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

[Y's_habibitk 2]

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.

I get your point. It is a horrible example of "poor". Like I said, bad financial decisions...

[MrsCat 6]

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.

Well on top of having a mortgage for much longer terms, they were also paying only the interest first.

Meaning a small monthly payment for the first 10-15 years. But if you think of it simply, now they have 25 years to pay off the principal amount (along with interest) over a shorter period of time. So the payments balloon once the interest only payments end. Most people will not have experienced a substantial increase in income enough to cover the entire payments. People who had $1400/month payments were seeing $3000-4000 month payments because they basically deferred paying the principle for so long. Hence, going into foreclosure because they cannot keep up with a huge mortgage payment.

[lucyrich 20]

There's no universal definition of "poor".

Around these parts, you'll have a hard time finding a 2 bedroom apartment for rent for a mere 2000 a month.

Fast food places have signs up all the time saying they're hiring at $10/hour or more. Assuming 40 hour weeks, 50 weeks a year, that's $20000/year. In a two earner family, both with low wage, low skill starter jobs with no overtime, that's 40,000/year, or $3333/month. Taxes will eat some of that, but not a huge amount (especially if there's a huge mortgage interest deduction).

Yes, 2000/mo is a real stretch, probably not reasonable, with more than half the income going to housing. But it was going to go to housing anyway if they were renting. And with a mortgage interest deduction, they'll only be paying taxes on the remaining 1,333/month, which will mean very little income tax.

And if that's going for a THREE family home, like the example in this thread, they could rent out two units, and pay the mortgage, or most of it, with the rent they were collecting.

The ones who were really hit by the mortgage crisis usually didn't have 30 year fixed loans. They had ARMs with teaser rates, interest only payments, negative amortizations, and other tricks to get the payments down, at least for awhile, until they could refinance and take out the equity that was supposed to accumulate with the supposed rising prices.

If you assume a 2% teaser rate, interest only, a 400K house would cost 667/month. Negative amortization can push that number even lower. Divide that by three, since it's a three unit house, and you're talking 200/month or so. With a mortgage interest tax break.

But house prices vary widely. While 400K won't buy a starter run-down studio condo here, I used to live in St. Louis, where 400K would provide a very large, comfortable and somewhat luxurious home, definitely for the well-off. And in the rural areas 100 miles outside of St. Louis, you'd have trouble finding a way to spend that much money on a house -- you'd need to custom build a mansion or buy a house that had came with a whole bunch of land, because you wouldn't find any normal house for sale that expensive.

"Poor" and "rich" are always relative. But I'd have a hard time calling a person surviving on an entry level fast-food wage "rich".

[akdiver 3]

Depends on how you define poor. A guy making $100,000/year could be considered poor if he is $5M in debt and paying "child support" to an ex-wife and 3 kids (which is going to take at least half that income).

[joelunchbox 0]

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

No,NO,No what happened was they paid 400,000 for a 140,000 dollar home. That is the tragedy of this--gouging people and promising that they can then make a profit on it. It was a pyramid scheme and a lot of people got screwed. Oh, and a lot of others are getting bailed out.

Vote Palin! More of the same!!!

Oh, who is this mccain guy? wasn't he on tv a long time ago?

[Emancipation 2]

Depends on how you define poor. A guy making $100,000/year could be considered poor if he is $5M in debt and paying "child support" to an ex-wife and 3 kids (which is going to take at least half that income).

Agreed... take down the ratio of debt, add living in a state that taxes the live out of your income, add a 30% premium onto top of everything you purchase for the "pleasure of doing business in the state"... and you describe our situation.

And yet we stay? We'd never make it anywhere else with the commitments we have, we'll never own a house, we'll probably never settle (at least not in the North East) until Hubby can find something else in his field elsewhere (which is easier said that done as he has one of the most "secure" jobs in aviation that is going right now).

$400,000.00 is not a shocker for this area at all.. the house we currently live in (rent) is on the market for that ticket price. People are POURING in to see it cause it's a "good deal".. but i can't figure how anyone with our income level could afford that. We could afford a $10,000 mortgage!! tee hee..

[almaty 19]

$400,000 home is not poor..section 8 housing is

[Niels Bohr 72]

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.

Back in '94, the capital hill de-regulated mortgage lending so that alot of people will own a house. Thus, establishing a housing boom. They have told the bank to loosen their restrictions so that more people will be able to own homes. However, this year we've seen the consequences.

[peejay 327]

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

No,NO,No what happened was they paid 400,000 for a 140,000 dollar home. That is the tragedy of this--gouging people and promising that they can then make a profit on it. It was a pyramid scheme and a lot of people got screwed. Oh, and a lot of others are getting bailed out.

Vote Palin! More of the same!!!

Oh, who is this mccain guy? wasn't he on tv a long time ago?

McCain? Palin? I thought the whiner school of thought was that Bush / Cheney cooked this whole scheme up for the entertainment value of tormenting the downtrodden masses for their own sadistic pleasure. Little did I realize that McCain and Palin were in on the plot too. My word! And I thought only the Pope and the KKK were in cahoots with the Bush / Cheney cartel to cook up this scheme, but it appears there are more tenacles to this octopus than meets the eye.

[symbiosis 0]

The real reason for the housing boom was that Wall Street was packaging mortgages into collatoralized debt obligations (CDOs) and selling them to China and other nations as a high return, low risk investment. The investment firms that sold these could not keep up with demand and since the CDOs were worth more than the mortgages themselves, encouraged lenders to produce more and more loans to be packaged. That's why you got NINJA loans -- the only way to get more mortgages to package was to give them to people who shouldn't have gotten them.

http://www.thisamericanlife.org/Radio_Epis...spx?episode=355

Edited September 12, 2008 by symbiosis

[w¡n9Nµ7 §£@¥€r 123]

No,NO,No what happened was they paid 400,000 for a 140,000 dollar home.

Umm... the market price of a good is whatever the market is willing to pay for it. Worth isn't intrinsic, it is set by the market.

[*JG* 2]

I watch all those home improvement and buying shows on cable. The one that always fascinates me the most is the one where they compare properties of the same value in 3 very different US cities. $400,000 to me in the midwest is nearly a mansion. $400,000 to someone buying Chicago, NY, etc. will result in a teeny tiny apartment. Just as the salaries vary. Lower income and median housing prices are relative depending on where you live.

[w¡n9Nµ7 §£@¥€r 123]

I watch all those home improvement and buying shows on cable. The one that always fascinates me the most is the one where they compare properties of the same value in 3 very different US cities. $400,000 to me in the midwest is nearly a mansion. $400,000 to someone buying Chicago, NY, etc. will result in a teeny tiny apartment. Just as the salaries vary. Lower income and median housing prices are relative depending on where you live.

Sure, I'd not make the argument I'm making if this article was set in SoCal or something. I live in Jersey, I know Jersey. If you can afford to make payments (even at a low teaser rate) on a 400K home and pay Jersey City real estate taxes, you're not poor. You're likely not rich, but you're definitely not poor.

And yet, the pandering politician at the end of the original article refers to these people as 'poor'. That pisses me off. We have actual, real poor people around here. These guys aren't it.

[Trumplestiltskin 5,791]

I'm not sure what the average house price is around my area - but given the rising house prices in recent years I'd say no you probably wouldn't be poor if you could get a mortgage on near half a million dollars.

We make around 100K a year between us - and we can't afford a mortgage on half of that...

[w¡n9Nµ7 §£@¥€r 123]

We make around 100K a year between us - and we can't afford a mortgage on half of that...

If your credit is good, a 100K income can easily get you a 250K+ mortgage.