“Now That Dust Has Cleared, Affordability A Factor”
A report from the Washington Post. “Nineteen states and the District of Columbia have moved quickly to warn state-regulated lenders about the hazards to consumers from nontraditional mortgages. Tens of thousands of state-licensed lenders and mortgage brokers are affected by the advisories, also known as a ‘guidance.’”
“Such loans include interest-only mortgages and other arrangements where the borrower cuts monthly costs by paying back less than full interest and principal. Federal banking regulators issued a sternly worded advisory in late September. Within 24 hours of the federal guidance’s release, six states had issued similar warnings to their own lenders, a notable flurry of activity in a field known for its slow-moving bureaucracies.”
“‘They were ready for this; they wanted it,’ said Mike Stevens, of State Bank Supervisors, who said it was the fastest state-by-state regulatory rollout he had ever seen. ‘We had a national need to do this.’”
“In the District, the guidance covers about 1,200 licensed mortgage brokers and lenders. It was adopted Dec. 5. ‘We see a need to protect consumers who were not too savvy,’ said Lily Qi, a spokeswoman for the D.C. Department of Insurance, Securities and Banking. ‘They didn’t understand what they signed when they signed on the bottom line. Some companies can be very aggressive in their marketing, and it can be misleading.’”
“Edward Joseph Face, Virginia’s commissioner of financial institutions, said he was hopeful the state corporation commission would decide on some version of it within the next month.”
“‘I don’t think we’ve ever seen this many adjustable interest-only loans on the books in all of history,’ Face said. ‘I am concerned. There are so many out there, and when the rates start adjusting, it’s not clear that borrowers will have prepared themselves.’”
“In 2003, just 10.6 percent of new loans tracked by First American LoanPerformance, were nontraditional mortgages, but during the first nine months of 2006, about 34.1 percent of all borrowers used these loans to buy or refinance homes. In the Washington area, about 47.7 percent of loans originated in 2006 were nontraditional, compared with 10.7 percent in 2003.”
“Many economists now say the surge in these loans contributed to the real estate boom of the last few years. Regions that had the highest rates of nontraditional lending were also those areas where housing prices rose most quickly.”
The Baltimore Sun. “State assessment notices mailed to 661,000 Maryland property owners show another huge jump in home values despite talk of a flat housing market.”
“In Maryland, properties are reassessed every three years and the change in value is phased in. ‘We’re following the market and looking at values three years old,’ said C. John Sullivan, director of the Maryland Department of Assessments and Taxation.”
“Tom Ballentine, government affairs director for the Maryland Association of Homebuilders, said the slowdown and rising construction costs are hurting some builders. ‘There’s some hope this market will reach its bottom and begin to improve in the second half of 2007,’ he said.”
“Ilene Kessler, president of the Maryland Association of Realtors, said areas around Ocean City are overbuilt, with at least a year’s inventory on the market and concerns about storms driving prices down. ‘Now that the dust has cleared, affordability is more of a factor all over the state,’ Kessler said.”
“Recently, the biggest companies in the homeowners insurance business announced that they will stop writing new policies in some coastal areas of the mid-Atlantic and will otherwise limit coverage there. They have already reduced their coverage in states more prone to hurricanes.”
“Some real estate agents say they expect the situation will make it harder to sell second homes and investment properties on the waterfront. ‘We’ve already been experiencing problems since last year getting insurance for second-home buyers and the investment class, said Schuyler Benson, an owner of a brokerage on Maryland’s Eastern Shore. Some people, he said, are deciding not to buy.”
“Allstate told regulators in Maryland this month that beginning in February it would no longer sell new property insurance in all or part of 11 counties that are on or near water, mostly on the Chesapeake Bay and its tributaries. (Affected are Calvert, Dorchester, Somerset, St. Mary’s, Talbot, Wicomico and Worcester counties and parts of Anne Arundel, Charles, Prince George’s and Queen Anne’s counties.)”
“Allstate also will no longer write new homeowners policies in 19 coastal counties of Virginia, said regional corporate relations manager Debbie Pickford. And in the coast-hugging states of Delaware, New Jersey and Connecticut, the company will not write new business no matter where the property is.”
‘Charles wants to buy a house, but says $60,000 in student loans is holding him back. The 37-year-old earns $39,000 a year working for the federal government and pays $420 a month for his Baltimore apartment.He says he wants a house…but he’s haunted by the student loans.’
