Subprime Bailout

[jbt]

I believe that part of the problem was that people were using subprime loans, i.e. no down or higher than the normally accepted income multiplier, as a way to invest in homes. I've read some stories of people buying many homes at once, but as the down turn happened and investors got stuck with houses because the builder would be able undercut the flipper's price to get a home sold.

The value of the average house subsequently appreciates way out of proportion in order that people have more equity to borrow (gotta keep feeding the credit machines). Housing prices escalate beyond all reason, so in order to continue to feed the credit monster, subprime loans are created and doled out liberally to people who can't afford them. The balloons hit, and at the same time, the resale/newhousing markets go tits up, and voila! Crisis

The previous post sums it up pretty good. Right now in the previously hot markets people have to get exotic loans to afford homes, but now since credit is starting to be tightened buyers can't qualify for a loan to buy a house at the currently inflated pricing. Another way the the housing market could be saved would be to have increased wages, which hasn't happened. For some borrowers, a bailout would just prolong an eventual foreclosure because there is no way a person could ever afford the mortgage mention in the first post, i.e. $720,000 mortgage while making $20,000 a year.

As a personal note, I was looking to buy in my area, but have been priced out of the current market. I would rather rent than get myself into a risky loan that I wouldn't be able to afford.

[Kitsune]

Originally Posted by jbt

I believe that part of the problem was that people were using subprime loans, i.e. no down or higher than the normally accepted income multiplier, as a way to invest in homes.

You think?

I'm a 24 yr old "would-be real estate mogul" from Sacramento CA. After going to a few seminars I bought 8 houses in 8 months in 4 states with no money down looking to fix 'n flip. I made some mistakes and am now millions in debt, trying to avoid foreclosure, sell quickly, repay everyone, and share my lessons to help others in trouble.