Can people who bought 400K homes be called "poor"?

[w¡n9Nµ7 §£@¥€r 123]

According to a report released earlier this month by the Federal Reserve Bank of New York, New Jersey had the fifth highest ratio in the country of subprime mortgages in some stage of foreclosure as of June - three out of every 1,000 housing units.

...

The Fed's study found that most foreclosures are clustered in low-income neighborhoods. That's no surprise to Emad Nairooz, a broker with Top Quality Realty, a Jersey City real estate company that specializes in foreclosed properties.

"In my opinion, in Hudson County the area that is getting hit bad is Jersey City in the Greenville area," Nairooz said. "And it's growing like crazy."

Nairooz said that one typical Greenville property, a three-family home that was purchased for $400,000 at the end of 2006, now can't find a buyer at an asking price that is less than $140,000.

...

Councilwoman Viola Richardson, who represents the Bergen/Lafayette section of Jersey City, said that predatory lending and the downturn in the housing market have left her ward dotted with "For Sale" signs.

"A lot of people are talking about losing their homes," Richardson said. "I think the banking industry has really done a disservice to poor people."

http://www.nj.com/kearnyjournal/index.ssf?....xml&coll=3

[alienlovechild 75]

I've seen stories like that before. I was stunned to see how easy it was for lower income people to get mortgages on expensive homes with nothing down and less than stellar credit. Some homeowners later claimed they had no idea what the implications were when they bought their home.

Edited September 12, 2008 by alienlovechild

[w¡n9Nµ7 §£@¥€r 123]

I've seen stories like that before. I was stunned to see how easy it was for lower income people to get mortgages on expensive homes with nothing down and less than stellar credit. Some homeowners later claimed they had no idea what the implications were when they bought their home.

How is a lower income person making the payments on a 400K home?

Assume a 5% downpayment - that's a mortgage of $380,000.00

Assume a great intro rate of 4 1/4%

That's still a mlonthly PITI payment of $1869.37.

Add property tax to that - average prop tax for Jersey City is $5000. That's another $416 a month.

That makes the total monthly payment over $2285!

A poor family can afford that? Since when?

No, these 'programs' were for people who had the cash flow to afford a payment like that but didn't have the financial discipline to actually accumulate a downpayment or maintain good credit.

These people are not poor.

[IAMX 3,055]

Not sure about New Jersey, but in the Bay Area, California, it would have been hard, a couple years ago, to find a decent, 3 bdrm, 1500+sq ft home for under $500,000, in a bedroom community, and well over $700,000 in the city. Quite simply, the housing market was going waaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaay overboard.

[w¡n9Nµ7 §£@¥€r 123]

Not sure about New Jersey, but in the Bay Area, California, it would have been hard, a couple years ago, to find a decent, 3 bdrm, 1500+sq ft home for under $500,000, in a bedroom community, and well over $700,000 in the city. Quite simply, the housing market was going waaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaay overboard.

500k+ was the norm here too but in train towns. Away from the train lines, 400 was still available.

[Dan J 277]

I've seen stories like that before. I was stunned to see how easy it was for lower income people to get mortgages on expensive homes with nothing down and less than stellar credit. Some homeowners later claimed they had no idea what the implications were when they bought their home.

How is a lower income person making the payments on a 400K home?

Assume a 5% downpayment - that's a mortgage of $380,000.00

Assume a great intro rate of 4 1/4%

That's still a mlonthly PITI payment of $1869.37.

Add property tax to that - average prop tax for Jersey City is $5000. That's another $416 a month.

That makes the total monthly payment over $2285!

A poor family can afford that? Since when?

No, these 'programs' were for people who had the cash flow to afford a payment like that but didn't have the financial discipline to actually accumulate a downpayment or maintain good credit.

These people are not poor.

It doesn't make sense in a tradtional mortgage. But there were other mortgage products out there that would have made it more affordable, at least at the time.

That and there were mortgage brokers willing to look the other way when it came to verifying documentation.

[w¡n9Nµ7 §£@¥€r 123]

I've seen stories like that before. I was stunned to see how easy it was for lower income people to get mortgages on expensive homes with nothing down and less than stellar credit. Some homeowners later claimed they had no idea what the implications were when they bought their home.

