The Subprime Meltdown Will Be Nothing Compared To The Prime Meltdown

James Dimon, the chairman and chief executive of JPMorgan Chase, is not optimistic about the mortgage market. He told investors that he expects the losses mortgages given to people with good or excellent credit to be “terrible.” According to the New York Times, “The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building.” How can this be?

The trouble stems from the “Alt-A” borrowers and Option-ARM loans. These loans were often issued to borrowers with good credit who were speculating on the housing market or who lacked the proper documentation of income to qualify for a traditional mortgage. Households with prime credit make up the bulk of the mortgage market, and delinquencies are rising fast, particularly in the Alt-A sector. The Times says Alt-A delinquencies quadrupled to 12 percent in April from a year earlier. The credit crunch is, of course, exacerbating the issue, as borrowers are finding it much more difficult to refinance or sell their homes as their monthly payments become unaffordable.

“Subprime was the tip of the iceberg,” said Thomas H. Atteberry, president of First Pacific Advisors, a investment firm in Los Angeles that trades mortgage securities. “Prime will be far bigger in its impact.

What will sting borrowers more than rising interest rates, analysts say, is having to pay interest and principal every month after spending several years paying only interest or sometimes even less than that. Such loan terms were popular during the boom with alt-A and prime borrowers and appeared appealing while home prices were rising and interest rates were low.

But now, some borrowers could see their payments jump 50 percent or more, and they may not be able to sell their properties for as much as they owe.

Although this mortgages sound exotic, the Times says that banks carry many more of them on their books than subprime mortgages. Option-ARM mortgages will prove particularly troublesome to deal with, because its so much more likely that the borrower will owe significantly more than the property is worth. Option-ARM mortgages allow the borrower to pay little or nothing at first — and any unpaid interest is added to the principal due on the loan. This results in a mortgage that grows over time. Eventually, when the borrower owes 10-15% more than the original loan, the payments increase rapidly.

“The wave on the prime side has lagged the wave on the subprime side,” said Rod Dubitsky, head of asset-backed research at Credit Suisse. “The reset of option ARM loans is a big event that will drive the timing of delinquencies.”

Housing Lenders Fear Bigger Wave of Loan Defaults [NYT]
(Photo: Truthaboutmortgage.com )

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  1. Gopher bond says:

    I was ignorant about mortgages when I bought my home in 2004. But any other option other than “fixed” scared the hell out of me more than the monthly payment savings seemed intriguing. That is all I have to say about that.

    What television show had the “CBP” mortgage, the Crippling Balloon Payment”

  2. Jaysyn was banned for: http://consumerist.com/5032912/the-subprime-meltdown-will-be-nothing-compared-to-the-prime-meltdown#c7042646 says:

    Yay!

  3. jscott73 says:

    This goes hand in hand with one of my favorite graphs…

    [consumerist.com]

  4. Tmoney02 says:

    Please no Bail outs. I would like to buy a home before I’m 40. Perhaps be able to afford one of those “starter homes” they talked about in the old days.

  5. Gopher bond says:

    @testsicles: Oh, of course its The Simpsons:

    Homer: “And that’s it right?”
    Salesman: “Yup, oh then after your final monthly payment there’s the CBP, or Crippling Balloon Payment.”
    Homer: “Yeah, but that’s not for a while, right?”
    Salesman: “Right!”

  6. B says:

    And I thought interest-only loans were crazy. I can’t imagine a case where I would have a loan where the principal increases because I’m paying less than the interest. These people might have (had) good credit, but their money smarts makes them sub-prime in my mind. @testsicles: Simpsons did it. The one where Homer buys an SUV.

  7. Roy Hobbs says:

    @testsicles: Ditto on the being scared silly on anything other than “30 year fixed” when I bought in 2005. And I have a finance degree.

    So basically, the banks apparently have one good mortgage on the books…and it is mine.

  8. Franklin Comes Alive! says:

    I think the whole situation can be summed up as “people are dumb”. Especially when money is involved.

  9. Gopher bond says:

    @Roy Hobbs: no kidding, basically what I got was with my 30 year fixed I knew how much I would pay and with anything else, it was up to the bank. They were like, but your monthly payment will be $500 less a month for 3 years! And I’d respond but what’s to stop you from charging my twice that for the remaining 27?

  10. m4ximusprim3 says:

    Question for someone who knows things: Why don’t banks package and sell these loans like they do subprime?

