Originally Posted by
Koyote
Though opinions vary, the majority opinion (among economists who have studied this) appears to be that Fannie Mae, Freddie Mac, the CRA, and the Housing and Community Redevelopment Act did contribute to the crisis but were not primary factors. Those were the main agencies and programs through which the federal gov't pursued the long-standing (and bipartisan) goal of extending homeownership to lower income earners -- in the case of Fannie and Freddie, by requiring them to purchase and back more mortgages from such households. Note that this did not require lenders to sell subprime mortgages.
Also, note some of these policies that led Fannie and Freddie to purchase lower quality mortgages left much latitude to presidential administrations -- and while Clinton did raise those requirements, G.W. Bush raised them still further. No one is blameless....But most of the blame goes to poor regulation of lenders and their practices, an out-of-control (and virtually unregulated) derivatives market, CDOs, and a downturn in real estate values.
Option 1. Buy house at some price before or during bubble, take out money on the ever increasing value to make ends meet or maintain a lifestyle above your present income allows (note 1)(because you spent to much on the house). Value tanks, walk away with nothing but a potentially bad credit report for a few years.
Option 2. Buy a house you could afford at some point during the bubble. Value tanks later. You are now holding the mortgage on a house that is worth half its value. Live in it as long as you can and not pay. Walk away or be forced out and buy almost the same house across the street for 1/2 the amount you owed on your original house.
In both options, you walk away with nothing but an administrative ding on your credit report. Sure, you get a higher interest rate on credit for a few years but $200k-500K more than you saved by walking away? Hell no.
It made 100% financial sense to walk away from those situations for just about anyone that value tanked and they were upside down even if they still could have paid them. Morally was it wrong if you could still afford it the original mortgage? That's an opinion. When you are talking a few hundred thousand dollars difference that moral compass gets askew. Would you right now want to have a 750K balance on a house worth 450k and still be paying at the 750K rate for another 20+ years?
Take it a step further and deal with a short sell or work something out with a relative or spouse to buy it at the now reduced cost and you still live in it and pay them or eventually buy it back from them. Hell, walk away from your existing house that the value tanked, rent it out to someone while your spouse buys another house at 1/2 the going price and you are collecting rent on a house you are slowly defaulting on. Add some renters that may or may not go to the police or complain for various reasons and you could rent rooms in it to a bunch of different people with the understanding they are getting a deal, you are doing them a favor, but they may get booted on short notice. That rent you are getting is paying for your new house. When the final days are imminent, go in and take all of the copper and the AC unit for scrap and take and sell the appliances that were supposed to stay with the house for a bonus. This is all hypothetical, none of that happened I'm sure, lol
Note 1. Just because you got approved for X does not mean you could actually afford or pay back X lving a given lifestyle, a lot of people never thought about that or did not care. I'm approved, it must just work out. The loans were readily available for higher than "normal" or traditional values but that doesn't mean you had to take them. Finding affordable housing in many popular areas of the country made that a hard decision to not take I guess but renting was still an option. The people MADE those individual decisions and even if the home values would have plateaued instead of plummeted, a lot of people were still in trouble..
This isn't the Foo forum, thread will be closed soon.
