Tighter Lending Standards To ‘Depress Home Prices’
From the LA Times. “Federal regulators are casting a disapproving eye on mortgages that give borrowers low introductory rates but let them pile up more debt over the long run, a loan feature favored by hundreds of thousands of Californians.”
“Starting this month, federally chartered lenders are being discouraged from qualifying buyers based on the low starter rates, when only the interest or a portion of the interest is due. Instead, they are being urged to evaluate the borrower’s ability to pay for the loan at the full rate.”
“Regulators are trying ‘to add some discipline to the lending process,’ said Richard Wohl, president of Pasadena-based Indymac Bank. ‘Whenever you do that, you’re going to have some [borrowers] that won’t have the product available to them.’”
“The regulators say they will ‘carefully scrutinize’ lenders to see whether they are following the new rules. Those who fail to do so, the guidance summary warns, ‘will be asked to take remedial action.’”
“The guidance applies only to federally chartered lenders, including Indymac, Countrywide Financial Corp., Washington Mutual Inc. and other behemoths. State-chartered banks, which are smaller but more numerous than federal banks, are not affected.”
“Indymac’s option ARM business is shrinking anyway, Wohl said, as interest rates fall and customers move to the certainty of fixed-rate loans. Even so, interest-only and option ARM loans accounted for more than half of first-time mortgages and refinancings in the state in July, according to First American LoanPerformance.”
“Kathy Dick, deputy U.S. comptroller for credit and market risk, said interest-only loans and option ARMs originally were for a minority of savvy, well-off people whose income was variable, the self-employed and those who worked on commission or were paid intermittently.”
“‘Now they’re used to get someone into a home without a real analysis of their ability to pay,’ Dick said. ‘Lenders are qualifying people for homes they can’t afford. We felt that wasn’t consistent with prudent lending principles.’”
“‘Just as the loosening of credit standards made the housing bubble go higher and last longer, the tightening of standards is going to make it deflate further and faster,’ said Michael Calhoun, president of the Center for Responsible Lending. As borrowers find they qualify only for smaller loans, Calhoun predicted, sellers will have to cut their prices.”
“‘There’s some pain coming,’ he said, noting that California ‘is at ground zero on this.’”
“‘There will be fewer leveraged loans of this kind, and it will depress some home prices,’ said Allen Fishbein, director of housing and credit policy for the Consumer Federation of America.”
From CNN Money. “Mortgage rates have been trending down, but that won’t do much to benefit those who signed up for low-teaser-rate adjustable-rate mortgages in the past few years. The jump in payments could be even bigger for some people. They could have a loan balance that’s larger today than it was when they got their mortgage, a situation called negative amortization. And it’s common with what are called ‘payment option’ ARMs.”
“There may be a trigger ceiling, meaning when the balance reaches a certain level, say 120 percent of the original balance, the introductory terms will end and the rate will reset upward, according to (researcher) Christopher Cagan. In the past two years, homeowners took out 1.3 million ARMs with teaser rates below 2 percent, according to Cagan’s research. Of those, 21.5 percent have negative equity.”
“Certified financial planner Mari Adam knows of a couple who has experienced this mortgage nightmare first hand. With two kids in college, the two-earner couple thought they could lighten their load by refinancing their fixed rate mortgage into a low-rate ARM.”
“They got a 1.2 percent ARM in February with a monthly minimum payment of $1,372. By April, the loan rate had reset, jumping to 8.375 percent and their balance had ballooned by $3,000 in two months’ time.”
“Their new monthly payment: $2,216 if they want to pay interest-only or $2,300 if they want to start paying down principal as well. ‘I’d call this an obscene loan,’ Adam said.”
“The couple who have lived in their home for several years, still have some equity left, less than before but at least they have some. Others aren’t so lucky. A lot end up with negative equity. That makes it very tough to refinance to a better mortgage, putting them at risk of foreclosure. And selling may not be an option to cure the financial headache given the recent downturn in home prices.”
“Next time you want to buy a home with a mortgage, be sure to read all the documentation (footnotes included), ask lots of questions and, Adam said, remember, ‘when someone offers you a below-market or above-market rate, something is wrong.’”
‘Not one recession in the past 50 years was forecast in advance by a major poll of economic forecasters, said James Stack, a market historian. Many market analysts put the drop in new-home sales and prices at the top of their list of concerns. Rising home prices stimulate the economy because consumers feel wealthier, and that encourages spending. Conversely, falling prices should curb consumer spending.’
‘A recent Merrill Lynch economic report said that as much as half of the nation’s economic growth is related to housing sales, construction and spending from home equity loans. Another warning sign is that new-car sales are down about 5 percent from a year ago. This has happened six times over the past 40 years, and in every instance the economy was either lapsing into recession or already in recession.’
‘Perhaps even more troubling is the so-called inversion of the bond yield curve. An inverted yield curve takes away the incentive for banks to make loans. For example, if a bank is paying 5 percent on a one-year certificate of deposit, it won’t have much incentive to lend money long term at 5 percent or less. In other words, because the profit margin is too small for the risks involved, banks reduce lending, and that slows the economy. The yield curve has been inverted since June.’
‘The U.S. housing slump is going to start costing jobs, underscoring a threat to consumer spending that’s already slowing as home prices fall, economists say. Spending will be further discouraged as job losses mount and more people start to fret about job security, says Pozsar of Moody’s Economy.com. ‘Together with softer house-price trends and shrinking proceeds from mortgage-equity withdrawal, weaker growth in wages and salaries due to payroll declines in housing-related industries will weigh on household cash flow and consumption,’ Pozsar wrote.’
‘Pozsar said today that housing-related job losses since March amounted to 75,000, an amount he called ‘only the tip of the iceberg.’ ‘By the time the boom is over, we’ll probably lose about 500,000 jobs,’ he said. ‘The housing correction is going to remain just that.’
“The FDIC just released its quarterly report, which breaks down housing and economic conditions in each state. The report is written for banking experts, but really anyone interested in the housing market will find it useful and easy to read. Like many states, Virginia is suffering a hangover from the hot housing market of the last few years.’
‘Here’s a snippet from the report: ‘Home sales across the state in second quarter 2006 were down 24 percent from a year earlier, compared to the 7 percent decline nationwide. Despite the decline, innovative mortgages have helped support real estate market activity and comprised almost 51 percent of the 2006 securitized nonprime originations across the state.’
‘Not one recession in the past 50 years was forecast in advance by a major poll of economic forecasters, said James Stack, a market historian.’
That is simply pathetic. Just look at all the evidence pointing towards recession right now:
- inverted yield curve
- slowdown in automotive sales
- housing price appreciation stuck in reverse
- tepid labor market
These guys cannot shoot straight. I would rather go hunting with the VP than with an economist who claims to be able to forecast recessions.
This probably deserves it’s own thread, but what do folks think about timing of the fall? The fed guidelines only cover depository institutions, so the subprime (LEND, CFC, etc) will just pick up the slack. When the state guidelines start getting approved
http://tinyurl.com/nn4ev
then the massive decines will begin. You see what is already happening in Massachusetts.
What are the other drivers that will hasten the decline?
Thanks for the link. Looks like the state regulators will implement their “parallel” guidance as soon as the feds guidance are released. That should take care of all the CYA.
Economic forecasters were previously employed mainly by the government and public universities or the media. The media rely on ads for revenue, the government relies on public sentiment to keep the economy going.
Now we have economists with blogs, and they’re pissed.
A quote
I always thought the pejorative remark was that “economists have correctly predicted 11 of the last 4 recessions…”
Firstly, historically low interest rates and the inverted yield-curve prompted lenders to *push* ARMs into the housing market. It was the most prudent way to avoid deflating loan assets as interest rates increased.
Secondly and although not in their favor, Mr. and Mrs. SoccerMom bought it hook line and sinker. What’s more, they overpaid for the homes they purchased since low initial pmts allowed builders to jack up home prices to the historical levels we witnessed.
Beyond the two previous observations, however, lies the hairy and potentially unsettling questions–how do builder sponsored financing units work and does anyone care to guess their role in keeping prices inflated?
posted ” “Federal regulators are casting a disapproving eye on mortgages that give borrowers low introductory rates but let them pile up more debt over the long run, a loan feature favored by hundreds of thousands of Californians.”
I recall Dandy Don Merdith use to break out in song on Monday Night Football. When a tean was behind 28 points in the 4th quarter and was, just scored on again…..”Turn out, the lights the party’s over”
gov reporting
almost as good as gov healthcare.fema,hud
had enough ? http://www.cagw.org
“…almost as good as gov healthcare…”
What government healthcare? If you’re talking about Medicare, or what Congress gets, sign me up! Otherwise, yes, I’ve quite had enough of Repugs. like you.
Republican cure for the peoples’ lack of Healthcare Insurance: DIE!
For Health care you must go to Canada
Yeah and wait in line forever. No thanks.
Thanks for the usual kneejerk uniformed “wait in line forever” claptrap. It’s not true and it never was.
A recent report found that Canadians waited less time to see a doctor than people living here in Washington state.
God help you if you need something more than a prescription written though. Joint replacement, transplant or other major surgery required will land you in a very long queue.
Nonsense - they’ve been trying to get my aunt to have surgery and she won’t do it. The doctors are private - it’s not like the UK.
Exactly SD,
And I’ve been told one explanation for that that makes sense. A Canadian told me that he thinks what happens is because Dr. get paid a set amount regardless most tend to head for the sure thing or general practice because the extra risks, headaches, insurance needs of being a specialist are not compensated correctly. So you end up with too many general practioners and not enough specialists.
True or not it is an example of the type of distortions that could happen in a rigid system of value.
