The Unfortunate Effect Of Free Money
The LA Times reports from California. “Every day, Will Hertzberg owns a little less of his three-bedroom house in Corona. Like hundreds of thousands of other homeowners around the state, Hertzberg has a mortgage that lets him choose how much he pays each month. Like many of them, he always chooses to pay as little as possible.”
“His debt is swelling, and his mortgage company controls his fate. ‘I am rather screwed,’ he said.”
“Hertzberg could sell now, but his lender would charge him an $11,034 prepayment penalty, money he doesn’t have. Yet if he stays, the housing market may tank, vaporizing what little equity he has left. ‘I made choices, and they happened to be the wrong choices,’ said Hertzberg.”
“One of his options is to pay $2,513 a month. That would cover the principal and interest as if it were a traditional 30-year loan. A second possibility is to pay $2,279, which would cover only the interest. But each month he always takes the cheapest option: paying $1,106 and promising to make up the shortfall later.”
“In 2003, only about 8 of every 1,000 people buying a home or refinancing a mortgage in California got a pay option loan, according to First American LoanPerformance. Last year, 1 in 5 loan applicants got one.”
“In the first eight months of 2006, even as the real estate market began to weaken amid fears of a downturn, the appeal increased again. Nearly 1 in 3 California loan applicants are now choosing them. The state boasts about 580,000 active pay option mortgages, about half the U.S. total.”
“Hertzberg bought his house 11 years ago for $129,995. With fresh paint and a few repairs, Hertzberg could probably sell his place for $275,000 more than he paid. He would see little of that, however, because he’s already seen so much. Over the years he has taken out $190,000 in cash through refinancings.”
“Hertzberg’s home equity paid off his credit cards, financed trips around the world, bought a $32,000 Toyota Avalon and enabled some lousy investments. He bought dot-com stocks and lost money. To recoup those losses, he bought commodities, and lost money faster.”
“‘Free money always has the unfortunate effect of making people go overboard,’ said Hertzberg, whose living room is strewn with financial publications including American Cash Flow Journal and Donald Trump’s ‘How to Get Rich.’ ‘You’d be surprised how fast $190,000 can go.’”
“Last fall, he went to a mortgage broker and refinanced again to make his payments easier to bear. He thought he would have a five-year window before the principal started coming due.”
“But the day of reckoning is arriving early. By paying the minimum, Hertzberg has increased the size of his loan in a little over a year from $320,000 to $332,616. His lender, Countrywide Financial Corp., recently sent him a letter warning that when his loan hits 115% of its original size he’ll run out of credit with the company.”
“That will happen in about two years if he continues to take the smallest payment option. Then his minimum payment will automatically go up 150%, to $2,848 a month. ‘If I could afford that,’ he said, ‘I wouldn’t have needed this loan in the first place.’”
“It’s a sorry situation, and Hertzberg is generous in assigning responsibility for it. To start with, he blames his mortgage broker, who didn’t advise him how risky these loans were.”
“Few brokers do, U.S. Comptroller of the Currency John Dugan says. In an October speech, Dugan said the marketing materials for payment option loans often ‘emphasized the low initial payments but glossed over the likelihood of much higher payments later.’”
“Although Dugan and other regulators are taking steps to address both problems, Hertzberg said they never should have allowed these loans to become so prevalent in the first place. ‘The government wanted to keep the housing party going,’ he said.”
“Yet who didn’t want that? Hertzberg admits he was a willing co-conspirator. ‘I got spoiled and complacent and was not prepared when the bottom fell out,’ he said.”
“Several times a week, he gets a refinancing offer in the mail. Hertzberg always looks at these fliers, hopeful in spite of himself. ‘I’m waiting for a 100-year loan,’ he said. ‘My heirs can worry about paying it off.’”
Sounds like a klassik riches to rags so cal story…
Homeless people used to be so easy to pick out, always talking to nobody in particular, complete wackos~
The new crop will look a lot different.
This is very typical of what has been going on in california. I know of people buying rv’s, new trucks and all kinds of other cr@p on home equity gains. Then all their so called friends would try and keep up by doing the same.It is a big mess. Hardly anyone has any real money, they live paycheck to paycheck.
The thing that has always amazed me is how people think they are getting money out of their house that is already theirs (like it is a piggy bank and it is already theirs) when they take a HELOC or Cash Out Refi. Sorry folks, it is a LOAN, you need to pay it back. Why is that so hard to understand?
And not only do you need to pay it back, you need to pay the interest on it too. Double-bummer!
Posted in thread ” “His debt is swelling, and his mortgage company controls his fate. ‘I am rather screwed,’ he said.”
Well said old bean! “rather screwed, indeed!”
Hey, but at least he wasn’t “throwing away his money” on rent….
Why is it so hard to understand ?
The RE, the loan officers will confuse you with “equity”, ” liberate your equity”, “unlock your equity” . They never say “you may lose
your house”, “you have to pay every penny back, plus interests” ..
Wow, an article that requires zero comment, and in the LA times no less.
I expect to read a tsunami of these ’sob stories’ in the papers come summer 2007.
I don’t know if I would call these ’sob stories’ more like ‘doh! stories.’
This is beautiful..
New car, Plasma TV, Trips….
Heavy losses on investments..
Total 198K
Cant refinance/afford his own home
Priceless….
LMAO … See you on the street jack ass!
Ahhhhhhhhh……
What a textbook example of an ‘FB’…
I told sooo many people this was coming…but they didn’t care because they were slinging option-ARM loans and making 3 points on them by ’selling’ the pre-pay penalty.
SoCalMtgGuy
http://www.housingbubblecasualty.com
Zero comment? My guess is that this thread might crack the 300 comment mark. I bet you were lickin’ your chops when you found this beauty Ben. Nice job.
Looks like we’re getting close to 300. What’s the all time record?
Any one else wondering why this divorced/no kids single man needs a SFH? Given his current financial situation and proximity to retirement, he should really consider renting a 1bd apartment or studio for a while. Anyhow, it’s jokers like this guy that drove the price of homes higher than any responsible family could afford.
I’ll add my $.02 that he is truly screwed to get past 300 posts - maybe… lol
Yes, and we’ll hear them all through 2008 too as the politicians court the debtor vote.
This guy takes absolutely no responsibility for his actions, blames everyone else, and wants his children or grandchildren to pay for when he got to “play.”
What a scumbag.
In 2007 this guy will be on Jerry Springer on one side and the lenders will be on the other. When the chairs start flying the popcorn at home will go into the microwave.
“‘I made choices, and they happened to be the wrong choices,’ said Hertzberg.”
Sorry pal, but you gambled and lost. Time to join SCA.
“Screwed Homeowners Annonymous” Let’s hear some remorse, instead of whining. If the house is so important to you, cut out all the other spending on crap, learn to eat beans at home, get rid of the shiney new car and take the bus if you have to, get another job. Otherwise, shut up!!!
Unfortunately people like this don’t even recognize that the consequences are from their own actions. They may give it lip service, “I made choices, and they happened to be the wrong choices”, but they’ll turn around the next day and pimp their ride on plastic.
“Several times a week, he gets a refinancing offer in the mail. Hertzberg always looks at these fliers, hopeful in spite of himself. ‘I’m waiting for a 100-year loan,’ he said. ‘My heirs can worry about paying it off.’”
Okay, who hasn’t looked around at their relatives and thanked the heavens that it’s not possible to passively inherit debt? (I’d love to be one of his kids…)
And how long do you think it will be before the laws are changed so that debts become part of the inheritance.
I’m sure Bush would be willing to sign it. Are the Dems willing to stop it. After all Democrats own just as many bank shares as Republicans
They already are part of inheritance, to the extent liabilities must be paid before assets are transferred. You can’t “inherit” a house thats “under water,” unless the lien is paid off first.
True - but the bank can’t require the heirs to pay the mortgage - they have foreclose on the estate and take the loss. Worst case scenario for irresponsible parents is that kids inherit $0.
So what happens if you take out a million dollar HELOC, deposit it in your kid’s account, tell the feds you blew it in Vegas, and then die?
Thank God you can’t be forced to pay your parent’s debts. Would you want to have to monitor their spending for the rest of their lives to make sure they weren’t screwing you? If banks are letting senior citizens borrow more money than they could ever live to repay, its the bank’s fault when they can’t collect.
The bank would report any single deposit over $10K, and anything over $5K to the feds if it were continuing/suspicious. Better have an offshore bank account #.
fyi — japan has TWO GENERATION 60 year mortgages. that’s right; you can have a parent co-sign with their child. look for that innovation to make it to the states pretty soon.
I was in Spain recently. Things were pretty crazy; I saw this lot in the middle of nowhere with 90-odd cranes constructing apartment buildings within 3 square miles. There are even 100-year mortgages there (like in Japan, you sign with your child).
The way it works is, whe your parent get old, nearing retirement, the bank will push to foreclose, and will guilt trip the children into signing on the loan just to keep the parents in the same house and same comforts.
This happened to a friend of mine in Japan.
i dont knwo if it will work on american children however as they are more likely FBs too.
Now that’s just silly. It’s like saying there’s a reasonable chance that the Democrats would vote to set the tax rate at 100% of all income over $100,000 — a total cartoon picture of the other side.
i don’t think that passing your debt to your descendant is going to be made *legal* (unless you are dealing with the mafia). its just so much against basic decency and very unamerican.
It is not possible in other (civilized) countries either. The heirs have always the option to reject the inheritance, e.g. when they believe its actual worth is negative. Nobody has the right to inherit something, but nobody can be forced to pay debts that were not his without his prior consent.
Thomas Jefferson said it when contemplating the maximum length of a federal bond.
If the gov’t were to issue longer than a 30 year bond, the world would belong to the dead and not the living.
He called debt longer than 1 generation intergenerational tyrrany.
Jefferson’s dedication to “consent of the governed” was so thorough that he believed that individuals could not be morally bound by the actions of preceding generations. This included debts as well as law. He said that “no society can make a perpetual constitution or even a perpetual law. The earth belongs always to the living generation.” He even calculated what he believed to be the proper cycle of legal revolution: “Every constitution then, and every law, naturally expires at the end of 19 years. If it is to be enforced longer, it is an act of force, and not of right.” He arrived at 19 years through calculations with expectancy of life tables, taking into account what he believed to be the age of “maturity”—when an individual is able to reason for himself. He also advocated that the National Debt should be eliminated. He did not believe that living individuals had a moral obligation to repay the debts of previous generations. He said that repaying such debts was “a question of generosity and not of right”.
The problem with that approach is that many government investments, for which the state incurs debt, have multigenerational benefits. Take the Interstate Highway System: Built in the 1950s, with benefits continuing to the present and beyond. If each generation had to pay all the costs of improvements that would necessarily benefit future generations, then nothing substantial would get done — the building generation would be overwhelmed with expenses, and the future generations would get a free ride.
You could argue that defeating the 20th-century totalitarianisms also has intergenerational benefits: We don’t have to worry about aggressive Nazis or Communists making the world a more dangerous place. As bad as the present Islamic flavor of fascism is, it’s not the existential threat a Europe controlled by Nazis or ten thousand ICBMs pointed at us were. I’d say eliminating those threats was money well spent, and I’m happy to pay the bills.
I’m *not* happy, though, on having to foot an intergenerational bill for expenses that benefit a single generation.
every time i think i’m not that smart compared to everyone else, i read a story like this and it brightens my day
^ LOL
Now that is not right. Laughing at someone’s miss fortune. Then again this senerio is going to play out more and more in 2007
Actually a little naming and shaming would go a long toward discouraging this sort of behavior in the future. Social forces can be powerful, and make a difference in the character of a market or a nation.
Amen!
Amen!
Bring back shame!
And public canings.
If it makes them think twice before doing something stupid, yeah bring back public canings.
Hell executions for that matter.
Yes!
OT: I only hope in the process the family unit does not get broken up further. Half of it is already gone in our US of A.