‘To me, the one negative outweighs the positive. I keep seeing that $60,000 problem each time I look in the mirror. I still think buying the house is the right thing to do,’ he writes in an e-mail. ‘I just don’t know what to do.’
‘Charles is banking on selling his house for a tidy profit in five years or so. But there’s no guarantee that housing prices will rise in the future. Prices have flattened here in recent months, and they can remain that way or even go down. ‘There is a greater risk that this might happen in the current real estate environment and particularly in our region,’ where prices have risen faster than in most other parts of the country, says Lutherville financial planner Nancy Bryant.
‘He was hoping that if he bought a house and sold it later, he could apply $20,000 or $30,000 from the proceeds to his student loans. A big payment like that might lead the lender to forgive the remaining balance, he says. But neither planner has ever heard of a lender doing that for student loans.’
And this guy’s logic is exactly why Financial Common Sense 101 should be mandatory, starting in kindergarten.
Apparently, this is the same kind of logic behind many of the stellar decisions coming out of D.C. for the past decade.
Did this guy just pull the “forgive the remaining balance,” nonsense directly out of his rear?
Sign me up for the Loan Forgiveness Program of 2007. Whew, that’s a relief, I thought I had to pay that student loan back.
They don’t even “forgive the remaining balance” on a student loan if you declare bankruptcy (I guess too many doctors did that upon graduation.) That is one debt it is impossible to escape from.
I have no debt, doesn’t that prove I’m even more worthy? I’d like to be “forgiven” for $20k, the check can be written to…
But how will scam artists (aka mortgage brokers) find customers if everyone is well-versed in financial common sense?
I understand the thinking. If I had bought Google stock in 2004, I would be rich right now. So buying it in 2007 will buy me in to the gravy train… NOT! The lesson here is “past performance does not guarantee future earnings.”
I hate to be crude/callous about this, but…
Buddy, your 37 years old with a college degree, don’t you think you could be making a bit more then 39K a year? Come on, I am 10 years younger then you, I worked for a local govt, and I was making quite a bit more then that.
Also, 420/mo for an apt in Baltimore? Ugh, that must be quite a nice place.
If you like that rental payment, your home, that you so want to purchase, better be under 80K or so.
This just does not make sense to me. 420/mo and you’re dying to get into a house? You’re nuts, take the insanely low rent payment and enjoy life a little.
I got my college degree when I was 35, and I am paying back my loan. My wife and I might sit out this year if nothing good comes our way. We made a decision of not paying alot for a house in the NVA area.
BTW after college I made 40k the 1st year.
Your relatively high age may be a reason you made 40K as soon as you graduated college. Employers expect to pay 22-year olds a low wage, but not 35-year olds.
How much should a 37-year old with a college degree make?
This story provides another lesson … Is it really wise to take on $60K in student loans for a college education when the result is you’re making $39K/year at age 37?!?! If you cannot pay the college tuition in cash (with or without parent’s help), maybe you should either (a) go to a community college or the lowest cost college available, or (b) plan to pursue a lucrative career path and work your a** off so you succeed in it. I don’t understand these people who go to colleges like Dartmouth, Georgetown, or Duke, take on $80K in student loans … and then take a job as a school teacher or social worker and then whine about the burden of their student loans!!!
Well, I have hit the big fat whopping 90K in student loans. While I could cash out my investments at payment them off, they’re locked in at 3 percent which is less than the interest I make off of the proceeds. Oddly enough, maybe back when I was looking, I was told that most mortgage lenders don’t really look at student loans when considering the borrower. I have no debt whatsoever other than those student loans (30 years old and stellar credit). I also don’t make freaking 39K. I think it was SoCalMgtGuy who I once discussed with but is this guy maybe making the excuse that his balances are the reasons? Maybe the real reason is he has sucky credit?
at payment = and pay
I am a 36 year old with a BA and MA and I make a lot more. I made $40k/yr. when I first got out of school at 25 (11 years ago!). I made $30k a year working at Sun TV in Ohio selling computers when I took a year off between undergrad and grad school!
How much is “a lot more”? That’s pretty vague. Also, what do you do?
I agree the numbers for this guy don’t add up - maybe a social worker makes 39K a year - but he can maybe do a bit better. Obviously, you need to do what you find rewarding in life, but hey, we all need to pay rent.
That brings me to point number 2: $420 a month for rent - if the place is somewhat nice, I would stay there for a few years. You can enjoy the bargain prices while your friends eat beans and rice while making their overpriced mortgage payments.