    Are they more profitable, or more stable, or what?

    Also, I feel obligated to add the predictable: “So taking out a loan in which you don’t have to pay down the principal is not smart? Really?”

  11. BlondeGrlz says:

    Even people with traditional fixed rate mortgages are going to suffer. With the rising costs of oil, gas, food, etc many people who were making it work before are struggling to pay their mortgage. In the good old days if you had too much house and not enough money you could sell it and downgrade. With so many people so desperate to sell (not to mention the bank-owned properties being sold for $70-80k less than a year ago) there is no way out. It makes me so depressed, especially as someone who did everything right but will probably never get back the money we’ve put into this house if we have to move in the next 10 years.

  12. stopshopping says:

    I happen to be caught in the mix. Great credit, income is variable as business owners so we couldn’t do full doc, and we went interest only to be able to afford Southern CA. 5 years later, just had our first adjusted month with a 53% payment increase, and the new variable rate is better than any available refi option!. So we just have to deal with it! Rates suck, prices are down to reduce our equity, our loan is a jumbo, etc. I am not crying to anyone, but I sure would like to see some reasonable ideas to get into a fixed rate. I have the “pleasure” of being squeezed from all sides… Guess we just have to work harder!

  13. stopshopping says:

    PS – Only bonus is that our “new” mortgage is only 25 yr since we have been paying for 5 already.

  14. TWSS says:

    @Tmoney02: Don’t worry! The new housing bill includes a tax credit of up to $7,500 for first time home buyers… that must be repaid over 15 years. D’oh!

  15. Norcross says:

    My wife and I did a option-ARM loan, because at the time she was in her final year of law school and I was only 2 years in on my career. Our combined gross income has increased almost 3x, so now we can afford larger payments.

    That being said, we converted ours to a fixed the second she started working.

  16. Franklin Comes Alive! says:

    @Franklin Comes Alive!:

    D’oh – I meant to include this link, which definitely seems relevant to this discussion, and the entire craphole our economy is sinking into.

    [consumerist.com]

  17. Murph1908 says:

    /partial sarcasm

    I have been wondering how I can default on my loan and get it paid off by the government, considering I am one of those who bought during that time and actually paid my mortgage.

  18. pastabatman says:

    @m4ximusprim3:

    as far as I know, they did. That’s the issue in terms of the fallout spreading through other industries ala Bear Stearns. The Sub-Primes were just the first to sink.

    Correct me if i’m wrong, but the whole packaging into securities thing is common, but with a traditional 30 year fixed loan granted on legitimate terms (like credit check income etc) the security is ACTUALLY secure as it’s backed by an actual house with people with actual money living inside. I think, but am not sure, that sub-primes were ADDED to these securities and spread around. these portions of the securities failed.

    I’m probably not correct, but it’s close-ish.

  19. starrion says:

    Well I was wondering how people afforded the mortgage on a $750K house, and why it cost so much.

    The answer was- they couldn’t, they were playing with the bank’s money and houses cost so much because people were competing to overpay.

  20. Wormfather is Wormfather says:

    @imdgonz: There are no answers here, ie from me. You may want to duck though, this can be an abusive crowd.

  21. RagingBoehner says:

    @Murph1908: I know you were (half) kidding, but the way to get a gov’t bailout is:

    1) Be current on payments until this year
    2) Have your house depreciate on you
    3) Have a high payment/income ratio
    4) Convince your lender to write down the value of your loan to 90% LTV regardless of your current LTV
    5) Give any appreciation of your home back to the government for the first few years and share it with the gov’t subsequently when you sell or refinance

    It’s definitely a bailout which is unfair to those who are current, but it’s not like you’re getting a free house

  22. howie_in_az says:

    @imdgonz: As business owners you opt to not pay yourselves a salary like a ‘normal’ employee? Consult your accountant/financial advisor for specifics, but you may want to seriously consider it.

  23. sean77 says:

    @testsicles:

    They were like, but your monthly payment will be $500 less a month for 3 years! And I’d respond but what’s to stop you from charging my twice that for the remaining 27?

    You could always refinance. I did an ARM, and after 5 years, when it came time to adjust my rate, I refinanced and got a fixed rate for the remaining mortgage. I now think the people who are knee-jerkingly afraid of ARM mortgages are suckers.