“But tell that to hospital administrators constantly having to cut staff for lack of funds, or to the mother whose teenager was advised she would have to wait up to three years for surgery to repair a torn knee ligament.”
Google “Canadians Face Long Waits for Health Care” – a 2005 article. Many references to it in search results.
Happy Thanksgiving, you Canadians. I wish the So. Cal emergency rooms didn’t take up to 8 hours to get admitted, ‘eh.
Waahoo:
I see you are about to make more unsupported anecdotal assertions about something you have made clear in the past you know little about. Get this; he thinks he can personally negotiate better prices in healthcare by paying cash. I’m sure in an emergency situation he can negotiate with the ambulance company, the paramedics, the ER staff, the hospital, the hospital pharmacy, admitting, and all the other suppliers of healthcare. Maybe reduce a $60,000 bill to$100 or so. Very funny. He’d be a real funny guy if 45 million Americans were not able to afford healthcare insurance. But he represents part of the problem. He has been indoctrinated by having too much right-wing propaganda in his head to reasonably converse on the subject, he’s just a mass of paradigms. I see people like this all the time. They kick themselves in their own asses every time they open their mouths.
T,
I’m the most non-political person. They are all crooks.
You need to study basic economics. Supply and demand stuff.
Tell me. Why don’t we have a National Housing System?
C’mon T these are simple questions that you are avoiding.
Tell us who is going to determine the correct national price for a broken leg?
Correct national price for a broken leg? Already decided. Ask what Medicare pays.
Then you are simply ignorant.
I have already explained your faulty analogies to you.
You have already decided on the issue, you are a waste of anyone’s time.
Tortious, Esq., MBA, MHSA, MSTD
But that is not correct. Don’t you think a broken leg should be cheaper in say Aspen where the fixed costs of a broken leg Dr.are spread out over more customers then say a broken leg Dr. in Kansas?
Jeez T,
All those letters and you’re backing down from a stupid carpenter?
Go get some balls and let me know when you can answer some questions.
T - The fact that you introduced the entire thread by making a silly political point and then want to name-call everyone who responds, or else make comments which any impartial obsderver can see more clearly apply to yourself rather than those you seek to castigate, doesn’t speak highly for your side of the aisle.
My comments directed at Wahoo alone. I have heard his ignorance before. And, as I said, he is part of the problem, not the solution.
T,
How am I part of the problem if you have said I would have the option of participating in the system or not?
Of course we can all see how even if we didn’t participate in the crazy housing market we were still effected by others irrationality.
HUD, HSA, and the other alphabet agencies do a wonderful job. Let’s let the government take over health care also.
..sarcasm off..
It’s simply WRONG and UNFAIR for one group of citizens to subsidize another group. Govt. already does too much of this (farmers, homeowners, etc.).
Tortious, you seem to have skipped the lesson where the free market is actually the most efficient system. No, it’s no perfect, but everything else is worse. Central planning anyone?
This is about insurance, a single payor system, not the government running a healthcare system.
kff.org
For information on healthcare.
Who pays for the services of the single payor provider?
Single payor? Like the military?
Friend is a contract doctor for military. Here’s his take. Because their healthcare is “free” the families on base clog his office with every cough or sniffle demanding expensive treatments to the effect that his time is rationed per patient regardless of that patients condition. In the example he complained of, a small child had a severe ear infection that he thought needed special attention beyound the normal 15 minutes allowed and had to cause a big stink to help her.
Now if instead you gave these same families a medical allowance and let them spend it as they wished you wouldn’t have an office full of nose blowers and the doctors could spend their time more effciently.
Tort,
Your single payor is going to be either a monopoly or the governement. A case of choosing your poison.
There is a place for insurance but it is only the high deductable catostrophic kind that makes any sense.
I have auto insurance but I don’t use it to change the oil. I have home insurance but I don’t call my agent when my kitchen needs a new coat of paint.
A question for you. Why do you think you have the right to force me to purchase insurance I don’t want?
Rhonda:
Well, you make a faulty analogy. Healthcare insurance won’t pay to cut your nails and cut your hair, just as auto insurance won’t pay to change your cars oil.
You can always pay for the healthcare with cash, but it is a tad risky. You risk that you will always be able to afford to pay for whatever illness you or your family may contract, or to afford the insurance, or that you will never loose your job, or that your employer will always provide a healthcare option for you. You know, most employers do not want to pay for a healthcare insurance benefit, you know, less competitive in that pesky world economy.
Get this; he thinks he can personally negotiate better prices in healthcare by paying cash.
Umm…
My mother in law did just this a few months ago and negotiated a $17000 bill down to $5000, by pointing out that a $17K bill would not be paid until some time in the very very distant future, if ever. Took about 5 minutes.
Those are all risks I’m willing to take. My question to you, which you put a lot of words together but didn’t answer is “Why you think you have the right to force me to buy insurance I don’t want?”
I’ll make it easy for you by starting you off.
I, Tortious, have the right to force others to purchase insurance they don’t want to because_________________________________.
Now if you can finish that sentence in 50 words or less I’ll start paying attention to your comments. Otherwise I’ll have to put you down as a babbler.
R,
You won’t have much luck getting an answer from T. He’s a Democrat. You see, Democrats have what seem like great ideas but they are a little fuzzy on the details. Republicans on the other hand have lousy ideas but they know exactly what to do to get them done.
Well, I have the experience and education to comment on the subject from actual knowledge. Frankly, I don’t care if you keep kicking yourselves in the ass. I have primary and secondary insurance; I also qualify for lifetime care through the VA, and can afford private insurance in any case.
Take the chance, of course, unlike auto insurance, your risk and cost goes up with each passing year with health insurance, and each change in risk. Whether you pay or not for a single payor system depends on how the insurance is funded, but that would be another discussion. Frankly, I think you should opt out and pay with cash.
So keep kicking yourselves.
By the way, would you like to flip some houses? I am also aware of a bridge in Brooklyn that has a great location.
Chicote
5 minutes?! You must be mistaken. You need several years of government negotiating with all their amassed negotiating strength to get even a .05% decrease in healthcare costs.
Chicote:
Let me guess. She couldn’t pay the bill because she had no insurance and they settled for less with the threat of getting nothing. Guess who gets to pay for that?: Everyone who pays their bills.
T
It seems you are incapable of following a thought through to it’s logical conclusion.
What if nobody had insurance and the doctors had to settle for what each person could pay?
Blinders too big?
So:
What these people are really saying is that they don’t want to pay for health insurance, but if they get sick and it gets expensive, they will just try to stick someone else with the bill. Pay nothing now, and dump the cost on others later.
They won’t negotiate the price up front; they will negotiate the payment after the service.
Something like getting a bid on some reconstruction for a house at $50,000, and agreeing to pay, then deciding to negotiate the payment down to $10,000 after the work is done because they decided they don’t have the money. The ideas they proffer apply to everyone else, but never to themselves.
They are the very people they hate; they just haven’t arrived there yet.
Interesting.
Um,.. Angus?
Who said anything about sticking someone else for the tab? The doctor’s can post their fee schedule right up front and I’ll decide if they are worth it.
Eventually their fees will come down to what the market can bear just like lawyers and plumbers.
Posted: ‘Republican cure for the peoples’ lack of Healthcare Insurance: DIE!’
Take your Religious Left - defend government programs at all cost BS over to moveon.org where it belongs. The comment you replied to made no party reference, you just assume it was made by a republican.
Cash:
Well, if it looks like a duck, quacks like a duck, and walks like a duck; it’s a duck.
I cashed in, in ‘05 too @ 200% profit. I guess that makes me a capitalist.
Any national healthcare system would end up being run by an agency as kooky as the Fed. It is just as insane to think that there could be one national price set for heathcare as it is to think that one national interest rate can work for the entire nation.
Anyone that wants government run healthcare, I suggest you go down and visit your local DMV office. Regarding Canada, it is a well known fact that Canadians seeking major medical treatment come over to the U.S. rather than waiting in Canada.
That’s been my Canadian friends experience BigD. Not to mention the massive debt per citizen they are racking up.
Blows my mind. People on this blog smart enough to know that buyers set the final price of real estate - or any other product - get confused when it comes to medicine and think that the seller will be able to set the correct price.
I’ll say it again. Imagine a National Housing System where everybody that needs one gets a house and we all pay for it through taxes. Just think about all the distortions that would cause in the marketplace.
And isn’t food even more important than medical care? Why can’t we have government pay for everyone’s food? We could have government-run grocery stores just like in the USSR- er, uh, nevermind.
John,
“Let your food be your medicine” said Hippocrates, the Father of Medicine
You have a point.
I shut up a table full of doctors who were discussing the need for National healthcare back in the Hillary days by suggesting that instead of ordering seperately they should all just give me $100 and I’d decide how hungry they each were and order for everybody after taking out a small fee for my services.
They didn’t like that idea and we didn’t discuss healthcare anymore that night.
Hi waahoo,
I’m not here to defend our canadian health system.
But this is nuts:
“Not to mention the massive debt per citizen they are racking up.”
Our federal gov’t just reported the SURLPLUS for FY 05-06 was $13billion. In case you’re counting, that is either 9 or 10 straight years of surplus. How’s old Uncle Sam doing on that count?
Hi VHB,
“Last year, public spending on health care in seven of
10 provinces was on pace to consume more than half of total revenues by 2022, two
thirds by the year 2032, and all of provincial revenue by 2050.
I’m not picking on Canada’s system or saying that the American system is better. Our Medicare system is just as unsustainable as your system. Go here and just read the executive summary:
http://www.fraserinstitute.ca/admin/books/files/PayingMoreGettingLess2006.pdf
What I am saying is that any system whereby resources are pooled just makes it easy for bigger thieves to get them.
