The saga of Joe Sixpack and the sub-prime crisis

http://www.raincityguide.com/

One Day in early 2006, Joe was feeling pretty darned good about himself. He was making $65,000 a year at a job he held for over 6 years. He had $30,000 saved up in the bank. He had no credit card debt. He owned his car free and clear. He looked at his pregnant wife and his 2 year old son about to outgrow the two bedroom apartment they were renting and said, heck…time for us to buy a house.

SNIP

Mrs. Joe picked the School District she wanted to live in, and Mr. and Mrs. Joe walked into a real estate office and said, “We’d like to buy a house in this School District”. Ms. Realtor pulled out a big questionnaire asking them to fill in all the things they wanted, while she left to figure out what they could afford. She did a quick qualification in the back room of the office. $65,000 a year divided by twelve times 33% equals a payment of $1,787.50 a month and at 5.5% interest rate that equaled a loan of $315,000. She added the $30,000 they had saved, and came to $345,000. She wondered if that was a little high, but it was certainly the lowest price she could hope to find, so she found them a little old rambler in Kenmore asking $350,000. They all went out to see it. It had an old kitchen and needed some work but the couple hugged and said, “We can make this ‘home’ with a little hard work and some paint and curtains”. Everyone smiled and went back to the real estate office to make an offer of $345,000, with the seller paying the closings costs.

The real estate agent called her favorite lender and put Joe on the phone with the lender while she typed the offer. The lender faxed over a pre-approval letter for a purchase price of $345,000 to submit with the offer. Joe’s agent called the Listing Agent of the little rambler who said, “We already have 3 offers, and we’re presenting offers at 7 o’clock tonight”. It was 4:30 p.m.

Joe’s agent called the lender who shot over a new pre-approval letter for $375,000. Joe’s agent added an Escalation Clause for $1,000 more than any one else’s offer up to $375,000. She took out the seller paying the Closing Costs explaining that with multiple offers, that wasn’t going to fly. She took out the home inspection clause explaining that would strenghten the offer. She told them to up their Earnest Money Deposit from $5,000 to $10,000 to make the offer really solid. Mr. and Mrs. Joe signed it, and the agent faxed the offer to the Listing Agent. That night Joe’s family got the call that they got the house for ONLY $364,000! WOO-HOOS and High Fives all around. They WON!

Joe went to the lender’s office a couple of days later and made a full loan application. He got a Good Faith Estimate saying his payment was going to be $2,646.47 a month. $1,937.36 on the first mortgage of $291,200 at 7% +$459.11 on the 15% second mortgage of $54,600 at 9.5% + $200 a month for real estate taxes and $50 a month for homeowner’s insurance. Total payment $2,646.47 a month. Joe started sweating profusely. He called his agent and said, can we cancel this? She said not without losing your $10,000 Earnest Money. There was no home inspection contingency and the Finance Contingency didn’t have a little blank space to put in a rate cap. There was no “legal out” for “OMG the payment is $1,000 more than I thought it was going to be”.

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yeah... When my wife and I got our mortgage, they offered us up to $250,000... however, we knew we could only afford around $130,000... so, that's what we did.

People need to take responsibility and pay attention in high school algebra.

And took responsibility for Iraq war lies? And took responsibility for massive deregulation that let the banks and investors trade air to make money?

And there are very, very few places where you could buy a house for $130,000 in the last eighty years. In most places, houses were going for at least twice that.

welcome to DU :eyes:

for anywhere near that price.