Posted On: January 16, 2008, 11:20 am CST

Posted By: Compman

I have a question that no one seems to be able to answer. I know I am not stupid nor am I an Einstein, but everytime you read about the subprime "meltdown", it makes me wonder. First, subprime loans make up a minority of the loans out there. Second, which is the one that really boggles my mind, is that the perception is that once a house is forclosed on, the whole loan is written off as bad debt. Did the actual house get swallowed up into a black hole? Don't the lenders still own the house? Let's say they lent $500,000 for a home to a borrower, the borrower defaults with $499,000 left to pay. And, with the availability of more houses on the market, it can only be sold for $400,000. So, they are only out $100,000, not $500,000. Everywhere you hear and read it makes it sound like the houses are not worth anything. Personally, I think there are more people in trouble due to speculation and greed then ones who got "taken" in a subprime loan. How does one actually believe they can afford a $700,000 house when the total family income is only $3000 per month!. I know from personal experience as I witnessed one of my friends take his 4000 sq ft house, which he bought for $175,000 back in 2002, then turn around and sell it for $350,000 in 2005, and buy a new custom home with 5000 sq ft on a lake for $800,000. I told her she was nuts and it would never fly. She makes 6k a month. Sure enough, within 18 months, she has been forclosed. Now she has lost all her equity and lives in a 1500 sf rental now. This woman is not stupid either normally. But greed took over. She felt she could live in the new home for 5 years and make a tidy profit. Even though she is my friend, it is hard to feel sorry for these people.