Sunday, February 22, 2009

The upside of the foreclosure "crisis"

A quick anecdotal observation:

I am in the mortgage business. Yesterday, I met with a 42-year old single mother. She is raising 2 teenagers in a crappy studio apartment in a crappy neighborhood.

She makes just over $25,000 a year. According to the government, she is officially in "poverty".

She does not have an X-box, plasma screen TV, or microwave oven.

She DOES have (and pays for) health insurance for her and her children.

She is a LEGAL immigrant from Mexico who entered our country legally, assimilated, learned English, and became a US citizen.

She drives a 1996 Toyota Corolla.

She has paid every bill on time and has perfect credit.

Somehow, she saved $8,000...$25 here, $50 there...

This weekend she bought a cute little foreclosed home for herself and her two children. Purchase price? $145,000.

The home was purchased by the previous owners for $409,000.

Update: Acorn thugs and Obama's housing plan would take away these opportunities in favor of people like this:


Two Dogs said...

Here's where that scenario gets to me. The previous owner, since they are morons, will get a bailout of some sort and our hero, that has purchased a home she can afford, by applying good work ethics, will have a good credit rating and the government will take money from HER to pay for the previous owner's stupidity. Don't believe me? hide and watch.

Anonymous said...

Awesome story!

-- Feminist

(See, I may not like you but I give credit for a good post where credit is due.)

Anonymous said...

I love people who can save money and accomplish things like this. good of you to post this.

Michele said...

Yeah. That's great news. Thanks.

Preston said...

Great story - thanks Nigel!

Yiddish Steel said...

As Don King would say, "Only in America!"

Anonymous said...

How can afford this house? The rough rule of thumb is 3x annual income equals how much house you can afford. here she bought almost 5x annual income. did she get a grant or something?

Nigel said...

I usually don't post anonymous comments, but the last one brought up an interesting point about loan qualifying.

In this particular case, the borrower is using an FHA loan. The rule of thumb on an FHA loan is a debt ratio of 41%, however, FHA is insuring loans as high as 47% if the borrower has an exceptional credit profile (our borrower does).

Her current rent is $825 a month. Her new payment, which includes taxes and insurance, will be approximately $975 a month...making her debt ratio 46%.

Because she fully documented her income, has excellent credit, showed an ability to save money and has minimal housing payment shock, I am comfortable in assisting this woman in getting a house.

Compare this to the crappy loan that the previous owner obtained...according to the recordable documents I was able to see, the previous owners took out first and second adjustable rate loans and put no money down. I'd be willing to bet the previous owners did not document their income or have cash reserves either.