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Washington Post Magazine: Talk to Me

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Mortgage counselors at Novadebt. (Mark Peterson - Redux)

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Elizabeth Razzi and Stacie Rillo
Washington Post Business Writer; Mortgage Counselor
Monday, March 2, 2009; 12:00 PM

As callers to a hotline plead for help to keep their homes, a former mortgage loan officer-turned-credit counselor listens, and understands.

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Washington Post personal finance writer Elizabeth Razzi and Homeowner's HOPE Hotline counselor Stacie Rillo were online Monday, March 3 to discuss Razzi's Washington Post Magazine story, 'Talk to Me.'

A transcript follows.

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Elizabeth Razzi: Hello, everyone! Welcome to the chat. We'd love to hear what kind of issues you're facing with credit, homeownership--or whatever's on your mind. Please post your comments and questions as early in the chat as possible so we have a better chance to get to them.

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Stacie Rillo: Good Afternoon.

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Md.: You wrote about the HOPE program, is that for those who are really in debts or about to go in foreclosures?

Stacie Rillo: The Hope Hotline is for everyone. For example, someone who is current and wants to know about their options versus someone who feels they may fall behind on bills, versus someone who is behind, or even in foreclosure. We counselors are there to provide financial education no matter what the situation is.

Elizabeth Razzi: The farther you are away from foreclosure, the more options you have. It's worth talking with a credit counselor as early as possible, if only for the independent eye on your budget. Sometimes people don't realize their spending on one area is on the high side. I know my family's telecom spending is getting out of hand.

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Washington, D.C.: Greetings:

It occurred to me, while reading the article, that we could really use some basic financial literacy education as part of our national recovery -- not just in the public schools (although that would be a great start), but for adults of all ages and walks of life. It sounds like a lot of callers either don't know how or don't bother to engage in basic budgeting. While some borrowers were the victims of fraud and others have had setbacks like job loss, perhaps if consumers overall had been more savvy and educated before taking out these loans, they could have protected themselves better. Please understand, I am not trying to blame anybody, just figure out a way we can avoid these problems in the future.

Does Stacie's experience bear this out? What other ideas would she have to prevent these problems from repeating themselves, assuming she were in charge of public policy?

Thanks for the great article.

Elizabeth Razzi: You're right. I'm delighted that my high-school senior is taking a personal finance class that's being taught by a CPA. He's learning some very important things. And my colleagues and I hope to contribute a bit toward financial literacy with some of the articles we write. But budgeting, much like dieting, is also one of those things that's much easier to talk about than to do.

Stacie Rillo: I would also agree. In these times when everything is moving so fast it is pertinent that all consumers young or old have education on their finances, so that we can all be aware of how to move forward and prepare for life.

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Whitefish, Montana: My house in Montana is worth far less than I owe on it. My wife and I no longer have jobs, and have moved out of the home. we now rent it out, but the rent brings in about $800, the mortgage is about $1200. If we keep paying, we will have no money left in 6 months. We would consider renegotiation, if our bank was interested, but they don't seem to be. So now we're thinking the smart move may be allowing foreclosure, collecting rent for the next nine months or so, and coming out of this with some money in the bank. It seems crazy to be writing this, but on paper it looks like our best option. Am I missing something?

Stacie Rillo: I could understand why you would want to do that. However the banks are not in the business of taking your home. I think it is still a good idea to press the issues with the mortgage company to see they would be willing to entertain. You can always call 888-995-HOPE to educate yourself on all options available and of course a back up plan, because if you decide to let the home foreclose there can be consequences.

Elizabeth Razzi: You may want to talk with a bankruptcy attorney as well, just to see what all your alternatives are. Sometimes foreclosure is unavoidable, especially after job losses. Please be sure to do right by your tenant, who doesn't deserve to lose the roof overhead without warning.

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Va.: Hello. You wrote that lenders (the mortgage companies) financed the 10 counseling centers, but what's the point of calling the HOPE centers when the mortgage companies can help us directly?

Stacie Rillo: Good Question! The point of calling the Hope hotline allows the borrower to receive additional financial education as well as resources and other education about their alternative options.

