"Don Foreman" wrote in message
...
On Sat, 22 Mar 2008 22:55:10 -0400, "Ed Huntress"
wrote:



This wouldn't have happened in the first place if the mortgage lenders
hadn't fallen all over each other to give mortgages with practically no
money down. That's bad banking. It's NOT necessarily bad borrowing.

It clearly is both bad banking and bad borrowing.

I knew some guys when I was in my 20s who became millionaires in pretty
short order borrowing that way. It was VERY good borrowing for them.

First, you'd use your VA or an FHA 221-D2 mortgage (no longer available) to
buy a house for peanuts. Then you'd live in it. In six months, you'd be a
prime borrower in the eyes of the mortgage companies, and you'd use the 5%
or 10% you'd otherwise have used on your *own* house to buy one or two more
on MGIC low-down mortgages, and rent them out. In a year you'd qualify for
an investor-grade conventional loan and buy an apartment building for very
little down. You could even put a lien on one of the houses you bought to
use for the down payment on the apartments, because the longer term trends
were always (or almost always) up.

You could go upside-down on all of those investments with even a slight
downturn, but it wouldn't matter as long as you had a job and you had income
from the properties. The margin you were looking at was the margin of income
versus mortgage payments, and you needed a slightly positive cash flow to be
safe. But a small downturn wouldn't hurt you. You'd ride it out.

In five years you could be a real estate tycoon.


No money down mortgages (GI) have been available for decades. Property
values have definitely fluctuated both up and down during that time:
long term has been up but there have been regional short-term dips. My
house has not been a "financial performer" in terms of market
appreciation and DCFROI (discounted cash flow return on investment)
but I gotta live somewhere. Shelter is a basic need.

If a person buys a house with a mortgage they can afford, they can
still afford it even if the house value declines to negative equity
for a while -- unless they then leverage equity increase with
increasing market value to maintain absolutely all the debt they can
afford to keep up with and perhaps a bit more. This can only work in
a monotonically increasing market, and no market does that forever.

Not so. A downturn doesn't change your mortgage payments. If you can make
the payments, you can ride out a downturn even if you have no money down on
the house. The ones who sweat that are the mortgage lenders, not the
borrowers, because they're afraid the borrowers will just walk away.

But there's no necessity for them to do so. The only advantage in having
more money down is that you're more likely to come out of it without paying
money out of your pocket, or without going broke, if you have, say, 20% down
on the house. But that means you've lost most of your 20%, too. So as a
borrower, you want the least money down consistent with your ability to pay
and the terms you can get. If you have the 20%, put it in the bank and take
the low-down-payment loan.

Lately the lenders have been offering *very* nice terms -- as long as you
get out of it before the balloon in rates.


Speculating in real estate is no different than speculating in any
other market. Speculating with an asset that is one's shelter is
"smart" only if it works, really dumb if it doesn't.

True enough. But it has pretty consistently worked until very recently.


Pick yer pony, take yer ride. Strut proudly when yer artful dodging
works, bleat pitifully when yer grab for the big brass ring gets ya a
face full of gravel.

That's what the banks are facing. They speculated; they lost. The home
buyers are getting off relatively easily, except that now they don't have a
house.


This is not addressed to you personally, Ed. It's meant to be
metaphoric.

I figured it was some kind of phoric. d8-)

--
Ed Huntress