How is a lower income person making the payments on a 400K home?

Assume a 5% downpayment - that's a mortgage of $380,000.00

Assume a great intro rate of 4 1/4%

That's still a mlonthly PITI payment of $1869.37.

Add property tax to that - average prop tax for Jersey City is $5000. That's another $416 a month.

That makes the total monthly payment over $2285!

A poor family can afford that? Since when?

No, these 'programs' were for people who had the cash flow to afford a payment like that but didn't have the financial discipline to actually accumulate a downpayment or maintain good credit.

These people are not poor.

It doesn't make sense in a tradtional mortgage. But there were other mortgage products out there that would have made it more affordable, at least at the time.

That and there were mortgage brokers willing to look the other way when it came to verifying documentation.

I don't think you read what I wrote.

I assumed a 4 1/4% rate. Are you aware of any special programs with a rate lower than that? I'm not, but let's assume lower - 2%. That saves you an additional $464.82 a month, bringing that monthly payment down to $1820.

Is that still a payment affordable to a "poor" family?

No. The only way you make a payment like that is if you have sufficient cash flow.

As for the no-doc issue, so what? They still made those high payments for a period of time. It's not like they defaulted at the very first monthly payment. That means they had the cash flow, wherever it came from. Remember, no-doc loans were originally meant for some business owners who were unable to verify their incomes in a traditional manner.

[Dan J 277]

I've seen stories like that before. I was stunned to see how easy it was for lower income people to get mortgages on expensive homes with nothing down and less than stellar credit. Some homeowners later claimed they had no idea what the implications were when they bought their home.

How is a lower income person making the payments on a 400K home?

Assume a 5% downpayment - that's a mortgage of $380,000.00

Assume a great intro rate of 4 1/4%

That's still a mlonthly PITI payment of $1869.37.

Add property tax to that - average prop tax for Jersey City is $5000. That's another $416 a month.

That makes the total monthly payment over $2285!

A poor family can afford that? Since when?

No, these 'programs' were for people who had the cash flow to afford a payment like that but didn't have the financial discipline to actually accumulate a downpayment or maintain good credit.

These people are not poor.

It doesn't make sense in a tradtional mortgage. But there were other mortgage products out there that would have made it more affordable, at least at the time.

That and there were mortgage brokers willing to look the other way when it came to verifying documentation.

I don't think you read what I wrote.

I assumed a 4 1/4% rate. Are you aware of any special programs with a rate lower than that? I'm not, but let's assume lower - 2%. That saves you an additional $464.82 a month, bringing that monthly payment down to $1820.

Is that still a payment affordable to a "poor" family?

No. The only way you make a payment like that is if you have sufficient cash flow.

As for the no-doc issue, so what? They still made those high payments for a period of time. It's not like they defaulted at the very first monthly payment. That means they had the cash flow, wherever it came from. Remember, no-doc loans were originally meant for some business owners who were unable to verify their incomes in a traditional manner.

I am referring to mortgages like interest-only loans, which allowed the borrower to pay only the interest for a 5-10 year period. I could see that type of loan being popular in that situation. Especially with a mortgage broker who didn't verify documentation or actively ignored any discrepancies to walk away with a fat commission.

I think there were also some cases where the borrow did take a mortgage that had a payment of 50% or more of their income. But hey, it doesn't matter, the house will go up in value anyway, and you can sell it for more than you bought it. Its not hard to pursade someone to take a mortgage beyond their means when the prevailing myth about home prices is that they will always go up.

[w¡n9Nµ7 §£@¥€r 123]

I am referring to mortgages like interest-only loans...

The interest on a $380K mortgage at 4 1/4% is over $1300 per month in the first year. Add real estate taxes of $400 (below average for Jersey City) and you have a monthly payment of $1700.

Still not affordable if you're "poor".

[MrsCat 6]

I think these people were getting interest-only loans - which means the people were not paying down any of the principle for the first 10-15 years of the mortgage. That is how they qualified for the loans, because they were only covering the interest and not the principal. The assumption with these types of mortgages is that over the course of 10 years, people will be in a better financial situation, their income will have grown and they will be able to start paying back the principle. Which is a horrible assumption to make about anyone's income - since you never know how much you'll be making in one month from now, let alone 10 years.