There will be no strong nation without a strong family.
No way this country will outlast China if we do not have solid core of values. They survived a wrong turn and still progressed in many front
(while being poor….I have hope for Russia too)
But in my mind - this is not due to ‘misfortune’, only an absolute lack of taking the time to understand what he was getting himself into (reading the, ahem, fine print). Boo-f**kin’-hoo, man.
And yes, this is going to happen exponentionally more as we go forward from here.
Misfortune is one thing, a hurrican slaming your house into the ground, a sick child, an unexpected job loss…
) but you gotta shake your head at this one?
From the article, I see no evidence of that. Just really dumb moves to have more toys than the rest. His house cost him $129k over 10 years ago?!!? He could have had it paid off in this time and still had a quarter of his experiences and toys. It’s not nice to kick a dog when its down (or anytime
“Free money always has the unfortunate effect of making people go overboard,” said Hertzberg, whose living room is strewn with financial publications including American Cash Flow Journal and Donald Trump’s “How to Get Rich.” “You’d be surprised how fast $190,000 can go.”
This is the Casey model. I can’t express in words how much I enjoy watching this type of moron starburst. Financial Darwinism at its best. Whenever I make a winning daytrade, I envision a guy who looks just like this clown on the other end.
And the benefit of broadcasting your particular plight to the world is…..?
I think some of them believe they will be magically bailed out by some benevolent force. I know that sounds ridiculous but look at the “reasoning” they have already employed to find themselves in the position they are in.
Better yet. How about people that believe that if you worry about debt it will bring bad “money karma” (i.e., spend like crazy because it shows you are confident to the “money elves” or whoever controls this stuff in ether world). I actually have a close (not by blood) relative that believes this and I think: sooooooo, you are now 60 years old and haven’t gotten rich yet, but you will somehow become fabulously wealthy for the last decade of your life because you don’t pay attention to whether you’ll be able to afford a nursing home?
There is this author named Louise Hay. She has this book called how to heal your life. This book is definitely about some nutty ideas. She has a chapter about money. She espouses the concept that if you dont worry about money and just spend it, then the “power that controls the universe” will send money back into your life.
What a load of horsesh@t. I actually have this lady that I know that believes in numerology, crystals and all this other crap. She tried to explain this “spend and the universe will take care of your needs” stuff to me.
It was so kooky that I didnt dare even argue about it. I just nodded my head and smiled.
The thing is that people actually believe this stuff or have convinced themselves to believe it so they can justify their spending.
Many owners of brokerages in my business espouse to their commission sales people the idea of going in debt as far as possible ’cause it’ll make you work harder and keep you from becoming self-satisfied with low earnings. The only winner in this equation is the owner, who is probably debt free.
Those owners are feeding a lot of BS to their unsuspecting sales people. Those working on commission should have the least debt.
and pray tell why save for a nursing home? The nursing home takes just as good care of you whether you pay out-of-pocket or if Medicaid foots the bill.
Know someone with over $1M+ when she went to nursing home (at age 57). At $7K / mo, she could pay her own way for a decade. Then, Medicaid will take over. Kicking herself for saving all those years.
“universe will take care of your needs” … sometimes this happens if your spending was targeted to helping others; they may occasionally remember the favor when you are in trouble. What comes to mind is a friend who provided free day-care (not exactly spending) for the infant child of a couple of young graduate students; 30 years later, the day-care provider’s daughter was about to lose a house, and the former grad students, having turned affluent, paid off the house saying “repay us when you can”. Ah, but this (the free day care) is not the same thing as buying yourself a pile of cars and gizmos.
Um..about the Medicaid bit - are so sure that Medicaid would cover $7K a month? I’m not so sure…I’m guessing that saving bought her a significantly better nursing home than what Medicaid would have paid for.
still in same bed in same nursing home. gotta love NY state.
fyi, medicaid is paid for by property taxes in NY.
Another reason to stay a renter.
Jack, it’s unfortunate that so many have that mindset and claim that books like that influenced them. I’ve read another book (also published by Hay House) that espouses the same mindset. The basic idea is to attract ideas and people in your life that will make you more money. The people who do that correctly are out there running their own businesses and are millionaires, or at least have enough money to live comfortable, happy lives. (Check out stevepavlina.com and see what he did with the same concept.) It is not about spend-spend-spend and the “universe” will pay you back — it is about focusing your thoughts on having ideas that will help other people and heal the world instead of focusing your thoughts on how much debt you have or what your bank balance looks like. Taken properly, these ideas can be very powerful; I personally know several millionaires who have used these ideas to become wealthy. Unfortunately, there will always be those who bend it to what they want to hear (”spend money!!!”) instead. It’s an unfortunate reality, but it’s the same reasoning this guy from LA uses (”it’s all the mortgage company’s fault” vis-a-vis “it’s this book’s fault”) instead of taking responsibility and using visualization techniques, etc. to help others while becoming financially secure.
The worst part about this article is that it said it will take another two years for his loan to trigger to the higher payment. Is that possible? I thought 2007 would be the big trigger year. We need the payments to start going higher on these asses.
I know the fuel is gone from the boom - but we need some downside fuel.
Again, it’s the Casey Serin syndrome. The thrill of 15 minutes of fame outweighs the long term drawbacks of looking like a total fool. This seems to be especially true in So Cal.
I’ve shared my mistakes with the hope that others might learn from them and not have to make the same mistakes I did. You guys do a lot of hating.
I don’t mind sharing my mistakes for the same reason KW. But it’s after I’ve gotten myself out of them. This guy is still digging his hole and advertising his plight between shovel fulls.
Look at his comments about passing debt to his heirs. he’s not sharing his mistake to help others. He’s looking for victim status.
Exactly. Much like Casey Serin, this guy has learned NOTHING from his mistakes. Notice the blame game still being played - lender didn’t explain the loan to him, market turned on him. Yet he’s still looking through junk mail for another miracle loan.
Has anyone ever heard of people who take equity out, make a killing in some other investment vehicle THEN pay off the house?
I read about that as a ‘theory’ sometimes. But its seems to be as rare as a big foot sighting, its always remodeling, cars, rv pay off credit card purchases etc.
Exactly. He blames his broker for not telling him about the risks of an option ARM and now he wants his heirs to pay the bill for his spending binge.
I might feel a little empathy for him if he at least took full responsibility for his own actions.
Yea it works sooooo well…
I should run down to the bank and “liberate” all my 401k savings. All it’s doing is sitting there gaining secured interest tax free.
I was talking to a realtor in San Diego last week who actually admitted that now probably isn’t a good time to buy. He also said that unfortunately as log as money is easy to get houses prices won’t go down as fast as some people expect. This is because there’s “a sucker born every day” ready and willing to commit financial suicide to get a home.
Sigh…
A fool and his money are soon parted…
i don’t think he is that dumb to believe that he can pass his debt (left on top of his asset) to his children when he dies. sounds like he wanted to get back to the lender(s) whom he blames for his trouble.
Yes we do hate:
fools who took toxic loans and bought too much house;
idiots who saw their homes as AMTs went and bought short term fun with long term debt;
crooked bortgage brokers who took advantage of the fools and idiots;
RE spin doctors who seek to keep the bubble going in their own self interest;
RE agents who act ’so nice’ but just want the sale (remember, they’ve researched this);
gubmint officials who feel that flooding the market with dollars will not have large negative effects;
get-rich-quick specuvestors who used the lose money to tighten the market supply and increase the cost of homes;
corrupt appraisers who ‘hot the mark’ and inflated the market;
naive buyers who rush into a purchase because they don’t want to be “priced out forever,” regardless of the fact that this is the biggest purchase of their lives;
greedy builders who rush to put up as many homes as possible, regardless of the market conditions or the impact on localities;
local governments who let the builders ruin their community for the sake of increased tax tevenue (or maybe something else).
There’s a lot to hate.
Guys, who do we hate that I might have forgetten?
Casey Serin.
Indeed. I did forget him.
With sharing of mistakes, I would hope to hear some remorse, acknowledging your charcter defects and promising not to do it again. Why do I have a feeling if someone bailed you out of your problems, you wouldn’t hesitate to try your luck on some other misadventure as soon as the smoke clears? No sympathy here.
The hating probably comes from the closing stagement of the article - personally as the generation that he’s expecting to pay for his mistakes I take offence at his attitude.
He seems to think he can just spend as much debt as he likes, sell comic books and ebay and future generations will take care of his debt.
Hopefully he wises up and gets some personal responsability and starts to dig himself out of his hole - if not I’d rather see him on the street than allowed to accrue more debt for my generation to pay off.
Make no mistake - anything he defaults on will sonner or later be laid at the taxpayers doorstep by the powers that be - I’m not paying for that lazy shite to jaunt around the world.
ditto, uncle!
I like the phase “casey model”. These type of people are really just chaseing get rich quick schemes and don’t know how to keep a budget. A very nice lady I know said she was spending 10k/ month on shopping and household goods. That scares the hell out of me.
Ever listen to the “I’m a beer drinkin’ loser” radio shows in the afternoon? The one with that fat guy- Tom Leicus or somethingoranother? Well fully half of the callers are total morons and most of the ads are for get-rich schemes. There’s one with this Australian sounding guy who goes on to claim that everyone needs to stop being a total loser and become millionaires- just like him- by investing in RE. HE even claims that he started without a penny. There’s another by this old guy named Kessler. His ads are amazingly hypocritical. The ad used to simply claim that YOU TOO could become a millionaire… you DESERVE it. All you had to do was get his FREE book. Anyhow, there’s a new ad that simply takes the old ad, chops it in half, and tacks on a 2nd part that says: ” Now you too can invest in RE during the RE downfall!.
Anyhow, if you wonder what goes on in the minds of people who haven’t got a clue what money is or does, then listen to what they listen to. That alone will make all these mysteries as to why Americans are such idiots with money amazingly obvious.
He’s on the station that used to carry Howard Stern. Stern’s audience was a little better, but still seemed aimed at guys who need motorcycle insurance, a new mattress and a mortgage refinance.
I happened to tune into Tom Leykis show one afternoon.
He was harping on the housing bubble and bragging about buying stupid callers homes out of foreclosure.
So he isn’t all bad in my book.
If it wasn’t him, someone else would fill that niche.
That’s kind of like having a character on a children’s TV show tell the kids to go stick a fork in the toaster.
“In 2003, only about 8 of every 1,000 people buying a home or refinancing a mortgage in California got a pay option loan, according to First American LoanPerformance. Last year, 1 in 5 loan applicants got one.”
One small thing that drives me nuts in articles like this is the reporter use’s one base line [in this case per 1000 people] and than switch’s to another [the 1 in 5] .
Why cant these reporters, when giving examples, continue with the starting base line. I have read sentences in some magazine articles were they have gone from feet and miles to meters.
Does this bother anyone else?
It bothers me. too, but much less than the statistic.
Sometimes I think thay do that to hide the true magnitude of a 25x increase in use of the most toxic of loans.
It would be easy to scan the lines and think that the number went from 1 in 8 to 1 in 5, NOT less than 1% to 20%.
Right now, with that statistic alone, one can assume that 20% of all homes sold in CA over the past 3 years will become distressed in short order.
“In 2003, only about 8 of every 1,000 people buying a home or refinancing a mortgage in California got a pay option loan, according to First American LoanPerformance. Last year, 200 in 1000 loan applicants got one.”
Look worse?
Ha, at least yours is easier to read. Maybe its Monday or something but just get tried of reporters going back and forth like that…. I just what to read the thing and don’t want to have a calculator and go back to story problems from school.
some of these case’s numbers these guys lay out are of the “if a train leaves at 5pm and a man starting walking the other way, when will they meet” sort of thing.
Sure does - I caught that too. If you line them up:
8 of 1000
200 of 1000
333 of 1000
That looks a LOT worse.
