Here’s a chart to go along with yesterday’s excellent commentary by Diana Olick of CNBC on the disturbing trend in back-end debt-to-income ratios for so-called “permanent” mortgage modifications and how they might factor into rising default rates, part of the government’s Home Affordable Modification Program otherwise known as HAMP.
Note that front-end debt service (i.e., PITI, etc.) stays fixed at 31 percent (per program rules) while back-end debt service (i.e., all debt) has no upper bound, now at 64.1 percent. Yes, that leaves borrowers with 35.9 percent of their income to pay for taxes, utilities, insurance, food, gasoline, clothing, save for retirement, and have some fun from time to time.
What was funny about preparing the above graphic was that the source had to be cited. In doing so, it became quite clear that the government probably has the wrong name for their website – while the name may say “financial stability”, the figures in the chart say something quite different – perhaps “financialmadness.gov” would be better.
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They should call it HEMP – because they’ve got to be smoking something…..
I am so sick and tired of you smart guys trying to put down us struggling homeowners. We took the chance on the American dream and you treat us like we dserve all that we get. My husbands and Is debt to incoming is high but we are good members of society and take care of our home and pay our bills. You would have us all be renters to some slumbloard. I am glad to pay 3375 a month in mortgage.
Portia, but this is your choice. You chose to overleverage yourself to live and American dream, or rather an American nightmare.
Can you still be a good citizen and pay your debts when you or your husband lose your job, someone gets sick, etc. ?
Good for you. With this mortgage your PITI is probably 4000-4200/months wich means you have 12K monthly take home (conservatively) if not, you cannot afford the house you live in. Simple.
You are a slave to you a bank, not a landlord, put all your money into insolvent assett, that you will most likely lose the money on when there is time to sell it.. Home owneship is not a right, is a privilege for those who can truly afford it.
Am I supposed to feel sorry for you in your $600,000 house? (probably more because I bet you didn’t even put 20% down) Really? Not a chance. I don’t even HAVE a house. I can’t afford one, because the government takes my money and gives it to people who gambled with their money, lost, and now want a ‘do over’. All you gamblers want super-low interest rates, principal reduction, tax breaks, whatever you can bilk the system for, all at the expense of honest, hard-working taxpayers. Got no sympathy for you. In fact, you make me sick.
The more things change, the more they stay the same!
This. Will. Not. End. Well!
Two things:
One, to end the bailouts..guess what bought my 600K house with 20 down, cars I drive-neither one luxury, no car payments, will keep them til they rot by the side of the road, credit cards- one balance-300 dollars. How many mortgages? One never believed in taking money out of the house. So why do I need help? Well my company who I worked for has closed down. No wasnt a realtor, mortgage broker or a salesman. Had a regular job put in my 50 hours a week. It just couldn;t survive the recession. So I found another job, paying less. Why shouldn’t I get help like every other person out there?
Two, Unlike many people with the back DTI issue. I don’t have it. My biggest issue is my mortgage payment. So yes I am in a trial modification because I qualified for one.
Sorry end the bailouts..but this time I need one and I am going to take it.
Sucks that you lost your job. Good thing you aren’t renting… Why does my tax-money go to help struggling home-owners but not struggling renters? I rent for $4k/month, can’t afford that without a paycheck – if I lose my job then who will help me?
agreed
I lost my job, so what exactly entitles you to an extra govt handout that a renter wouldn’t get? Because you opted to buy a $600k house? Seriously, whining homeowners can go f*ck themselves.
Um, I didn’t get a bailout, and I won’t get a bailout, and I’m priced out of the market because prices are so far above sustainable levels. I’m happy people are aggressively following their dreams for prosperity, but you took chances and lost. I’ve been following my dreams by living below my means and saving money for many years, so please move out and let me have a chance to buy your house at a more reasonable price.
Well, you all have made your points quite well. However, there is the ‘big picture’ that trumps them all (not that I am gloating — I never bought and even said at cocktail parties years when it was not popular that all the ‘owner’s in the room were really ‘debt slaves’ and that the bubble would burst, making them all look like idiots. Never got invited back to those parties for some reason…).
