spend.

Just because your government lowers the rate or relaxes policies, doesn't mean that you should take advantage to your detriment. Although I do hope that all those that could do so responsibly, did.

What I'm reading seems kind of like saying.... I saw that commercial where the couple took out a HELOC to make improvements on their house so that they could get more money when they sold, and I did the same thing, so it's their fault that the market crashed, and now I can't afford all these payments. I said it was stupid when that commercial first came out, and I still think it's stupid.

There are now, and have always been houses for every price bracket. Buyers have the responsibility to determine what they can afford, and to purchase a house under that amount. They have the responsibility to ensure their realtors hear them, and take them to such houses. They have the responsibility to get the best rate they can, and to read all the paperwork, and know what they sign. Placing blame on the infamous "they" does a disservice to those who acted responsibly.

momto6 is right on. It all boils down to personal responsibility. Anyone who is willing to enter into a financial transaction needs to fully understand what they are getting into. It's kind of like walking into a gun store and buying a gun. If you don't know how to handle it and won't take the time to learn, then you have no business buying it. Obviously, it can lead to tragic consequences. The same goes for credit (whether that be a mortgage or a credit card or a loan) - just because someone makes it available to you doesn't mean that you should take advantage of it. And then to blame someone else when you can't make the payment is totally wrong.

Some people like to blame the government for this mess. Do you want the government to tell you what you can buy and what you cannot buy? Can you imagine how long it would take to close on a house or buy a car if you had to get government approval to fully investigate your personal financial situation? Take some personal responsibility and let the government take care of the big problems that no one person can handle by themselves, like keeping our country safe so we can have the freedom to purchase what we want (and can afford).

There are laws against selling guns to certain people to protect themselves and others. I do think there has to be checks and balances to counteract stupidity. I would venture to guess that most of the people who are in financial trouble because of real estate loans would have never gotten any type of loan before the real estate run up. Or they would have been approved for a much lesser amount.

Lenders realized the crazy money they could earn by selling their mediocre paper and their lending guidelines relaxed. The lenders made amazing profits during the run up and now they need to reap what they sow.

Hedge fund managers who bought the paper will probably make profits in the short run as they charge exorbitant fees to move stuff around. Eventually I think many of them are going down too.

The lending guideline will become more strict, as they should. Involving the government in the consumer credit process would be insane.

I am new here, but have been viewing for years. Thank you momto6. She is right. The problem here isn't the problem of the government, mortgage brokers, real estate. The next fault will lie with the person (previous homeowner) who sold their homes. No one forces you to sign on the dotted line. Although most mortgage contracts are typical, I have always had our attorney send us the contracts one to two days before so that we can read everything and ask questions if needed. I feel terrible for people who are in a crisis, but too many people feel that responsibility should be abdicated just because they are in bad financial times.
The lending institutions such as Countrywide, etc are hurting because they lent that money and the government ought not help them either.
Ultimately, as long as we are adults in a free a country, the responsibility lies with each one of us to make our own decisions.

Interesting. I have heard a lot of people who were told, "you better buy now, cause it will cost more next month," and, "they're not making any more land - it's value can only go up." Sure it's a hard sell tactic - but why wouldn't you believe the "expert" in the field who told you such? I'm sure no one here ever said anything like that. Anyone upside down here been told these things?

If more money and effort was spent on education we wouldn't have to try to protect people from themselves.

Blaming banks or Wallstreet for being greedy? Good lord, that's their JOB! You don't blame a virus for making you sick - you accept that they exist and take steps to deal with them as well as you can.

Blaming the institutions for this credit mess makes as much sense as suing the tobacco companies because someone didn't know cigarettes cause health problems, or blaming MacDonalds because your kids are fat. How about the idiot who sued because she spilled hot coffee on herself and was surprised that it hurt?

Perhaps young people need to spend less time learning about how much bauxite Brazil imports and more time learning about health issues and basic financing before they get to an age where they can make their own decisions about these things.
Basic LIFE SKILLS would keep a lot of folks (and in this case, world finance) out of trouble. Obviously, they're not learning these things from their parents.

Chris, where do you draw the line between profits and corporate responsibility? Should we accept Chinese toys with lead in them because "they're just trying to make a buck?"