Ah but what if it’s more like 8,000 in 1,000,000
80,000 in 400,000
30,000 in 90,000
Don’t forget refinancing and declining home sales. After reading the annual numbers here for a while, I was pretty surprised to learn that there appear to only be about 1m option arms outstanding (that’s about 1 in 70 or ~1.5% total mortgages). That’s bad, but not a depression inducing level (would be interesting to see what the breakdown of various types of ARMs are (not as worried about 5-10 year fixed loans, but the 1-3 year loans made pre 05 will probably have some decent payment shock too.
Or, just do what you learned in grade school - reduce it down to the lowest common denominator…
“In 2003, only about 1 of every 125 people buying a home or refinancing a mortgage in California got a pay option loan, according to First American Loan Performance. Last year, 1 in 5 loan applicants got one.”
Much easier for the innumerate amongst us (no one here, of course
) to compare 125 to 5….”duh, like that’s, erm, 25 times more….”.
Or, maybe I’m just being over optimistic….
I agree. Your version sounds a lot better.
It should say:
“In 2003, less than 1% of all people buying a home or refinancing a mortgage in California got a pay option loan, according to First American LoanPerformance. Last year, 20% of applicants got one.”
“In the first eight months of 2006, even as the real estate market began to weaken amid fears of a downturn, the appeal increased again. Nearly 33% of California loan applicants are now choosing them.”
There are some legitimate reasons why the author would do this.
Stylistically, simplicity is often better than complicated numbers. 1 in 5 is more simple to understand than 200 in 1000. Any rational person should be able to calculate what the proportion means.
Secondly, newspapers always force writers to use fewer characters. 200 in 1000 and 333 in 1000 uses 10 more characters than 1 in 5 and 1 in 3.
I’m good with their choice, but I can also appreciate where you are coming from. I just don’t think there was any malintent.
“Why cant these reporters, when giving examples, continue with the starting base line. I have read sentences in some magazine articles were they have gone from feet and miles to meters.
Does this bother anyone else? ”
You must be an Engineer!
The article states that he invested in commodities and lost money “faster.” You must be really unlucky to lose money investing in commodities the past few years. This sector and emerging markets were like cash registers.
How about that Tom Beck RE investing info-mercial. Buy a house at auction for $575 then sell it…See! profit. Buy another for $725 , and sell it…easy ! The money just rolls in..wow
Unfortunately too many are actually counting on SS, and when the fund runs dry,and the next wave of 50 million illegals are legalized you can’t even count on that in the next 15-20 years.
I’d sell my SS moolah that i’m supposed to get in 17 years for pennies on the dollar…
when you miss on a daytrade, do you picture someone goating? How does that feel?
Exactly. It’s not good enough to make some money, she needs to feel someone else’s pain on top of it. What a vampire.
In defense of TXchick:
I have played chess with others (humans) and on a computer. After winning, it is much better to smile at the person than the computer.
I do not understand, the psycology behind this, but everytime I win on the computer. I think about Terminator “it is just a machine” it has not feeling. The computer did not care if I won or not.
C’mon, knockwurst, do you think that the big boys who took Will Hertzberg’s money in the dot.com bust or the hedge fund guys who took his money in the futures markets feel the least bit of remorse? Do you think the nice folks who are selling him all those ‘financial publications’ give a rats a$$ if he makes a penny?
TX is a professional trader. The guys on the other side run the game. They do a little dance everytime they take her money and yell and scream every time she takes theirs. She’s not taking it from Grandma.
It makes my heart sing every time a dollar get lopped off the bonus check of the managing directors at Goldman Sachs. Then they’d be left with a piddling starting bonus of $1,999,999.
Rooting for TX IS rooting for the little guy!
Go get ‘em, TX.
Ahhh, that would be $ 24,999,999.00
Daytrading is not a crime, daytrading with money you need for your kids college education and to provide for your retirement isn’t either, but it is very foolish, and I will happily continue to take money from rubes who put it up for the taking.
Every dollar I put up for a spec trade is at risk. I understand that I can lose it and it will end up in someone else’s pocket. Anyone who doesn’t thouroughly understand this concept has no business making trades of a speculative nature. This includes all the GF FBs.
It’s not good enough to make some money, she needs to feel someone else’s pain on top of it. What a vampire.
It’s not enough to live up to your own ethical code; you have to judge others as immoral for not living up to your code. What a hypocrite.
Being judged for judging. Beautiful!
I don’t day trade, but I can certainly say that I picture someone enjoying profitting off my losses. Then I dust off and try again (more often than not successfully).
I’ve met two personalities that stick to active investing. Zen masters who can ignore all emotion and stick to rational decisions only or kid from the projects types who fight everyone to see who is toughest. Everyone else doesn’t last (because no amount of money is worth a job that isn’t fun and those are they only two who enjoy it).
Is this Casey Serin’s dad?
And the most amazing thing to me is that more and more people are using these suicide loans.
The last group of suckers are always the supidist.
“Last year, 1 in 5 loan applicants got one.” Option ARM
Translation: Tsunami waves have not arrived to our shores yet.
Let me spell out what wawawa was alluding to..
A Tsunami isn’t one wave. Its often 5 to 7 and has been up to 11 waves.
The first wave isn’t the deadliest wave, its usually the 2nd wave. (Mostly looters…)
I see we will have Option ARM waves into 2008… joy joy.
This guy (in the article) is the poster child of denial. Not to mention some mental illness…
Neil
Well, then there’s the whole 115% deal, where a loan will start to amortize early. The wave may crash sooner than folks think.
I don’t see what is so joyfull about this. Unless you represent the less than 1% of population who are can create an insulated life away from rest of us serfs you will experience contact pain. If all that we see happening is as bad as it seem there is no such a thing as joy in this picture. The petty personal opportunistic goals we might harbor as the outcome of this insanity, pale in comparison to all the pain that we will collectively endure as a result.
say what,
No pain here! I don’t work at Home Depot and I’m not a mortgage broker or realtor. I’m just a little tired of people that didn’t have all that much money in the stock market in the 90’s to begin with (5-10K?) use that as a crutch to explain away their irratational use of leverage in this bubble. In essence, they get to play the victim all over again. Oh and you don’t have to be from CA for that shoe to fit btw.
If you think the economic damage of a 50% decline would be limited to only homeowners and Home Depot employees you will be sadly mistaken. Either we are headed for a depression that will probably rival (for the worse) the Great Depression or inflation will make your savings roughly equivalent to a week’s worth of work (this seems far more likely to me as it solves the majority’s problem). Hope you’re prepared for either.
bluto,
There’s no doubt that we’re headed for a depression in real estate and a nasty recession in any state that has derived a big chunk of its new jobs and economic “growth” over the past few years (CA), but that’s still a far cry from another Great Depression, soup lines 30%+ unemployment, etc.
This may not have been your intention, but I’ve noticed the “if housing goes, it’ll take the rest of the economy with it” line of reasoning is especially prevalent among RIEC types, generally for the purpose of scaring the public and/or politicians into doing anythign to bail out the REIC and FBs.
The truth of the matter is, there will be plenty of pain to go around in the bubble’s aftermath, but it will NOT be evenly distributed. Those who overleveraged themselves to buy things they could not afford (Hertzberg) are likely to find themselves is a world of hurt, while those who lived within their means (DinOR) will probably manage a whole lot better. This is not to say the crash will only punish the wicked and reward the deserving –no, I’m sure there will be plenty of collateral damage to innocent people, and some guilty parties who escape injury altogether (mortgage/HB CEOs for example). Even so, barring a truly hyperinflationary scenario (improbably, though not impossible), I doubt the DinORs will fare as badly as the Hertzbergs.
Neil,
No doubt. What’s sad (in spite of this guy’s being an obvious seminar junkie) is the fact that he actually started on a pretty even keel. His original purchase would have just about interesected with CA’s “darkest hour” in the last RE cycle. He bought when everyone else was throwing in the towel! (So far, so good). But then something strange happens and he sees his equity growing, and it’s keeoing him up at night.
Here’s my guess. This guy didn’t lose ANY money in the dot com meltdown or certainly not enough to set him back in a big way! The tech wreck allowed A LOT of people to play the victim and went along way toward explaining their complete and utter lack of savings or retirement planning! In ways, it was a Godsend for the unprepared. Something they could always go back to as a way to explain their current situation 7-10-15 years later. The “I lost my @$$ in commodities” was a dead giveaway. Let’s be honest here, I’ll bet for every dollar he lost on speculation he spent 5 on himself! For many the problem isn’t specuvesting, it’s consumption.
I thought I’d read that even at the absolute height of the tech bubble the avg. ETrade acct. bal. was like 2K? I just don’t see how a guy that pumps 6-10K into a re-fi (PER re-fi) can have any legitimate claim to the dot bomb implosion having an impact on him/her? It’s like cold calling and getting some guy on the other end telling you he can’t invest b/c his wife got it all in the divorce! Really? When did you get divorced? Oh it was about 15 years ago. Pffft. In the last 15 years you haven’t been able to recover? Well maybe that’s the reason she divorced you? Sorry to hear that. Next call.
No kidding about his mental state. Talk about somebody with no concept of reality. Living your life based on fantasy thinking is a lot like people with drug addictions. Unfortunately they end up in the same place - living on the streets, and, like the drug addicts, the problem tends to end up being all of ours as we deal with the wreckage of their impetuous behaviour.
J Schmidt,
What’s more is that when these folks DO wind up in the street they can claim they really did make an effort to do the right things? Uh, show me where any CFP (Cert. Financial Planner) advocates taking borrowed money to speculate on start ups and commodities as a “core value” in their clients investment strategy? There’s a reason we have things like traditional financial architecture but there’s too much money to be made showing people how to circumvent it and consume your way to wealth! Where we housing bears fail to make another important conncection is that the “empowerment” of being able to blow your own account up online w/stock trading simply carried over to housing. Don’t assemble a solid business plan and have a team of seasoned professionals you know and trust! (Just get in there and “learn by doing”) Just look at how many Flip this House episodes have people that worked out their “plan” on the back of an envelope. Sorry isn’t it?
Won’t we be seeing these waves until 2010? 2004 & 2005 were the really big years for these turkeys…..don’t many option-Arms have 5 year option periods? Or will the holders of these mortgages hit CLTV caps sooner than that as thier property values drop?
“His debt is swelling, and his mortgage company controls his fate. ‘I am rather screwed,’ he said.”
at least he knows it
He just hopes the government or a higher power will save him. Maybe he should do some jail time for his ignorant decisions?
I don’t care what happens to him, but who is on the hook for all the losses he (and millions like him) are going to drop in lenders’ pockets? Don’t tell me the MBS market because they can usually force some buybacks of bad debt, but how much is the question.
The creditors deserve what they have coming. They are the ones who turned a blind eye to lending standards. Bond holders are the ones who need to be careful about what is in their funds/portfolio. Tax payers are the ones who are screwed. The finance industry/global corporations basically own the government. We are all serfs in that respect.
Note that today, the microlender from Bangladesh accepted his Nobel Peace Prize. I am not at all opposed to the kind of lending he does (and mine is only a little different!), but I do see some irony in awarding major ethical honor to a LENDER nowadays
Losses are his mostly. (Not the lenders..they have been having their daily fill, like the Masai tribe getting theirs ; frothy red and fresh. Ah, there is a big difference though, the Masai tribe takes limited quantity and lets the cattle have an healthy existence)
These people tighten the grip as soon as they notice little limping. Will pounce at the first smell death…and take away the carcasses for the big feast.
I find it very difficult to understand just how stupid people actually are!! It truly amazes me! It really is “different” here! Why didn’t this bozo go out and actually get some skills in his life to get a real job?? What a loser!!
a job? you mean actually work hard ,live sensibly and save for your future, that is so old news, we are in a brave new world
well i am old fashioned i guess and btw lovin it
I’m going to go out and buy the Autobiography of Benjamin Franklin — probably the de facto self-help book of this board.