That big picture is this:
Nobody in government will fix this…at all. That is why Freddie and Fannie refuse to even talk about principle reduction while Obama sings about it all the time. Who does Freddie and Fannie take their marching orders from now? Obama
So, just forget all those lies. As for HAMP, it is just a stall game as well — nothing more. Oh you can get interest and rescheduling of debt done — but they make up for it by extending your debt-slavery term. Principle is not touched. Principle is ’sacred’.
There’s actually a good reason for this: If Freddie/Fannie/FHA/VA and HAMP were to start give out principle reductions at all, then EVERYONE will have a motive to stop sending in their monthly debt-slave payments starting…oh, the very month news gets out about it. If they gave them out to ‘certain deserving’ people, then the pressure would mount to expand/dumb down the criteria defining ‘certain’ and ‘deserving’ until ‘certain’ means ‘everyone’ and ‘deserving’ means, well..’having any mortgage’.
Likewise, this would effect ALL mortgage note holders — including the privately owned ones (like with banks, CDO investors, etc.). Remember me saying the word EVERYONE? Well I meant it — not just everyone with a Freddie/Fannie/FHA/VA backed/owned mortgage. I mean ALL (mortgage) DEBT SLAVES out there would jump on this bandwagon.
Another way of defining EVERYONE would be those like EndTheBailoutsAnswer who say, “Sorry end the bailouts..but this time I need one and I am going to take it”. Not that I blame EndTheBailoutsAnswer. He/she has to do what he/she must do best for his/her situation.
The problem is that hundreds of millions of other EndTheBailoutsAnswers are out there, too.
Economists call that situation ‘a moral hazard’ and EndTheBailoutsAnswer’s response to it an example of ‘the tragedy of the commons’ at work.
If that happened, all hell would break loose because the government couldn’t even print enough money to deal with that meltdown…not w/o Zimbabwean hyperinflation as a result (which we might get anyway).
And then there would be the totally devastating impact of a society where everyone gets it in their head that debt default is not only AOK, but beneficial as well. While I laud those who wake up and begingthe disciplined crawl out of debt-slavery…I don’t think it happening all at once via a national strategic default is the best way to do it.
So, they won’t cut principle…not w/o some ‘cost’ to the borrower that is heavy enough to prevent the stampede. Foreclosure does the same thing.
The banks will get bailed out, though. They always do. Just like Greece’s creditors are getting bailed out (by our money — despite the Senate voting 94-0 to forbid that). Just like how the government will protect them from ‘principle reduction’s and the aforementioned stampede to default. The relationship between Banker and King goes back centuries.
And yes, the nice set-up the banks have with the King is a definite moral hazard. But then again, as long as the King gets set up with his nifty moral hazard in return (the ability to spend, spend, spend on borrowed money and time) thanks to the banks, well…that won’t come to a close until it all goes to hell.
So, no matter what your position is on this personally, the ‘big picture’ clearly shows that we are all screwed one way or another and that the situation could get much worse.
There is just no such thing as a free lunch. There is just some people coercing others people to pay for it, is all.
All of the fancy loan products that encouraged everyone to want to buy created a bubble… a bubble in prices, (not values) just prices, so that everyone… I mean everyone that bought or refinanced in that bubble is now underwater… whether they put 0% down or 30% down… It is not their fault that the values are down… If everyone that is under water stops making their payments the holders of the note will get whatever the fair market value is today. So why not circumvent the whole foreclosure process (during which the holders of the note get no money) and simply drop the principal balance to what the home is worth. that would stabilize the whole housing market. If people lose their jobs they have a better chance of scraping enough money to keep making payments. I think EVERYONE that is underwater should stop making their payments and that would be a wonderful revolution that would get the attention of the financial services industry… in fact they way they have been behaving (140b in bonuses) they deserve to have everyone stop making payments as a way to rebel against what the wall street banksters have done to us and to our economy. I am so tired of the media, the banks and do-gooders blaming the people who believed what they were being told by everyone, bush, greenspan, and all of the trusted bankers in their lives…. the consumer believed that what was being told was true and the banks now blame the consumers. I know of a house that sold in 2004, felt like good value at 850K now selling in 2010 for 660… the buyer put 25% down… and because the value is not there now is coming up short. whose fault is that ?