[w¡n9Nµ7 §£@¥€r 123]

I think these people were getting interest-only loans - which means the people were not paying down any of the principle for the first 10-15 years of the mortgage. That is how they qualified for the loans, because they were only covering the interest and not the principal. The assumption with these types of mortgages is that over the course of 10 years, people will be in a better financial situation, their income will have grown and they will be able to start paying back the principle. Which is a horrible assumption to make about anyone's income - since you never know how much you'll be making in one month from now, let alone 10 years.

Interest-only is still a good sum of money on a $400K house with 5% down and a 4 1/4% teaser rate.

By no means "poor".

Politicians are just pandering to people who have cash flow but don't have the financial discipline to translate that cash flow into cash holdings.

[Y's_habibitk 2]

Nairooz said that one typical Greenville property, a three-family home that was purchased for $400,000 at the end of 2006, now can't find a buyer at an asking price that is less than $140,000.

...

I totally get your point, because I have read similar stories. But, your figures are assuming A family is paying that monthly mortgage payment. This says a THREE-family home. Divide your calculations by three and its doable. Does that excuse bad financial choices? no

Edited September 12, 2008 by Y_habibitk

[MrsCat 6]

I think these people were getting interest-only loans - which means the people were not paying down any of the principle for the first 10-15 years of the mortgage. That is how they qualified for the loans, because they were only covering the interest and not the principal. The assumption with these types of mortgages is that over the course of 10 years, people will be in a better financial situation, their income will have grown and they will be able to start paying back the principle. Which is a horrible assumption to make about anyone's income - since you never know how much you'll be making in one month from now, let alone 10 years.

Interest-only is still a good sum of money on a $400K house with 5% down and a 4 1/4% teaser rate.

By no means "poor".

Politicians are just pandering to people who have cash flow but don't have the financial discipline to translate that cash flow into cash holdings.

Oh I agree with you AJ - people who signed on the dotted line and are crying now about losing their homes should suck it up. To anyone with a grade 2 education, can see that they by no means can afford a $400,000 house. Heck, I can't afford a $400,000 house and I have a good paying job.

And at the same time, the people who came up with this type of mortgage should be tarred and feathered. It was such an irresponsible and unethical way to do business.

[w¡n9Nµ7 §£@¥€r 123]

According to a report released earlier this month by the Federal Reserve Bank of New York, New Jersey had the fifth highest ratio in the country of subprime mortgages in some stage of foreclosure as of June - three out of every 1,000 housing units.

...

The Fed's study found that most foreclosures are clustered in low-income neighborhoods. That's no surprise to Emad Nairooz, a broker with Top Quality Realty, a Jersey City real estate company that specializes in foreclosed properties.

"In my opinion, in Hudson County the area that is getting hit bad is Jersey City in the Greenville area," Nairooz said. "And it's growing like crazy."

Nairooz said that one typical Greenville property, a three-family home that was purchased for $400,000 at the end of 2006, now can't find a buyer at an asking price that is less than $140,000.

...

Councilwoman Viola Richardson, who represents the Bergen/Lafayette section of Jersey City, said that predatory lending and the downturn in the housing market have left her ward dotted with "For Sale" signs.

"A lot of people are talking about losing their homes," Richardson said. "I think the banking industry has really done a disservice to poor people."

http://www.nj.com/kearnyjournal/index.ssf?....xml&coll=3

I totally get your point, because I have read similar stories. But, your figures are assuming A family is paying that monthly mortgage payment. This says a THREE-family home. Divide your calculations by three and its doable. Does that excuse bad financial choices? no

Yeah it says the 3-family home was purchased for $400K. Someone held that note, that's who I'm talking about. I'm not concerned with the tenants. Tenants are rarely lined up for immediate move-in, so the note holder would have had the ability to service the note for a presumably substantial period of time before those rent checks started rolling in. Translation: adequate cash flow.

[brown_eyes 0]

Okay, I'm going to ask a dumb question here.

With these big mortgages that people are taking on what is the length of amortization that is being offered? I thought it used to be that people had 20, 25, 30 year ams? Now you can get 50 year periods (here in Canada anyway) so I'm wondering if that is how people got suckered into it? Please correct me if I'm way off target.