Mortgage/house free roll

[rams03]

What's to keep someone from getting an FHA loan ($600k plus in some counties), for 5% down, moving into the house, with two scenarios in mind:

1 - House prices recover, sell the house, pocket $100k, $200k, whatever.

2 - House prices continue to crash. House price collapses by $200k.

Under scenario 2, you call the bank and tell them you want to do a short sale (which they will agree to since it is better for them than a foreclosure.) You lose your $30 k down payment. Worse case scenario, they foreclose and mess up your credit.

(Of course millions of people have already taken option 2 lately without planning it in advance.)

The way I see it, the banks have squandered all their money and are now just acting as a middlemen lending out the government's (taxpayers') money, nearly as recklessly as they had been (how can 5% down still be allowed!).

Those of us that have not gotten into this game (of legally screwing banks out of hundreds of thousands) have been the chumps -- since our future tax payments have been handed over to other people via these bailouts.

Recognizing this, and that they have not reformed the system, does it not make sense to try and exploit the situation?

[TJMAXX]

dont forget, obama is giving you 8k (not sure on the exact number) of the tax break this isn't the same as the 7.5k deferral of last year, which is still also available.

If anybody wants to get into the slumlording business, now is the time!!

[rams03]

The 8k is for first time homebuyers and must be for owner occuppied. Of course it is also ripe for corruption. How about "selling" your house to your 18 year old son? He is a first time "homebuyer". Then he can "sell" it to his 20 year old sister. The variations on this are mindboggling. There will probably be language in the rule trying to discourage abuse like this, but will there be enough bureaucrats to enforce it? LOL

[Rudy1957]

If you went through the probability scenarios, I'd think that either one of your two scenarios would be at the outer ends of the distribution curve. Most likely, you'd see +/- 25% over a 2-3 years, which would hardly be a big enough move to merit taking dramatic action. Say you got the 25% up move: after carrying and transaction costs, you'd only have a 10-15% gain. If you got the downside move, you've really messed up your life if you walked; bad credit and unable to buy a home again in any reasonable time frame -- a double-whammy too if that was because of depression that sunk your earning power. Under the majority scenarios, you've basically tied up a lot of capital for meager return, unless you planned on living there or could rent out at positive cash flow, in which case the numbers largely work from here.

A lot of people are looking at shot-taking on distressed properties, and the biggest impediment is uncertainty of necessary holding period to get out whole. The days of getting financing if you're a candidate to walk are long gone.

[rams03]

Rudy - Re, your last sentence, my point is that I'm (or my hypothetical example) not a candidate to walk. Always paid my mortage, ccards, loans, etc. High credit score. I also thought the days of low down payments were over, but the 5% down option still exists (for relatively large loan amounts).

I know you instinctively don't like what I'm saying because like me (up until a few weeks ago), you are disgusted with people screwing over banks and making excuses for not paying their mortgage, and then having banks get taxpayers to cover it.

But we must see things as they are, not as we wish they were -- the government has opened its vaults via bank bailouts and the public is pillaging.

I don't like the mortgage tax deduction, and disagree with it on philosophical grounds, but it doesn't mean I don't take advantage of it.

Finally, the transaction costs are not as high as you quote. Realtors (if you even bother to use one) don't charge 6% anymore.

A 10% increase (after transaction costs) be a 200% increase on your down payment.

[Jeff Jones]

How 'bout the great deal where Barack is going to give you a lump sum of $5000 if you pay your mortgage for five years straight? Isn't that what you are supposed to do?

How stupid can it get?