Elizabeth Razzi: If you feel comfortable talking with the lender directly, go right ahead. But they probably won't refer you to other services that may be available. If you're at risk of losing your home, why not take advantage of everything that's available?

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Arlington, Va.: Just how strict is the mortgage process these days? I know the no-money down days are long gone but has there been complete retrenchment to the 20% standard?

I am very interested because I would like to take advantage of some of the "bargains" out there but can probably only come up with cash for about 10%.

Elizabeth Razzi: Good question! No, 20 percent is NOT mandatory. Ten percent is still a quite respectable down payment. And FHA, which is handling a lot of business right now, will write loans with as little as 3.5 percent down. Just make sure the payments are truly comfortable with your budget.

Stacie Rillo: You can call over to the FHA for a list of FHA insured lenders in your area: 1-800-CALL-FHA or go to www.fha.gov.

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Gaithersburg: A friend of mine wants to foreclose. He declared bankruptcy in December, which did not address his mortgage. He has one of those "creative" mortgages and has struggled to keep up with the payments. He does, however, have an ultra-secure job, and I suggested he call the bank to renegotiate new terms. Rather than restructuring his loan, he wants to just stop making payments. His plan is to stay in the home for the 9-12 months it will take to evict him, save the money he would have spent on the mortgage and rent a place when they finally evict him from the home.

This concerns me. Putting aside the fact that I cannot control his decision, is there something I can say to change his mind?

Stacie Rillo: You can tell your friend to look into understanding the alternative options other then foreclosure, because depending on the states there can be deficiency judgements that the bank may seek even after a foreclosure auction. They can call 888-995-HOPE for advice from a counselor from one of the non-profit agencies.

Elizabeth Razzi: There's some gaming of the system involved in that scenario, and that's unfortunate. He should understand that renting a place after foreclosure carries its own challenge. After all, how would he evaluate such a tenant's propensity to pay rent, if he were the landlord?

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Silver Spring, Md.: What is the credit score one needs in this market to assure the best possible rate and what are the most important techniques to use to get the best possible rate from any given lender?

Elizabeth Razzi: The www.myfico.com website will tell you, for free, what types of interest rates are being quoted to people with different credit scores. And the way to get the best possible rate is to shop among a few lenders. (Include your current lender, and any credit unions you may belong to.) Compare their rate quotes AND points charged over a week or so, and that will show you who tends to be more competitive.

Stacie Rillo: Just to add to that as a reminder to make sure that the Good Faith Estimate is the same as your final rate that is approved by the underwriter of the bank prior to the closing of the loan.

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Arlington, Va.: I have enough cash to pay off the remainder of my current mortgage. However I would prefer to keep the mortgage for the tax deductions and a few other reasons.

I do want to refinance. I have an 780+ FICO score, and about 40% LTV on my current mortgage.

When getting quotes from banks/brokers, is there a way to get them to consider the amount of cash I have in order to squeeze a few basis points off the rates they quote me? In the past the questions about assets come AFTER they give me a quote. I would think that having those assets would help me secure a better rate, but you're the experts, so please tell me what you think.

Elizabeth Razzi: I don't think your assets really determine the rate; they just help you get a yes or no on the loan. Credit scores do affect your rate, though. But you appear to be a candidate for a good rate quote. Shop around, and get a feel for who offers the best deal on a given day. And... in this economic climate, it's probably a good idea to not pour all your cash into paying off the mortgage.

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Mitchellville, Md.: I am in the process of reading your article regarding mortgage woes. And I have a question. I have been attempting to speak with my mortgage company for the past year and have been told so many different things that I don't even want to talk to them anymore.

My husband passed away last year and he was the primary breadwinner and as in most U.S. households, we did not have mortgage insurance nor was his policy enough to cover paying off the mortgage. I found myself the primary on everything as well as a single parent (everyone says I'm fine because 3 of our children are in college, but it's still hard). I had fallen behind on the mortgage and have been using the insurance proceeds to payoff the 2nd and to catch up and supplement my income to make the 1st mortgage. Five years ago we refinanced and got a very low interest rate -- 5.25%. I have asked the bank for a loan modification and was told that once I had all my documents together to contact them, when I prepared everything and called back to complete the modification, I was advised that I needed to be 3 months behind on my mortgage, which I'm not and refuse to be, especially now that I've caught up the payment. What can I do and do I have any options?