An example from the building business, to try and keep this housing related, is when a customer will tell a contractor how much money they have to spend on a project. Amazingly, time after time, the project, by sheer coincidence, ends up costing just that amount.
I routinely find myself party to coffee break conversations amongst the various subs wherein the finacial state of the customer is discussed and you can just see the bids being mentally padded up.
Hey VHB
Didn’t mean to dodge your original point. At one time I had good numbers on the debt per citizen for promised medical care for Australia, Canada, and the US. All countries were deep in unrecognized debt that future generations will bear the brunt of.
Hey VHB
Didn’t mean to dodge your original point. At one time I had good numbers on the debt per citizen for promised medical care for Australia, Canada, and the US. All countries were deep in unrecognized debt that future generations will bear the brunt of.
I will look for current accurate numbers.
I totally agree. Those who want socialized health care. Please leave us and go to Canada! I like freedom of choice.
This may not make the haves happy, but we have plenty of health insurance, just a poor distribution of it. The question is not whether as a country we can afford universal health care, but just what such an insurance would be. Taking 20% off the top and redistributing that to those without would solve many problems, but do you really think those with Cadilac insurance would take the hit without a fight?
I live in NYC, with great doctors, but for non-emergency procedures, I fly to Toronto. I pay cash, and find the prices, even with the strong Can. dollar about a third. Ex. had Lasik done by a Canadian who had done med school at Johns Hopkins, and taught American colleagues his techniques since it was legal in Canada years before the FDA approved the procedure in this country. I keep health insurance just as a back-up.
Hey Spike66,
This should interest you.
http://globaleconomicanalysis.blogspot.com/2006/07/medical-tourism.html.
Wait a minute. Are you saying that a government agency was actually interferring in the free market process and making it more expensive to get, what is now routine Lasik work done, for years?
Inconceivabel.
Already saw that on Mish’s board–I’ve been to India and I would never, never have a medical procedure done there.
From the NYTImes on a recent outbreak of dengue fever…”There was chaos at Delhi’s leading public hospital, the All-India Institute of Medical Sciences, where doctors were forced to turn away suspected dengue cases because of a scarcity of beds and blood. People were being treated in corridors and in tents erected outside the building, and television reporters filming undercover within the building said the shortage of doctors on the dengue wards was so acute that patients were helping administer intravenous saline drips to each other.
The hospital was itself struggling to contain an outbreak of the disease, attributed to mosquitoes breeding in stagnant pools of water on the surrounding campus. One doctor died last week from the fever, and 19 medical students and staff members have fallen ill.”
http://www.nytimes.com/2006/10/03/world/asia/04denguecnd.html?_r=1&oref=slogin
Hey Spike
Thanks for the India Info. I’ll file my cheap breast implantfo girlfriend idea in the “too good to be true” drawer.
Kennybabes,
Except I went and looked at the link you provided and it says no such thing.
You’re quoting INCOME, and I’m quoting income TAXES. Looks at the tables. I told you that the excerpt I posted was just a subset of all the info.
Taking 20% off the top…
Didn’t I just see recently that now the top 1% of earners are paying a whopping 37% of federal income taxes? Ouch. I’m trying to track down a hard link to that in the CBO or IRS site, but so far all I’ve found was in 1995 they paid a mere 29% of income taxes, and it was increasing every year. “But they can afford it…”
Ah, here’s a bit more recent data:
2003 top 1% of earners paid 34.6% of all fed income taxes
2003 top 5% of earners paid 55.6% ”
2003 top 25% of earners paid 84.9% ”
Source:
http://www.cbo.gov/ftpdoc.cfm?index=7000&type=1
Looks like the redistribution is in full swing already!
(Admittedly, that’s a subset of the whole picture See that and other various CBO and IRS documents for more complete details.)
Except I went and looked at the link you provided and it says no such thing.
I do see this though
the top 10 % have 41.0% of the income
The top 5% have 28.4% of the income
the top 1% have 13.2 of the income
Oh and a quintile is a 20% band not a 25% which would be a quartile.
Kennybabes
“the top 10 % have 41.0% of the income”
And this is why people like Tort want national insurance. They want their insurance subsidized by everyone else. Think about it. To someone in that 10% group a $500 a month insurance bill is nothing. To everyone else it’s a major cost.
If nobody had insurance then the cost of health care, like housing, would be controlled by the average income.
Heathcare insurance has the same effect on medical costs as low interest loans had on housing.
waaahoo,
You’re forgetting that healthcare is not solely determined by what a buyer can afford. There are REAL doctors there who spent well over 8 years in college/medical school and who have a tremendous responsibility. Do you think they will enter the medical field if they are only being paid $10/hour?
My mother is Austrian, and their socialized healthcare is FAR superior to ours. Better facilities, better (even newer, more effective) treatments, longer hospital stays and follow-up care.
I also have a friend who was given less than a year to live because of lymphatic cancer. The US doctors wanted to do the standard toxic chemo treatments… He refused, went to Canada for non-traditional treatment, and has been cancer-free ever since (10 years and counting). The FDA won’t allow this drug to be imported in the US. It costs around $300/per cycle (can use up to 10 cycles, IIRC), and has relatively NO SIDE EFFECTS.
In our capitalistic system, the for-profit drug companies run the show. They are keeping out treatments which are showing success in other (gasp, socialized!) countries.
Sometimes, capitalism isn’t all it’s cracked up to be. Especially when the big-money corporations can control the politicians and enact laws which protect their profits to the detriment of the patients.
Whoops, I put my retort to kennybabes above instead of below this part of the thread.
Anyway, more: Mea culpa on the doofus confusion of quintile as 20/25%. You’re right on that, and thanks for the correction. However, like I said above, you seems to be confused about wh9ich numbers I quoted. You need to look for the numbers in the reports and look at income TAXES paid, not income. If you’re looking at the spreadsheet, that means Table 1B, not the last one that probably pops up when you download it. There’s a huge amount of info in there, much of it refuting common wisdom about who pays what in this country. Too bad the mass media won’t highlight at least some of it.
Ca Renter
The $10 figure is your exageration not mine and I’m just pointing that out in a friendly manner.
That said, your claim that health care cost should be determined by what a doctor needs to compensate himself for his education is like the homeowners in these articles saying their houses are worth X amount because of what they spent. It’s just not true.
The buyer sets the price. And that price, whether paid out of pocket or by your insurance company is tied to what the average person can pay. Do you think that an insurance company takes money from a group of 100 people and somehow increases it?
“Sometimes, capitalism isn’t all it’s cracked up to be. Especially when the big-money corporations can control the politicians and enact laws which protect their profits to the detriment of the patients.”
Because that’s not capitalism! If you had the money in your pocket no big money corporation could tell you where to spend it! You would be free to do or go whereever you wanted for your healthcare. Instead you have insurance companies and government oversite agencies that eventually get manned by industry insiders telling you what you can and can’t do.
The best health insurance is a healthy lifestyle.
Right on BB,
And I’ve found that nothing encourages a healthy lifestyle like being directly responsible for your medical bills.
I’ll add my 2 cents. A truly global system where by an insurance company would pay for you to have surgery at an “accredited” hospital located in any country may be another way to reduce health care costs.
…Supply and Demand equals price…always…the level of price is determined by the level of market distortion.
Surgery in Cuba??? hmmm….
HFA,
I read an artcle somewhere where some major companies were already splitting the difference with their employess if they elected to travel to a cheaper out of country hospital.
might be linked from here
http://globaleconomicanalysis.blogspot.com/2006/07/medical-tourism.html
hasn’t someone posted before that they always pay their medical bills in cash?
to that person, i ask: when you are having a heart attack, and you get yourself to the hospital, how much are you willing to pay for medical care?
Perhaps the free market answer is “everything I’ve got (and everything I hope to earn in the future.”) And maybe that’s the right result. Sort of like attorneys, they always pray for that one big score. Consequently, there is an oversupply of lawyers, but you can always find someone to sue for any injury. If we subsidize an oversupply of medical professionals looking for that one big score (how much you willing to pay for this aspirin?) we will have an abundance of persons to care for all those kids in the E.R. with earaches.
I don’t advocate such a system. In the short term, it seems if we subsidized every doctor, nurse, and other medical professional in other countries to come to USA and practice, supply should meet demand in a manner more efficient than nationalized health care. (Something like a certain years-long tax holiday for these immigrants.) In the long term (when we’re all speaking Mandarin) I don’t see how socialized healthcare is avoidable.
I know someone who just went in for surgery tonight. Stage III cancer (at least). We don’t know the results. Three kids at home. She didn’t smoke, drank only a little, exercised every day (physical labor).
Most of the young people we know with cancer have been “health nuts”. Ultimately, we do not control our own destiny when it comes to health. We like to convince ourselves that we do because thinking about reality is too frightening.
It’s always a good idea to take care of one’s health, but don’t underestimate fate/God’s plan/genetics/environment, etc. It’s why asssuming you don’t need insurance is terribly naive and foolish. You will need it when you least expect it, and then it will be too late.
Sorry, that was meant for Boston Bruce (and Waaahoo).
CA Renter
We are talking about two kinds of insurance. There is a place for insurance for catostrophic illness just like there is a place for fire insurance. It still effects prices in the same way but a necessary evil.
The type of insurance I argue against is the government run cradle to grave care plans that politicians offer to get votes from the clueless.
waaahoo,
Thanks for the response. So much to get into on this issue for a blog like this. Yes, there are good arguments on all sides. I tend to pay cash for my own care when I just want to see a doctor for questions, elective screenings, etc. They always insist that I let them charge the insurance company. I don’t allow it because we can afford such things, and I don’t want to take away from someone who truly can’t afford even basic healthcare.
