BS: 125%Mortgage/negative equity difference?

Subject: BS: 125%Mortgage/negative equity difference?
From: Mr Red
Date: 19 Sep 08 - 08:20 AM

And the difference is?

15 years later we should have seen it coming.

in the early 90's it hadn't been seen so often as to be on the radar. But after only 15 more years you would think the victims would have been aware of the risk. Certainly in Britain. I was, when looking at places to live in 2000.

And average house prices running at 5 times average wages is more than a soupcon of a crystal ball. Perhaps Lloyds TSB (UK bank) were looking in it when they were described as lacklustre and fuddy duddy a year ago. Now they have the strength to buy a profligate bank.

I predicted a downturn in the economy here. But I couldn't predict the timing and I thought the downturn would come before the credit squeeze. Which is why I didn't bet on the outcome.

history repeats. It has to, because people aren't listening.

Subject: RE: BS: 125%Mortgage/negative equity difference?
From: Rapparee
Date: 19 Sep 08 - 08:26 AM

Shore does, pardner. It shore does.

That's why the bulk of our money is in Treasury bills and bonds. If THEY fail the government's gone belly-up (which it might anyway). We also have enough to pay off all of our debts, although we'd be hard strapped if we did.

We have ALWAYS obtained a fixed rate, fixed term, mortgage and paid it off as quickly as possible. How else would you know where you stand if your payments might change abruptly?

Subject: RE: BS: 125%Mortgage/negative equity difference?
From: pdq
Date: 19 Sep 08 - 09:38 AM

The "125% loan" is something that is intentional. The lender knows full well that the house is not worth as much as the loan from the begining. Rather rare, but it still worked fine most times since the value of housing was always going up and, an important consideration, the owner got a place to live and a chance of increased equity in the future. Works well if buyer has good income but is short on down payment.

The term "negative equity" means that the loan is larger than the value of the house that secures it. Usually not intentional. Often because housing prices dropped soon after purchase. Also called "upside down loan".

The term "negative amortization" is also confused with the two above. It means that a monthly payment is less than interest so the balance is increased slightly each month. This can lead to "negative equity" situation even in good times.

One more term, "reverse mortgage", refers to a loan that allows an older person who has a house paid off to get monthly cash payments, often until death, and live on the money. Owner who has lived in the same house for years gets to stay but has money to live on. Equity, of course, goes down. This one is a bit tricky as terms are customised for each party.

Subject: RE: BS: 125%Mortgage/negative equity difference?
From: Rasener
Date: 19 Sep 08 - 10:03 AM

And lets not forget the good old Interest Only Mortgage where you have life insurance, just in case you pop your clogs before the mortagage is paid off. You then pay into an equity shares scheme that will hopefully grow over the years to equate to the original Loan (Capital) Value of the house. So you pay an amount for the life insurance equity shares scheme and only the interest on the mortgage.
The big problem being that if the share scheme falls short of the capital value and at the ripe old age of 65, you are left with a great big bill because you can't pay off all the capital amount.
Imagine doing that with a 125% mortgage.

Here is an explanation of the interest only mortgage.
Interest Only Mortgage

Subject: RE: BS: 125%Mortgage/negative equity difference?
From: SINSULL
Date: 19 Sep 08 - 10:12 AM

Up until one month ago I was receiving offers by mail and email for mortgages for 125% of my home value. They had specific information on me and my home because I had just refinanced. They offered to cut my monthly payment in half but unless you read the fine print you did not know that this was a temporary rate which would fluctuate with interest rates. Does anyone really believe that interest rates will not go up within the next three years while incomes don't? This was sheer greed and stupidity on both sides.

Subject: RE: BS: 125%Mortgage/negative equity difference?
From: Donuel
Date: 19 Sep 08 - 11:03 AM

"dollar off"

a guarantee that you will get less than what you had.

My neighbor followed up on that 125% scheme and when the papers were actually presented to her at an intimidating meeting to rapidly hurry up and sign...

the terms were all different from everything described to her.

Subject: RE: BS: 125%Mortgage/negative equity difference?
From: SINSULL
Date: 19 Sep 08 - 11:05 AM

and??????

Subject: RE: BS: 125%Mortgage/negative equity difference?
From: Jean(eanjay)
Date: 19 Sep 08 - 11:15 AM

We have 2 endowments (as described by The Villan). The first is on track but there will be a shortfall with the second. We applied for compensation for the second one a few years ago, it was initially refused but we pursued it and did get compensation. We have actually paid that mortgage off now so when that endowment matures we will have a lump sum - not what we had hoped for but better than nothing at all.

Subject: RE: BS: 125%Mortgage/negative equity difference?
From: katlaughing
Date: 19 Sep 08 - 11:30 AM

An interest only loan was recommended to us when we bought a house for our daughter two years ago. It was recommended only if we planned to sell it soon after buying it, which we did, to our daughter, so it worked well for us.

Our own mortgage has always been fixed and VA-backed, so we have a good rate.