Finally, point number three - very rarely do banks forgive loans. Only under real charity cases (paraplegics, insane, hurricane Katrina), do banks forgive loans. And in the case of student loans, you cannot discharge them in bankruptcy. So, this guy needs to face reality and get a financial plan not a fantasy.
“He was hoping that if he bought a house and sold it later, he could apply $20,000 or $30,000 from the proceeds to his student loans. A big payment like that might lead the lender to forgive the remaining balance, he says.”
This guy sounds like a real idiot!! … He thinks he’ll make $30K on his real estate investment, apply it to the $60K balance on his student loans, and that will somehow cause the lender to forgive the remaining balance on his student loans?!? Why in the world would the lender do this?!? You cannot discharge student loans in bankruptcy unless you’re practically starving and homeless on the street. He’s going to make a $30K payment on his student loans, and that will somehow cause the lender to be “nice” and discharge the rest?? How can someone his age, with a college education, be this stupid??
I happen to know a 48-year old couple who walked on their student loans from 20 yrs. ago. Sorry, but I wouldn’t be able to look myself in the mirror if I did that.
I think with bankruptcy laws the way they are, and the way they handle student loans, the reason you wouldn’t be able to look yourself in the mirror in the morning when you wake up is because the car you’re sleeping in has smashed mirrors. Student loans are extremely hard to discharge these days, thanks to miscreants like the 48-year-old couple mentioned above.
When you say “walked”, do you mean they stopped paying recently, or 20 years ago?
I would add that not only are government (student) loans hard to discharge, if you mess with them you will very likely NEVER get any more government sponsered financial help, no SBA loan, no grants, no FEMA disaster assistance, nothing. And I wouldn’t be at all surprised if all of a sudden the IRS started to audit you every year.
http://www.cbsnews.com/stories/2006/05/05/60minutes/main1591583.shtml
See how private industry is making a killing from student loans at the taxpayers expense. Just like the banking industry has made a killing and the taxpayers will pick up the bill if there are mass forclosures.
how about 90k 1st year at dept of homeland worriers (whoops warriors) lady was working at a grocery store- if you think gov workers are underpaid your STUpid
Nazis are compensated quite well these days…
You sound like the chorus from the “Money is Everything” crowd.
There are other things to consider than money.
Also, he may be new to the employment field with a degree and in an entry level position (for degre holders).
Then he really shouldn’t be considering a home. For those, like the poster who got started later in life, congrats you are on the right path, but your expectations will have to be lowered. This guy however is just an idiot, at least in the light that this article baths him in.
Josh
The education market has been bid up by easy credit just like the housing market. If you go for the cheapest degree because you intend to work for less money, you won’t get a job because you will be competing against some fool who went to a better school and buried themselves in debt.
Education market definitely bid up by easy credit, and the schools with the best reputations cloak their avarice in sentimentality, arguing that they have to set nominal tuition very high in order to have scholarship money available for qualified, needy students. What ensues is that virtually ALL students become “needy” when tuition is comparable to half the family income.
They didn’t mention what subject this fellow studied. Salary-wise, some degrees are worth little more than the “feel-good” phrasing on the parchment.
LENNAR WARNS!!! Sees no sign of market recovery
http://money.cnn.com/2007/01/02/news/companies/lennar_warning/index.htm?source=yahoo_quote
Anyone finding it difficult to pay off a $60,000 loan has no business with a mortgage!
I cannot understand these people who think they can just walk away from debt. What a crock… You need to pay off that 60k? Get a part time job IN ADDITION to your regular one and start paying it down asap. geez… not brain sugery… THEN think about buying! -liz
When you require no downpayment, this is the kind of fellow who gets interested in taking out a mortgage.
Exactly.
I left graduate school with ~$37,000 in debt back in 1991. that’s very close to $60,000 in today’s dollars (if we suspend our disbelief and assume the CPI is accurately gauging inflation).
I can assure you that in a recession, where there are few firms hiring graduate students from any school –regardless of how prestigious it might be– that this is a very significant financial burden. If the most you can earn is close to minimum wage (which was all I could get back then) and you MUST repay it from your earnings (no Bank of Mom & Dad to bail you out), then this burden can seem gargantuan.
I was basically unable to make even the minimum payment for several years (sent in some whenever I could), then started paying them off up when the economy (job-wise) finally took off in the late 90s. Still took me 11 years to fully pay them off, given my bizarre, unreasonable desire for food, clothing, transportation and shelter.