That being said, I DO believe that a country which wants to have a productive society, needs to have a healthy society. The only way to do that is to ensure most/all people have access to basic healthcare. Yes, people do take advantage, but there are different ways to deal with that.
There was a day when many people died from things like the flu, polio, TB, malaria, childbirth, etc. It is only the fact that we (as a majority of the population) now have easy access to healthcare that we don’t see these same numbers.
Just what is so terrible about these “exotic” mortgages? They provide a way for people to buy homes that they simply can’t afford any other way. Are we just going to tell people they are out of luck and can’t enjoy the American dream? There is just no way most people can buy homes these days without these creative financing vehicles.
Moreover, these loans aren’t so bad for most people. Sure, you get deeper in the hole each month, but the long term appreciation rates for homes clearly show that people will make so much on appreciation after 3 to 5 years that they will be able to sell, or refinance, and make a bundle anyway.
This is the key point. People just need a way to be able to get over the ownership hurdle, and then home appreciation will take over. Sure, there may be slight downturns on occasion (like now), but these will only last for a year or two, or impact a particular region that has big job losses (e.g. Michigan). But for most people, in most of the country, exotic mortgages make sense, and are the only option open to them.
Are you stupid or something?
Then enlighten me as to how the average family is supposed to buy a good home in a nice neighbourhood in most of the US? Renting as an answer? Hardly! That would be tossing out the whole concept of the American Dream. People have a right to buy homes.
Irrelevant since there is no “right” to buy a home.
Mikail,
I’m thinking you might not be originally from this country and I’m thinking that you might be young enough to think that the housing prices of the past few years are normal?
Like Doug says, there is no “right” to buy a house and if there was one it would come with a corrosponding responsibility of being able to afford it.
Get real. There are millions of nice homes all over the country for sale at reasonable prices. People don’t have a “right” to buy a $1m home on the California coast for less than renting an apartment.
But those “reasonably” priced homes aren’t usually located where the jobs, and most of the population, are. Sure someone could quite their job in Portland and move to Ohio, but then they wouldn’t be able to get as good a job there either. So what other option is available to the person with a fairly good job in Portland who wants to buy a home? Exotic mortgages look like a god-send.
Do what I’m doing in Portland - rent, save a ton of money, and then buy in a year or two when the exotic mortgage holders are forced to sell at a huge discount.
uneducated BS if you ask me. Dallas, Nashville, Raleigh, Salem, and countless other cities have very low umemployment and homes for as little as 50k, which anyone working any job can easily afford.
Untrue.
Minneapolis has a much higher job base, and higher pay base, than all of Oregon, or Seattle, or even most of California. Yet our prices are cheaper. Much cheaper.
Madison has much higher jobs/wages than does most of Florida, but florida has higher home prices.
This is “the disconnect”. The bubble markets do NOT have wages to support their cost of living.
Sure, you make more in the bubble markets. But in the end you’re worse off.
For evidence of this: go look and see how a teacher lives in Duluth, MN. Then compare that to a doctor in San Francisco.
the SF doc would be green with envy.
Slim reporting in from Tucson. The local economy is not rife with jobs that support our lofty home prices. And there’s much speculation about how far home prices will fall.
BTW, went for another nice bike ride yesterday. In 16 miles, I counted a total of 28 “For Sale” signs. Three of those signs were promoting properties that have been on the market since last year.
Does the “American Dream” mean buying overpriced assets and becoming a slave to your mortgage payment? I would not purchase my current home at the current price (nor at the price since 2004). I purchased a home in 1992 and was underwater until 1999.
Try reading the Blog.
The average family is not supposed to buy a home they cannot afford. The average family should rent when it costs 50% more per month to own comparable housing. End of story.
“People have a right to buy homes.”
That may be the dumbest idea ever expressed on this blog. Are you some kind of troll like Hopeful?
You guys are bullies and cowards. Anyone who disagrees with you is a troll…
No, those who disagree are not trolling. But the people on this blog have been here long enough to already work out WHY toxic mortgages are toxic, so forgive them for being impatient. I started from knowing nothing six months ago and already I’ve figured out:
1. Yes, a toxic mortgage IS a way to get “into” a home — for maximum three years. After that, you better be able to pony up a higher payment.
2. Yes, a toxic mortgage might work — IF the appreciation supports it. Problem is, speculators get into the game and push prices beyond what wages+appreciation can support, when it comes time to refinance.
3. Yes a toxic mortgage will work — AS LONG as people keep buying to sustain a significant amount of demand and keep the appreciation going. If the market runs out of buyers, or suddenly produces a ton of sellers (those sellers being the ones whose toxic grace period ran out) appreciation goes out the window. We are at that point now. People with toxics can’t ride it out like they could a fixed mortgage. This is the big reason FB’s are called FB’s.
4. Yes a toxic mortgage will work — IF you are rich and use it as a cash flow tool. But you have to treat it like any investment and stay on top of it to time the market and refinancing right. A lot of those FB’s don’t even know they HAVE a toxic, much less keep track of it.
Toxics are toxic, period. Anyone who disagrees has not read enough. Or, they are willfully spewing the party line, in which case they ARE trolls.
Am I still a coward?
“You guys are bullies and cowards. Anyone who disagrees with you is a troll…”
We just get frustrated repeating ourselves to morons who never get it. If that is bullying, then go ahead and call me a bully.
And as far as providing you with enlightenment, what will people do once these silly loans are no longer available to them? they’ll stop buying of course which equals a housing crash, lower prices, corrections, and eventually a housin market that gets back on track so that people making a median income can afford a median home on a fixed mortage. THAT’S what will happen, which in my opinion is a good thing. get America off these crack- loans.
“People have a right to buy homes.”
Oh, c’mon, y’all. This is a dead giveaway. Please don’t feed the trolls. It’s either GetStucco getting bored, or someone from the SDCIA board sad that their over leveraged real estate empire is about to collapse.
Please don’t feed the trolls.
If only we could get some REAL real estate bears in here to joust with it would be interesting…but this is just pathetic.
Hopeful is not dumb enough to make multiple troll posts that rival Mikhail’s.
“Hopeful is not dumb enough”
“Then enlighten me as to how the average family is supposed to buy a good home in a nice neighbourhood in most of the US? Renting as an answer? Hardly! That would be tossing out the whole concept of the American Dream. People have a right to buy homes”
TROLL. Sold any homes this year? I guess not. Thanks gor stopping by Mr. Learah.
I have a right dammit!!!
In many parts of the country right now, renting is a much better financial alternative. Rents are almost 1/2 the mortage costs in places like LA, Denver, Boston, etc. You can take the money you save on mortage, upkeep and repair costs and invest in a hybrid bond fun that earns 7.5% interest. That is a much better investment.
In fact, if you lookat recent trends, it appears that option ARM loans are resuling in the same frenzied activity as stock market margin loans did in 1999. People are borrowing money in crazy ways hoping for 20% appreciation. When it didn’t work out - a lot of good people got whacked.
“Are you stupid or something?”
Actually, that is the title of one of the disclosures they make you sign when you close with an exotic mortgage.
Mikhail’s got to be made up. I fell for Getstucco’s “Hopeful”, I’m not going to get suckered in again. And hey, whoever is making up Mikhail, c’mon!…..at least make the character believable. No one is that stupid. (Although as I’m writing this I’m thinking most here are pretty damn smart and probably would do a better job with their phantom troll. Oh my, if Mikhail is for real, God help us)
i also think mikhail is gs. game over.
I wish I had never been Hopeful now, even in jest
Hilarious !!
This is like one of those small community theaters where you have to play several parts in the same performance. Hard to get both characters on stage at the same time though, but not here….
Okay GS, how many characters were you in the Gen-Wars thread?
I’m so confused.
Mikhail has trolled here before, but it’s been a while.
I was just going to ype this.
Let the fun begin!
Are you serious? What mtg company do you work for? How is business?
Just what is so terrible about these “exotic” mortgages? They provide a way for people to buy homes that they simply can’t afford any other way.
If there are widespread defaults on a macro level, then the financial system could be put into jeopardy.
” the financial system could be put into jeopardy”
Doug, kindly do some research. The financial system is on the verge of implosion, and ‘jeopardy’ began in 1913.
Fun thread everyone! Don’t hold back.
I honestly didn’t think there were still people as dumb as comrade Mikhail hanging around here. Fresh meat.
“dumb as comrade Mikhail”
He/she is laughing at you…it’s just a troll. Mikhail is trying to stir up the ants nest so that he/she can watch all of the ants scurry around. Best to ignore the trolls and save your ammo for a real bull.
Ditto.
Are there anymore real bulls who will engage in a discussion?
I haven’t seen any for quite some time on any board.
Unless you count the a$$clown Nusbaum on CR lately.
Troll much?
The “slight” downturns you say will only last for “a year or two” are still plenty long enough to drive a lot of FB’s into BK or foreclosure. To quote Keynes: “The market can stay irrational longer than you can stay solvent.”
Exotic mortgages aren’t allowing anyone to own these homes. They only provide the illusion of ownership, until the real bill comes due.
Mikhail,
Uh, you’re kidding right?
Yup. Just keep asking “how much a month”? I bet that’s the only thing you’d consider when applying for a mortgage.
“Moreover, these loans aren’t so bad for most people. Sure, you get deeper in the hole each month”
____________________________________________________
LMAO!
Don’t be too rude to Mikhail - he is one of the last representatives of an endangered species. I don’t think most relators are brave enough to spout this drivel these days.
Molodets!
last remaining do do bird
Right now there are 10 NOD a day filed in my town - due mainly to these toxic loans. So much for the American Dream for these folks!
I’d be thrilled to never EVER again hear the term “American Dream.” What a crock of crap. 90% of the world would love to have the toaster leavings of the “American Dream.” Can we talk about the “Ethiopian Dream” or the “Bulgarian Dream” while we’re at it?