There's plenty of blame to pass around here. The less credit worthy people didn't HAVE to sign on the dotted line. And the banks didn't HAVE to offer them the money.

mom/over I think you guys are missing the point. Certainly everyone is responsible for their own financial decisions. However, those irresponsible souls that got mortgages that they probably shouldn't have, are not at all responsible for the current state of the credit market. That responsibility lies with those that provided the easy money to these people without regard for the borrowers ability to repay the loans when the interest rate shifted. What we are going through now is a credit crunch that is a result of standardless lending that only occurred because Wallstreet created a hyped up market for these unsound loans. They couldn't get enough of these junk mortgages and people like Countrywide et al were all too happy to give them exactly what they wanted. Now when the idiots(scammers) finally realized that the junk bonds they actually sold to finance these mortgages were just that, junk, they have managed to kill off the entire mortgage financing market. Now the Fed is rushing in to basically bail out all of these investors in the junk mortgage bonds by lowering the discount rate to lessen the hit these investors are going to take. And sadly, what the Fed is doing is the right thing since we are all suffering from the irresponsible nature of Wallstreet.

You wait and see if the US government doesn't come to the rescue and bail out the street. They will do it by going to the irresponsible borrowers and either guaranteeing a portion of their loan or paying the difference in the interest rate. This is similar to the scam that the street pulled in the 70's and 80's when they lent billions of dollars to South American countries at insane interest rates (+20%) and basically brought these countries to their knees. They worked with Washington and the IMF bail these countries out by getting the loans guaranteed. So in the end, they basically lent the US Government money at +20% rates. Brilliant!

Dee:
Regarding the Chinese toys, the government is not at fault. Americans are. The problem with everything made overseas is due to the numerous people who go to Walmart, etc and buy the cheapest toy/tool/clothes without concern of where this is made. We buy as much as we can made in america, but it is difficult to find things made here anymore. We pay quite a bit more for furniture, tools made in America because we feel that it is important to support the companies. If we can't afford it, we don't buy it. Regarding toys, we try to buy as much as we can made in America; whether used, made by hand. Yes we have toys made in China, but far less plastic junk than our neighbors.
If a large segment of the population only would buy in America, the industries Made in America would grow in Market Share and would be less likely to move overseas.
This is a free market. We are getting what we (collectively as Americans) are wanting through our buying.

Should we accept Chinese toys with lead in them because "they're just trying to make a buck?"

Caveat Emptor

But this is apples an oranges. I'm talking about education.

We can't know (and really don't even want to suspect) that someone is poisoning the dog food. And since you can't test your Leggo for lead by yourself, you have to trust the supplier.

But we CAN know (or easily find out, or be taught) how to manage our budget. The banks may be greedy, but they are perfectly legal.

I'm not defending the banks. I'm saying people need to take responsibility for their own problems. It's always someone else's fault.

It's far easier to learn how to balance a budget than try to convince the world of finance to be nice to the uninformed. Predators exist everywhere.

The importing of hazardeous material into the US is my fault? My Government is supposed to protect me and my family. As an individual, I have NO way of stopping hazardous stuff from being sold to me or expose my family to it.
The Government should/has systems and policies in place to protect it's citizens from this, the people in charge need to be held responsible.

I am totally agreeing with both momto6 and homeowner2007.

IMO, this is not one that can be laid at the REA doorstep.

Bottom line? If the average person did to another person what the predatory lenders have done, once caught...they would be arrested and charged with fraud, deceptive practice, etc.

Lending institutions in this respect are above the law....and many purposely steered folks who could have qualified for a basic 30 year mortgage into the ever adjusting arm...because they made more money off of such than the 30 year variety.

Maybe those who accepted such loans were not the brightest of the bunch when it comes to financing...but lets not forget just how complex the language can be with many of these "loans".

There ARE reasons for laws to protect people from the snake oil salespeople....simply because such protection is indeed needed...however, the problem here is that the laws don't apply...as long as Wall St and the hedge fund crowd can see billions pouring into their coffers...

In addition, since hedge funds are so unregulated, no one can really say the true level of exposure here....because there is little if any way to know how much exposure each HF has...until of course they implodeÂÂwhich generates billions in bail outsÂbut not for those left holding the bagÂ..aka foreclosed homes.

To paraphrase the recently late Leona Helmsley: The laws are not for the rich to abide byÂonly the little people must abide by the law.

Below are excerpts from NJ Gov. Corzine's (revious co-chair of Goldman Sachs) letter to Bernanke...this just skims the tippy top of the iceberg....

Whether lead in toys or diethylene glycol in toothpaste the consumer knows how to contact an attorney and file suit.

Nothing like the threat of a $100,000,000 lawsuit to keep companies on their toes. No need for incompetent "big government" to get involved.
------
I'll bet their is more lead absorbed in your body from your water (in plumbing of older homes) than will be from those toys.