I was just listening to NPR about the Wall Street debacle. They were explaining what "leverage" means there. When firms decided to invest in mortgages, they were "borrowing" to purchase those, overextending themselves 30% OVER their own assets! All I could think of was all of those poor people who got caught up and have now lost their homes. 1 out of every 461 American homes, I think it was, is in some state of foreclosure.

And, now, the government, which means us, is going to bail out a bunch of banks, as well. How about bailing out the folks who are now homeless because of the so-called experts' ill-advice?

Subject: RE: BS: 125%Mortgage/negative equity difference?
From: sapper82
Date: 19 Sep 08 - 11:45 AM

There is nothing at all wrong with having "negative equity" on a mortgaged home PROVIDED you are able to pay, and keep paying, the mortgage payments and provided you are not wanting to move house.
Negative equity only becomes a problem when you want to move or when you can not afford the repayments.

Now, having said that, where does the responsibility lie for the rise in negaitive equity problems? A case can be made for both the bank/building society and the householder sharing that responsibility.

Subject: RE: BS: 125%Mortgage/negative equity difference?
From: SINSULL
Date: 19 Sep 08 - 11:58 AM

I agree, Sapper. It pisses me off that my tax dollars are going to be used to save the irresponsible on both sides. A woman was being interviewed on an evening news program last night. Poor thing lost her multi-million dollar home because she couldn't keep up the mortgage payments. Whose fault is that? She didn't lose her job or fall ill. She simply borrowed and spent too much. Too F**in' bad!

Subject: RE: BS: 125%Mortgage/negative equity difference?
From: katlaughing
Date: 19 Sep 08 - 12:25 PM

I think those are the extreme cases which make for sensational headlines, Sins. According to what I heard, many people who are being foreclosed on were first time home buyers who were misled by the banks and may have been a little naive due to inexperience. Apparently enough of them are also minority owners, enough so that the GOP is allegedly using foreclosure lists to try to block peoples' legitimate right to vote, claiming they have "no fixed abode."

Subject: RE: BS: 125%Mortgage/negative equity difference?
From: SINSULL
Date: 19 Sep 08 - 01:30 PM

The Democrats have filed a lawsuit and the Republicans have announced they won't do it BUT both parties pratice "caging". They send direct mail pieces to voter lists and keep records of those returned as "undeliverable". These records are used to challenge voters at the polls.

But the other issue is still at the heart of the problem. Predatory loan people and naive buyers does not equal a bail out by American taxpayers. Everything is in writing. If a buyer hears only what he wants to hear (you can have all this money and only pay $X monthly) he is still ersponsible to read the small print. That may sound cruel but it is also cruel to bankrupt the country.
If loan officers have broken the law, make them pay the money back and serve time.
Most importantly, if neither group can be trusted, REGULATE the industry. A year from now these same vultures will be whining that lawmakers are preventing them from doing business and thus damaging the country. And the Bushites will lead the parade to free them to do whatever the hell they please.

Subject: RE: BS: 125%Mortgage/negative equity difference?
From: dick greenhaus
Date: 19 Sep 08 - 11:49 PM

I've seen data (and I wish I could remember where) showing that over 90% of the new hoime buyers over a recent period of years made no down payment whatsoever. If this is true (and I suspect it is), if those homeowners face foreclosure, their only real loss is the monthly mortgage payments they made--i.e. rent.

A major problem is that the banks don't want to foreclose--because the real estate market is shot, and they can't sell the collateral.

Subject: RE: BS: 125%Mortgage/negative equity difference?
From: CarolC
Date: 20 Sep 08 - 01:53 AM

I don't understand why they can't just restructure the loans so that the interest rates are affordable to the people who hold the mortgages. That way, people could stay in their homes and their mortgages would get paid.

Subject: RE: BS: 125%Mortgage/negative equity difference?
From: The Fooles Troupe
Date: 20 Sep 08 - 07:52 AM

"I don't understand why they can't just restructure the loans so that the interest rates are affordable to the people who hold the mortgages"

Dead Simple! They would make less profit! Can't/won't be possible to do that!

Subject: RE: BS: 125%Mortgage/negative equity difference?
From: The Fooles Troupe
Date: 20 Sep 08 - 07:54 AM

Oh - and if they pull the mortgages, they make a loss - tax deductible - and if they make ENOUGH losses, Govt Bailout!
:-)

Subject: RE: BS: 125%Mortgage/negative equity difference?
From: Mr Red
Date: 22 Sep 08 - 12:47 PM

As I said, 125% mortgage is mostly taken-out by people who know what happened in the early 90's and some of them were caught in it directly or through relatives.

Recent 125% mortgages now represent nearer 140% and as the price goes down so the % looks worse by more than the decline.

I worked with a guy who held Northern Rock to their agreement even though they tried to squirm out of it this time last year. He, I found out, was trying to buy a house in Spain as well as a bigger house in the UK. He got the mortgage, and we had to let him go. Northern Rock then blew up about a month after. He only works contract, so it is a precarious situation. He is old enough to have been a home owner in the early 90's. Have you seen the housing market in Spain?

Risk is relative to danger. Perception of risk is related to experience. Cautious folks make better use of experience.

My approach to anyone who makes money from money, is to be very cynical. It works for me. It could work for the global economy.