    That’s all irrelevant here though. The people getting the interest-only mortgages did so because they planned on flipping the house as soon as escrow closed. Of course when the market fell out and they were stuck with the house, they got screwed. I don’t feel sorry for them.

  24. RagingBoehner says:

    @imdgonz: True — a good bit of it is “work harder” but if you are being squeezed and may miss payments (IANAL) definitely contact your lender or local agencies before you miss payments to tell them you’re in trouble.

  25. serreca says:

    We had a couple lenders try to talk us into an ARM or an interest-only loan last summer when we bought. Thank GOD we didn’t bite. Thirty-year fixed, all the way. Even though we didn’t have much of a down payment (literally, hardly anything) and therefore are paying more with PMI and a slightly higher interest rate, we still went with the 30-year fixed, and I am SO glad.

  26. @RagingBoehner: Exactly. These people are getting something, but it’s not much. The major “loss” is on the banks end in regards to the amount of profit they make on the loan.

  27. Ilikenumbers says:

    @sean77

    Um, dude, NOBODY is getting refi help right now. People choose an ARM for different reasons, but if your house depreciated in value during the discount period of your loan, you ain’t getting refi buddy.

    More importantly, it makes more financial sense to walk away from these loans (in SOME, not all, cases) due to points, closing, etc on the refinanced loan.

    Suggesting that people scared of ARMs are fools is incorrect. People that make the same kind of money they made when they were to scared for an ARM and opted for a fixed rate are HOMEOWNERS.

  28. @howie_in_az: The resulting income could still be viewed as stated and not earned (like a W2 or 1099) by some lenders.

    It’s not that folks who have stated income where the problem: folks have been getting stated income-based mortgages for years. It’s that lenders weren’t properly verifying said income with bank statements or tax returns. Yeah, as a stated income person I could make up any figure, but the onus is on the bank to check and double-check my application, and accept or reject it accordingly. That’s what all those closing costs and and points and fees were for.

  29. B says:

    @sean77: Yes, but what about the people who got an ARM like you in 2003, planning to refinance now? They’re screwed, as lenders are reluctant to loan money and their house is worth a lot less than they were planning on.

  30. I have to wonder… why come when people need to pull money out of their house, they look to a refi first and never consider a HELOC?

  31. Franklin Comes Alive! says:

    @ceejeemcbeegee:

    Because a HELOC doesn’t help them at all (long-term) with the higher interest rates their mortgages just reset to.

  32. HIV 2 Elway says:

    @sean77: I’m in a similar position. I got a 5 year ARM 4 years ago because I was just starting my career. I’m set to readjust in May but am now making much more money and just plan to refinance early next year.

    @B: If you have a solid record of paying your mortgage anyone will lend you money. You’ve already shown you’re not a liability.

  33. RagingBoehner says:

    @Ilikenumbers: True, but he’s right that ARMs aren’t all bad. It’s knowing what your getting yourself into that’s the trouble. An informed consumer can rationally decide an ARM is the best option (no pun intended) but if you are an ignorant or deceived consumer you may not understand the implications. Part buyer beware, part seller pressure, but either way you need to honestly assess whether a loan that resets is right for you.

    And besides, if the reason to not get an ARM is that the market is going to decline, perhaps you shouldn’t be investing in real estate in that area. Even with a fixed rate mortgage you’re still super-leveraged in an asset that you expect to go down in value — not too smart.

  34. Tank says:

    Subprime = anything other than a conforming loan. Alt-A is subprime too, not just poor credit risks (B&C loans).

    It was bound to happen.

  35. chrisdag says:

    @m4ximusprim3: They do bundle the “good” loans but those loans provide a smaller revenue stream for investors because the interest rate is lower. Basically with a ton of people in the market chasing money they all started investing/buying the subprime-backed securities because they offered higher returns.

  36. UTnick says:

    this is why i paid CASH for my home. i got a great deal from the bum on the corner who financed a refrigerator box with an ARM mortgage. He couldn’t afford the increase and i got that box at a steal.

    i actually rent.

  37. mythago says:

    @Murph1908: You need to be a large Wall Street business and a buddy to Federal Reserve personnel. I hear that works great.

    I wonder how many of the people crying “stupid” lived in inflating house markets? Yes, this was eventually inevitable – but the market went up and up for a looong time. Many people were quite understandably afraid that if they didn’t get in now, they would never EVER be able to afford a home, particularly since every single “expert” was insisting that any price deflation would be teeny tiny. Nobody wanted to be the idiot who waited out the bubble and still couldn’t afford more than a one-bedroom apartment for the rest of their lives.