That said, being 37 years old with this kind of student debt load with such a salary is nuts.
Good job managing to pay it all off. I can see how it would seem like gargantuan burden if you’re on a low income.
Now think back again to those days… Would you at that time have even *considered* buying a house and getting a big fat mortgage that would be several times what your rent was???
Hell no! And, btw, excellent follow-up.
HARM –
It is greatly to your credit that you made good on your $37K-worth of debt.
That said, imagine the surprise of young families living in my area of San Diego, who bought homes in the summer of 2005, upon recently learning that virtually identical homes are now selling for $100,000 less than they paid. Now they are sitting on an unrealized capital loss of $100,000, and hoping that personal economic circumstances allow them to avoid having to ever realize the loss.
I don’t think many of these young families had a clue that this turn of events could happen, as back in 2005, almost all San Diegans believed that “real estate only goes up.” I can assure you that I personally could not have anticipated this turn of events when I was their age.
“‘Charles wants to buy a house, but says $60,000 in student loans is holding him back. The 37-year-old earns $39,000 a year working for the federal government and pays $420 a month for his Baltimore apartment.He says he wants a house…but he’s haunted by the student loans.’”
There’s another bubble in this picture besides housing. At age 37, I made quite a bit more than this gentleman. My school loans due after graduation in 1983: under $5k!
I only searched for 6 mos for my first job in ‘83 when supposedly nobody was hiring. My first job’s annual salary was 5x what my yearly college tuition, room & board was. I don’t think they could say the same today.
Income/Education cost ratio is also spiralling out of control which takes a big bite out of what’s left for housing (unless Mom & Dad took care of it)
“Many economists now say the surge in these loans contributed to the real estate boom of the last few years. Regions that had the highest rates of nontraditional lending were also those areas where housing prices rose most quickly.”
This time is different! This is what has amazed me.
In the 1980s people pushed themselves further and further into house poverty based on the monthly payment, as part of a buyer’s panic, in an effort to buy before they were priced out forever. I thought we were once again reaching the breaking point in 2002/2003.
Instead, prices soared another two years as people stretched to NOT make the real monthly payment. Unbelievable.
I remember turning my back on the housing market in late 2001 in San Diego because it was overpriced and needed to correct back before payments were in line with rents. The “correction” needed today is a 50% reduction in price! Rents and payments will realign again, and the pain between now and then will be substantial.
This statement is the Biggest load of RE Crap I ever saw in Print this Year. These greedy people KNEW exactly WHAT they were DOING when they Signed on the bottom lines of these Purchase Contracts. They saw the need for Greed and got Caught and want a Taxpayer Bailout for their Failed RE Gambling Debts. Screw THEM !
“In the District, the guidance covers about 1,200 licensed mortgage brokers and lenders. It was adopted Dec. 5. ‘We see a need to protect consumers who were not too savvy,’ said Lily Qi, a spokeswoman for the D.C. Department of Insurance, Securities and Banking. ‘They didn’t understand what they signed when they signed on the bottom line. Some companies can be very aggressive in their marketing, and it can be misleading.
It’s really too late, isn’t it? If so, this ‘bureaucratic rush’ is a hurry to CYA.
It seems like closing the barn doors long after the horses have left, and the cows, and the chickens…
I agree. As I read this I kept wondering, “Where was the urgency while millions of ‘consumers who were not too savvy’ signed up for these loans? All of these agencies had the numbers right in front of them as it was happening and they did nothing … as long as appreciation was positive. Now that things have changed they raise the flag. I can only reach the same conclusion you have Ben, this is nothing more than a thinly veiled CYA move. If there was a shred of authentic concern for consumers they would have issued this guidance years ago. It also sets the stage for labelling J6P as a victim who may be worthy of a bailout. I hope not, but it could be interpreted that way.
p.s. Ben, thanks for all of your hard work. I was looking back at the archives and there were many early days when you got 0 comments on your postings. I am glad you stuck with it as your efforts have probably saved thousands of potential GFs and FBs from falling into the traps that our gov agencies ignored for too long. May you get the recognition you deserve in 2007! You are one of my heroes.
And that’s all it is, a rush to CYA.
Actually, I wouldn’t be surprised if there are a good amount of people that do NOT understand what they signed. Money is God, and almost everyone wants more. You know how it goes, the salespeople/mortgagebroker/realtor throw in terms like “oh don’t worry, you can just refi…” and make it sound so easy, that the trusting sheeple sign away.