Its not as good as you might imagine. Mostly if you read it he just talks about how great he is. He spends alot of time saying, “me me me me me me me.” If you sing it it sounds better.
Josh
give me a break. it’s an autobiography, not a self help book.
I work about 5 feet from a guy who is not too far from Hertzberg, except he has a decent HH income. 145k house in 1998, is now a 339k house with a 350k mortgage.
When I talk to him about the declining values and interest rates, he says, “well, the government is going to have to do something….”
“well, the government is going to have to do something….”
You mean like they did when the stock market crashed? Oh wait…
When I talk to him about the declining values and interest rates, he says, “well, the government is going to have to do something….”
You should respond “yeah, bring back debtors prisons”.
lefantome,
Yeah, we ALL work about 5 feet from a guy just like that. Again though, here’s a guy that bought it right but when those comps keep piling in we just can’t keep our hands off the money! Now he owes more than it’s worth so it must be the “gov’s” problem? That is a YP, not an MP!
Can someone come up with a model or number, how many feet away we work from a FB or GF as we speak.
Probably it will not be same all over the country..but the feedback would be good pointers to the previous folly…
In southern California it should be the 10 foot rule. You are never more than 10 feet from a FB unless you have gone hiking in Angeles National Forest on a weekday in winter, when it is raining, and you have wandered off the trail into a deep ravine.
I live in SD…I’m surrounded by a sea of them.
““well, the government is going to have to do something….” ”
You mean like when the Gov shanghied the value of gold and silver in 1933?
The fact that one of his current “jobs” is going on ebay and selling comic books - another bubble gone bust - leads me to believe that he really believes his skills lie in taking advantage of bubble markets (dot coms, commodities, etc), but not realizing he lacks the skill about knowing when to get out
You suppose he got commodities and comic books mixed up as being the same?
puts on Zeus helmet…
New rule:
All loans from here to eternity shall be fully ammortized with no more than 80% loan-to-value.
Thank you for your support, and I will see you after the recession.
With puts on Zeus’ helmet, does that mean Aphrodite is going down?
Enjoy the bubble while it lasts, housing to recover in less than 3 weeks!!!
http://www.bloomberg.com/apps/news?pid=20601087&sid=a9UA7KnBtvXI&refer=home
^
LOL, I about fell out of my chair. Thanks for the laughs
The Fed’s Vision Is Reason to Worry: Caroline Baum
“…Whenever I hear comments that housing, having experienced its longest and possibly its frothiest bubble in the post-war period, is stabilizing, I am reminded of the prophetic comments of German Chancellor Otto von Bismarck.
“If there ever is another war in Europe, it will come out of some damned silly thing in the Balkans,” Bismarck said shortly before his death in 1898.
In this business cycle, it will be some damned silly thing in housing that does the economy in. …”
Bloomberg Opinion pages 12/11/2006
http://tinyurl.com/ux3my
I like the article, but confess to not quite getting the analogy. Is she saying that WW I was obvious, but it was blamed on a somewhat random event? From what I understand (caveat, not historian), WW I did not have a particularly obvious rationale. A housing depression would.
I think she is referring and comparing to the fact that WWI started as a damn silly thing in the Balkans (Sarajevo)- 15 years after Bismarck’s statement and The U.S. economy collapsing as a result of the housing bubble.
the tsunami hasn’t even hit, and they are talking about a recovery… i need some of that kool-aid.
Lereah call the current market a “window of opportunity” for buyers. What a hack.
Hey,
Lexus tries to off cars during the holidays, as a gift giving gig and it seems absurd. Let’s ratchet it up a bit and do houses instead. take the abusurdism to the next level~
The (HB of your choice) xmas housegiving spectacular~
Home builders here in FL ARE using the holidays to pitch houses. One just ran a “year-end sale” with discounts of 30%+ on some units … while another sent out an email saying “we would like to help you with your holiday shopping.” Specifically, they ofered a $1,000 Visa gift card on any home closing between 12/7 and 12/29. That’s on top of its “Move in for $1″ special, and price cuts that range from the mid-20% to mid-30% range. Now all we need is a “buy one house, give your friend a house for free” deal. I know they do that with magazine subscriptions sometimes! LOL
http://interestrateroundup.blogspot.com
Mike,
$1000.00 gift card + move in for $1.00 = buy 1000 homes in FL. With all those gift cards (1,000 X $1,000) - $1000 = $999,000 left over. I think I understand what’s going on in your neck of the woods. Nothing to see here, move along…
He’s right.
Its a window of opprotunity to get on the tobbagin with the rest of the FB on the way to financial ruin. The tobbagin is still moving slowly enough that “You too can be on your way to financial disaster; just sign here, here, here, there, here, here and over here. Please hop on, don’t worry about a helmet, it won’t help you where you’re going”.
the tsunami hasn’t even hit, and they are talking about a recovery… i need some of that kool-aid.
Exactly, the tide is still receeding. We know Will Hertzberg, Casey Serin, Ownit, & Kara Homes are swimming naked. But they were standing close to shore and easy to spot.
Who else has lost their trunks? Ameriquest? KB Homes? Washington Mutual?.
How far will the tide go out? No one knows the answers to these questions, so it’s more propaganda to make these predictions.
Just as a reminder, the NAR has made predictions before. I’m pretty sure they have been wrong. Why would this time be any different?
BUY NOW OR BE PRICED OUT FOREVER! LIMITED TIME ONLY! DONT WAIT, GOING FAST!
Rates for a 30-year fixed mortgage likely will average 6.6 percent next year, the highest since 2001 when it was 7.2 percent, NAR said. The average rate this year will be 6.4 percent, the trade group said.
Fixed rates have been falling for most of the last four months since reaching a 2006 high of 6.8 percent during the week ended July 21, according to Freddie Mac data. The average U.S. rate for a 30-year fixed loan was 6.11 percent last week, the lowest since January, according to the No. 2 mortgage buyer.
`Window of Opportunity’
“Buyers, especially first-time buyers, with the combined benefits of seller flexibility and an unexpected drop in mortgage interest rates, have a window of opportunity,” Lereah said in the statement. “These conditions will persist in many areas until early spring when inventory supplies are likely to become more balanced.”
Save that article, it will make a nice read as Liareah does the Perp Walk next year.
Ohhh, that’s what Santa’s got in his sack. Dead cats.
“There’s a consensus emerging…”
Then it must be so!
“It’s a sorry situation, and Hertzberg is generous in assigning responsibility for it. To start with, he blames his mortgage broker, who didn’t advise him how risky these loans were.”
Oh. My. God.
What a whining, cry-baby, loser. I will personally pimp-slap any legislator who votes to bail out this kind of idiot.
maybe he should sue Borat or taco bell for some extra cash
If he’s black he can sue Kramer for using the N-word, the go after NBC for playing Seinfeld re-runs.
This is CA. Only way to make big money=lawsuits, real estate or both at same time (buy house then sue seller).
Also says corporations let him down.
I’m not certain what the saddest part of this story is. I’m leaning twoards the fact that he bought at a VERY fortuitous time, 1995. He pretty much picked the bottom. If he just sat on his $1,000/mo (or thereabouts) payment he’d look like a genius today without making any decisions at all besides staying within his quite reasonable means.
But as I’ve said before, people who are stupid with money deserve to suffer the consequences.
Exactly! This guy spent more than he earned for over ten years. Now he’s lamenting the fact that he’s screwed. Give me a break! You cannot consume more than you produce for long, pal. Denial of Common Sense!
“You cannot consume more than you produce for long, pal. Denial of Common Sense!”
Sadly, this also applies to the USA. Now the whole nation is screwed. The dollar is going down, down, down. Paulson’s trip to China this week is a sad sight. He’s over there with his hat in his hand and the Chinese are just smiling as they smell the sweet whiff of economic victory.
Got silver? Got gold? There’s a very big storm coming.
Considering their economy is based entirely on trade with us that will be a real shorth whiff of victory followed by a decade of agony.
Japan had that same thing for a short time too.
I think the Chinese economy will diversify their trading partners. China is making a big push into Africa. I expect China to revalue their currency slowly and then drive the cost of commodities up in dollars. However I also expect the US will change its tune and start inventing things again and not be so quick to outsource them.
We represent 5% of the population, not much really…
China will just ignore us, as they sell to the other 95% of the world. Their star is rising every day~
I think the Chinese economy will diversify their trading partners.
I agree, just not in time. Africa is not going to replace the US as a trading partner. It’s got very unstable areas, infrastructure problems, and nowhere enough money.
All 53 nations create ~$2 trillion combined, 1/6 of the US GDP. Population is ~ 3x the US. This means little disposable income to buy the crap.
In the future, yes. Now, no. Before the recession? Never.
China is making a big push into Africa to plunder its natural resources, not to sell it’s plastic baubles to. They will sell those to the other Asians and the Europeans.
And, his property tax is locked in via Prop 13 at the $129K + 2% every year. What a maroon.
Let’s not forget he also can only claim interest deductions on the original $129k. Oof.
Do you think he did?
It says right on the form that they mail to him what his interest payments were.
I smell an IRS audit, just to make an example of him.
Probably some unreported income from his ebay sales too.
$129,000 plus up to $100,000 spent on non-home improvement. I.e. the Hummer and the trip around the world. But even so I’ve never understood spending a dollar to save 30 cents.
Could not agree more. But wait. You have to “Tap your equity” or “Putting your equity to work for you”, don’t you? I’d hate to have bought a 130k house ten years ago and have roughly 150k-plus equity just sitting there doing no work for me. Lazy equity. That would suck.
Something tells me if the mortgage broker would have told him the truth, he would have just gone somewhere else where someone told him what he wanted to hear.
Not too long ago, I visited an older lady about getting a reverse mortgage. Her son was with her. She had a mortgage on her home. I was just in the beginning stages of my presentation when she told me she was talking to another loan officer where the rate was 1%. Obviouly it was an option ARM, so I demonstrated to her how it worked. As I was writing down on paper the mechanics of the option ARM, I was told by an apprentice who was in attendance that she was rolling her eyes. She really believed that she was getting a 1% 30 year fixed mortgage loan. Not long after I demonstrated how an option ARM really worked, she told me that a reverse mortgage wasn’t for her and asked me to leave. I would love to the see used car salesman eliminated from the mortgage lending world as much as anybody, but sometimes you can’t save borrowers from their own stupidity.
Anyway to find out , which method the lady used ultimately, the option ARM?
I have access to public records, I’ve checked but no new mortgage yet. I’ll give it another month or two.
I don’t see a reverse mortgage as any better a product. Maybe you are one of these used car salesmen.
A reverse mortgage really only decreases the inheritance of your kids. It’s a selfish move but not a bad plan to pad ones retirement.
You are assuming that your kids deserve an inheritance by saying that a reverse mortgage is selfish. There are a lot of people who worked their whole life to give their kids a good opportunity (e.g., my parents/scholarships paid for me to go to college). Do they really owe me anything else?
the best inheritance you can give to your kids is not being a burden to them at all.
Do your research first (aarp is a good start), then tell me about whether a reverse mortgage is a good product or not. I will tell you who hate the reverse mortgages the most, it’s the kids who are more interested in what their inheritance is over their parents who barely scrape by on social security.
aarp “AARP does not endorse any reverse mortgage lender or product”
Not a rousing endorsement…..as a matter of fact..not an endorsement. I pulled that quote from an article on the aarp website discussing reverse mortgages.
I just think, generally, that people are falling back on reverse mortgages as a crutch for a lifetime of bad planning and lack of saving.
Who says that the money has to be given to a relative? (I personally don’t feel that it is a bad thing to leave your family in a better position.) Another option: Find a cause to help the world become a better place after you are gone.
I just don’t see incurring more debt as being responsible. Saving and living below my means was the way I was taught to get ahead.