I agree with Kitchenshock with a twist.
Yes people are responsible for their own financial decisions. However, people for the most part are stupid. They are not financially savvy enough to know what they can afford, what the implications of an option arm are, and will sign anything put in front of them because the house has shiny granite counters.

I would put the blame on the lending industry approving buyers that have no business taking out mortgages for more money than they could dream of. Somewhere along the line everyone started believing that it was their constitutional right to purchase their own home, not true.

At the end of the day it was the cheap easy money that caused the spiral upward. This caused people to get in the market that couldn't have before or to purchase at levels they couldn't before causing more demand, similar supply and raising of prices.

I just wanted to add that I'm really enjoying this discussion!

Hopefully there won't be any name calling ...

IMO, all of the posts so far have contained valid points.

We, as Americans, have short memories. Remember back in 1999-2000 when we were hearing that there was a "New Economy" and it no longer mattered whether a company actually made a profit? P/E ratios were ridiculous. I remember having to change my spreadsheet to allow for a third digit in the P/E column. Talk on the street was to buy, buy, & buy more. And, many Americans did just that. Some were wise enough to pull money off the table. Some did not, unfortunately. After the "Crash", many pulled what was left of their 401(k)s & chased the new money which was real estate.

Everywhere we went...buy real estate, there's no more land, it can only go up, yada yada yada. HGTV quickly jumped on the bandwagon fueling the embers. Houses were tangible. We could see & touch them. They seemed "real". Americans stopped contributing to their 401(k)s & poured their discretionary money into houses. Eighteen months later, they sold & "reinvested" into ever more expensive houses. Happy, happy. More Americans saw huge gains going to those who bought & joined the frenzy. Supply/demand added more fuel. The concept of one's home becoming an investment rather than a place where we lived & raised our families became the mantra. We obsessed over cherry or maple cabinets, hardwood or slate, Wolf or Viking, 9' or 11' ceiling in the 3-story foyer, & whether 5,000 s.f. was "adequate" for a family of four.

People lived in huge homes with little furniture & no landscaping selling a year after purchase & moving on to the next "campsite". Others spent $800K for a 3/2 rancher that had originally sold for $7.5K when built some 25-30 years earlier. They poured hundreds of thousands of dollars into these homes remodeling them with ever more expensive & exoctic features. Some took money off the table, purchased a home they could afford, rebalanced their portfolios, & life is good. Some, kept buying hanging on to the dream of "get rich quick" by buying real estate.

Not to be outdone, financial institutions figured out new ways to profit from this boom & the CDO became the darling of Wall Street. To fill Wall Street's appetite for CDOs lenders stopped pricing in risk...why not? Nobody cared about risk anymore.

Real estate agents forgot how to sell. They'd become "order takers". Instead of a Chevy sedan, they started driving Beemers & buying second homes in the Hamptons. Happy Happy.

Wanting to have a piece of the American Dream, sub-prime borrowers signed piles of documents they didn't understand. Some had never even managed a checking account before & now were being asked to understand about leveraged profits. It didn't matter. They could always sell & make more money than they'd ever hoped to see in a lifetime.

Some mortgage brokers/lenders/REAs who slither under a door to enter a room jumped on the bandwagon. These types show up mid-way into any boom of any nature. They worked the least knowledable & least able to afford a market downturn. Colorado is prosecuting some of these predators but most will walk away unscathed & considerably wealthier. Many sub-prime borrowers still don't understand what's happened to them...wasn't their home supposed to be worth so much more today than when they bought? How can I possibly be foreclosed? Why can't I just sell?

There are many people who fall in between the scenarios I've outlined. Not all sub-prime borrowers are innocent & not all sub-prime lenders were/are predatory. There are also real people who purchased homes in the past couple years for normal, reasonable reasons. They are being hurt badly.

What's at the bottom of the "subprimal fear" meltdown? Greed. And there's plenty of that to spread around. We live in a capitalist society where "get rich quick" schemes will always have fertile ground to sprout & grow.

I feel sorry for everybody being hurt financially by this bust but especially sorry for people who really didn't understand what they were doing. They've learned a really tough lesson. And, no...I don't support bailing them out. We learn best from our mistakes.

If you don't have to sell now...don't. If you do, reduce your price & get on with life. It's going to be worse Spring '08, IMO. If you're a buyer with flexibility...wait to purchase until next year. If you do have to purchase now...start 15% below list price & move up to wherever you're comfortable. Don't trust the comps. They are not accurate & are meaningless today.