Stacie Rillo: I could understand the frustration here. I believe it is important for you to contact a Hope Counselor to see if they can get an idea of who the investor is as well as what their guidelines are. Reason being is to see if the guidlines have changed since last time.

Elizabeth Razzi: Please accept my condolences on the loss of your husband. That's a big thing for any family to adjust to. The new foreclosure-avoidance program announced by President Obama (details supposedly coming tomorrow) may offer you a better chance at a refinance. The Hope hotline--or other counselors--may be able to offer you specific guidance about your overall budget.

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Denver, CO: How crucial is the 20% down payment, compared to 10% down? And is there an advantage to a fixed rate mortgage vs. a 5-year ARM?

Thank you.

Elizabeth Razzi: Twenty percent is not absolutely required, even in this economy. The benefit of putting 20 percent down is that you do not have to pay for private mortgage insurance, which is fairly expensive. And the benefit of a fixed-rate mortgage is that your housing expenses are very predictable for the long term. Rates are quite low at the moment, so you'd be able to lock in those rates for three decades, which is not a bad deal. A five-year ARM is most beneficial for someone who doesn't really intend to stay in the home for more than that period--or who has very good reason to expect their income will increase after five years. (Say your spouse will have finished grad school.) BUT, in this economy, you should really plan to own the home longer than five years, to ride out any further declines in home values.

Stacie Rillo: I would agree with Elizabeth on that as well. And just a quick comment that you should check with your accountant if you do decide to pay for the private mortgage insurance because I do not believe that is a tax write off like interest on the mortgage is.

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Pasco, Wash.: Thanks for taking my question. What are good target rates to watch for in fixed 15 and 30 year mortgages for refinancing?

Elizabeth Razzi: Setting a target rate is a good way to go about refinancing. But there's a bit of a gambling element to this. Some in government have talked about a 4 percent rate for fixed mortgages -- but that is not a sure thing. And interest rates are not totally in the government's control, despite all the market interventions they've made lately. Thirty-year fixed rates have been flitting around the 5 percent mark lately, which is a very good rate. Fifteen year rates should be lower, but as rates decline (and if inflation fears rise) there may not be as great a difference between the two as usual. So....how good a gambler are you? Do you want to miss out on a very good rate in pursuit of a fabulous rate?

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Maryland: Just commenting that the homeowner in Whitefish, Mont no longer is living in his home, so therefore it is an investment property. I don't think ANY of the programs out there, including willing remediations by banks, are designed for anything other than primary homesteads.

Elizabeth Razzi: You're right on that, investment properties are not covered by the federal programs. But that doesn't mean that the individual lender won't try to work with him. A foreclosure is a foreclosure, and they all cost the lender.

Stacie Rillo: I still thing it is a good idea to speak with your lender and maybe even a local non profit housing agency to see about changing the terms even though it is not your primary home. In this economy the lenders are generally readdressing their guidelines every two to three months.

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West Linn, Oregon: I hear so many complaints about people who "got in over their heads" or "got into mortgages they couldn't afford" -- and there is little sympathy. I'd like to provide another vision of a homeowner in trouble. My husband and I had completely perfect timing -- perfectly wrong, that is. After looking for 2 years for the right home and neighborhood, we found it -- new construction. I worked out the numbers, and with the sale of our home we would have plenty of equity to make a sizeable downpayment on our new home to be built. It was a no brainer -- we could easity make the payments. So in Feb. 2007 we signed the documents to build the house. Not wanting to move twice, and being in a neighborhood where homes often sell before going on the market (a high demand, desireable neighborhood), we waited until July to place our house on the market. We got a lowball offer in 3 weeks, which we, regrettably, turned down, only to find that we were about to enter the beginning of a rapid slowdown in the Portland, Oregon area. Our house remained on the market -- we never got another offer, we lowered the price from the original $789K to $729K (which was below the one offer we got!), and we are now hopeful that we'll get $620K! What that means is the "no brainer deal" on our new house is now a problem -- we didn't and will not have the amount of money to pay down the loan on the new house. We could have walked away from the new home -- which was completed in Nov. '07, but we still felt that our house would sell, and also felt it would be unethical to leave the builder with the problem, given that he also acted in good faith. Now we struggle to make our monthly payment, which is a thousand dollars more than we planned. We've carried the other house for over a year -- now we have it rented -- which helps, but doesn't completely cover the damage. What do you suggest for people like us -- we've sacrificed a lot to make our payments on time, we acted in good faith, and I believe our only fault is that we didn't check our crystal ball. Our new home could be purchased for much less today.

