Here we go again, Dow plunges

[Ail]

HappySqurriel said:

theprof00 said:

@squirrel

I am basically providing the subtext behind the entire sub-prime lending practices.

Like I've said before, it wasn't that poor couldn't afford their homes, but that many lenders were including language in the contracts that pretty much (over time) landed the borrower in default if they were a month late in payments.

It was the penalties that did it, not the lending.
I've known more people that have gotten bad credit from spending 40$ in one day.

My first bad credit experience: Bank of America
19 purchases in one day, most of which for less than 5$, landed me 700$ in overdraft fees. Nevertheless I made 150$ a week, and was in school, and my rent was 400/month. Guess what happened to me.

It was usurious behavior like this, that has left the housing economy in shambles, not the consumers.

It didn't collapse under it's own weight, but from banks looking to make more money.

Banks are given permission to do whatever they want as long as the customer signs the contract (even without reading it or being informed)

Being able to afford a home is quite a bit different from being able to convince a bank to give you a mortgage ... The long standing guideline I have heard several times for what someone can afford for a mortgage is whatever you can get on a 5 year fixed mortgage spending less than 35% of your take home income amortized over 15 years; even though people can qualify using 50% of their take home income on a variable rate mortgage that is amortized over 50 years this does not mean they can afford their mortgage.

The housing market began its decline because no one who could afford a starter home wanted to buy a starter home, and it began to make far more sense to rent than to buy in most markets.

 

 

Diminishing standards in lending sure didn't help.

7 years ago when I left France the longest mortgage you could get over there was 20 years and you needed a 25% down payment to purchase a house. Recently they started to introduce 30 years mortgage and lower downpayment, I think after this they are going to go back to stricter standard ( the downpayment insures than if the borrower stops paying and the price of house goes down the bank still doesn't loose..)

 

PS : 25% downpayment and 20 years mortgage seem harsh, but i can assure you that if it had been the standard in the US the price of houses woudn't have skyrockected like it did..