  38. FrankenPC says:

    I was a technical consultant 6 years ago. So, I got a LOT of my money in chunks. I never had one solid stream of cash.

    The sub-prime loan was designed for people like me. And it worked GREAT! I could pay next to nothing for 6 months then pay all of the balance at once.

    It’s a shame it was so horribly misused.

  39. Gopher bond says:

    @sean77: I know it not on topic, I said I was ignorant of mortgage types when I bought my first house and my initial reaction was to be afraid of any other type other than “fixed”. I was trying to understand how, if one is ignorant in these matters, choose any other type because they sound scary. I have refinanced as well, just this past january. It only dropped .3% but still, a better rate is a better rate.

    And things change, refinancing isn’t always an option.

  40. goodkitty says:

    Oh boy, more economic punishment from stupid greedy people! I keep hearing from my more housing-privileged friends about how they’re lamenting the drop in home values. I keep telling them that the market is just correcting back to where it’s supposed to be. 5 years ago I was looking at entry-level ($200k properties which I couldn’t afford) places in lieu of renting, now those same spots are inching real close to $500k, definitely past jumbo-loan territory. Is this really a crisis or is it merely a case of “reaping what you sow”? People thought their loans were free, well here comes the interest. I still don’t even feel comfortable paying $200k, and people I know and respect with less financial means than me were just shooting by scooping up their $350-450k houses they could only afford on an ARM and then crying because inflation is now killing them and their mega-raises didn’t come through, and now they are unwilling to sell without a profit. Unbelievable.

    What’s really scary is reading up on the New Deal again. The whole situation seems quite similar. How in the world are we going to put sweet frosting on the turd this time again so it doesn’t stink for another 50 years? The only thing that stopped it was WW2… I mean, there’s nobody trying to stir up global conflict again right… oh no.

    I still can’t afford a house (at current bubble prices), but at least I can afford gas. So hah! Of course by the time I responsibly build up the income and credit to buy, I’ll have been shut out by now-fearful banks. And the cycle of recession continues.

  41. AustinTXProgrammer says:

    Worst part, all these loan packages drove the prices up, causing even more people to use them. Rinse, lather, repeat!

    This has only served to hurt those of us that couldn’t buy do to layoffs and/or medical expenses.

    Any bailout will only serve to prop the inflated prices.

    Let the real estate market correct, lick our wounds, and move on.

  42. Breach says:

    Yup, tip of the iceberg, were all on the freaking Titanic…

    What a mess. Well, good to know our whole economy is about to do a massive faceplant.

  43. Carso says:

    You know, I have to admit that the evil Social Darwinist in me feels as though people who bought into property that they can’t afford sort of deserve it. Let these people pay for their mistakes with the appropriate consequences, and we’ll all be better off in the long run as a result.

    Or maybe not so much. :-(

  44. Brontide says:

    Adjustable rates have their place. I live under my means and got a sweet 7/1 APR, I have been saving like mad and already saved enough to pay off 1/3 of the principal today and I still have 4 years before it adjusts. This is with a wife and family to support. It’s just another tool that has been abused by buyers and sellers because of greed and gluttony.

  45. Snakeophelia says:

    For years I have wondered who the heck was buying all these McMansions that have sprung up around Philadelphia. These places are hellish from which to commute (to Philly or NYC) but they’re MASSIVE and in some towns I never saw anything go up that was less than half a mil. Affordable housing near Philly means your house is at least 60 years old (the furnace might actually be older), the schools are mediocre or worse, and the crime rate is not so lovely. So that’s where I am, because I got priced out of every decent suburb. And I make decent money!

    I just couldn’t figure out how all these people were doing it, because, neophyte that I was, I figured they were all doing the 5% down, 30-year fixed rate mortgage that I eventually did. Silly me.

  46. backbroken says:

    When I was looking to buy my first home my father told me, “The home you live in is not a get rich quick scheme. You can make money in real estate, but don’t take chances with the roof keeping my grandkids out of the rain.”

    So I got a 30 yr fixed, 5.5% interest rate, and a monthly payment that is about 15% of my take home pay.

    I’m fortunate because my wife and I do quite well, but so do a lot of people who are losing their homes.

    Thanks dad!