Stacie Rillo: Well, I can realize why you would feet that way. You can always look into options with your mortgage company. The investor will lok at your sitution to see what can be offered. Please be aware there usually is an application process and will take some time as well.

Elizabeth Razzi: You offer a good example of how people tried to make sound decisions--only to have the economy shift gears abruptly. People are quick to judge others' behavior now--in retrospect, with people quick to deem who is worthy of sympathy or who is simply getting their due for reckless behavior. For your situation, perhaps you could consider some more extreme steps. Would it be feasible (and allowed by your local govt' or homeowners association) to break the new property into two separate rental units--and bring in a greater rent? Could you offer it on a rent-to-own basis? Would you be better selling it at a loss?

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Round Hill, Va.: I have been an active Seniors Advocate helping the senior populace be aware of their options when needing extra money and looking to refinance. My question: What advice do you have for those who may be unable to comprehend the difference between predatory lenders and their local banks? I have had to help seniors who have already begun the process of dementia and who are legally obligated to signing predatory loans.

Elizabeth Razzi: Thank goodness for people who advocate for seniors in need. If someone is already showing symptoms of dementia, can't that be used as an argument to void signed agreements? So often it's necessary for seniors--at some point--to give a family member authority to handle their finances. Not all seniors, by any means, but some.

Stacie Rillo: I also feel that someone else should have power of attorney over a senior with dementia. This way that will prevent them from harm's way.

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Stacie Rillo: To add on the senior advocate comment, I also feel that they should have someone handling their finances if they are suffering from dementia so they do not make a big mistake by signing a predatory loan.

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Stamford, Conn.: I have two properties. One is my home and a home that I tried to sell that I could not and rented instead. the rental is at 6.75% interest only and is worth $300,000 less than when I built it. I rent it and it costs me about $500 per month. My own home is at 5.75% -- interest only for 30 years. I can add payments toward principal but unable since I am self employed and clients have been spending less and less. My home has dropped from the $850,000 original value to $500,000 -- a drop of $350,000. I am not making enough to support both places but am still up to date on my payments. I would like to redo both loans but unable to because of the 2 homes' values. In short, I have lost $650,000 on value in the last 2 years. I would like to try to redo at least my home property -- What is the likelihood of being able to do this with Obama's plan?

Stacie Rillo: The lenders are going to have more information on the new plan this month. You can go check it out at www.financialstability.gov for more details.

Elizabeth Razzi: No one guarantees that the value of any investment, whether it's stocks or rental real estate, will retain or increase its value. That $650,000 loss is, right now, a paper loss. If you can't handle the carrying costs, that's another matter. Don't forget that you can deduct losses from your ordinary income. Perhaps an accountant can offer some guidance.

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Round Hill, Va.: FOR ALL TO KNOW: I have contacted both legal and the attorney general's office and their reply is that nothing can be done unless their family has the senior adjudicated by the court to be incompetent. I have written published articles to Seniors concerning assigning power of attorney before dementia. If possible I would love to join in any future conversations regarding this issue.

Elizabeth Razzi: Thanks for that info.

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Washington, D.C.: My biggest issue with home ownership is that credit is still too loose (10% is a good down payment?), interest rates too low (when they go back up which is inevitable, it will force down the price of real estate) and prices are too high. Renting is fine until then.

And my credit score is close to 800, I have a six figure downpayment saved up and no other debt at all. Wouldn't touch real estate in this area at these prices. Three times income is the max you should pay for a home and that is pushing it.

