Quote:
Originally Posted by Baraka_Guru
Yeah, and no one forced the banks to take on the risk of handing out $300,000 worth of credit to a family pulling in $80,000 annually.
It would seem to me, dogzilla, that you have conveniently left out the bank's own responsibility in the matter. Of course, at the time, to them, home equity as collateral was a "sure thing." They didn't expect home values to crap out, so to them the risk wasn't as great as they thought it was.
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I used this mortgage calculator
Mortgage Calculator and calculated a 30 year mortgage for $300,000 at 6% interest and property tax of around $6,000/year which is in the range of property taxes where I live. Add in $500/year for home insurance and it's about $2500 per month payment. For someone making $80K that 38% of gross income. The recommendation is these payments shouldn't be more than 28% of gross income so 38% is a little high. If there was a down payment of $50K then the monthly payment is around $2100/month or 31% of gross pay. A bit of a stretch, but could be justifiable.
So I don't see the bank taking an unreasonable risk here. I also don't see any justification for the borrower walking away form the mortgage because his equity disappeared. I've never heard of any kind of guarantee that property values would not decrease. So now the taxpayer or the shareholders get to make up the loss.
I bought my home in 1985 with a 12% adjustable rate mortgage. That mortgage was paid in full by 1993. Since then every offer for home equity loans, etc has gone in the trash. My wife and I refused to put our home at risk to finance toys or vacations.
Maybe I should have taken the long term liberal view, maxed out my credit and let Obama foot the bill
