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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Lizzie Tudor who wrote (176880)	1/13/2009 4:26:23 PM
From: GraceZ	Respond to of 306849

and continue to pay you are a pretty good risk. Just a thought I spent ten years underwater on a house so I understand what you are trying to say about their willingness to do the right thing and wanting to reward them for this. What we did was a "cash in" refi to get a better rate, at a shorter term, which made us equal in risk to someone buying with 20% down. We could do that because we did do the right thing in that we bought a house well within our means so we were able to save a large enough sum of money in five years to pay down principle in one lump. If people can't do what we did they extended themselves too far on the mortgage payment. That said, two different borrowers, one with real equity and one without, both paying on time, do not have the same risk, therefore they do not deserve the same rate. It is a simple case of risk/return. Those with money to invest require a discount to invest in riskier assets. You never answered my question, it wasn't rhetorical, would you lend them money at that rate? If a friend came to you and asked you to lend them money on a house underwater at 4.5% would you go for it? I've had to answer this for real as this whole thing has unraveled and I've been approached by people trying to help out friends and family who got caught up. My answer is that, yeah, we'd consider at 8% with a 5 year balloon. This is always worse than they can get out in the market so no takers. My guess is your requirements for investing your own money in a mortgage asset would be, as mine was, far above 4.5% as well. But here you are trying to promote the idea of us collectively lending them money at that rate. Where does the supply come from? Basically people make the best decisions with their own money, used for themselves, less so with their own money used for someone else, less so with someone else's money for themselves... but when they are using someone else's money for someone else's benefit they are the least diligent about making good choices. Savers were pushed into under-pricing risk, chasing yield in mortgage assets last time the Fed fixed rates below real but I doubt they fall for that trick exactly the same way again. They'll put their money somewhere else.