Maybe I have it all wrong.
a reverse mortgage has kept my mom with a roof over her head for the past 15 years. now she’s lived longer than the bank thought she would and they are losing money on the deal. suckas.
and no I am not counting on any inheritance. that’s FB-type entitlement stupidity.
My mom had a reverse mortage. All was good until she decided she would be dying soon (5 years ago, she’s still alive now). So she pulled out $25K one month and gambled it away at the Pachanga Casino. Luckily (or maybe not) I stepped in and helped her get her finances in order. I squelched the gambling binges in particular. Then she had two strokes and developed Alzheimer’s. She couldn’t live alone anymore so we had to sell the house (reverse mortgages require the owner to live in the house). That was OK since she still had plenty of equity left. Now she’s got money in the bank but…she is clueless about gambling. She used to love to play the poker machines and now she can’t even figure out how to push the button. I wish I had let her gamble away more of her money. I was afraid she would be left penniless and I wouldn’t be able to take care of her (which could still happen but her health is good except for the mental stuff). Anyway, the financially obvious right thing is sometimes not the perfect solution.
Blaming his broker? That’s a riot — this guy likes to think of himself as an investment guru, and he expects us to believe that he didn’t understand his mortgage terms? He understood the risks — he just chose to ignore them.
I’m shocked that the Donald book didn’t pay big dividends for this guy. Maybe he needs to read it again. LMAO
? Sounds to me like he’s following the Donald model to the T.
“Nearly 1 in 3 California loan applicants are now choosing them. The state boasts about 580,000 active pay option mortgages, about half the U.S. total.”
-This is one more nail in California’s future economic coffin. First you have untold millions who now have IO, ARM, and other risky loans. Now we have half a million more in option payment loans. Of course before then we had all those folks who decided to refinance.
I used to think that by and large, Californians were smart, savvy, and wide businesspeople, hence the higher prices were justified. That was a LOOONG time ago. As far as I’m concerned, the pendulum has swung the other way. This state isn’t running on money anymore.
whoops… I meant “wise”… not wide, even though some might qualify for the previous.
The state is running on debt.
Debt = wealth is the new RE paradigm. Liberate your equity. Make your house work for you. You deserve it. Wait ’til folks realize their overpriced houses aren’t appreciating any more, and debt just = debt.
Debt = Wealth.
Yes! Also:
War is Peace.
Freedom is slavery.
Ignorance is strength.
Time to dust off my NewSpeak…
And don’t forget: wrong is right
The Future is Now
Pop goes the Bubble
This is a long post, but many new readers never got to know the “There is no housing bubble blog”.
It was great satire. Here is his first post.
Tuesday, February 14, 2006
Debt is Wealth — look at all the great societies the world has produced and you see one thing in common: debt. Debt builds wealth. Imagine if there was no debt and no ability to borrow. Want a $50K BMW? You have to pay cash. Want a plasma TV? You have to pay cash. Want a house? You have to pay cash. How long would most people be able to function in such a world? It would be a nightmarish place filled with poor, unhappy people. However by introducing debt into people’s lives you gain the ability to procure wealth. People can leverage that debt to purchase homes, cars, needed consumer goods, etc. The debt allows people to create wealth for themselves and also for other people too. Everyone wins in a debt fueled society except perhaps the gold hoarding no debt renter who keeps expecting civilization to collapse. For them the debt fueled world is a nightmare in which they fill up their minds with imaginary gloom and rationalize why all this wealth will lead to disaster.
Slavery is Freedom — I remember reading once someone saying that they did not want to become a slave to their home. They felt the seeming high prices of homes today means they are slaves to the house, spending weekends fixing up the house or working second jobs to make the mortgage payment. But what they don’t realize is the freedom the home gives you. You see, every hour spent putting in granite countertops or fixing the yard is money in your pocket. You are using your time to create wealth. And every nickel you put into that mortgage from that second or third job comes back to you dressed up as a twenty dollar bill. This wealth creation gives you freedom. If you need $100K to give your child an Ivy League education you can use the wealth created by your home to fund it. Try doing that with your canceled rent checks and see how far that gets you. If you need Bruno Magli shoes and an Armani suit for a social function you can tap your home equity line of credit and the best part is you get to deduct it all from your taxes. Thank you Uncle Sam! This so called slavery leads to the greatest freedom a human can possess: the freedom to do anything.
Fear is Happiness — one of the main reasons why people stay renters is fear of failure. They are afraid if they buy a house they might lose everything. They see isolated instances of this happening and assume that they will be one of these unlucky few. However, by embracing the fear and buying one or multiple homes you open the door the complete and joyous happiness. Every home owner is afraid the first time they buy a house. They have those lingering doubts that perhaps it is a mistake. But as time passes, and the massive equity builds, they realize that the fear of success has been supplanted by happiness at their wisdom of purchasing a home.
But enough sloganeering, let’s talk some real world numbers for a bit. Let’s say you do something wise, you purchase a home in California for $500,000. This beautiful and desirable home will appreciate by about 20% per year. Therefore after 30 years that home that the renter unwisely turned his nose up to will be worth a little over $100 million. Now let’s say you are even wiser than this. Let’s say you use the rapidly rising equity in this dream home to purchase another undervalued home every year. So you’ll earn 30*$100 million or over 3 BILLION dollars. That’s right, you’ll become one of the richest people in the world and all you did was sit back and let debt work for you. Imagine all of the wondrous things you could do with $3 billion. You could buy a whole fleet of Hummers, a plasma TV for every room of your house. Perhaps lunch in Paris and dinner in Tokyo while you jet around in your private plane? Whatever your heart desired all brought about by the magic of home ownership.
Now, some of you embittered renters probably think this is some unrealistic fantasy. But let’s try to understand what the future will hold (we are all interested in the future, for that is where you and I are going to spend the rest of our lives) by looking at the past. If you look at history there has never been any period of time where home prices declined. Never. Even if you go back to Ugh selling the first cave to Ooog for 3 rocks and a wooden club, I guarantee you Ooog made money. No matter when, where, or how you look at it, home prices always go up in the long term. Sure, you might find some isolated instances where home prices declined for a short period of time but even after that aberration prices returned to their normal higher trend.
So what will the future be like? It will be a lot like the middle ages. You will have a landed aristocracy (home owners) and you will have the poor, embittered, masses (renters). These few, these happy few, these home owners, will have everything their heart desires because either they or their parents/grandparents/etc were able to see the coming changes in society and intelligently using debt were able to buy mountains of wealth for themselves and their decedents. Since 70% of Americans now own their own home, we will be an amazingly wealthy nation. We will leverage this wealth to run the rest of the world. But, sadly, 30% of Americans will be left behind with no hope of a better life. And like the serf of the middle ages they will leave to their children nothing but ashes. Ashes of dreams. Ashes of hopes. Nothing but servitude to their landed betters. What a hopeless existence they will have.
Unfortunately, a lot of reckless people are throwing about words like “bubble” to try to ruin people’s lives. They are trying to use fear and ignorance as a weapon to destroy the lives of this future aristocracy. I believe they have one of two motives. Either they are looking into the abyss and see that they will never own a home so like an angry two year old they want to destroy the hopes of everyone else. Or they are greedy and want to drive prices down temporarily so they can snatch up this wealth from those foolish enough to heed their advice. But remember friend, when a man looks into the abyss he finds his character. For most of us, it strengthens our resolve to do whatever it takes to become one of these rich, happy landowners. For the frightened renter/bubble advocate, it causes fear and resentment to want to ruin other people’s lives. Don’t become one of these pathetic wretches.
That is why I’m writing this blog, to educate the few redeemable renters out there. To let them know that if they take a chance and let debt, slavery, and fear into their lives they’ll find wealth, freedom, and happiness.
posted by The is no housing bubble at 7:37 PM 32 comments
“War is Peace.
Freedom is slavery.
Ignorance is strength.”
Bush is President.
Sure am glad this is a political blog *rollseyes*
exactly. the key quote from Hertzberg: “Free money always has the unfortunate effect of making people go overboard.”
How and where did he get the idea that debt was “free money”?
An analogy is some people consider credit card as a second source of income ( on one of the news Ben posted last week I think).
worse, for some people credit card limit is *their* money to spend.
The state is running on credit and debt beleive me.
There’s the ‘American Dream’ and then there is ‘California Dreamin’!
I keep telling you guys, California is going to make Florida look like a cakewalk before this is over. We own the worldwide rights to financial imprudence.
Yep, we are at the epicenter, the world capital of bubbletopia.
“He would see little of that, however, because he’s already seen so much.”
Nice.
Oh, yes. Here come the excuses. Current one being from Mr. Hertzberg, “It isn’t my fault. It was the mortgage broker because never explained, etc, etc.” How long before we see, “When I signed for the mortgage I had just eaten a Twinky roll and I was having a sugar rush.”
Mr. Hertzberg’s house is strewn with periodicals and book on finances. Mr. Hertzberg, here’s a hint. Most of those books and magazines are written by people who lost money in the markets and now they make their money from…………publishing books which tell naive investors how to get rich. Mr. Hertzberg even had one by Mr. Comb over himself, Donald Trump. Yes, Mr. Hertzberg………keep on reading the kind of ego crap Donald Trump writes and you’ll be without a roof over your head faster than you think.
I’m sure Hertzberg believed that his house equity was just “lying there”, and he needed to “put it to work” via a HELOC.
Uh, that would be “lieberate!”
LIBERATE!
Hertzberg = dumbass
Even dumber is whoever he owes the money to. These jackasses will have a 115% loan on a house that will be worth less than when they originated the loan. They could end up taking a 30% haircut with only a 15% drop in home prices. If it was their own money it would be dumb, if they sold the loan then they are criminals.
Let’s hope they do, and let’s hope that some legislation is passed tightening up credit… permanently.
Greed Deluxe. I’m sure Hertzberg thought that “the wrong choices” he made would, in the end, be okay because RE only goes up, the house is there to bail its owner out of any and all stupidity.
I just can’t wait for this kind of story to become really engrained, so that folks start saying “yuk” to RE. Then it will be a better time for the rest of us to buy a house.
“I just can’t wait for this kind of story to become really engrained, so that folks start saying “yuk” to RE. Then it will be a better time for the rest of us to buy a house.”
i have read this same philosphy from nayof the posters on hbb
and i agree, when i buy i want my whole family and friends to say oh no not now re is a terrible investment
kind of like the anti-sheepie
I still think we have a few years to go before that mind set takes hold, but when it does you bet we’ll capitalize.
Problem is there is incredibly still too many dumba$$’s out there willing to buy in a declining market. My own cousin had no idea the market has gone sour and thought he was lead to believe he may be in a bidding war with someone else on a house! Yeah right, nice one realtor.
Bottom line is as long as there are still some GF’s out there and there is enough hype still being built up “Make easy money in the RE downfall”, it will just prolong the downturn.
Its not just a growing awareness that real estate can also go down, there needs to be a little more awareness that owning real-estate can be a royal (and incredibly expensive) pain in the ass.
For some strange reason, the carrying and maintenance costs of real estate are never discussed. Its not simply a Selling Price - Buying Price = Profit/Loss equation. There are also the maintenance & headache parts of the equation that *must* be considered.
When the first buyers in RE Auctions go in to foreclosure…that is the time to buy.
“One of his options is to pay $2,513 a month. That would cover the principal and interest as if it were a traditional 30-year loan. A second possibility is to pay $2,279, which would cover only the interest. But each month he always takes the cheapest option: paying $1,106 and promising to make up the shortfall later.”
“In 2003, only about 8 of every 1,000 people buying a home or refinancing a mortgage in California got a pay option loan, according to First American LoanPerformance. Last year, 1 in 5 loan applicants got one.”
This has got to be one of the best examples of just how screwed up the fundamentals and loan elegibility have become.
1. If you can only afford $1106 a month you cannot afford a $2513 house. What were you thinking? What is the bank thinking loaning you this kind of cash?