Oh god yes. Most Americans don’t know they’re born.
And you don’t even need to go as far as Eastern Europe to find places without mains electricity and running water. Plenty of places in Greece and central Spain that keep coal in the bathtub and a get a bus a week from the outside.
“American Dream” is a scam to get you in debt. More debt keeps the system going. Once maximum debt carrying capacity is reached (now), watch for stock and real estate collapse, and the dollar will be toast. Call it the ultimate “American Dream” right up the old wazooo, or as Carlin puts it, bend over and take a big red, white and blue (censored) right up your (censored). Savers are (censored) in any case. Isn’t this fun?
Totally agree, in one of the governators ads here in Cali he’s promising everyone they can have the “California Dream”, what ever that is.
In the past, before exotic financing and AMT, 5-7 year appreciation made it preferable to own rather than rent. That was then. Problem is ARMs track inflation so inflation won’t bail these people out. Problem is low/no downpayment purchases expose those selling sooner than those 5-7 years to what we could call negative downpayments due upon sale. Problem is all those newly qualified buyers skewed the supposed demand causing massive overbuilding. Problem is the boomers have peaked in their asset accumulation. Things are different this time because there are several conditions never before experienced. Ultimately the people who bought houses on thin margins will experience a margin call and throughout history that has never ended well.
“Just what is so terrible about these “exotic” mortgages?”
Nothing — so long as you are a lender and can resell the paper on the secondary market before the FB defaults.
I feel like you must be a troll… but then again, you may be new to this.
Let’s start:
“They provide a way for people to buy homes that they simply can’t afford any other way.”
-if they can’t afford it with a 30 yr fixed, they can’t afford it period. And prior to the mass introduction of these, we still had high ownership rates. If we don’t allow the option arms, home prices will simply have to fall until people CAN afford the homes on 30 yr fixed again.
“Are we just going to tell people they are out of luck and can’t enjoy the American dream? ”
-no. we’ll tell them they need to wait. As prices come down, they will be able to afford their home. I also must argue with the fact that the ‘American Dream’ is defined by owning a home.
“There is just no way most people can buy homes these days without these creative financing vehicles”
-They will be able to, once everybody is using traditional loans, competing with THAT money instead of “funny money”. Of course, homes will need to fall in price considerably for this to happen. Have no fear. Homes WILL fall considerably for this to happen.
“but the long term appreciation rates for homes clearly show that people will make so much on appreciation after 3 to 5 years that they will be able to sell, or refinance, and make a bundle anyway.”
-tell that to the people who bought 2-3 years ago who now need to sell, but can’t. Also, how does one “hold out for the long term” when they are in a mortgage that resets in the SHORT term? not only do they reset, they reset with huge prepayment penalties (in the 10’s of thousands of bucks) that make it near impossible to get out of?
“This is the key point”
-Yes it is.
“People just need a way to be able to get over the ownership hurdle”
-Yes they do. By saving up a 20% down payment and using a 30 yr traditional fixed rate mortgage.
“and then home appreciation will take over. ”
- OR don’t buy now, and wait for home DEPRECIATION to take over, and then you can buy in a few years for cheaper money.
“Sure, there may be slight downturns on occasion (like now), ”
-how do you know this is going to be a slight downturn. My friend in San Diego has lost about 20% or so off his home value in just a year and a half. That’s almost $100,000. He wouldn’t call that slight.
“but these will only last for a year or two,”
-why do you say this? The last RE downturn in California lasted about 5-7 years depending on city.
“But for most people, in most of the country, exotic mortgages make sense, and are the only option open to them”
-They make sense only if you don’t think them through. And they have another option: don’t buy.
God, it’s like this post fell through a time-warp from 2003…
But then, poor judgement is timeless, isn’t it?
The new paradigm/Kool-Aid attitude appears to be alive and well. Let’s try another scenario; house prices go down considerablly in over-heated markets, and 20% down 30 year fixed Loans @ 30% of income become all the rage again.
This has happened in all the previous periods in which Houseing has outpaced incomes and rents. They correct (with an overshot to the downsize) and then were off again. Just cyclical Real Estate, nothing new.
Risk is returning, new debt leverage at this time seems more foolish than risky.
I think he is joking to see how many comments he will get. He can’t really believe that.
There were a lot of comments about the boring lack of trolls. Now everyone can have fun again.
Back in the seventies when retail business was slow we used to place a $0.50 coin to the sidewalk with 5-minute epoxy, and then spend the first half of the day watching people try to remove it. Thanks for the Monday morning laugh, Mikhail.
Good analogy.
“$0.50 coin to the sidewalk with 5-minute epoxy.”
ROTFLMAO!!! i’ve got a quarter, some epoxy, a great view and plenty of time!
I’d have nothing against these if they weren’t Government backed…AND we had a different way of evaluating homes for tax assessment.
Let’s face it, if some bank gave Harry Howmuchamonth a 50 Million Dollar mortgage, no questions asked, and 999/month payments for the first 6 months, then house prices would quickly go up to 50 Million Dollars.
I guess that’s OK, as long as folks taking these mortgages couldn’t BK, there was no government backing, and the “value” of my home for tax purposes wasn’t based on the crazy prices neighbors paid for their homes.
Reuven — you just reminded me of an RE ad in an Orlando Sentinel supplement last Friday. All of the houses listed (photos included) are priced at $ PER MONTH. There is no mention of the selling price. The usual fine print: Payments based on I/O loan, 5/25 Option ARM start rate; rates and payments may vary based on credit score, lock date and loan submission date and doc type. (Don’t you love it? — “doc type.”)
On the next page, all of the ads are shown as $0 down and up to $10K cash back — no mention of selling price.
I agree with you — policies that foster legitimate home ownership are good for everyone.
To borrow from the gun industry lobby, we need to enforce the sound lending standards, and existing laws and police the industry to stop fraud.
It’s the fraud that’s hurting everyone - renters and owners.
“I agree with you ”
Of course you do!
Isn’t it just a wee too early in the week to deal with this level of ignorance? C’mon Mikhail……if you’re being serious, I wouldn’t recommend dropping this drivel until at least Friday’s desk clearing post.
Oh, this’ll be fun! A real live troll? I thought you guy’s were dead?
Is this a joke? Just wait 2-3 years and you will get your answer!
Wow.
This is non a sustainable financial system … hello? It all works until momentum catches up, then it corrects. Buying on margin eventually causes a crash - it is not sustainable.
What you are essentially saying is as long as price keeps moving up, everyone is alright. Think about the long term implications of that financial model.
Didn’t you ever study financial systems in differential equations? Well I did, and this model is unstable. Thank you University of Michigan Engineering.
Responding to Mikhail:
What is wrong with the Option ARMs, you ask? My bank does not do these, but many people have been comming to see me lately because they have one of these and are realizing what they got. I am seeing rates on some as high as middle 8 to mid 9% range, on monthly adjusting loans. They have a big 3 year pre-payment penalty. Some have negative amortization of well over $1,000 per month.
Many people are stuck with them because they simple cannot make higher payments. I am working with someone now who will save over $1,000 per month in interest, getting a fixed loan…..
Appreciation of house prices over the long term, even here in SoCallif is more like the 5 to 6% range. Over some periods like 1990 to 2001, appreciation was 0%. Unfortunately, there are many people who should not buy a home if they have to resort to an Option ARM.
I love it! Sarcasm, right?!
Pretty sure this “Mikhail” is “Meshugy”, the Seattle Bubble troll. Mikhail and Meshugy trolled the Seattle Bubble on a daily basis for months.
His real name is Michael and he bought an SFH in Seattle newest “hot” neighborhood April 2005. ‘Nuff said.
He’s got a lot at stake financially since he’s a musician/”author” who bought top of the market.
He’s already spammed the above exact post to this blog in another thread last week.
However, it’s probably good to have one or two replies that refute and answer. That would help newcomers who may not understand the dangers of these loans.
Want to live next door to a “famous basketball player?”
http://dallas.craigslist.org/rfs/218083924.html
“This house is 14,000 sq. ft.”
Hmmmm, how many ‘undocumented workers’ could a landlord fit in there…hey, maybe it *does* pencil out! How big is the garage…
Why do that when you can spend $700K on a hovel to live next to Starbucks? Repeat after me, folks: “There is no bubble.”
http://sfbay.craigslist.org/sfc/rfs/216934461.html
Nice place for halloween trick or treat !
God anyone paying even $100K is got to be one
stupid sick moron… I know that area! What a freaking
lunatic asylum!
That’s a great idea, living next to a basketball player. Here’s how you make money from it:
1. Provoke BB player into a fistfight.
2. Sue him for 50 million, while your bones get fixed.
3. Profit!!!!
Ad states:
“Must have proof of funds…”.
WHAT!! No stated income loans to live next to this basketball star??
What about MY dream???
Looking at this from another perspective, exotic mortgages have proven to be a wonderful financial instrument for investors desperate for yield. With bond rates so attrociously low these days, mutual funds, and other investors, NEED the relatively higher yields afforded by tranches of exotic mortgage Asset Backed Securities (ABS). Without the higher rates these intruments offer, many investors would have been going in the whole over the last few years. Think of all those people on pensions that need a reasonable interest rate in order to live. The great news is that there have been very few defaults on these exotic ABSes. Moreover, investors can rest comfortably knowing that the government would never allow them to just crash. The consequences would just be too big to contemplate.
It’s a win-win. Investors get a good rate of return (with almost no risk), and home-owners are able to get on the equity escalator.
Troll alert.
“It’s a win-win. Investors get a good rate of return (with almost no risk), and home-owners are able to get on the equity escalator.”