  47. Ubermunch says:

    @goodkitty:

    I still can’t afford a house (at current bubble prices), but at least I can afford gas. So hah! Of course by the time I responsibly build up the income and credit to buy, I’ll have been shut out by now-fearful banks. And the cycle of recession continues.

    Ditto… here in the DC area. Thankfully, we have low rent and nice digs. But still… we’d like a house. Too bad people hare crazy on pricing (and that’s demonstrated by the 10-14 month sales time in our neighborhood).

  48. humphrmi says:

    I know that even the analysts in the story refer to Alt-A’s and exotic loans as “prime”, just because the borrower has good credit.

    BUT…

    IIRC from my days looking for a house & loan, “Prime” loans refer to loans written at the prevailing “A Loan” rate, i.e. top-credit fixed rate full doc loans. Alt-A’s and exotics pay a premium over prime, which means by definition they are not prime loans.

    @howie_in_az: Just an FYI a business owner not paying him or herself a fair salary is considered tax fraud.

  49. ARP says:

    @Tmoney02: @Murph1908: @Carso: You all complain about people who couldn’t afford payments and stamp your feet and say “no bailouts.” But wallstreet already got a bailout in the form of low interest rate loans, government backed loans, etc. (sound familiar to what they’re offering consumers?). So if you’re going to whine, you should include those banks and wall street firms that got bailed out as well. It’s BS that the public pays for the losses but the wealthy get the profits of these companies.

  50. keith4298 says:

    @B: Interest only loans aren’t always bad. We have two loans (larger at a lower rate and smaller at a higher rate), so the larger loan is interest only and we take what we would have been paying in principal and apply it to the higher rate loan. That way the higher rate loan is paid off quicker and we add anything to our payment it’s even better.

    It’s ignoring the interest only payment that will bite you in the @## later on.

  51. Coelacanth says:

    @sean77: You just happened to the winning end of excellent market-timing. Refinancing sounds more difficult than ever, especially with declining home prices.

    You took a risk, and it worked out well for you. Congratuations. Many aren’t so lucky.

  52. bwcbwc says:

    @Roy Hobbs: Well there’s always 15 or 20 year fixed.
    @goodkitty: The market always tends to overshoot fair market value due to market sentiment. That’s how we got into this mess in the first place So we’ll probably bottom out at about 80% of fair market.

    @Tmoney02: Prices in many Florida markets are down 35-40% from market peak (What was $300k is now $180k), so that starter home you’re looking for may be under $150k in a couple of years. In other markets like Ohio and Michigan, you can probably do even better. You need to SAVE, though. If you aren’t putting away a couple hundred a month for your down payment and closing costs, it’ll take too long to save up. If you can’t save because your paying off other (student loans, credit cards, etc.) debt, you know what you gotta do first.

  53. bwcbwc says:

    @COELACANTH: Well it’s not just market timing. If you put enough down payment in the original loan, you can still have enough equity to refinance even if your home is worth less now than when you bought it.

    My problem with ARMs is that they don’t make sense to me from a risk/return perspective. If interest rates go up, I have to refinance to a fixed rate loan at a higher rate or the ARM ends up going higher than the fixed rate after the discount ends. If interest rates go down, it’s just as easy to refi a fixed rate loan as an ARM, so an ARM only provides minimal benefit even in that case. The only way that an ARM has an advantage over a fixed rate loan is if rates stay roughly constant. Then you basically pay a lower interest rate for a few years, and refinance later on. But then you incur additional closing costs for the ARM refi that you wouldn’t have to incur with a fixed rate, because if rates stay the same, there is no reason to refi a fixed rate loan. When the spread between an ARM and a fixed rate loan is less than 2% (well maybe 1.5%) it just isn’t worth it. If an ARM is what makes your house payment affordable while a fixed rate isn’t affordable, you’re better off looking for a home that sells for about $20k less than your current target.

  54. Nitsuj116 says:

    I’m taking full advantage of an ARM and the creative financing banks were offering.

    I bought in 2004, just after paying off all my debts and my wife wasn’t working at the time. When I started the home buying process in 2003 my credit score was around 630. When construction was finished 6 months later I had gotten it increased to 740 with the banks help so I could be approved for the loan.

    I had no money to put down and was able to lock in a 4.85% rate on a 10 Year ARM with a 1% max yearly increase and a 11% cap. To avoid PMI the bank paid my 20% down with a home equity loan fixed at 6%. I paid $285K for a smallish 1450sqft home on a 4000ft lot for new construction.

