From Portland Indymedia. Jan 3rd, 2012.
THE LESS PUBLICIZED IMPACT OF FORECLOSURES
author: one of the 98 percent
What is happening to people who lived within their means and should be able to purchase a home now that it is a “buyer’s market” and prices are starting to go down? They cannot get a loan!!!
The banks were bailed out — a travesty.
People are being foreclosed upon — a tragedy. Some people are losing their home due to misfortune through no fault of their own — endless wars; a bailout of the banks that were supposedly too big to be allowed to fail; a crumbling economy. People are losing their homes due to unemployment, underemployment, low wages and wages not keeping up with inflation; illness and the rising cost of healthcare; divorce; etc. Some people were the victims of predatory lending and/or victims of discrimination in lending. Others — and the politically correct choose to ignore this group — opted to live the lifestyle of the rich and famous and purchased homes they could not afford and/or used their homes as an ATM machine to subsidize the lifestyle they could not afford.
How do the actions of the ruling elite (the 1%) and the naivete (to put it charitably) or the avarice (to put it not so charitably) of those who took on more mortgage than they could afford affect the rest of the 98%? Well, good luck getting a loan! Welcome to urban blight.
Homes prices are currently lower, though it does not seem that evident in Portland, Oregon. Our family has yet to see a home under $200,000 in our working-class, not-very-glamorous Southeast Portland neighborhood. We’ve been renters since we moved to Portland because the home prices in 2003 were not commensurate with salaries.
We called a number of mortgage companies today to find out what type of a loan we could qualify for. (The banks, including the local bank with whom we do business, are no longer in the mortgage business, either because they were predatory lenders and got “nabbed” or they were “stung” by the champagne-taste-on-the-beer-budget lifestyle-identified.)
Mortgage rates are relatively low — approximately 4 percent.
A 20 percent downpayment(cash in bank) is now required for any home purchase. The prospective homebuyer also has to have in the bank six months of reserve funding (for escrow purposes — property taxes, insurance, etc.). To qualify for a home mortgage (30-year) on a $250,000 home, you will be expected to have at least $72,000 in the bank, including this 6 months’ reserve. The downpayment is currently crucial and has the most impact on how much of a loan you will pre-qualify for. In this economy, a well-paying job — if those still exist — is precarious. Having a well-paying job today does not necessarily mean that said well-paying job will exist at the same time next year; the mortgage companies are well-aware of this sorry fact.
Lastly, there has to be evidence of stable, well-compensated employment (not a new job) and a credit score of over 700.
FINANCIAL RULE OF THUMB:
According to http://www.patrick.net and our personal experience has proven this when we have owned homes in other states, which homes we never defaulted on:
Your home mortgage should not exceed two to three times your annual salary before-taxes. Three times annual salary would be for a home in a desirable city with a high standard of living, which Portland is. A person making $50,000 would be able — with a stable job in a strong economy — to theoretically afford to undertake a $150,000 home mortgage. Another way to calculate is to find a comparable home in the neighborhood and see what it is renting for; your monthly mortgage payment should be pretty close to what a similar unit would rent for. Where are the $150,000 homes? Where are the jobs that would enable someone to afford a mortgage of $250,000 (i.e., jobs that pay more than $75,000 a year)?
This mortgage calculation is somewhat supported by what the mortgage companies are now demanding in order to prequalify for a mortgage.
We never purchased a home in Portland because wages in Portland were low, even for its educated workforce.
For those of us still fortunate to be working (at mediocre wages), more is going out than coming in. Our savings are already being depleted and even if we had that large downpayment that is now being required by the mortgage companies to qualify for the loan, we are reluctant to use it for downpayment for a home, for fear that we will also wind up in foreclosure should there be an unexpected misfortune such as illness or job loss.
SOME SUGGESTIONS — REALITY CHECK:
1. If a home is in foreclosure, the bank has already been bailed out. The home price needs to be reduced to 1999/2001 market price levels — the real estate boom and the idea of home as ATM occurred around 2003. Even this price might have to be adjusted if the unemployment rate in 1991/2001 was lower than it currently is. If the homeseller still has a lot of money left on the mortgage (because they purchased beyond their ability), then the bank needs to suffer the loss. That was the ostensible reason for the bailout.
2. If a home is in foreclosure and the home is sold at a loss to the bank, the home should be sold to someone who will be an owner-occupant and who agrees to be an owner-occupant for at least two years. No real estate consortiums or investors, please, who wind up going into foreclosure themselves and the banks evict the hapless tenant who has been paying rent that is pocketed by the landlord while the property, unbeknownst to the tenant, is in foreclosure. We already have a serf and lords-and-ladies-of-the-manor class; let’s not now make everyone either a renter or a landlord. The American Dream still includes, for most people, the idea of HOMEownership — not home as personal ATM machine. Again, the banks were bailed out; they can suffer some losses. No building of skinny homes in people’s backyards, ruining the neighborhood landscape and still ultimately resulting in the original home going into short sale and the skinny backyard home going into foreclosure.
3. While homes are in foreclosure and are bank- or real estate-owned, property taxes need to be paid ON A MONTHLY BASIS by the bank or real estate company that owns the property. Currently, property taxes in arrear (and if a home is in foreclosure, it will most likely be in arrears on the property taxes) are paid by the new homeowner when the property sells, which could be for some time. Sometime the property taxes get forgiven. During this time, taxpayer-funded services get cut, including schools, libraries, etc. Perhaps if banks and/or real estate companies were forced on a monthy basis to pay property taxes on vacant properties, they would be more likely to sell homes to responsible homeseekers (former renters or others) at realistic, sustainable prices.
4. If the home is being sold pre-foreclosure, the homeseller has to be realistic. Why should a homebuyer pay the homeseller the same amount that placed the homebuyer in a pre-foreclosure situation? If the homeseller cannot afford to stay in their home, what makes them think the prospective homebuyer will want to inherit their predicament? Homeseller, you might have to sell the SUV, put the kids in public school, forgo the wonderful vacation that you are hoping to enjoy before the bank “catches up with you” (approximately six months) with a foreclosure notice, in order to sell your home at a realistic, sustainable price. Don’t forget to put aside money for the property taxes. The new homebuyer does not want to pay your delinquent property taxes and the rest of the community needs the property taxes that you promised them when you purchased your home and which everyone in the community pays. (Even renters pay property taxes because, unless you are living in mom’s and dad’s basement, it is included in the monthly rent.)
Yeah, the banks were bailed out. We’re pissed off about that.
Yeah, there are people who are losing their homes through no fault of their own. We’re pissed off about that too and truly sympathize.
At the risk of appearing politically incorrect, though, there is still a large number of self-proclaimed “foreclosure victims,” who by their financial mismanagement, feigned naivete and sense of entitlement, also helped contribute to the current situation for prospective homebuyers. These prospective homebuyers, many of whom live very simply and are responsible renters and good neighbors, now cannot get a loan. We are the 98 percent.