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Comment by kaitai | Hacker News Reader

The couple lost their jobs -- that's why they weren't able to pay.

I had a friend buying a house in 2004-2005. She was getting first-time homebuyer's assistance from some semi-governmental agency: they assign you a person who walks you through the paperwork and gives advice on mortgages, presumably to prevent fraud and rip-offs. The guy was heavily pushing an adjustable-rate mortgage, though: "Look at these low rates for the first two years! And after that I'm sure they'll be reasonable." My friend was outraged, as someone who'd gone into risk management in lieu of college. "How could this guy be trying to convince me to sign up for unknown rates that will rise and could change at any time, when I could just get a 30-year mortgage like anyone else?"

Think of all the people in 2008 who didn't know not to get an ARM, and who might have been pushed into it by some "advice" they thought was good.

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"Think of all the people in 2008 who didn't know not to get an ARM, and who might have been pushed into it by some "advice" they thought was good."

They'd likely have really low interest rates [1] right now due to the federal reserve keeping the rates low, and presumably refinancing soon now that house prices have risen quite a bit (depending on your market, and loan details, of course).

The 6-month libor, which a few ARM's are pinned to is currently at 0.4%, in 2008 it was around 3%, so your ARM could potentially have a lower interest rate of around 2.6%.

If you didn't lose your job, and had a 3-5 year interest only ARM in 2008, it's possible you could have benefited from it (again, depending on your local housing market). This obviously didn't work out well for everyone, but ARM's are a risk that can pay off as well.

That being said, once rates start rising (possibly soon, according to the fed[2]), there could be another foreclosure bubble of people sitting on ARM's watching their rates climb up.

[1] http://www.erate.com/six_month_libor_index.6-months-libor.ht... [2] http://www.nytimes.com/2015/03/28/business/yellen-says-fed-w...

Yes -- you have to have the money to roll with the risk, though. My friend was buying this house as a single person with small cash reserves, which the advisor knew; for her it would have been very risky given her relatively low income. If you have two incomes and some larger savings, the interest rate game might be one you can responsibly play.

It always frustrated me - it wasn't like people were oblivious to the fact we were in a bubble, they were just trying to enjoy the benefits of it and avoid the risk.

I mean, this was the beginning of home renovation shows that said things like "Your house was worth $200K. We did $50K of renovation. It's now worth $350K." While there is definite value to improvement, some numbers people were seeing on property were ridiculous. Like seriously, even without the above example, for people to seriously believe that the house they bought one year ago for $x should now be worth 1.5 to 2x with little or nothing being done doesn't pass the straight face test.

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