In which direction is the “equity escalator” going, Mikhail?
Whether this guy is a Troll or not his attitude reflects what the vast majority of people are thinking in various forms out there.
Sorry to hear so many folks want to have their azzes handed to them.
Big time. He/she’s constructing ridiculous arguments just for fun.
The great news is that there have been very few defaults on these exotic ABSes.
________________________________________________
So far…
Not in Colorado.
…equity escalator.”
Last time I checked, escalators go both ways.
descalator
Yea, they work out great. Until they don’t.
As RE continues to correct, this type of thinking is gonna make some people very poor and others vey rich :).
Keep em comn Mick, it’s been a while since your type of “Creative Thinking” has been around here. ROFLMAO
investors can rest comfortably knowing that the government would never allow them to just crash
______________________________________________________
Ask the .com crowd…
Investors have gotten almost no risk-premium. They’re bag holders.
The great news is that there have been very few defaults on these exotic ABSes. You’ve got to be kidding! people are defaulting after months. Normally, mortgage defaults don’t start until after year 2 and end after year 5. Have you missed all the news on these defaults?
As to the government, most of these loans are not part of Fannie Mae/Freddie Mac.
The consequences would just be too big to contemplate.
Contemplate. Its going to happen.
The “equity escalator” is over. 2007 will see the greatest decline in home prices since 1931.
I have people every day banging on my door to be transfered to lower cost of living areas. I know too many people who will lose their home due to these stupid loans.
Or why were so many homes that I looked at last weekend back on the market due to falling out of escrow?
How many flips do you own? Is it one of the five near my folks home? Are you one of the OC or Hollywood waiters who owns multiple homes but has no hope of keeping up with the payments?
Go somewhere else. This is the wrong blog to mess with. We expect facts here.
Neil
In an attempt to be nice and not scare away the newbie.
Yes, safe investments are not providing returns to counteract inflation, especially if inflation is calculated using the old CPI (before the distortions were added in 1995 to make inflation seem worse than it is). But forcing retirees to high risk investments is not the answer. You have to pay for those returns somehow, and that payment is risk. As for a bail-out, cannot happen. The government may bail out institutions through organizations like FDIC, but they will not bail out individual investors. They cannot afford it, monetarily or politically. There is nothing in the charter of Fannie or Freddie that says they have to, so they won’t.
Just look at the S&Ls in the 80s. Up this by an order of magnitude and you will have some understanding on how this will really play out.
If you have a problem that you cannot get returns better than inflation, that’s a legitimate complaint. But you should be complaining about how the Fed is printing money. Saying that high risk investments are going to solve everything is just plain wrong. That’s not how investing works.
I agree and disagree, Walker. Paraphrasing Greenspan in one of his semi-lucid moments, historically returns have been well below average following periods of low risk premiums.
On a bailout of Fan and Fred, there is the implied guarantee that has led many banks to buy MBS and F & F backed bonds that could cause a financial collapse if a default weren’t bailed out by the feds. This sytemic risk scares me. I wonder what the Fed’s answer to it would be? Inflating our way out of the problem? I sure hope things don’t get that bad.
yeah right, many million-dollar homes in Santa Barbara were bought by people who barely made $40K a year. Are you saying that the Fed is going to provide free lunch to all of those buyers who really can’t pay their mortgages when the teaser rates expire? Come on, any bailout is going to push the economy off the cliff, as no one is going to work hard or save any money any more if that happens.
I’m guessing your post is directed to me, goleta (if not please disregard). I differentiate between MBS and Bonds backed by Fannie and Freddie’s guarantees, and those MBS and securities not guaranteed by them. My assumption would be that the former get bailed out and the latter don’t. Any thoughts from anyone else?
Plus, I’m not talking about the FBs getting bailed out, if they gamble and lose they’re toast just like in the 90-91 S&L bailout RE recession on the coasts. I’m talking about institutions (and individuals) holding F&F guaranteed debt.
Please…stop! Ahhahahaha! Can’t… take… anymore…
Sides… hurt…
*snort*
Bahahahahaha!!!
*Sigh*, OK, I’ll bite.
“The great news is that there have been very few defaults
on these exotic ABSes.”
Is the trend on defaults stable, decreasing, or *increasing*. Do you think that this trend will continue as people find themselves owing more than their houses can sell for and as payments re-adjust to more than they can afford?
“Moreover, investors can rest comfortably knowing that the government would never allow them to just crash. The consequences would just be too big to contemplate.”
Hmmm, so a “wonderful financial instrument” is one with ever increasing risk of default, which has as a failsafe the US government spending more taxpayer money to bail out institutions and investors. Great.
“It’s a win-win.”
Yeah, government bail-outs are always win-win…if you are the one getting bailed out. The taxpayers, on the other hand…
“and home-owners are able to get on the equity escalator.”
As prices drop, it will be easier and easier for Mr. and Mrs. Sixpack to afford a house using more conventional (i.e. less risky) loans…as prices drop, there will be less “need” for exotic mortgages for the average home buyer.
This hardly sounds like “win-win”
http://tinyurl.com/q5vaf
Exotic mortgages sow confusion, senators told
“The loans typically allow borrowers to buy a more expensive home by minimizing their initial monthly payment. Ultimately, the piper comes due and the full amount borrowed, plus interest, must be repaid. Under some circumstances, the monthly payment could double or even triple, said FDIC’s Thompson.
“This risk is heightened as interest rates rise and home appreciation slows,” Thompson said.
Unaware of the risks
In borrowers’ rush to get into a house and lenders’ desire to make the sale, “they aren’t thinking about how much their payment will be five years down the road,” said Kathryn Dick, deputy comptroller of the currency.
“Borrowers may not be well-informed about the risks,” said Orice Williams of the Government Accountability Office, which found that lenders are not telling prospective buyers as they shop about the potential for a “payment shock.” The disclosures that are made at the closing are “generally written with language too complex for many adults to fully understand,” the GAO found.
And, in many cases, the disclosures are literally in the fine print, in a small and unreadable typeface, GAO said.
A Federal Reserve study showed that a significant percentage of borrowers do not understand the terms of their exotic loan, and they severely underestimate how much their payment could go up.
…
About 75% of borrowers who have a payment-option loan make only the minimum payment, said Dick, of the comptroller’s office.
About a fifth of home buyers owe more than their home is worth, said Sen. Paul Sarbanes, D-Md.”
“It’s a win-win. Investors get a good rate of return (with almost no risk), and home-owners are able to get on the equity escalator.”
What juicy bait thou trollest with.
Escalators injure 17,100 Americans every year. (BLS)
How many Americans will be injured on the “equity escalator”?
Until the whole house of crap fall apart, the mortgages adjust in a down market, the FB’s default, and all of those pension funds (like mine) who bought all of this high-yield garbage start to break some very important, long-term promises to people who were counting on them.
When my soon to retire co-workers realize they can’t, I’ll let them know you were thinking of them.
Anybody have any idea how deeply involved the Russian mob is in mortgage fraud?
But what happens when average people’s loan balances grow to 120% of their original loan (or whatever the trigger value is), their monthly payments increase by hundreds of dollars a month (which they can’t afford), and they can’t sell their homes for a price that’s high enough to cover their remaining loan balances because prices have been flat? These people are screwed. The trouble is, while lenders lured average people into buying things they really couldn’t afford by marketing exotic mortgages. The trouble is, anybody can afford the low teaser rate, but once it resets to the full market rate, average people can’t afford it, even if they ARE fully employed.
And why would the government “never allow them to just crash?” Who exactly are “them”? Investors, or homeowners? Are you suggesting that the government should outright give money to average people who are upside down on their home loans? That would just encourage ALL Americans to consume things they can’t afford.
There are plenty of people who lost money in the late 90s buying Internet stocks. There was no bail out then. Why should there be one now for homeowners who paid too much for their homes?
“Want to live next door to a “famous basketball player?””
I’ll have to pass. (sorry)
I’m beginning to think the best threads are when we get an amazing trollericous comment right off the bat. The best ones are when we can’t tell if it’s satire. Is Mikhail serious, or just a brilliant comedian?
He’s serious. The US fiscal policy under both a Dem and Repub has been to low the barriers and increase credit access to the average American. That would be all of you average folks.
The concern is to NOT over react to the bubble with equally irrationality.
Here are five stages from “manias, panics, and crashes” as summarized by Billmon.org.
http://billmon.org/archives/002692.html
” * Displacement: Some sort of exogenous shock — such as the huge drop in interest rates in the early ’00s — gets the speculative juices flowing.
* Credit expansion: Lenders hustle to get in on the action, feeding more liquidity into the market, creating a self-sustaining loop of price increases, which leads to:
* Euphoria: (Minsky, following Adam Smith, called it “overtrading.”) Since expectations are adaptive, not rational, a prolonged period of rising prices creates a growing consensus that the boom will never end. Clever writers and hack economists like Jim Glassman and Kevin Hassett, hustle to develop new wave theories showing why this must be true.
* Distress: As price gains slow or plateau (there are only so many fools in the world with money to wager) it begins to dawn on the crowd — always slowly, never at once — that the boom will NOT last forever.
* Revulsion: (Minsky also used the term “discredit”) The conviction sets in that the one thing you do not want to own, under any circumstances, is the asset in question.
Over reaction to the bubble is bad. Over tightening of credit will hurt renters and owners. …”
It’s one thing to disagree strongly, but a contrary opinion is not trolling. When it seems that way, you’re drinking a different flavor of kool-aid.
How about not overeacting to exogenous events in the first place that create the bubble?
So you hear a noise downstairs and instead of investigating you wind up blowing the head off of your daughters boyfriend that was sneaking out of the house. You panic and throw the kid in the wood chipper out back. When in the chain is the biggest over reaction? If you say the wood chipper then you might be a member of the Federal Reserve.