2. 0.8% to 20% of mortgages becoming pay option loans within 2 years! Doesn’t that reek of too many high risk loans? Where’s the money going to come from to cover all the BK’s?
I’m pretty generous in assigning blame too. While the town drunk can be expected to buy booze with any and all funds given to him, only a crook would try to convince investors that hand out loans to drunks was “furthering the American dream”. There are a bunch of very highly compensated criminals in the money laundering businesses known as mortgage finance.
I don’t have any pity for Mr. Hertzberg, but I don’t have any respect for the bank that made the loan either. Mr. Hertzberg should go broke, but whoever sold him the loan should go to jail. Fannie, Freddie and the home loan banks should be dissolved, and Central Banks should be banned.
Absolutely! The ‘not so smart’ people should loose everything and start from scratch, not pass a 100 year loan on to ‘your heirs’.
The finacial orgs should bear the larger amount of the burden for the bad loans they have given out. The question is will they, as they have packaged off as bonds a great deal of the high risk loans to wall street.
“The question is will they, as they have packaged off as bonds a great deal of the high risk loans to wall street”
Own-It had to pay that price when their funding was cut off. They will pay the price…and so will the FBs.
(‘I’m waiting for a 100-year loan,’ he said. ‘My heirs can worry about paying it off.’)
It’s called the national debt.
(Okay, who hasn’t looked around at their relatives and thanked the heavens that it’s not possible to passively inherit debt?)
That could be the next bankruptcy reform. I dont’ think we’re going to get that next upgrade to our plasma screens and new model SUVs without pledging our children’s future earnings to net savers in East Asia and the Middle East. Think of all the financial interests involved — lenders, retailers, etc. etc. How else can profits rise through business continuing to sell more to workers than they pay them? Good for business (for now, and who worries about later).
He’s already on a neg-am. His term is dictated only by the Hubble constant.
By the way, the article says he has no children. So when he says his heirs can pay it off, he really means our heirs, who will also be paying his nursing home bills.
On top of everything else this guy got a loan with a pre-pay on it . Talk about lenders sticking it to hard up borrowers with those pre-pays .
NAR just issued a press release saying that the US Housing market will recover in early 2007….Lereah calls the current market conditions a “window of opportunity”.
and if you believe what DL says you can also be easily convinced you get 72 virgins when you go to heaven.
and maybe he’ll do us all a favor and take a header out of that window.
I don’t so much as want him to die, as just SUFU already. DL, you’re a total idiot, and nothing but a mouthpiece for the RE morons you represent. For the love of god, if you have nothing intelligent to add, DON’T add anything!!
TX, now, to the sadistic side of me. I would LOVE, LOVE to see DL be foreclosed on because his loan adjusted and he was not able to keep up with the fully amor part of his MTG. That… Oh.. Too good…
He may be right. That “market” may be at lower prices though.
Just read the LA Times article in full. In particular, the part about “explaining” the loan to the borrower in the actual contract was interesting. I have a much better clause which should be written into mortgage contracts. Or any financial contract come to that. It goes like this:
I know that I, the Mortgage Broker, smiled all the way through my explanation concerning this mortgage but, by law, I must point out the following. (A) I’m in the mortgage business for my benefit not yours. (B) The bank is in the business of making money for the bank - not making money for you.
Also note that he will act after prices head down:
‘Although Hertzberg has lost his complacency, he hasn’t been compelled to act….When the year-over-year appreciation numbers in Corona start heading down, he says, he’ll do something.’
Along the shores of history lie scatterred the bones of those who, on the eve of victory, cried “Wait”, and while waiting, perished.
Here is the quote.
On the Plains of Hesitation bleach the bones of countless millions who, at the Door of Victory, sat down to wait, and waiting — died!
George W. Cecil, _The American Magazine_, March 1923, p. 87
http://www.weeks-g.dircon.co.uk/quotes_by_author_c.htm
Thanks SBG,
I was paraphrasing from long ago memory.
This is classic market loser stuff.
That stood out for me as well. It wouldn’t take unusual insight for him to realize that if it happened to him, it is probably happening to others, and that the late great real estate ponzi scheme is toppling over.
he is probably waiting for the data from NAR before making his decision.
“I know that I, the Mortgage Broker, smiled all the way through my explanation concerning this mortgage but, by law, I must point out the following. (A) I’m in the mortgage business for my benefit not yours. (B) The bank is in the business of making money for the bank - not making money for you.”
———————————————–
The above is true and based on that I have to wonder about making these exotic loans during the past 5-6 years. If the property were sold now, the mortgage balance would be paid and a small sum would be left for Hertzberg. According to the article, that is not Hertzberg’s plan.
As most of those on this board know, when this works out there will be many in foreclosure and prices will be reduced. There will be huge losses that are suffered by the lenders.
Certainly, Hertzberg is a nitwit. What about the lenders who are in up to their eyebrows in this mess. In my opinion, they’re every bit as ignorant as Hertzberg and although so far they have laughed their way to the bank, at some point they will sit down to their banquet of consequences.
if david lieareah says it must be true after all he has been spot on with all his other wonderful predictions,
this guy is a lying sack s*** cheerleading clown
‘I’m waiting for a 100-year loan,’ he said. ‘My heirs can worry about paying it off.’
This is so wrong on so many levels, I can’t begin to express the disgust I feel for this type of thinking.
Loans, banks, realtors….they are just the technical logistics behind the type of mentality that embraces self first, and screw everyone else.
I know someone who actually was miffed at the bank because they wouldnt let her expel the remaining 20% equity from her house. She of course blew all that money on remodeling, vacations to Yosemite, clothes, furniture, dinners out, new car and so on. Already last year, she owned more on her house than it was worth and in areas like Roseville, this is going to be deadly for her.
She did re-fi one final time January of this year, because her fixed mortgage was turning into an adjustable. She bragged to me that she locked into a fixed rate, but I dont see how it is possible with her history of late payments and a one bankrupty…more like a fixed for 3 years, then it turns adjustable, just like the last one.
She sounds exactly like this man in the article. There are so many of this kind of people, they will all be in a world of hurt very soon when rates go up.
If you need a HELOC for a vacation to Yosemite, you need to be a Darwin award winner.
From anywhere in CA you could do it for under $1,000.
I went to yosemite 5 or 6 times a year living in San Diego - no trip ever cost me over $300
Climbers camp
Did a one month grand tour of the southwest utah/arizona rimrock country in 1995,including a one week backpack in the escalante, toured 5 national parks, 6 nat monuments, lots of long day hikes. Total cost:$850.00. Only stayed in motels twice, camped out free on BML land rest of time.
Wanna see the Casey effect in full bloom? First story on “Corporate Credit” at the top
http://iamfacingforeclosure.com/
Beautiful. He’s become my “when I’m feeling down on my life” website. My life is fantastic in comparison.
What’s fascinating in a train wreck sort of way is with each post he gets the equivalent of this comment repeated several times: “Casey: you’re moron. Grow up, get a job, and pay off your debt. ” And each new post reveals some creative new way to avoid all of those things. What’s not to love.
He should take out a $50 Jillion dollar loan.
I think it’s Frillion now.
My god, he just can’t stop himself.
I think I’ll form a corporation, borrow money, pay off my house, buy a car, buy clothes, let the corporation buy me another house and another car (business expenses ROCK!!!). Sounds so much like FREE MONEY, I NEVER have to grow up! Sign me up, Scotty….
I have a very difficult time feeling sorry for this guy. He sells comic books on ebay and freelance photos to magazines. He claims no one will hire him at age 55. McDonalds loves to hire the old folks, buddy! He could fix up his house and move to Texas or Panama (?!) but he doesn’t want to be broke in either place. Broke is much better than where you’re headed, pal. He assumed his future would be taken care of by his previous employer where he made a six figure income. Nothing to say to that except that I bet he really enjoyed Starbucks and Jamba Juice. House payment? Yeah…just pay the minimum.
No sympathy.
Oh dear lord, don’t send him to Texas… we got all the Wal-Mart greeters and gubanatorial candidates we need.
He could become a house flipper! Look how easy it is on TV!
Ben, thanks for a good laugh. A great written picture definition of a moron.
One factor I blame for this 5 year RE run-up and easy money cycle is the low saving/cd’s yields that played into the MBS’s demand for higher yields . Again , we go back to Greenspan keeping the rates to low for to long .
The sub-prime ,no-qualifying type loans ,established market values .
I blame the lenders for departing from time-tested underwriting standards . Lending was based on real estate always goes up ,we can refinance later ,and a major RE campaign ,including advertising , pushed real estate into a mania/bubble .
I have never seen this degree of fairytale spin coming from the NAR/CAR /REALTORS in past real estate cycles .
I can’t stop watching this drama .
Asset bubbles are so destructive. Instead of investing in production, individuals and corporations chase bubble returns. When the bubble finally deflates all that is left is the debt. It’s a huge transfer of wealth to the financial economy; nothing more.
He can put the time and effort into studying “get-rich-quick” stuff but it’s his mortgage broker’s fault that he’s in this mess? What a moron. As for that idea that he won’t be hired at 55, well I sure don’t seem to have a problem finding a job. They don’t pay a lot but it is a lot more reliable than comic book money.
Then his minimum payment will automatically go up 150%, to $2,848 a month. ‘If I could afford that,’ he said, ‘I wouldn’t have needed this loan in the first place.’”
How funny. He somehow seems to compartmentalize in his mind this loan as two different ones. The one where he has negative amotization, and the other one, you know the one where he actaully pays back principle.
sheeesh
Yes, he does not realize that he has a living, breathing on-going 115% home equity loan that he has the “option” to exercise each month. He does not have to borrow more money against his home each month, but he continues to do so because its just to easy and tempting not to do so. The product is only suitable for the uber rich who have the discipline to use it as a cash flow management tool that in the end allows them to maximize investment return while still exploiting the mortgage interest tax deduction. The NegAmOption ARM is not for joe six-pack. He does not have the resources or sophistication to realize its true upside benefits. But because it give joe-sixpack a short term lower payment they bit, only to have it bit back in a few years.
No doubt, Different pay options mean different loans. Did you notice the other part of his denial “Yet if he stays, the housing market may tank, vaporizing what little equity he has left”
FB’s always think that they are not quite underwater. Chances are that since this guy will lie to himself about the pay options that his phamtom equity is a lie too.
No doubt, Different pay options mean different loans. Did you notice the other part of his denial “Yet if he stays, the housing market may tank, vaporizing what little equity he has left”
FB’s always think that they are not quite underwater. Chances are that since this guy will lie to himself about the pay options that his phamtom equity is a lie too.
No doubt, Different pay options mean different loans. Did you notice the other part of his denial “Yet if he stays, the housing market may tank, vaporizing what little equity he has left”
FB’s always think that they are not quite underwater. Chances are that since this guy will lie to himself about the pay options that his phamtom equity is a lie too.
So 1 in 5 mortgage applications is for a pay option ARM?
Let’s see now: 40% or so of all mortgage applications are refinancings. That’s two out of 5, leaving 3 out of 5 applications as purchase money borrowing. First-time buyers are approximately 30% of home purchases — 1 out of the remaining 3 applications.
So if 1 out of 5 mortgage applications are for option-ARMs, that means virtually every first-time buyer is using one. That makes sense, as virtually nobody who isn’t cashing in on an overpriced home can afford to buy another one at these price levels.
So there you have it: The entire entry-level market, on whose health the remainder of the market depends (can’t trade up when you can’t sell your starter house) is based on financing that cannot continue, absent continued rapid price appreciation.
Yes, yes, yes!!! I sold my first house in 2004, and was amazed that the market continued to go gangbusters. I asked my agent how people, especially first time buyers, could afford to pay these prices?? I felt like everyone must be making double what I make.
My agent told me they can’t afford these places, but they’re buying them anyway. 1st mortgage. 2nd mortgage. Interest Only. 5% down at most.
