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Most of the unemployment in Michigan is auto workers whose factories have closed. My ex has a friend who has had to let his house go to foreclosure too because Ford moved him to Kansas City when his plant closed. Since the housing market is so bad, he can't sell his house here but had to buy a new house in KC for his wife and 4 kids. So yeah, he's got a foreclosure on his record, but he couldn't afford to pay two mortgages at once either.
Michigan has been in it's recession for a while now so some of the things that I'm seeing are different than what others see. There are people who just bought more house than they could afford on an interest only type loan deal and now that they have to pay interest too, they can't afford it. That is poor financial planning and lack of foresight. But then, there were some very persuasive mortgage brokers selling them these deals, assuaging their fears/anxieties. I have an ARM but it's a reasonable one. I had a 4% interest rate at the start, it can't go up more than 2% a year, has a max limit of 12% interest (which is high, but I would be able to still pay it if it happened) and it has actually gone down two of the five years. I expect it will go down again this year, but I am hoping to refinance for a 15 year fixed and, with making an extra payment each year, plan to pay it off by the time I'm 55, in preparation for my own retirement or in case of disability. Some of them are not reasonable.
The fallout will affect more than just the mortgage companies that gave them these loans though. The dust will settle eventually though and hopefully people have learned valuable lessons.
1) Don't finance the full cost of your home, if you can't put at least 10% down, don't buy it yet. Put 20% down ideally. If you can't afford to save up that much, you probably can't afford to buy a home yet.
2) If you get an adjustable rate mortgage, be aware of it's terms and make sure you can afford the "worst case scenario"
3) Save! Everybody should have an emergency fund
4) Avoid debt
5) NEVER finance for more than the cost of your home.
Home values were going up so fast that people began to assume that trend would continue and that was a dangerous assumption. People have to start learning to plan for the worst case scenario instead of the best. We, as a country, got lax with our financial situations and we're going to pay for it now. I do know that when I bought my house, the mortgage agent prequalified me for $185K. I would not have been able to EAT if I had mortgaged that much and I realized it so I only mortgaged $129K.
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