Elizabeth Razzi: Ah, Missymoto, good to see you here. (Am I right with that guess?) Please, downpayments of 10 percent, even 5 percent, were common--with diligent underwriting--years before the boom ever occurred. They haven't become evil now.

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Arlington, Va.: I am disgusted that those of us who are responsible continue to have to keep paying our tax dollars so many of the poster here (and clearly more across the country) can abuse the system and get free rent. Do they think they are the only ones going through tough times? I would assume not paying rent is criminal (if people in this chat do what they are saying they intend to) and if they do try to get this year of free rent, I hope they go to jail afterwards.

Elizabeth Razzi: Well, unless I'm mistaken, only one poster (who was referring to an acquaintance) talked about choosing foreclosure and saving the unpaid mortgage checks. People who contemplate gaming the system this way should realize that they will face a penalty. Their credit--and reputation--will, deservedly, be shot for years. They will have to pay much more deposit for a rental--if they can find a landlord willing to take a chance on them. They will forever be asked on loan applications whether they have EVER defaulted. Should they ever need a security clearance for a job, the foreclosure could make that very chancey. Oh, and the lender could sue them for the unpaid amount.

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Budgeting is like dieting: Neither one has an easy answer or magic bullet. When you're trying to lose weight, you have to pay attention to every thing that goes in your mouth.

Likewise, we've started tracking every dollar we spend. It's pretty eye-opening when you see where the money goes and it becomes easier to see where cuts can be made.

Elizabeth Razzi: The two are remarkably similar. And crash (money) diets are tough to stick with.

Stacie Rillo: I could not agree more. It is all about putting a plan of action into play and living by it. I am sure you were amazed on how much you can save just by cutting out the non needed items. This money will sure come in handy on a rainy day or an emergency because we all know it is not good to use credit to pay our bills.

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Syracuse, N.Y.: I have a question for Stacie. Do you have any regrets about your previous job in the sub-prime mortgage market. I know you said all the loans were legal, but looking back, did you have any sense that your customers could be in trouble if the real estate bubble burst? How do you feel about those loans now?

Stacie Rillo: Thanks for the question. All of the loans I sold were temporary loans for temporary situations. My borrowers' situations either changed for the good in some cases or maybe even the bad. I am unsure of any bad outcomes because a lot of them were able to refi into fixed rate mortgages. However I provided a service and do not look at it in any other way

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Silver Spring: I know a lot of people are doing it but...isn't staying in the home and just not making payments akin to stealing? It is not going to help the economy and may make the problem worse.

Elizabeth Razzi: Akin? Yes, I'd definitely say so--at least if you have any option at all.

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Md.: Not trying to beat a dead-horse, but comments from Oregon like "Not wanting to move twice, and being in a neighborhood where homes often sell before going on the market (a high demand, desirable neighborhood), we waited until July to place our house on the market" aren't showing me how they made a good decision. It shows me they made a convenient decision. I was in a similar situation, but I did "move twice" because I think it is crazy to try to time a market sale so closely to a market purchase. It isn't 20/20 hindsight and no crystal ball was necessary. if you can't afford two mortgages, you should have not put yourself into the position of owning two homes simultaneously. Justify it all you want, but it was a decision you made for convenience, not something forced on you but a shifting market.

Elizabeth Razzi: Armchair quarterbacking is easy stuff. Of course, moving twice carries its own costs, though it is the safer route. And, as Oregon noted, that first purchase offer sure looks attractive in retrospect.

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Washington: My score is in the 800s. Although I have credit cards, I have zero debt (except my house). I have been self-employed for several years. Does my self-employment status affect the kind of rate I can get? (I want to refinance my house down from 6.75%.) Thank you!

Elizabeth Razzi: It depends on how profitable and sustainable your self-employment is. You'll be asked to provide a couple of years of income tax returns to prove your income. Back during the boom years, lenders often would just do a no-income verification loan just to make such deals easier, though they cost the borrower more money. And, about those credit cards, you may want to make some charges--AND pay them off before the grace period expires, just to keep them active and reporting happy things to the credit bureaus.

Stacie Rillo: Just to note on the credit card debt, the less debt you have when going for a mortgage the better rate the bank will be willing to lend you.

