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Source link: http://archive.mises.org/16635/the-inside-out-world-of-home-mortgages/

The Inside-Out World of Home Mortgages

April 26, 2011 by

With 25% more to fall, and many houses under water by thousands of dollars, or hundreds of thousands, what’s the incentive to pay? If a borrower wants to work out a compromise in good faith, how can they know if they are negotiating with the right party? The mortgage mess is a house of mirrors.

FULL ARTICLE by Doug French

{ 13 comments }

greg April 26, 2011 at 8:33 am

First of all, let me make it clear, don’t walk away from your mortgage! It isn’t about the loan, the money you owe, how much your house is worth, IT IS ABOUT YOUR FUTURE! Every medium or high paying job requires a credit report before you are hired and if you have a foreclosure on your record, you will not get the job. As a person I know in the financial industry, they reject anyone with a credit problem, there are too many good applicants. Plus you need to realize that your insurance is going to cost more, interest rates are higher and credit is not available.

On housing, the bottom has formed. Some markets like DC, you are seeing houses sell in 5 days or less with multiple offers. Also you must realize about 30% of all foreclosures will never be sold and will be torn down. You are going to see monthly increases in sales into next fall and by next year there will be a shortage in new housing products. Basically new construction has not kept up with the number of houses lost to damage or tear downs.

The Anti-Gnostic April 26, 2011 at 9:51 am

First of all, let me make it clear, don’t walk away from your mortgage! It isn’t about the loan, the money you owe, how much your house is worth, IT IS ABOUT YOUR FUTURE!

And if your future is pouring money down a pit of negative equity, then perforce it’s not about saving for retirement, continuing education, helping out aging parents, schooling your kids, etc. If the choice is between an exurban home that will NEVER show a positive ROI or savings to fund way more pressing household needs, then it’s bye-bye money pit. That is the rational choice.

Every medium or high paying job requires a credit report before you are hired and if you have a foreclosure on your record, you will not get the job.

Those jobs are gone and not coming back. The US is now competing for jobs with the entire rest of the planet. Median incomes are headed south. Only a lucky few in government and finance will command those high salaries and as the Great Unwinding continues, even those jobs will disappear.

Plus you need to realize that your insurance is going to cost more, interest rates are higher and credit is not available.

Consumers don’t need credit. If you can’t pay for it in cash, you can’t afford it.

Americans, individually and collectively, have been collateralizing future income in order to live beyond their means for a number of decades. We are now out of future.

nate-m April 27, 2011 at 10:06 pm

Consumers don’t need credit. If you can’t pay for it in cash, you can’t afford it.

Basically this.

If I was not already a home owner and if I wanted to buy a house I would wait until I could buy one with 30% down. At that point I would be back to 0 credit score and while it would be fairly difficult to find a loan place that actually understands what a credit score really is it’s certainly possible.

Your credit score is not your worth as a human being. Employers that choose employees based on credit score are morons and are probably treacherous. You can’t trust them because they are incompetent.

There are plenty of millionaires with 0 credit score. There are plenty of people that are stupid, live pay check to pay check, are up to their eyeballs in debt and have perfect credit score.

You want a high credit score?
You want to know the trick?
It’s very simple:

Borrow as much as you can, pay bills on time with minimal payments. Do everything you can to get as much debt as possible and hold on to that debt for as long as possible.

Bingo, you will have fantastic credit rating.

Why?

Because your credit score has less to do with how trustworthiness or your value to society and much more to do with how profitable of a target you are. It is a figure that indicates to banks that you can be milked for maximum levels of profit. A high credit score means that you can afford to give them relatively low interest rates because they will simply keep borrowing and will do everything they can to make sure that the maximum amount of their income goes to you.

That is why when you get rid of all your debts and can live your life in a debt-free manner then your credit rating will return to 0. 0 credit rating mean 0 profit for banks.