I started working distressed real estate during the REIT crash/burn of the 1970s. So, these boom/bush cycles are not new nor surprising to me. The details are always a bit different but the pattern is pretty stable. Prices are going down...

Yep, to my critics...this is a negative post if you're short-term bullish on real estate. Long-term, I believe strongly in owning real estate & this cycle also will eventually bottom & prices will climb again. Personally, I don't view these cycles as either positive or negative. They just 'are'. I accept them as part of life. I've made lots of money on real estate & I've lost some on real estate. I still believe...just don't want to buy this Fall.

The Fed could possibly put a new wrench into this mess. But, if you toss a penny down a staircase with enough umph...it will bounce...but it ALWAYS falls to the bottom.

/Tricia

Some of the comments you guys are posting are absolutely amazing. Caveat Emptor to lead in the paint of toys? A $100million lawsuit is going to fix things after they've already happened? Some of you people clearly have been brain washed into thinking that free enterprise means the right to scam your neighbor out of their money so you can make a buck.

I am a partner in business consulting firm and at one time a C-level executive in two public companies. I can tell you tort lawyers evoke no fear in the average executive. Elliot Spitzer on the other hand going after you criminally does. Tort law is for the most part proven to be ineffective. Our country is no safer or better off then any other developed countries in the world because of it. We rank 38th (or around there) in health care, yet we have more litigation in the health industry then any other country.

Secondly, believe it or not, most executives do not have a sinister "make a profit at all costs" attitudes like some on the board apparently would have. Most of the time when things go wrong, its because of incompetence in the organization and then horrible decisions from the top on how to handle it. I have never ever in my entire time in the corporate world been in a meeting where the goal was to bring an inferior un-safe product to the market. I can tell you if I had an executuve come to me with the attitude of some of you on this thread, I would fire them in a New York second.

As for the stupid borrowers that signed up for loans they couldn't afford, shame on them. But don't blame the condition of the housing or credit market on them. They simply took advantage of someone else's sloppy business practices.

The real estate debacle and its far-reaching consequences are results of bad policy decisions made by our federal government. (Or should I say LACK of either decisions or policy?) Is it so hard to see how this mess came to be?

Post dot-com the economy was in trouble. Low interest rates were meant to spur the economy out of the doldrums. They also led to the real estate bubble that has now burst, leaving a gooey, gummy mess over the whole country. Cleaning up is going to hurt, taking some skin off along with the goo. It's going to hurt worst far from Washington.

Since the American consumer is carrying 70% of the economy by buying everything he can get his hands on, making more money available to him has been "policy". Low interest rates and ridiculous loans led to the real estate bubble. Remember the chest-thumping about how many Americans were home owners? And, no small thing, how many were invested in the stock market? (Remember the Bush plan to let people bet their SS funds there?)

Mr. American Homeowner was encouraged to take equity out of his inflated home value for "spending money". He needed it, since real income has actually dropped for much of the middle class. That piggy bank is smashed. Not only is there no more "free" spending money, there's no equity, and soon enough, no home.

The "funny money" that floated this whole venture has suddenly been discovered to be as worthless as Confederate Dollars. (Who, outside of the financial world, knew of "tranches" before now?)

YES, we deserved better regulators. (Barn doors are being closed too late all over the financial world.) Yes, some people over-extended. The government needed their consumer dollars, to keep the economy rolling a little farther, a little longer.

When I think about inheriting this mess, I wonder if the people seeking the Presidency and other federal office are delusional or just nuts!

Kitchenshock, like Deee said, it would be nice to have this discussion without name calling.

Please read posts in their entirety. I went on to say that it is not possible to test your purchases for lead and so we must trust our suppliers.

Our suppliers are obviously not heeding "Caveat Emptor". They may not bring faulty products to market on purpose but, as we are now seeing, they are not breaking a leg (or the bank) to make sure the products are 100%.

Quality costs money. Quality control costs money.
As long as people shop at Wallmart and insist on paying a buck ninety-nine for their plastic Barbie doll, quality control takes a back seat. Do you really think that Mattell doesn't have a pretty good idea that China uses lead-based paint?? You'd think they'd send someone over there once in a while to check the paint buckets.
Investors come first, then visible defects get sorted out. Invisible ones aren't dealt with until a consumer notices. Very cost-effective that way.

I wouldn't dream of buying food at dollar stores, be that Chinese or North-American made (the last case of Bocculism in chili was due to sloppy but no doubt cost-saving manufacture on this side of the ocean), and I pity the people who have no choice but to do so. Caveat emptor - Let the BUYER beware, be that the wholesaler or the consumer.