Screw you FED apologist!
I think Mikhail is really Casey, the 24 year old crook from Sacramento.
Sounds about right. He looks like he’d like to be a Russian dancer.
For the record, I am an ex home-owner who is renting now. I sold several years ago because I was concerned about a possible “bubble”. However, I now find myself wondering about weather my initial assumptions were correct. Real estate prices have went MUCH higher than I imagined they might, and when I compare US prices to other nations developed nations, they don’t seem all that bad.
In short, I am really trying to examine my bubble premise, and wonder if I might have missed something. Just because the existing financial system doesn’t make sense to many of us (e.g. with masses of derivatives, large debts, etc) doesn’t mean it is irrational, or prone to collapse.
Read a book on basic housing finance and then get back to us, Mikail.
How about throwing in a spelling and grammar book as well?
Yes, the bubble did not correct in 2003 as it should have. The increased availability of creative financing allowed the bubble to continue longer and go higher than it ever should have.
Thus, we now have a deviation from the mean that is greater than at any time in history. We have prices that, in comparison to median incomes and rents, are higher than at any time in history. We have more people locked into mortgage payments that are rising faster than any time in history. We have more people “owning” homes that cannot afford what they bought, indeed were completely unqualified to buy what they did under traditional standards, than any other time in history.
Thus, it is different this time. And there’s nothing irrational here - the average person is making completely sensible decisions about home buying with no emotions involved at all. In fact, it is all so logical you should immediately run out and buy two or three houses to make up for the years you missed!!
Ok, sorry for the sarcasm. But it sounds like you doubt your original beliefs of a overheated market simply because it has continued long after you thought it should. Well, we are all in that boat. The vast majority of posters thought the numbers didn’t add up one to three years before prices actually hit a wall (sometime in 2005.) It doesn’t change the fact that the majority of people who bought in the last three years are in a new kinds of serfdom and many of those people will lose their homes. The fact is, the market across the nation (excluding a few still frothy areas) has come to a screeching halt. This has never happened before. I remember in 1989 thinking CA was bulletproof after a trip to Denver and seeing the dead real estate and rental markets there. Nope, two years later CA caught up. This is happening so fast it is unbelievable. Be patient. RE takes years to correct. We’ve only just begun. Give it six months. If you are still a bull come back and argue with us. My guess is by next spring the bubble bursting will be much more of a topic in everyday conversation.
And, of course, if you think RE is still a great investment than go for it. You won’t win any converts to your thinking here, but if you are right you can come back and tell us. Just a note though - EVERY long term RE investor I know, those that have been through the crashes of 1980 and 1991 (in San Diego), are out of the market and plan to sit on cash for a few years.
It’s your money - decide what you will. But please bring numbers and facts as to why people on this blog are wrong. Generalities just won’t cut it.
If you were assuming that the price of a home should reflect the present value of rent you would be saving, then your initial assumptions were correct. Maybe US prices are better compared to those of other developed nations, but bubbles do also exist outside the US. The Economist magazine writes about it all the time.
Finally the main stream meia has caught wind of the problem with liar loans! The following clip is a story that was done by CBS in San Francisco on a special called 30 minutes.
Could have gone a little deaper, but this is a great start!!!!
http://cbs5.com/30minutes/local_story_266005029.html
“One broker, “Dennis,” works for a mortgage company where he says a whopping 85 percent of loans are stated income. He says out of that 85 percent, they all have inflated numbers.
“All of them, because that’s why you’re going stated.” Dennis added. “We’ve seen the banking industry keep getting more creative, and more creative, and more creative to keep putting fuel on this fire of home appreciation.”
Consider, for example, what would happen in a Monopoly game if every player claimed to make more than $200 each time they pass “Go” — maybe $400, $600, even $1,000 with each pass. Pretty soon: a bidding war, with players paying Boardwalk prices, even for a fixer-upper like Baltic Avenue, based on money they don’t really have.”
The big question is how long can these buyers keep deceiving themselves that they might be able to somehow afford their Death or Glory mortgages in the absence of glorious price appreciation. “Buddy, can you spare a lotto ticket?”
Nice to see Liar Loans finally getting a little more attention in the msm.
Finally! But tell me, what happens to the mutual funds, etc. that bought from the banks?
I’m not going to pretend to be an expert, so do we as blind investors in a mutual fund through our 401Ks take the hit for this?
“The regulators say they will ‘carefully scrutinize’ lenders to see whether they are following the new rules. Those who fail to do so, the guidance summary warns, ‘will be asked to take remedial action.’”
I personally have a hard time imagining guidance going very far beyond cheap talk. After all, the federal regulators don’t want to become the force that causes the hard landing to accelerate into a devastating crash landing.
“I personally have a hard time imagining guidance going very far beyond cheap talk. After all, the federal regulators don’t want to become the force that causes the hard landing to accelerate into a devastating crash landing.”
I agree. The loose lending will continue until the last greatest fool is found.
Disagree there. SOMEBODY SOMEWHERE has to be holding this paper and clipping coupons, even if the US lenders sold it all off. Eventually that person gets burned and chokes liquidity to the system. We’ll never run out of great fools, but somebody will eventually stop handing pistols out to the chimps. I hope.
This stuff gets sold off to Fannie Mae and Freddie Mac who either hold it in their investment portfolios or sell it off on the bond market as packages. You see this in your mutual fund holdings as “mortgage backed securities” like FNMAs and FHLMCs. Insurance companies and other institutional investors own scads of MBS. It makes up about 35% of the bond market, but remember there are lots of traditional mortgages in there too, like mine (50% down payment, 15 year fixed) — not everyone in US is over their head in debt.
Fannie and Freddie guarantee these securities. There is also a further implied political guarantee by US Congress, which put them in business originally.
So ultimately it gets a government bailout — the biggest ever.
Has there been any scrutiny of the zero down - zero move in loans. What about the FHA gift-loan program? I think these loans are even more relevant in places like Texas. I would say about 30% of home buyers are zero down types. If that loan option went away - it would be very deeply felt.
If it does not go away, I will never buy another home, so long as I walk the planet.
These loans DID go away in Austin TX by 1987 or so…contributed big time to the 40+% decline in most suburbs. For a while, it was 20% down or don’t play for a new loan. I don’t think anyone was doing new 5-10% down loans as I recall (excecpt REOs and RTC and owner financed).
Wow, I bet the banks are really scared of all that tough talk about “remedial action”. That’ll set em straight!
Interesting exchange on “Foreclosure Forum”:
http://www.foreclosureforum.com/mb/messages/19165.html
“Who eats the defunct loans…
Posted by Ward-CA on October 08, 2006 at 6:39 PM
In Reply to: Banks and Tier 1 Capital posted by K2163 on October 07, 2006 at 8:36 PM
Supposedly there’s going to be a difference this tme around. Seems that a very large proportion of all lenders don’t hold their loan originations anymore.
It’s alleged that they sell almost all of their loans to Wall Street types that create bond-like securities that are backed by pools of securitized loans that total millions of dollars.
I guess the originating lenders get the original upfront garbage fees and the ongoing, monthly servicing fees from the loans they’ve created.
If this is true, what risk do the lenders face other than losing the continuing sevicing fees on defunct loans?
————Ward————-
: I was talking with my buddy last night. He used to run Sec Pac’s REO division before they were bought out.
: He said 1/1/07 all banks will have to list their “tier 1″ capital. They do this once a year.
: This is the capital that they have to keep to stay in business per the Treasury Dept. He said REO properties dig into this really bad and we should start to see some real surprises in the industry. He said it may prevent the banks from taking more properties back. Might even start to see some bank closures.
: Does anyone know much about this?”
if so, please elaborate. I take it this has to do with the (dwindling) ‘appetite’ of the MBS market.
“He said it may prevent the banks from taking more properties back.”
I have been hypothesizing that something is fishy here. In Maricopa county/Phoenix metro area with a population of 3.6 million, over 50,000 houses on the market, over 20,000 are vacant, and yet ONLY 1,100 NoTS filed in September. Someone is robbing Peter to pay Paul, or the banks are sitting on their hands.
“…or the banks are sitting on their hands.”
Could that have to do with the banks’ fiscal years and how NODs could affect their financial/earnings reports?
Actually, I do hope that Mikhail is a troll, but he may not be.
From one of his comments, it sounds as if he lives in Portland. The Portland paper a couple of weeks ago had an article about how all the Russian immigrants (a significant group in Portland) were buying homes.
Someone posted a comment on a different article noting that real estate firms were setting up at a Hispanic flea market in California - I think one of the signs of a collapsing bubble is that sellers frantically search for groups that haven’t gotten the memo yet, who can be transformed into bagholders.
DinOR- ? Are you just phucking with us today?
Coworker decides he must have a new house. Asks me if I want into his old house. I respectfully decline knowing he needs to make as much as possible on it to afford the new one. This was 3 weeks ago.
Today I find out he has signed the contract on the new house. He still hasn’t sold the old one but he has ” several people interested”.
The new house mortgage is NINE times income!
INCONCEIVABLE!!
So give it a few months, and you’ll have your pick: His old house *OR* his new house! OK, maybe you’ll go for his old house, since the bank that will by then own the new house will still want too much for it.
Nine time income! What is he thinking? And what kind of mortgage did he get to be able to swing that, even for a month?
Best article I’ve seen in a month from the MSM.
Here’s Realty Times explaining why an interest buy-down is better than lowering the price:
http://realtytimes.com/rtcpages/20061009_buydowns.htm
“….it’s a win” for the seller, the buyer, and even the realty agent who’s commission will be slightly higher because of the higher sale price. Even more important for the Realtor: the house gets sold, in part because the buydown concept can be very attractive to certain purchasers, especially those with tight budgets that will be stretched in the first several years paying for new furniture, appliances and the like.”