Of course I pay my debts. Not because I give a shit about some crooked system for hooking a rating on a person based on their susceptibility to usury, but because that is the ethical thing to do.

nate-m April 27, 2011 at 10:14 pm

Oh people who brag about their credit score are bragging about their failure to see society and banks for what it really is.

To put it bluntly:
They are rubes.

http://en.wiktionary.org/wiki/rube

Walt D. April 26, 2011 at 12:05 pm

http://www.bloomberg.com/news/2011-04-26/wealthy-leaving-las-vegas-mansions-as-pain-of-foreclosure-crisis-spreads.html
I assume Nicholas Cage can afford to pay cash and is not bothered by his FICO score.

Dave M April 26, 2011 at 12:22 pm

Greg,
I would have to disagree with your statement. I saw the real estate collapse in Western Canada first hand in the 1980′s. The smart ones were the people who tossed the house keys on the bank managers desk.

The people who tried to struggle through by by re-financing, working at any minimum wage job they could find….borrowing money from relatives ect. ended up being crushed, financialy and spiritualy, as eventually they also lost their homes. The only difference was the financial institutuions were able to squeeze out a little more cash from them.

I can see history repeating itself although this time it is on a worldwide scale. Fractional reserve banking and its companion of cheap easy credit is a mathematical model that has a finite life span. Credit scores have nothing to do with the equation.

Patrick Barron April 26, 2011 at 3:09 pm

“New single-family sales are now lower than at any point since the data was first collected in 1963, when the nation had 120 million fewer residents,” Streitfeld writes.

So much for the happy talk from Washington.

Jim P. April 26, 2011 at 6:58 pm

I know it’s not for everyone, but articles like this make me glad that I went the owner-builder route. Now, I don’t need credit and I don’t need to rent from the bank. And my house appreciates in value.

Forest Queen April 26, 2011 at 9:31 pm

Gee, I only wanted to point out the difference between US INC labeled federal democracy/military with Obama as the Commander-In-Chief of the armed forces – STOP CALLING HIM PRESIDENT! This is why it doesn’t matter where he was born. Plus,thousands of years of inbred 300 families,select the rulers, not elect. US INC., 10 sq. miles on the east coast, owned by a private foreign owned corp-IMF – quitclaimed in 1944. America is a land mass. United States is a corporation -united, past tense, dead. Originally, Union States, present tense, in the now. Hillary Clinton is Secretary of State -not Secretary of Nation. The fiat money we pass between us has pictures of dead people on it – past tense. US INC has nothing to do with any of the states – unfortunately, 98% of the people ignore history. The housing situation – there are over 59 ‘errors’ made at ‘loan’ time. As if banks loan money! Demand the original promissory note. They won’t be able to produce it. No IOU, no evidence for the claim, no loan. Did the banker inform the ‘borrowers’ that they were the Source of the currency? That the note was sold before they even signed? Fraud, deceit, extortion etc., etc.

RTB April 27, 2011 at 9:33 pm

Wow! Who let you out?

Forest Queen April 26, 2011 at 9:42 pm

Forgot to add, Washington is on the west coast. Washington, D.C. is on the east coast. District, District Attorney, yep, all of the state servants, labeled public servants are born here and working for a foreign corp.–Traitors!

RTB April 27, 2011 at 9:33 pm

See above.

Don Duncan April 29, 2011 at 9:16 pm

Why would anyone pay a 15% premium just to get a new house? Why is the premium 45% with sales off 80%? Don’t the houses have to be sold as quick as possible? Money tied up is money not making money, i.e., money lost. How can anyone predict the bottom with so many questions, e.g., will the law be changed or ignored requiring proof of a lien before foreclosure? Here in Las Vegas builders are still building new homes because just finished new homes are easier to sell than new homes that have been on the market for years. How can they afford to do that? Is money that cheap? What if their gamble backfires? The glut will be worse than it is today and may take decades to clear up. Is this an example of “malinvestment”?

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