I feel sooooooo ignorant and perhaps even slow I can hardly keep up with most of you

I dont understand how any of this happened in the first place. All along I kept asking why the lenders were lending money to poor risks. I figured they must know a whole lot more than I and therefore it must be OK. Right? I mean thats their business and they are in the business of making money.

I kept wondering how the bidding wars continued. I live in S. CA and bidding wars on homes were the norm for many years. I kept wondering how these homes could possibly be worth the asking price and felt that it would surly STOP. But, the houses just kept on climbing until I could no longer even think of buying (and I make $80,000 per year/no debt). How was it possible that EVERYONE made so much more??? I couldnt understand any of it and I still cant.

I certainly dont blame the average Joe and I think some of you expect too much. I think some of you loose sight of the fact that you really are cleverer, smarter, more educated and hold everyone to the same standard. Most folks arent on your level and to expect them to be is wrong. To expect the average human to turn way from what is only human nature is wrong.

Chrisk327, you said it very well! People are stupid and they need protecting.

Jeri:
You say that you feel ignorant and slow, yet you understand exactly what was the problem. You report that you make 80,000 but HAVE NO DEBT. You felt like you couldn't afford a house in the runaway market in California, so you DIDN'T BUY. You understand the situation exactly.

The problem is not that people are stupid or that they are not smart. The problem is that people are greedy. They want shiny granite countertops, 20 foot foyer, and everything that they believe to be a dream home right now. Don't worry that their parents lived in something half the size with a single bathroom or that it took 50 years to buy a dining room set; however, many current families took out large mortgages that they couldn't afford with "creative financing" not because of lack of intelligence, but because their greed blinded them to the facts.

Although the toys from China, the Ikea furniture from China, etc are a different issue; it does boil down to the same problem. The feeling that more is better.
I feel sad for the people who will lose their homes in the next two years. I also agree that there will be pain for the country to bear on this one as the economy and market will slow. However, I suppose we need a wake up call once in a while to remind us that numbers don't lie and that illusions are only illusions.

Jeri - you stated 'All along I kept asking why the lenders were lending money to poor risks.'

It is not uncommon for lenders to be pushed into lending to people who are poor credit risks. There are organizations such as ACORN that lobby to have have lenders allocate a certain percentage of their lendable dollars to those who are poor credit risks. They claim discrimination when lending institutions either don't lend to these folks or choose to issue them a higher interest rate (because they are more likely to default). The interesting thing about ACORN is I have never seen them publish any statistics about the people that now qualify because of their efforts and what percentage of those were able to successfully take on debt.

Jeri: You felt like you couldn't afford a house in the runaway market in California, so you DIDN'T BUY. You understand the situation exactly.

Yea that sounds good But I "could" have bought the house I was renting 6 years ago ("could" defined as a lender would lend me money even if I didnt feel comfortable with the monthly nut). Back then I thought the asking price was ridiculous. Things had already jumped so much in just 3 years and I thought surely they would have to adjust soon. I was wrong. Dead wrong. Now I couldnt touch that house with my income. In hind-sight, I should have bought it.

Jeri:
At least you're not having to foreclose

So many good points on this thread! I'm pretty impressed with you all.

It seems to me this was the entirely predictable result of the system we've been operating with. Low savings rates. High levels of consumer debt and worse, rampant consumerism. Lowered government oversight. And, can I be the first to blame our educational system? Nobody seems to have a clue about basic budgeting. People in this country are clearly ignorant about money.

True story - a friend's mother is 62, has chronic bp and diabetes problems, and about $15k in her retirement accounts and makes around $75k a year. She also had a judgement for failure to pay taxes and owed the IRS $20k.

My friend BEGGED HER not to buy. BEGGED. Last year she went ahead, got an ARM, no money down, and on the day of signing literally didn't know that there were going to be closing costs. Didn't know she'd owe property tax. Hadn't gotten insurance, didn't know she needed it. Happily signed anyway...

Needless to say, she was foreclosed on last month.

The broker that made her the loan doesn't get compensated differently whether she can make the payments or not. The mortgage broker's employer doesn't even end up holding the debt, usually...Wall Street hedge funds do. Since the person making the loan was so far removed from the person who takes the loss if the loan defaults, all the normal processes for ensuring rational lending practices broke down.

