Originally posted by webpirate
The best option though I really think, is just for everyone to stop using credit to purchase things. This may not be practical with real estate and
their houses, but I think you all get my point here.
I completely agree. I have credit cards for the convenience, especially in ordering over the Net. I pay them off completely at the end of every month
and have NEVER paid interest to the banks. It may be "fake" money, but you bought real products with that fake money and brought those products into
the home and used them. That's your responsibility.
Getting a house is a bit more difficult without a loan and a tougher gamble, but it can be done. Interest rates are as low as they were in the fifties
right now. The first house I bought in 1979 had an interest rate of 11%! Interest rates now are less than 4%. The only reason people owe more on their
houses than they are worth is greed. Let me tell you a story of how one of my relatives screwed up.
He had a modest, but perfectly adequate house: 3 bedrooms, very posh master, a very comfortable place in a nice neighborhood. He bought it for about
$180K and has an income that could have paid it off by now.
But, Noooo. He wanted to live on 'the lake' because it would be cool. So here's what he did. His house had grown in value to about $290K in the
last boom before the bust. So he mortgaged his house for 95% of the current worth of $290K and used THAT money as a down payment on the lake house
which cost him $900K. So his loan was in the $750K range. He rented the old house for less than his new mortgage payment.
Did he stop there? Why do that? The real estate market was still booming and his lake house was now worth $1.1-$1.2 million. So being the smart guy he
is, he refinanced the lake house with a $1 million mortgage and got another $200K or so in cash, which he spent on goodies: A remodeled granite
kitchen, a $100K speed boat, a new truck.
BUT he let the outside of the house, which was not in all that good a shape, deteriorate. He tore up the yard intending to fix it, but that's when
the septic tank failed. It was so bad he had to move out. The previous owner had lied to him, but the fact is they didn't have any money and a
lawsuit would be expensive. So they moved out and into a rental.
Then: Kaboom! Market crash. The house is unlivable and worth about $500K on a lucky day. They weren't living in the house, and that's when it was a
cold winter and a pipe burst, flooding the entire house. When they tore into it, they discovered Black Mold everywhere. Perhaps that's why the kids
were having breatinh problems.
They managed to get insurance to pay hundreds of thousands to rebuild the inside of the house--all new wallboard, flooring, etc. Now they are back in
the house. They were extremely lucky, in one sense, because they didn't lose the house altogether, but it's worth half what they owe.
A lot of people in this situation would have just let the house go back to the bank and stuck the bank with the bill. After all, the big bad bank is
all at fault here, right?
I don't think so. It's not the bank's fault all this happened to him. It's his fault. He was greedy; he was stupid. He was manipulative. He wanted
all the goodies NOW. He didn't pay attention to market conditions. He leveraged himself and his family so far out that it will take him a lifetime to
get himself on a good footing. Hopefully he can maintain his well-paid job in commercial construction to keep paying his mortgage.
It's not just the banks that are greedy.