“It is not their fault that the values are down…”
Excuse me. But yes it is. Not entirely but they aren’t off the hook, either.
The bubble was there for all to see. The vast majority of people (99.99999a%) just refused to see it. It was an article of ‘good financial judgement’ to buy vs rent. Even economists who should have known better towed that line.
The rest of us who did and spoke up were openly ridiculed.
So, sorry. It is everyone’s fault, pretty much. The bankers, the government, the Fed’s easy money policies…and all the schmucks who perpetuated it by taking those 100% liar loans to keep pushing those prices up and up.
Oh, and that means those who put only 0% down vs those who put 30% are better off if they get bailed out because they didn’t lose any money, really…well, besides those 100% interest payments on the ARMS. Both will have come out better than renters who never bought (such as myself) big time.
All of this has been hashed by others on here. My main point is that none of it matters any more than it matters how many Greeks burn down Athens. In both cases, the money just isn’t there.
“I think EVERYONE that is underwater should stop making their payments and that would be a wonderful revolution that would get the attention of the financial services industry…”
Yes, that is certainly an option. The problem is that the folks who aren’t underwater will want in on the action too, as I noted. If that happened, we’d experience a full-scale economic collapse.
“the consumer believed that what was being told was true and the banks now blame the consumers”
The banks are technically right…how is it their fault that consumers refuse to educate themselves in Econ 101? But again, doesn’t matter for the reason I stated.
“I know of a house that sold in 2004, felt like good value at 850K now selling in 2010 for 660… the buyer put 25% down… and because the value is not there now is coming up short. whose fault is that ?”
Again, ‘fault’ is immaterial to the problem at hand. You can resent the folks you like to for blame, sure. But it doesn’t change the facts of the situation.
That’s why the only way the individual mortgage debt-slave is to walk away, as you state. But the collective impact of that happening when a certain critical mass is reached will burn all of us, big time. Try having your entire neighborhood flush their toilets at the same time. See what happens.
If you are so responsible, prudent and not over-leveraged you surely have at least 8-10 moths of emergency savings to weather bad times. Don’t you? Everybody should have.If not, than you are like everybody else who borrowed more than they can handle. Same deifference.
Yeah, I agree. I have done quite well on a debt elimination program myself. But I don’t have 8-10 months of emergency savings (still paying off some debt and need to save up for a new — but used — car).
But that’s the rub, Peter. We live in a culture that indoctrinates us into becoming willing debt-slaves, so it is hard to make the transition for many people. Because, the best slaves are those who don’t even realize they are slaves at all. The bankers love it.
And the politicians don’t want a self-reliant citizenry, either.
So, those who are ‘prudent’ will pay the heaviest cost for all this, eventually. That is why moral hazards are so bad.
Actually my post was addressed to EndtheBailoutAnswers but thanks for replying.
If we let others to indoctrinate us than we let them manipulate and control us, then we become slaves, but at the end this is going to have a direct effect on ME, and MY life not goverment, not banks. That’s going to be me filing for bankruptcy, living in cheap rental, sending kids to underperforming schools or collecting food stamps. Matter of priority.
We always lived on one income, having been 2-income familiy all along, adn we are your regular middle class family. We live frugally, saved, sacrified some to have insurance for the rainy days. We just save one income all together. We refused to pay bubble price for a piece of RE, continued to rent, didn’t buy into “you have to be in debts to succeed” didn’t buy into follow the Jones’ syndrom. We intend to buy our first house paying cash and own it out right. Then my my partner lost the job and we didn’t even notice it. Didn’t affect our lifestyle, because we lived it all along. People live in financial lies and dishonesty to themselves and the only one who is going to suffer will be them.
You say “prudent” will pay the most, but at least we have something to pay it from, don’t live over-laveraged and on the financial edge.
Mortgage should be granted to those who can really afford it: 20% down, 8-12 months financial cushion. We would avoid the mess we’re in right now.
Good luck with debt elimination. You’ll do yourself a big favor.
[...] as a Debt to Income Ratio, or DTI for short. Right now, the average DTI is running over 60%. As Tim Iocono helpfully put it: Yes, that leaves borrowers with 35.9 percent of their income to pay for taxes, [...]