Monday, December 3, 2007

Mortage Subprime Mess

According to this wonderful article, Subprime Debacle Traps
Even Very Credit-Worthy
in The Wall Street Journal at least half of the people given subprime ARMs would have qualified for regular loans due to their high credit scores.

That is probably true, but to buy houses in the high markets like Northern Virginia, where I used to live, people with good credit had to take out crazy loans. If you wanted to buy a 500K house, a low price in McClean, VA in 2005 what kind of income would be required for a 6% 30 year conforming? With a 100K downpayment you would still need to be able to afford 3K a month payment. At 34% of your income, that would mean an annual pre-tax income of $108 K. And really with all the other costs of living there that would be stretching it. But if you got a 4% ARM, you could afford a 600K home.

If you want to know how crazy prices were, the house I bought for 203K in 1999 sold for 370K in 2004, in 2005 a guy bought the house down the street from my old house for 500K.

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