The regulators knew what these portfolios looked like. They knew when these loans repriced and by how much. They knew these loans were the snake in the grass...but honestly so did many of us non-regulators. Regular folks who understood how to budget continued to insist on plain ol' fixed-rate loans. Me included.

We all knew this didn't make sense. 20-30% growth rates are the very definition of bubble. Short term ARMS are trouble incarnate. Teaser rates? This is your home, people. But nobody was willing to make an issue of it, because quite frankly many were benefitting, and the rest of us are more focused on the other things happening that are incredibly disturbing...it's been a pretty complicated decade, no?

This is going to be a bitter pill, but I think the most interesting thing is that in 10 years, we'll all be having this same conversation about something else. This sounds so much like the dot-com bust it's incredible...

The responsibility lies with the following: consumers, mortgage brokers, mortgage lenders, banking regulators, Congress, Wall Street brokers. That's...pretty much everyone!

How about the idiot who sued because she spilled hot coffee on herself and was surprised that it hurt?

I just get crabby about this. Esp. when it's cited as an example of how people are so quick to sue.

Third-degree burns, over 6% of her body (especially her groin area and buttocks), skin grafts--a week in the hospital. You bet, it *hurt*.

Repeated similar instances beforehand--more than 700 serious injuries from excessively hot coffee, reported TO McDonald's, many of them involving people w/ second- and third-degree burns.

Coffee held at temps between 180 and 190 degrees--coffee at home is 135 to 140 degrees. (liquids at 180 degrees will cause a third-degree burn in 2 to 7 seconds, at 160 degrees, it takes 12 seconds or more)

The woman injured said she wouldn't have filed the lawsuit if McDonald's had been willing to pay her $20,000 medical bills. She got $200,000 in actual damages, and the jury awarded $2.x million in punitive damages, which a judge knocked down to $480k.

Some other info:
http://www.vanosteen.com/mcdonalds-coffee-lawsuit.htm

This has been a terrific thread with the well-voiced thoughts of many reasonable people. I come down generally on the side of 'personal responsibility', but a basic understanding of the (invented) concept of money (as opposed to the tangible method of barter) is lacking in a large percentage of our population, and not just the lower-income folks. I wonder how much of this is long-term rebound from the Great Depression, which created ferocious parsimony in an entire generation (the great-grand parent generation, now). Then came the anti-materialism of the long-haired baby boomers. So if every generation wants its own attitude towards money/things, what's left but hyperconsumerism? :)

Pointing a finger in a different direction....what wretched architectural firm birthed the modern starter castle? ALL the new home construction in my area dedicates about 25% of its square fotage to un-usable space. It is either socially isolated so no one wants to be in it, or it is meant to be 'nice', that is, a space with No Kids rules. The twenty foot foyer is unheatable, and the house from the outside is just plain unattractive, what with those stupid two-story porch pillars and front-load triple-car garage. I have seen kitchens so large that it takes 3 steps from the refrigerator to the (granite) island.

I am curious about the foreclosure wave...how many people actually could afford to buy the home but couldn't afford to own it?

That is...

To fully and fairly inform a buyer in a marginal income situation, I think that the monthly mortgage payment AND the predicted utility bills (yes you can predict them including different combinations of summer and winter house temps) should be put on the table. Using the current electricity and gas rates would likely generate a number that would give people pause, without having to invoke a future energy crisis. This might actually incentivize builders to improve energy efficiency AND possibly to down-size their 'basic monstrosity' floorplan. OK I'm dreaming.

Thank you, Tally Sue! I have also read that case, and it really ticks me off when people roll their eyes over the "frivolity" of it. I believe she also had to have debridement of her groin area. I always ask people to close their eyes and imagine having dead tissue scraped from their genitalia, but your explanation is better.

I've asked this on the "Financial" forum, but...

Who pays the real estste taxes on a foreclosed property? A recent report said one in 700 homes in America is in some stage of foreclosure and I got wondering who ELSE was going to hurt until this is over...possibly years from now.

Also, with the exchange rate so favorable to other countries, how much of America will be owned by non-citizens picking up real estate "bargains"?

I'm with kitchenshock and momto6.

I also agree there shouldn't be a bailout.

Them that will face foreclosure because their 2/28 ARMs are spiking? They'll go back to renting. It won't be the end of the world - most don't have any credit or equity anyway, and they learned some hard lessons: don't buy what you can't afford, and read the small print.

The sleazier mortgage lending practices will be cut out or greatly restricted. The industry will shake out and shape up. This too shall pass...