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Alexandria, Va.: Here's something that I don't understand. Why are so many people willing to just walk away from their mortgage? I would never consider just not making the payments and pocketing the money. Wow. A house is a place to live, so what if it's worth less than you owe?

Elizabeth Razzi: Thanks for that comment. It is a shock to hear of people who think of walking away almost as if it were a business plan. These are the folks, I suspect, who bought homes thinking they could reap tens of thousands of equity in just a couple of years. It's interesting, unlike margin loans on stocks, mortgage debt is not callable. That is, the lender cannot call the loan due--or force you to put up extra cash--because the value of the home has declined. Could that change after this foreclosure crisis has passed?

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Alexandria, Va.: I'm all for getting everyone basic financial education. But here's another idea. When you go in to sign a mortgage, it is pages and pages of legalese.

Can we get the government to require that each mortgage come with a 1 page cover sheet with the financial details displayed in an easy-to-read, just the facts manner? It could look similar to the nutritional label required on all food packages.

Stacie Rillo: It appears that after 6 years they finally revised the HUD settlement statement. It is supposed to have what you were quoted on the initial Good Faith Estimate and what you will be receiving which are in the final loan docs. It also will have on there if it is an ARM as well to where, before that was just on the truth in lending document. This way the consumer knows what they are truly getting into. I have not seen it yet, however you should be able to view a new copy at www.hud.gov under revised HUD settlement form.

Elizabeth Razzi: The lending industry is still fighting that HUD change. Those pages and pages of disclosure are there ostensibly to protect the borrower. The idea was that if all risks are disclosed, the lending industry could get more creative with the loan instruments offered to borrowers. You're right, though, the stack of papers is much too confusing. Borrowers should take advantage of their right to ask for the documents in advance. And insist that the closing agents/lawyers on hand explain EVERYTHING. It's their job. Never feel rushed into signing anything.

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Ithaca, N.Y.: You can call it armchair quarterbacking if you like, but that does not change the fact that a whole lot of people didn't base their house purchase decisions on those super-high rates of equity increase. They made sound, conservative decisions with room for a correction of the market, not speculative ones to obtain a house out of their reach. It wasn't luck, and it was no accident.

Elizabeth Razzi: Thanks for the comments.

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collecting rent on a bank owned property: By renting the house, the poster from Montana is pocketing money that is not his/hers. The house belongs to the bank until it is paid for. This is not helping the economy and fuels the frustrations of people who continue to pay money for housing.

Elizabeth Razzi: Good point. Some renters are finding themselves in terrible situations when their landlords behave this way.

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Alexandria, Va.: With interest rates at or near historic lows, why would someone even consider an ARM? I do understand that an individual may be counting on moving, or making more money in the future, but what is the downside to getting a mortgage near 5% - it is not likely to be any lower in the future.

And quite frankly, rates have been low for years, anyone who bought into an ARM 2 years ago - should really look at advancing their financial education.

Elizabeth Razzi: I've always wondered why, when people see that interest rates are at the lowest point in a generation, they don't try to lock them up for 30 years. I mean, what a deal!

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Silver Spring: In reading this discussion and thinking back to other discussions about the housing crisis, I think the conversation is too quick to divide folks into bad people who don't get any help and good people who should automatically get federal help. But reality has many different points along the spectrum. Just because you're a good person who did what seemed the best idea at the time (such as the poster who bough the new home before selling because they judged that was the right order for their market) doesn't mean the feds or even your lender should step in to make things easier. I have sympathy for you as being in a difficult situation, but you seem to be surviving just fine, although somewhat stressed. People have always lost houses to foreclosure due to job losses not their fault, but the government has not previously stepped in to fix these situations.

Elizabeth Razzi: Interesting points. Thank you.

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Stacie Rillo: Thanks for all of your comments and concerns.

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Elizabeth Razzi: Thanks very much for joining us on this snowy afternoon! Post Real Estate Editor Maryann Haggerty and I will be back chatting in our usual slot, this Friday at noon. See you then.

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Editor's Note: washingtonpost.com moderators retain editorial control over Discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions. washingtonpost.com is not responsible for any content posted by third parties.


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