Well no wonder!!
If lending standards tighten, I think most first-timers will be priced out. How many can really afford a full mortgage payment? Who has 10% or 20% to put down?
The numbers are staggering.
20% of loans in California are neg am. As Thomas notes, that effectively means all first-time homebuyers, plus quite a few FBs who are refinancing.
580,000 neg am loans in California (plus how ever many I/O and ARM loans). California has over 50% of all of the neg am loans in the nation!
The number of foreclosures in California’s future is simply mind boggling. Even if only 10% of those with neg am loans lose their house to foreclosure (this seems to be way conservative), that’s 58,000 who will lose their homes just from neg am loans. Then add all of those who lose their home because of the normal reasons (job loss, divorce, disease, etc.), plus those with the I/Os and ARMs whose loans will reset, and we’re looking at unbelieveable numbers of foreclosures.
Be proud, my OC brother! CA leads the nation once again. Poor slobs in FL and AZ are just wannabes. CA loves credit (look at our new bond issues) and we must take credit for it.
Yours truly from arrogant-as-ever Santa Barbara,
A classic modern Californian, live on debt to prove to everyone how well they are doing. It baffles me to see these people somehow get simpathetic press which only seems to fuel their sense of being a victim. Where was this guys intelligence when he continued to pull money out of his house to buy stocks and cars?
I spend no time whatsoever feeling bad for these fools. I was looking at some houses in Livermore CA this weekend which have been languising on the market for 4 months now. Each is a 4 bed, 2 bath 30 to 40 year-old house for $589,000 and $588,000. If they were priced around $400,000 I could see buying them but neither of the houses nor the neighborhoods are worth what they are asking. But somebody will take out one of these toxic loans to buy these houses and then 3 to 4 years from now expect people to feel bad for them when the loans blows up in their face.
Instead of looking at these people as victims the should be scorned as fools.
I don’t think he is a native Californian.
He probably moved out here to live it up for a while, crash & burn and run back home (wherever that is) with his tail in between his legs.
It is actually a relatively common meme in So Cal.
A classic modern Californian, live on debt to prove to everyone how well they are doing. It baffles me to see these people somehow get simpathetic press which only seems to fuel their sense of being a victim. Where was this guys intelligence when he continued to pull money out of his house to buy stocks and cars?
I spend no time whatsoever feeling bad for these fools. I was looking at some houses in Livermore CA this weekend which have been languising on the market for 4 months now. Each is a 4 bed, 2 bath 30 to 40 year-old house for $589,000 and $588,000. If they were priced around $400,000 I could see buying them but neither of the houses nor the neighborhoods are worth what they are asking. But somebody will take out one of these toxic loans to buy these houses and then 3 to 4 years from now expect people to feel bad for them when the loans blows up in their face.
Instead of looking at these people as victims they should be scorned as fools.
“A classic modern Californian, live on debt to prove to everyone how well they are doing.”
Hence the perjorative “Clownifornian”. If you think it’s bad in Livermore, try living among their ilk in bubble central SD.
What’s this blog’s record for most replies to a single article? I think we’re gonna hit it.
Yeah, I read the article in the paper this morning, and by the time I got to the blog about 9:30, there were more than 100 comments…
How is this logically possible???? Call me stupid, but…
From the WSJ:
Nonetheless, NAR said home prices will continue to appreciate this year, even as market activity slows dramatically. The national median existing-home price for all of 2006 is projected to rise 1.4% to $222,600, with another 1.0% gain next year to $224,700, according to NAR. The median new-home price should fall by 0.5% to $239,700 this year, followed by a slight 0.8% …
Also from the WSJ:
But worries are spreading that, longer-term, investor hopes for interest rates may have gotten a little out of hand. If so, stocks and bonds both could be in for some rough waters in the coming months.
Aren’t mortgage rates tied to the bond market???
The NAR is full of sh_t, how can prices rise next year? We are in the beginning of yet another RE downturn.
I noticed the article didn’t mention whether or not Mr. Hertzberg has taken a second or third job to help pay his fully amortized mortgage. Or if he’s sold off his toys, cancelled his magazine subscriptions and cable tv, or cut his spending down to the bone. Sounds to me like his only active steps to avoiding foreclosure is shopping for a 100-yr mortgage and hoping the government steps in and saves his ass. He should be out there with the day laborers in front of Home Depot or peddling his sorry ass for handjobs at night …
Seriously. Whenever I hear a hardluck story from someone who owns a house, I always wonder if they rented out the attic/basement or got a roommate? That would probably fix their situation. Although they would probably feel incredibly deprived, and wouldn’t be able to brag to their friends. What does a single guy need with an entire SFH anyway?
I wonder if there’s a state they could ship all these idiots to where they would only hurt themselves. Nevada comes to mind.
Nebraska or South Dakota would be better.
Nevada is too pretty in a Great American desert manner.
“The average age of our borrowers is about 38 years old,” Mozilo said. “They have never in their adult lives seen values going down. The concept is alien to them.”
If you are 38, then you were in your mid 20s in the early to mid 1990s. I was younger than that then, but even I was aware that my great-aunt had her “million-dollar house” in Westwood sell for $600K when she died in 1995. Someone 38 now would have been 27 then, which I would qualify as having entered your “adult life”. But it is true that a lot of my peers have nonetheless bought into the “never goes down” stuff without blinking the past 3-4 years.
Robzter, I am 41 and I was renting in Westwood in 1995. I remember those nice houses going for 600K (I wish I had bought one) I can’t think how someone who is over 30 could not remember those ugly days, what with the recession and the earthquake hitting on top of it…
I am 38 and I remember the 1980s bust, the Regan/Carter election. I had to campaign at school for Jimmy Carter as a project. I was also very aware of the late 80s bust as I had to go to work right after that. Mom/Dad got divorced and sold the house below market value in 85. Really hurt to see the run up after that. Crash made me feel a little less pain though.
I also watched the news about the bust in cali at that time. Early 90’s was a rough time. S&L scandal burned me when my student loan got sold off in chunks. Everyone wanted the minumum payment. As the economy tanked student aid evaporated to nothing which was also painful. Kids in the late 90s till now got lower college loan costs, more aid and have had it easy.
Never remember prices going down! What a bogus statement.
From the LA Times article:
“The average age of our borrowers is about 38 years old,” Mozilo said. “They have never in their adult lives seen values going down. The concept is alien to them.”
Ten years ago in SoCalif, we hit the bottom of prices dropping for 6 straight years (1990 to 1996), where prices dropped 35% from their 1990 peak. These 38 year olds were adults back then. This statement by Countrywide’s chairman is weak, false and it trying to justify the heavy use of this loan type that is a huge part of their loan production.
Donald Trump’s ‘How to Get Rich.’
That cracked me up.
Doesn’t he know that if someone asks Trump who’s the 3 most important persons in his life, he would answer: “Me, me and me”? So ‘How to Get Rich’ means “How I can get rich from endorsing a crappy book”.
Just last night I heard about yet another acquaintance of ours who has just gotten a brand new 90%-100% cash out mortgage on his/her home to pay for credit card bills and Christmas presents. They were initially denied as the appraisal didn’t support the refinance, but they went to another lender, and the appraisal finally ‘hit the numbers’.
People keep talking about how prices won’t go down because the economy is going gangbusters, but I personally know 4 families that have already either reigned in spending due to rising monthly mortgage outlays, or *should* be reigning in spending.
Spring ‘07 will tell us the inventory story, but I’m thinking more and more that Christmas ‘07 will tell us the economy story (as consumers finally stop spending due to no more credit to use and/or fall into foreclosure).
Spoke with a good friend that is a very good loan officer @ WAMU…Asked her how things were going and she said the loans are getting harder….One current applicant is all pissed at her because she cannot get them a refi…Bad pay history…Goes on to tell me the couple make $175,000./Yr between them, have $0 savings and owe $75,000. on their credit card….
I expect soon the supreme court to hear arguments about how someone “illiterate” can have his signature on a legal document invalidated.
Idiocy will have no bounds with morons that will blame everyone else but themselves. On a related note a photographer friend of mine had once a model who signed a release come back to him to pull back some pictures.
You can have all your legal ducks in order in America (releases, patents, loan docs) and still get sued somehow.
Needless to say the rest of the world won’t be too tempted to do buisness here once the $US falls out of the sky and you only get funny money for your hard good, and the threat of some frivolous lawsuit.
Spring ‘07 will tell us the inventory story, but I’m thinking more and more that Christmas ‘07 will tell us the economy story (as consumers finally stop spending due to no more credit to use and/or fall into foreclosure).
——————————————————————————
Never underestimate the stupidity of the American consumer! They’ll find a way to fund next years Christmas!
As for Will Hertzberg, I’m surprised he didn’t post something on the SDCIA forum where many of his brethren could provide some good “investment advice”.
Hertzberg is much bleaker. He’s become a connoisseur of doom, a subscriber to websites and newsletters that predict the economy is headed for both recession and inflation.
————————————————————-
Hi Mr. Herzberg. How does it feel to be famous on one of your favorite blogs?
The reason he likes doom now is because that kind of thinking absolves him from blame for his predicament in his own mind. It was all preordained by forces greater than he is, so he’s not a moron - he’s a victim.
Oh man, I was thinking the same thing. I wish they would have mentioned Ben’s blog by name, and how many times a day Herzberg logs on here. I wonder what his screen name is? Could he be one of those rare RE trolls that occasionally happen by?
With 6% of the GDP coming from helocs, we’ve turned into an inward looking remmitance country, feeding off of ourselves…
Multiply this clown x 100,000 to see how many folks, just in California that are “this” close to having bubkis, and perhaps a million, spread across the country.
Get out of the big cities while there is still time.
That article’s last paragraph struck me as to what will happen in the next few years. Less and less people care about how they make ends meet and how they will pay for things.
When you live in a society that people SIMPLY DO NOT CARE about who inherits their problems or DO NOT CARE about bad credit, bad finances etc, so long as they have experienced what they want to for a brief period of time, there’s not much else anyone can do to hold them hostage.
So Cal is a prime area for this type of attitude….where you see brand new BMW’s and Benz’s leased out left and right…so many of them that you’d think these are the only cars being sold today. Why? Because no one cares about the longetivity of maintaining these cars financially. People simply want the thrill of it today….of they miss the payments and the bank repos them, so be it. The same goes for housing…they’ll live in a million dollar home for a few years paying the minimum payment and then they’ll just move out.
So 100 year mortgages and what not will be truly welcome tools for many people because they don’t want to responsibility. In a way I can’t blame the mentality because the system of being in debt and having this and having that has been around for so long, that some people are beginning to think in the way of “why should I worry about it? Let the banks take the hit for a change….they’ve been scamming us for so long…so f&5k em.”
I’m not saying this way of thinking is correct. But let’s be honest…banks and financial institutions are also responsible for creating a system which burdens people down. Yes, it allows people to afford things that they generally could not….but at a heavy price.
Bottom line though…when you live amongst a crowd that is willing to go to the end of the cliff and throw themselves off to own a home, then it becomes impossible to stay in this market and think in the logical, traditional terms of what housing purchasing should be.
I’ve been a fan of this blog for over 18 months and I must say, it’s nice to see the slowly increasing steady stream of articles and other media attention to what will surely be one of the most significant downturns of a segment of the economy. Those who have predicted this will last for years are probably correct; it’s so large in scope, especially with the hundreds of thousands of foolish buyers just in California alone, the effects will be felt for years.
I noticed some of you here talking about reverse mortgages.
My mother-in-law recently asked me about them and it occurred to me that perhaps a better approach for my wife and me would be to finance my mother-in-law’s reverse mortage ourselves.
In other words, buy my mother-in-law’s house from her while she is still living in it by sending her a monthly check. Basically figure out a fair market value for the house and the fair market value of a 15 year fixed rate loan and just start buying the house from her with our own private 15-year zero down loan.