    The county just sent me a notice that our home has increased in worth to $395K so I have plenty of equity.

    Now that my wife is working we are paying quite a bit extra each month. I plan to have the loan paid down enough by the time the interest rate unlocks that I won’t matter if I can’t refinance. Though as long as I maintain my current credit score of ~850 I should be good to go.

  55. Brontide says:

    @Nitsuj116: 100% financing on a 300k house are you mad?

    You do know that a county assessment is only for property tax and has little bearing on the equity in the property or potential resale value. Using the national averages you would have needed to put down an additional 40-60K ( +1k/month ) in principal payments just to be “above water”.

    And it’s only getting worse.

  56. bonzombiekitty says:

    @RagingBoehner: Yeah, ARMs are not necessarily bad. I’m more or less on track to buy my first house next year (hopefully). But I don’t expect to stay in the house more than a few years, an ARM is a probably a good deal for me since I plan to sell around the time the rate changes. However, its still a gamble b/c I’m not building too much equity over the span of 5 years and have to hope the value of the house doesn’t drop.

  57. Angryrider says:

    I somehow expected this. Maybe it’s because of SUB-Prime –> Prime?
    Nice job Corporate America, even more Americans are screwed.

  58. bonzombiekitty says:

    @Snakeophelia: Oh tell me about it. I live in Philly and make decent money and I’m f*#*@&@* tired of renting – I feel like I’m just flushing money down the toilet. I’m fairly frugal with my money and figure that if I push myself to absolute limit (read: almost no money for savings at the end of the month), I could probably afford about $1300/month in total (taxes, mortgage & insurance) by myself by this time next year, not taking into account federal tax deductions. That doesn’t get too much, but there are a few sub $200,000 houses in Manyunk and the area just south of St Joseph University that don’t look too bad. But I have this bad feeling I’m gonna end up in Norristown. I could increase that amount by reducing my 401k contribution (currently at 10%), but I’d only do that as a last resort. If I didn’t have a car or a student loan, I’d be much better off. Part of me wants to just take my savings and pay off either my car loan or as much of my student loan as I can. But then I’d have to spend another year saving up $$ for a down payment.

    On the plus side, I have tentative plans to live with my girlfriend as well as have another room mate. Is there any way to take them into account when doing a loan without actually having them on the loan? I wouldn’t think so, but hey, I’m exploring every option.

  59. Pro-Pain says:

    Like the Green Day song “American Idiot”, I love watching stupid people suffer, so I’m enjoying this…

  60. RagingBoehner says:

    @bonzombiekitty: Just make sure you factor closing costs into the equation.

    Actually, you really ought to look at it as an investment. Is this asset going to go up in value, fall in value, or stay flat? Then, look at the difference in rent vs. interest on your mortage payment — what’s your cash flow differential — and be sure to include the cost of taxes and the benefit of the mortgage interest deduction. Last, consider the intrinsic benefits of homeownership (stability, freedom from rent increases, etc.) and what that’s worth to you.

    Basically if you add all those things up, there should be an amount of time that breaks even with your up front closing/ and back-end real estate transaction costs — If you’re going to be there long enough that’s when you seal the deal.

    Good luck!

  61. Tmoney02 says:

    @bwcbwc: Prices in many Florida markets are down 35-40% from market peak (What was $300k is now $180k), so that starter home you’re looking for may be under $150k in a couple of years. In other markets like Ohio and Michigan, you can probably do even better.
    I dont mean to be flippant but why don’t you tell me to live in Siberia? I’m sure I can afford whatever they call a “starter home” there. The problem with all those places you listed is that there is no jobs. Doesn’t matter how cheap the mortgage is, its too much when you are unemployed. I was born and raised in Michigan and had to move when I graduated because there is no jobs to be had. My brother went to Florida, and that market went bust and is now back in Michigan. Now if you want to tell me where there are starter homes where there is also at least a few jobs to be had, I’m all ears. In those areas the people refuse to lower their way inflated prices and so houses just sit.

  62. AmbiUbi says:

    @bonzombiekitty: Well, look on the bright side! At least Norristown is SLIGHTLY better than Camden :)

    I kid. There are actually nicer parts of Norristown that are very affordable, like off of Ridge Pike/Trooper Road area. You may want to look in Eagleville, too, and you may want to look further out in the Montco area, like Limerick/Royersford. It would increase your commute, but you may be able to find something much nicer for what you want to pay.