A bailout is a moral hazard. You see it in the insurance industry, but technically, in a bailout the government would be acting as insurance for the banks so the analogy applies. The moral hazard, greatly simplified, is that by bailing out banks, you are encouraging the banks to engage in risky behavior in the future, because the banks will start to expect that they can be bailed out again and again.

The bubble was/is not a crime. Its capitalism. Bailouts, on the other hand, are socialism.

chisue, the property owner pays the taxes, if the bank owns the property it will pay the taxes.
Long term lowered property valuation of properties could hurt tax revenue.

"It is not uncommon for lenders to be pushed [allegedly by community groups like Acorn]into lending to people who are poor credit risks."

Actually, exactly the opposite is true. Lenders are more likely to target minority applicants for subprime loans.

A recent study by the Center for Responsible Lending examined the credit histories of 50,000 subprime borrowers. It found that when minority and non-minority buyers with equal credit scores applied for mortgage loans, the minority buyers were a third more likely to be steered into a subprime loan than the non-minority buyers, and that was true even when the minority applicants should have be able to qualify for a conventional loan.

I must say that I'm surprised to see an allegation like this made on this board. To try to blame a group like Acorn, who's clout in influencing the credit markets is miniscule compared to the gaint national lenders like Countrywide, makes absolutely no sense.

feedingfrenzy - I used to work for a bank that was the target of semi-annual protests by Acorn. Those people were real and they did protest the bank. They do have a lobby in Washington that has some clout.

I did not say Acorn was largely responsible for the current huge problem. I was responding to Jeri's question as to why lending institutions would lend to people that are a poor credit risk. And while this practice may not be largely responsible for the current situation, it certainly doesn't help.

I also said nothing about minorities, which your reference does in relation to the study by the Center for Responsible Lending. I was only speaking of those with a poor credit risk. Go back and reread my post.

I did reread it and noticed the reference to discrimination. You can understand why I reached the conclusion I did, especially because you focussed on the activities of Acorn, a community group known for protesting unfair lending practices against minorities.

But I'm very glad to know that's not what you intended.

Feedingfrenzy - I was curious about your most recent response to mine especially as it relates to "protesting unfair lending practices against minorities" because I never really saw them (ACORN) as minority-based in their intentions. So I went out to the ACORN website and they define themselves as: "ACORN, the Association of Community Organizations for Reform Now, is the nation's largest community organization of low- and moderate-income families, working together for social justice and stronger communities."

Maybe you are aware of something I am not, but I hope that race (minorities) is not being drawn into a situation where it does not apply.

If you look into this a little molre deeply, you will find, for example, that ACORN issued a study way back in 1999 entitled "Separate and Unequal: Predatory Lending in America"

In its conclusion to the study, ACORN makes the following findings:

"1. Minorities are much more likely than whites to receive a subprime loan when refinancing.

2. The concentration of subprime loans is greatest among lower income minorities.

3. Subprime lenders also target lower income white homeowners.

4. From l993 to 2000, the rate of growth in the number of subprime refinance loans to minorities was larger than the rate of growth to whites.

5. African-American homeowners were 4 times more likely than white homebuyers to receive a subprime loan, and Latinos were twice as likely to do so.

6. The rate of growth of subprime lending has been much faster than the rate of growth of prime lending, especially to African-American borrowers."

It's very hard to argue that the subprime bust hasn't hit minority communities especially hard. The real question is whether these communities (which tend to be lower income, where one would expect more subprime loans) have been hit harder than they should have because minorities have been tracked into subprime loans even when the borrowers would have qualified for conventional loans. If true, that clearly would be racial discrimination in the subprime industry.

cmarlin20 -- Thank you for the answer: that the taxes will be paid by the property owner -- individual, bank, etc. Then what happens? If the bank can't sell the property would they abandon it -- to be "sold for back taxes" by the municipality?

I think many municipalities are going to be hurt when the taxes they were counting on coming from inflated properties decrease. (DOs tax assessor ever does decrease appraisals without being petitioned?)

chisue,

No, an institution will never abandon a property rather than pay the taxes. They will not abandon a property for any reason although it may sometimes appear they have (as in the case of a property I've been watching here in Mystic).

Yes, real estate tax appraisals do go down. Municipalities reappraise at predetermined time frames like every 1 year, 4 years, or 10 ten years. If the market value has decreased, the tax assessment will reflect that. In actuality, the taxes may not actually drop because the mill rate goes up! :(

Tricia

I read yesterday that one in 700 properties in the USA is in some stage of foreclosure. I can't quite get my mind around those numbers, let alone worsening ones. I know that actual foreclosure may never happen to many of these properties -- they may just be late making a payment by as little as a month and still show up on the list. Still...