They forgot to mention: waiting for raises, winning the lottery, etc…
“Lipes points out that Fannie Mae guidelines permit purchasers to qualify for the mortgage at the “bought-down” rate — 3.5 percent in this case — provided it’s a primary residence and the purchaser has a 660 FICO score minimum (680 for self-employed individuals.)”
Tighter lending standards, my A$$.
Huh. Buydowns. I remember those.
Seems to me, in today’s market, I wouldn’t want the seller anywhere near me after closing.
So who or what indemnifies the seller’s buydown?
I believe it usually is a cash payment at loan closing — think discount points.
I just read that article.
As long as the house appraises for $210,000, it’s a win” for the seller, the buyer, and even the realty agent who’s commission will be slightly higher because of the higher sale price.
The did an example of, instead of lowing the price to 200K from 210K, sell it for 210K and do this “buy down”. How is that a win for the buyer, who ends up paying more money in the end than if he would if they had just lowered the price–not to mention higher property taxes for the duration of his home ownership because the initial valuation is higher?
Any buyer who thinks he’s getting a “deal” this way is a true idiot.
What’s also shocking–according to the article Fannie May guidelines say you can gauge affordability at the buy-down rate.
It could be useful to buyers with other debt or who just need cash at closing without taking out equity. I don’t think it’s “idiotic” necessarily, but I also don’t think it’s always a “win” for the buyer.
what if your only offer came from a cash buyer?
just lower the price, plz
Another good point! This is essentially charging a different price for the house depending on whether it’s “cash or credit”. Because many things (taxes, comps, etc) are based of selling prices of homes, there’s something fishy about doing this.
The 3-2-1 buydown may have worked well when interest rates were high, but there wasn’t years of inventory on the market. Now the buyers are in such control, that few would probably fall for games like this….
The 120% level that Cagan refers to on these toxic neg ams is not correct. Almost all have 110% to 115% clauses. If you have the former you could kick to reg am as soon as two years into it.
“Almost all have 110% to 115% clauses. If you have the former you could kick to reg am as soon as two years into it.”
That is what my vulture-capital-self is waiting for. That and significantly cheaper building prices.
I can’t find the part of the thread in which I want to post this, because there’s so much spaghetti.
Remember, folks, that this is not “our” blog. It is Ben Jones’ blog and Ben does not like troll-feeding. Ben is one super-generous guy to work as hard as he does on this and we need to respect such a small request.
And you seem to have become the self-appointed class ass-kisser and the thought police all rolled into one. I can do without your sanctimonious blog play-by-play. And you call yourself a Libertarian?
Suit yourself, Fred. You might just hear it from Ben himself. And you bet I am a Ben Jones ass-kisser — the information I’ve gotten from his blog saved my bacon and likely will profit me greatly in the future.
I will try to cut back the play-by-play.
I will try to be nicer. I find it odd that a Libertarian trys to control the tone of threads. It’s like liberals proclaiming their support for various ‘rights’, then enacting laws to take away other people’s ‘rights’ (CA and MA come to mind). The best way to look out for Ben is to send cash.
Fred — I’m a registered Libertarian. That means, and it *only* means, that I am against large centralized (federal) government. Best short example is that a libertarian can be quite happy in a gated housing community with beaucoup restrictions. Why? Because it is voluntary association.
Blogs that do not argue politics or economics do not, in my view, have anything at all to do, directly, with libertarianism. Conversely, the opinions of many posters in this blog, relative to government control and intervention, convince me that they are truly libertarian, in purpose if not registration.
“The best way to look out for Ben is to send cash.”
I should have added that, several months ago, I sent $200. How many of you will top that?
Should have added that long ago Ben periodically *strongly* cautioned us about not feeding the trolls. But that was long before you joined the blog.
OT, Greasepan says the housing slow down is over, all is fine. You can come out now and start buying up those houses. He must be smoking some really good stuff… WTF
http://today.reuters.com/news/articlenews.aspx?type=businessNews&storyid=2006-10-09T182327Z_01_N09284873_RTRUKOC_0_US-MARKETS-HOUSING-GREENSPAN.xml&src=rss&rpc=23
I don’t know….
“There is a good chance of coming out of this in good shape, but average housing prices are likely to be down this year relative to 2005. I don’t know, but I think the worst of this may well be over,” he added.
What if this was your doctor saying:
“There is a good chance of coming out of this in good shape, but your health is likely to be worse this year relative to 2005. I don’t know, but I think the worst of this may well be over,” he added.
Let me get this str8-
“Even so, interest-only and option ARM loans accounted for more than half of first-time mortgages and refinancings in the state (Cali) in July(Single Month)..” so was this the norm in prior months during the past year? Im sure it was.
Ok everybody, I think I’ve found a just and equitable solution to all our problems.
Mandatory 20 year sentences in fed pen for any and all convicted of mortgage fraud. Give ‘em 10 years if they’ll plea out before trial.
Bubble bursts, but unemployment stays low because most job displaced brokers and realtors will be “away”. By the time they get out we’ll be back on the upswing.
I’d thought about this too. Many of those who have no real job skills, high school educations and questionable ethics (i.e., real estate, construction, and mortgage industry “professionals”) may well end up in prison anyway. The downside is that prison will become like a Scam University where anybody and everybody can study real estate law and figure out the next scam. I think I like it better as Drug Dealer/Carjacker U.
“Mandatory 20 year sentences in fed pen for any and all convicted of mortgage fraud.”
Hmm. Maybe they can sell that–guaranteed free housing for the next 20 years if you participate in our special creative loan program.
The bastards will probably try to condo the prison and sell space to the newly convicted. They will do Option ARM’s on cartons of smokes.
Great, so now taxpayers would have to pay to house and feed these jerks for the next few decades? No thanks.
I like the suggestion from a week or two ago: forward stated income mortgage apps to the IRS and go after them for back taxes based on what they claimed on the application.
It’s just not nice to put people on loans they can’t afford in the long run and set them up for foreclosure because the market didn’t appreciate the way the people expected it to . Making loans based on real estate going up rather than making loans based on ability to afford and repay was the big mistake in lending practice in the last 4 to 5 years IMHO. Rather than getting more people into homes ,the easy money /low down loans drove the prices up ,while it created a false market of speculators and short term fear buyers that went on loans they can’t afford . The false demand in housing created excess building that created thousands of vacant new construction units or speculator owned homes that people cannot hold long term . It’s a big mess .
Im not feeding the troll ,but Im just stating how much of a mistake I think it was for the lenders to make the kind of loans they have been making during this housing mania .Now a big correction is needed and that is going to be painful for alot of people .
Why does a picture of a caged hamster tirelessly peddling a wheel pop in my mind when I think of people using toxic ARMs to buy homes?
Great Thread, that Mikhail is hillarious, succinctly sums up the, “have not”, mentality.
Real estate has been the perfect vehicle for the soaking up of cash and wages of the middle class and will lead to its elimination. When this bubble started there was a common idea and I would love to know where it originated from; that real estate would differentiate between the, “haves”, and the, “have nots”. When I first heard this I thought it was a bunch of baloney, because I saw so many, “never had anything and will never have anythings”, buying real estate. I think that people were desperate to be a “have”, and they thought that real estate was the means to that ends at any cost. And they believed that someone allowed them to “have” a mortgage loan, because, “they had worked so hard for it”, when in reality all they had to do was apply.
Now I am beginning to believe in the have and have not theory of the splitting up of the middle class. You have to admit that this whole bubble really sieves out the truely ignorant from the truely intellegent. The greedy from the content. The fiscally responsible from the spend thrifts. The people on the housing debt escalator are finding that it will be impossible for them to ever be a “have”.
The division has been made and the chasm is widening. People have made their choices, there are a large number of homes for sale for which there will be no buyers for at all. Period. Who is left to buy? People who saw this early and have waited it out and saved their money? Are they going to jump in now when they have seen their cash grow and prices declining? No. People already stuck in an oversaturated market and can’t sell are they going to buy? Well the most ignorant and greedy of them will try to carry two mortgages and quicken their demise. Will the speculators who got out and are thanking their lucky starts that they made 100% to 200% profit, are they going to jump back in for a 10% discount and a Saturn? No. There is a glut of homes and when all these people foreclose there will be even more empty homes with no buyers.
The exits have been sealed off. Party is over, everyone go to your homes, you are stuck there. Now the part of, “working hard for it begins”, I hope you are positioned to do it.
The debt spigot is closed, lenders are…”casting a disapproving eye on mortgages that give borrowers low introductory rates but let them pile up more debt over the long run..”.
“…and would place option ARMs in particular “beyond the reach of many consumers…”
The end of the ponzi scheme is here. No greater fool will be allowed to buy your house. If you have one of these loans, “You are IT”.
jannifl,
Very eloquently put. I agree 100%. There are a lot bagholders out there who are only just beginning to sweat.
Applause! Nice post.
i remember reading that half the homeowners out there do not know whether they have a fixed or variable loan.based on my last two years as a loan broker,i think the figure is about right.yes,people are that stupid,lazy and ignorant.if you even begin to think “no one could possibly be that stupid and foolish” squash it,they are.
I cannot see how all this ends well. I suspect the “escalator” anaolgy is not quite right. I am actually picturing an “elevator” which went up so fast if popped right out of the top of a 100 story building and kept going up a few hundred feet even after if was no longer attached to the cables. Any one going up?
Seriously though, there is NOTHING supporting current real estate prices in bubble areas and once things really start to move it will take a great many recent (last three to four years) buyers with it. Lenders facing huge losses will rapidly lose funding sources and so it will go.