    My only advice is to make sure you can take surface streets in order to avoid 422E in the mornings.

  63. whitecat says:

    When I bought my house in late 2003, I wasn’t working. I was a full time student. But the previous year’s income tax forms showed I made decent money (a little more than I’m making now).

    I cannot believe how hard my broker tried to persuade me to go ARM. It was ARM ARM ARM, every time I talked to her.
    I finally told her if she mentioned ARM to me one more time I’d find another broker. Give me a 30-year fixed or don’t talk to me.

    Anyway, by the end of two years, I was done with school and still unemployed. Because I was able to put down a 30% down payment, my monthly mortgage payment was low, but I still had to get a HELOC to pay my bills (including the mortgage) until I found work. IOW, I cannibalized my house.

    The HELOC is paid off now but I feel like I dodged ten rounds of bullets. I’m not going anywhere for another ten years at least. Ad the bonus is the house sits on a large lot and I can grow my own food when things get REALLY bad.

  64. lowercase says:

    This still goes back to the subprime meltdown and the tanking of home values. I bought the most affordable house I could find, and I’ve still lost over $50k in value- our down payment is toast and we’re upside down. We bought what we could afford, so that’s not an issue, but the only way we could move, be it across town or out of state, would be to sell short or foreclose.

    In fact, the smart business decision would actually be to dump it now and start renting cheap while rebuilding savings & credit rating. We like the house though, so we’re not doing that.

    I don’t know what the stats are on how often homeowners usually like to move, but I think a lot of people will be pretty itchy before the home values re-appreciate to what they owe, so the banks are going to get stuck with the losses when the homeowners hit the road.

  65. bonzombiekitty says:

    @AmbiUbi: Well I work in Berwyn, and go in before the traffic starts, so the commute would be shorter from those areas. I live in Philly mostly because I like living in the city. Plus next year if I move in with my girlfriend, she’ll hopefully be going to grad school in Philly and would need simple public transportation into the city.

  66. JustaConsumer says:

    JPMorgan Chase – Your national loan sharks. I hope they go belly up.

  67. Nitsuj116 says:

    @snowmoon:
    No. I’ve already payed down the principal by $40K.

    Sites like Zillow list my home as worth $444K and the neighborhood is full of $500K to $750K homes and a brand new school.

    I make plenty of money, I just wasn’t planning to buy when I did. We just couldn’t pass on the chance to get a house before things got too expensive. The new homes in this area by the same builder now start in the $500Ks.

  68. m4ximusprim3 says:

    @whitecat: You might need another heloc to buy enough guns and ammo to keep people off.

    “STAY AWAY FROM MY DAMN TOMATERS, YA THEIVEN RASCALS! YER SHOULDA BEEN SUSPICIOUS OF THEM ZERO DOWN MORTGAGES!”

  69. johnva says:

    @whitecat: It’s obvious why brokers and real estate agents liked these things…they let people afford bigger houses in the short-term, which made the brokers more money in the short-term. I don’t know why anyone trusts their mortgage broker’s or real estate agent’s “advice”, given the conflicts of interest they have.

  70. Yup, I hear about this from my contacts in the mortgage and banking industries too. And while it’s bad for everybody because it’ll be nasty on the economy, part of me is a *little* happy to see the rich get smacked too. I want to bat my eyelashes at people and say, “What, you mean this whole mortgage kerfuffle WASN’T the fault of people with bad credit, or who don’t make enough money for your tastes? My GOODNESS!”

    Unfortunately, these are the same rich who’ll be the only people to get help from the recent housing bill (which, if you didn’t hear, will help people whose homes are worth 500K or more, basically) — in fact, you have to wonder if Congress wasn’t trying to get in front of the Alt-A problem, rather than rescue anybody from the subprime pits?

  71. TechnoDestructo says:

    @Pro-Pain:

    Unfortunately enough stupid people suffering in an economy makes everyone suffer. They’re just getting it worse than you are/will.

  72. RStewie says:

    I just recently bought my first house, and my bank that is the awesome-sauce, USAA, didn’t even MENTION any other loan but a fixed 30 or 15-year mortgage.

    I heart by bank. And I also am VERY SCARED of this whole deal…I’m not sure it could effect me, but it’s scary hearing about all these home-owners that are having problems and the whole mortgage meltdown. I’m just glad mine is up-front.