So...when does a house get sold "for back taxes"?

While you're at it, why not place blame on Appraisers too.
They reported to lenders what properties were worth & lenders allowed people to get loans based on that information. Unfortunately, in today's market, comps & those aprraisal pieces of papers from a year ago (or even months ago) are worthless today. JMHO

"I certainly dont blame the average Joe and I think some of you expect too much. I think some of you loose sight of the fact that you really are cleverer, smarter, more educated and hold everyone to the same standard. Most folks arent on your level and to expect them to be is wrong. To expect the average human to turn way from what is only human nature is wrong"..... Jeri, I'm a fairly new agent and there are things that I wished that I knew a year ago and am still learning. Checking those pre-approval/pre-qual letters to see if the lenders even actually exist and can fund is nearly a daily requirement. People are coming to their closing only to find out their lender has dissapeared from the face of the earth. No funds=No close.

I also disagree with Kitchenshock ....."As for the stupid borrowers that signed up for loans they couldn't afford, shame on them. But don't blame the condition of the housing or credit market on them. They simply took advantage of someone else's sloppy business practices".

Some of us "stupid borrowers" have had life-changing events that caused us to be upside-down. There are real life events that can happen to people unexpectedly....life threatening health-issues, job loss, caregiving & being caught up in the "Sandwich Generation. etc. Not everyone fits into your perfect little box of being the perfect borrower. Sometimes Life Happens. JMHO

Let's see -- if the current mess is really due to stupid borrowers getting in over their heads, then we should be able ascertain the relative stupidity of the residents of each of the 50 states by finding out where their state ranks on the foreclosure rate list.

Georgis currently tops the list, so that must mean that Georgians are the stupidist people in the USA. Nevada comes next, so I guess Nevadans are only a shade less dim then the poor Georgians. And next is Michigan.

Oh no! That's where I live. And even worse, the Detroit metro housing market has the nation's highest foreclosure rate, with a staggering 1 in 96 residential mortgages in some stage of foreclosure.

Since I live in Detroit, I must be living among the stupidist of the stupid. Even worse, that also must mean that I, myself, am stupid. Would the fact that we own our Detroit residence free and clear help improve our stupidity rating, do you think?

Probably not. There are those who post on here who insist that NOT carrying a mortgage on your house is a really stupid thing to do.

You just can't win, I guess.

chisue,

Properties are sold for unpaid taxes depending on the local tax laws. It varies greatly. As a lender, I would never pay taxes until the last possible second & kept a ticker file so I could write checks daily to pay whatever taxes were about to go delinquent. Pre-foreclosure, a lender watches the taxes & if a property will go to tax sale prior to the foreclosure sale...they will go ahead & pay the taxes & just add the amount to whatever the mortgagee owes.

/t

Some of us "stupid borrowers" have had life-changing events that caused us to be upside-down. There are real life events that can happen to people unexpectedly...

Those events existed 10, 20, 30, 100 years ago, too. I don't think anyone here denies that there are perfectly "normal" reasons why someone might lose their home.
I doubt these cases are part of the discussion or included with the "stupid" buyers.

I do object to the term "stupid". "Uneducated" is probably a better word. There are plenty of intelligent people that are misinformed about their options, uneducated in the ways of finance, or are prone to making rash decisions. Or, since someone mentioned race, there may be language barriers. That doesn't make them "stupid".

But when you get right down to it, who's stupider? The guy who borrows the money he probably can't pay back? Or the guy who lends it to him?

It dawned on me this morning that when I'd heard about people buying homes "for back taxes" it concerned the Depression. My guess is that some people owned their homes, free and clear, but didn't have money to pay their RE taxes. Terrible!

katclaws_mo, if you had read the context of my post correctly you would understand that I am talking about people that signed for a mortgage that they could never afford to pay back. I don't think anyone would call someone stupid for taking out a mortgage that they could afford at the time and then down the road as the result of some kind of life changing event, they could no longer afford it. That can happen to just about anyone and I would never call them a "stupid borrower".

chris_ont, I agree the word stupid is harsh and probably unfair in some cases, but I think its accurate to describe the actions of a good many of these borrowers. I agree that many were probably uneducated in understanding the mortgages they were signing. However, it is still stupid to do something that could have major consequences to your life when you don't understand it. I think most people would never jump out of an airplane without first understanding at least the basic concepts of skydiving. And for those that would, well, that's just plain stupid.