My wife thinks we will soon need to be sending money to her mother anyway. This seems to be one way to do it that preserves her self-respect and deals with some of the inheritance issues also. We would own the house and owe the estate for the balance of the note if she happened to die and that would be a simpler issue to deal with than dispensing with the house later and sharing the proceeds with my wife’s brother who is unlikely to ever lift a finger to help or give her a dime.
Does what I’m suggesting make any remote sense? We’re talking about a house that is fully paid-off and a situation where we’ll most likely be supporting my mother-in-law anyway.
See below for some good advice from Housing Wizard. I’d be very careful about setting up a situation where if the mother dies sooner than expected the brother is seemingly disinherited. For example, if MIL gets hit by a drunk driver after one payment and you inherit the house. the brother is going to be screaming bloody murder and elder abuse. (And will probably have a very justifable case.)
It’s a tough situation. Unfortunately, in many families one child does all or most of the care taking but all the children inherit. Personally, I believe in compensating children for their time and money if only one does the work. However, this is not easy to do. Make sure your MIL has independent counsel when drawing up any contracts. And talk to your brother in law about the arrangement - he might be very happy with it if it means he will not have to pitch in his own money.
Actually what I was thinking was that would be buying the house from my mother-in-law and borrowing the money from her to finance our purchase of her house. So if she died after one payment we would own the house but owe her estate the loan for the entire value of the house. That would mean we would either sell the house and pay the brother his half of the note, or keep the house and refinance to pay him his half.
If she stays alive for 15 years we would, of course own the house outright. But there would be no inheritance stolen from the brother because we would have bought it fair and square at fair market value.
“He’s become a connoisseur of doom, a subscriber to websites and newsletters that predict the economy is headed for both recession and inflation.”
OK, so what is his “screen name” here on this blog?
mrincomestream?
LOL, yea you go ahead and bet the farm on that.
I’ll bet that guy is long this today
http://finance.yahoo.com/q?s=nuvo
omigod. the pain. I had that POS a year ago.
tx-chick
that is one hell of a
dip for one day wtf happend?
Drug didn’t do what it’s supposed to. That said, this is the worst d/o/d down move I’ve seen in over 20 years in the market.
Lets see the real issue is the economic cycles are getting shorter. In 1990’s talk of no more recessions, AG was a god.
2K dot com,
9/11
Close to 0 interest 2002
housing bubble followed
New BK laws intime to prevent hiding behind certain assests
Looking ahead:
GOP presidential candidates justify Immigration/Outsourcing & Offshoring by telling voters “These are jobs Americans are no longer willing to do”
Health care insurance will be taxed as a luxury.
I guess you would call that a Land Contract sale with monthly installments that reverts to a inheritance on the balance should her mother pass away . Better make it air tight on the documents or the brother could have a probate claim on the installment payments on the balance owed upon death . You should go to a attorney to do the job right and your mother-and law needs to know what she is really doing .
Oh, most definitely definitely we’d have an attorney deal with all the paperwork from both a real estate and estate planning perspective. Two attorneys if necessary.
My mother-in-law is exceedingly savvy. What it seems like this would accomplish for her is the expense-free sale of her home and automatic investment of the proceeds into an above-market fixed income investment. Plus rent-free living for the rest of her life. We get a long-term investment property out of it that I will be maintaining anyway regardless of what we do. And my brother-in-law gets off the hook for the immediate future and still inherits his half of any remaining estate which would include the balance of the loan that we’d owe my mother-in-law for the house.
My questions were more general and along the lines of whether this sort of arrangement is common and whether it makes any sense from the point of view of assisting an elderly parent maintain her current independent lifestyle for as long as she is physically able. It would be our intent to do everything at market value (both the sale and financing) and go over all the details and get agreement from the brother-in-law in advance. So that everyone is on the same page.
The alternatives seem to be having my mother-in-law deal with a traditional reverse mortgage which I don’t really know that much about. Or else have my wife just send her a check every month which will be difficult for my mother-in-law to accept and will make my brother-in-law uncomfortable.
You also need to check on the tax aspect of the sale verses a reverse mortgage . It’s my understanding there are some tax advantages to the income paid monthly on the reverse mortgage while a out-right sale might be taxable to your mother in law on a monthly installment,perhaps ,(it depends on the way it’s set up ).I’m just saying you need to check out all the tax plus and minus aspects to the different ways of selling .
Never mind NUVO, keep your eye on NEW, a big subprime lender that may be headed for trouble. As the marginal financing dries up, the decline in home prices will accelerate. It starts with subprime, then works its way into major banks. It will happen much faster than you can imagine.
LMAO. Hands down the funniest thread in weeks. Hertzberg reminds me of the Stanley Johnson ad.
Hertzberg is not in denial, however. He rolled the die and lost and he knows it. Then, he doubled down and lost again. Now, he is killing time nervously picking his nails and mulling over previous decision while waiting for the shylock to come and collect.
More free money on its way: M3 growth is now 10%. Hmm, how can the money supply grow by 10% and inflation be 2-3%?
http://www.shadowstats.com/cgi-bin/sgs/data
http://www.shadowstats.com/cgi-bin/sgs/archives
“ALERT: Flash Update subscription required Dec. 11, 2006
M3 Growth Tops 10% / Inflation Signals Turn Higher Again / First Post-Election Jobs Data Show Slowing Economy / Economic releases of the last week or so continued showing a rapidly deepening recession, along with early confirmation of inflation resuming its upward trend. Beyond ongoing softness in the dollar and some upside movement in oil prices threatening inflation, broad money supply growth is accelerating to the upside.”
how can the money supply grow by 10% and inflation be 2-3%?
A few possibilities:
1) Value grows by 7-8%. For example, increased productivity due to technological advances.
2) The money supply will need to contract in the future.
3) Inflation will need to increase in the future.
4) A combination of any of the above.
5) Inflation is actually 10%….
This SHOULD be unbelievable but all of us Californians know people just like this, some of us even in the same family.
One of my wife’s uncles is having trouble selling his Riverside house to move to Texas. He’s sweating because he has one of these funny loans for the original amount - $350,000 something because of rolled-over gains from the last place.
Anyway, on two average socal incomes, even $350,000 is a stretch without IO.
The place is “worth” $750,000 but he’s complaining because it’s been on the market at $699,000 for several months now without a bite. Now he’s trapped because he was counting on the windfall to retire early in Texas.
In general I don’t feel sorry for these people but I also don’t wish them ill will. Sometimes people just let their greed and desire for a place to call their own get the better of them.
I dont really have anything relevant to say - I was just trying to get us to 300 posts. But, if Mr. Herzberg is any indication of the norm, we are in for a lot of trouble.
“Several times a week, he gets a refinancing offer in the mail. Hertzberg always looks at these fliers, hopeful in spite of himself. ‘I’m waiting for a 100-year loan,’ he said. ‘My heirs can worry about paying it off.’”
I’ve taken some heat from a small but vocal minority in here who think my undisguised glee - schadenfreude, if you will - over watching FBs go down in flames is heartless and inappropriate. I’ve got two words in response: Will Hertzberg. This guy is the epitome and poster boy of how unbridled greed, selfishness, and irresponsibility have infected millions of our fellow citizens. I can’t even comprehend the kind of craven selfishness that would eagerly pass on his debts - truly the sins of the fathers - onto his progeny.
I for one will rejoice when this whiney hiney-hole and millions like him are cast out into the street - not because of happiness at their misfortune, but because they will be cautionary tales to the next generation regarding the consequences of reckless and irresponsible behavior. Hard lessons are the only kind that yield any kind of meaningful enlightenment, especially to people like this.
Sammy — yours being the only post in this thread that I’ll read this evening, just because of the sheer number of them, I (generalizing) agree with your description of what should happen to the greedy SOBs who screwed the housing market of the past 6-8 years and that the hard lessons are the only ones that stick in peoples’ minds forever. Learning the hard way is better than not learning at all, but usually the rest of us have to share in the consequences.
Whoa — congratulations to Ben for lighting a fire with this one. I can’t remember the last time a single thread here pulled 300 posts. Awesome. Haven’t read the full thread, as I just returned from a trip to Bradenton, but I’m saving it to enjoy tomorrow.
Ben had one not to long ago that broke 300. I think it was over 320 the last time I looked at it .
That one was 384. This one has a ways to go to catch up, but the trend is definitely bullish!
Yep, ol’ Ben has a gift for figuring out just what raw meat to throw into the shark tank. Read the full thread when you get a chance - some great comments amidst the general outrage.
This guy is toast, and nothing he does will change that. He’s unemployed, can’t sell for more than he already owes, and he’s too lazy/immobilized to make any plans to extricate himself. The only question is where is he getting the grand or so a month to pay the minimum on this mortgage? Maybe he’s figuring that with enough folks in his situation, he’ll be able to camp out in his house, cause the banks will be overloaded with REOs. He may avoid homelessness by turning into a squatter. And he won’t be alone.
This was a very educational and entertaining post. We need to plaster pictures of these clowns, Casey and Hertzberg, allover to show what NOT to do in the future. Hope they are both in debtor’s prison.
This was a very educational and entertaining post. We need to plaster pictures of these clowns, Casey and Hertzberg, allover to show what NOT to do in the future. Hope they are both in debtor’s prison.
i think this guy has always had a employment problem ,so that’s why he goes for all this get rich quick garbage .
Thomas said: “So if 1 out of 5 mortgage applications are for option-ARMs, that means virtually every first-time buyer is using one. That makes sense, as virtually nobody who isn’t cashing in on an overpriced home can afford to buy another one at these price levels.
So there you have it: The entire entry-level market, on whose health the remainder of the market depends (can’t trade up when you can’t sell your starter house) is based on financing that cannot continue, absent continued rapid price appreciation”.
I do agree with you Thomas for the most part, except there are many buyers who trade-up that got into these bad loans too.
Example: A couple sold their home for 2-3x more than they paid, using all equity as a down payment, STILL can’t afford the new house becauce their income doesnt qualify them for the 30 year fixed, the couple only find this out in escrow, (conveniently for the broker)and now have to go with a different loan product- and the only alternative is the option/arm loan. Remember, they need to close on time because the other buyers bought their starter home.
Mortgage brokers get so many people into these loans this way - even with huge down payments, buyers miscalculate and only find out in escrow they do not qualify for a fixed. So what now? The couple want this house so bad, and are already in the process of selling their current one, theres no turning back - they reluctantly agree to this bad loan product. Whats worse, the broker tells them nothing’s wrong with these types of loans because “you can refi later when there’s more equity and get another loan (fixed) product”.
Does this senario make sense?
There are many more people on the edge of default because are stepping-up and buying a larger home 2-3 times what the original home cost, but their income to pay remains the same.
This is going to be very ugly for a lot of folks.
I forgot to add that in the bayarea, buying up in this market, homes are really 5 times more than an they were eight years earlier. When the wife contribute to the purchase of the starter home, now wantes to stay home and raise kids, in the newer, bigger step-up home.
Like I say, uglyness is all I see in the future for these families.
Here in the SF Bay Area, every time I turn on the radio to KNBR 680 AM (sports radio), I get bombarded with all these pay option mortage refi ads from priority lenders and mortage pointer.com. The say stuff like “You only have to pay 0.25% on a 300k loan — that’s $65 — less than some people’s cell phone bills. This is the biggest no brainer in the world. Call us now. Blah blah.” Then at then end, they quickly say “APR 8.95%. Loan may negatively amortorize.”.
These kind of loans are fine if someone had the income to pay the full payment on the 8.95% loan, but want some flexibility due to lumpy income, etc. But you know the mortage brokers must be handing these loans out to idiots that can only afford the minimum payment. They might as well say it’s $0/month, because only paying $65/month is just a drop in the bucket. All these toxic negatively amortizing loans are really dangerous,esp. if a large % of buyers are using them.