A friend of mine… his coworker was at the office, about to sign. He started reading thru the pages, and the lender had slipped something in there that he never mentioned. I think it was a pre-payment penalty that was like $40K or something (I’m not 100% sure). The guy got up and left, the house sale fell thru.. and my friend said his coworker was all messed up over it because he trusted the mortgage guy, almost got screwed, and perhaps the house went to a different buyer who was in line.
Poor and uneducated people are really profitable to those that have no issues with taking advantage of them.
Poor and uneducated people should not be singning contracts for houses if they can’t understand them.
mikey,
Absolutely. It’s incredible to me that in the late 90’s when every other guy with a 2K tax return had an ETrade account nobody had a problem with how margin accounts worked. THEN when the market turned on them and the leverage worked the other way all of a sudden they didn’t understand why they had to send in MORE money! (I’d actually seen a few accounts that went “negative equity” where after months of sending in checks to cover margin calls these accts. were worthless but the “traders” STILL owed money!)
I talked with a guy in “risk management” back in NY and he said they had written off a lot of neg. equity. The reason I bring this up though is that, there was no “busted daytraders economic recovery act of 2001″. ALSO the cap loss carry forward (which hadn’t been adjusted since the 70’s remained at $3,000)
Watch how these FB’s whine to get that raised for their bad RE bets!
The scale of the losses will be so great that most of these FB’s will be in bankruptcy. Obtaining a tax deduction will not be high on their list of government action. Think in terms of direct government assistance, an FB bailout program, etc. That’s what they will be wanting.
My sentiments.
They knew or should have known and the responsibility is theirs.
Here comes the government to the rescue — a few years too late. Kinda like FEMA — too late to be of help. Always behind the curve, but reported as though they are moving quickly to stem the problem. Hah!
And this bureaucrat fully engaged in a protracted assault on personal responsibility — setting up the greedy, buyer wanna be RE millionaire flash — as “victims”. The class action lawsuit is imbedded in her wording.
“In the District, the guidance covers about 1,200 licensed mortgage brokers and lenders. It was adopted Dec. 5. ‘We see a need to protect consumers who were not too savvy,’ said Lily Qi, a spokeswoman for the D.C. Department of Insurance, Securities and Banking. ‘They didn’t understand what they signed when they signed on the bottom line. Some companies can be very aggressive in their marketing, and it can be misleading.’”
That’s it folks. These losers want the good taxpayer to pay for their folly and their loser gambling “investments gone broke”.
Let ‘em burn.
Where were they on the way “up”? Out there looking arrogant and smug. F””’ ‘em.
It would not surprise me that the mortgage scum lied about the true nature of the toxic loans and people were taking a gamble that they could get out of them or get appreciation or sell.
When borrowers go from 10% using toxic loans in 2003 to about 47% using sub-prime toxic loans in 2005/2006 ,you got a mania and a affordability problem .
Instead of demand contracting in 2003 as it should of ,the sub-prime toxic loans made it possible for the prices to continue to inflate . Whatever price some greedy seller put the house up for ,a sub-prime lender was willing to lend on the overpriced POS . Couple faulty lending with the real estate chant of “buy now or your will be priced out forever “,the prices continued to soar .
If there is any single factor for the prices inflating from 2003 onward it’s the sub-prime low down toxic loans that did it as you can see by the fact that 47.7 % of borrowers went on these loans .
It’s really is to late for regulation on these loans because :
(1) Stupid speculators alredy bought at inflated prices on low down toxic loans with faulty appraisals .
(2) Sub-prime borrowers with low downs already bought 50% inflated priced homes .
(3) Scum lenders already messed up the appraisal comps in most areas making it impossible to know yet what the real contraction in price will be absent the false demand of toxic loans and borrowers that really didn’t qualify for the adjusted up payments on these teaser rates .
The REIC led the people to the slaughter .
If someone is willing and able to pay the price, is the seller being greedy or just smart? I thought the people buying my house in May 2006 overpaid and were using a stupid toxic loan. But the comps were there and they were educated+wealthier than I. And while I was being contrarian, thinking prices were headed down…could have been wrong.
A greedy seller probably does not sell the house, because they are clearly asking beyond what the market will support. An altruistic seller might price the house low, but would then probably have to turn down higher bids. Nice if you want to do that, but I’ll take what the market gives and invest it somewhere else.
My point is that without the subprime lending the greedy sellers could not of kept putting the prices higher and higher . Affordability and lack of down payment requirements would of put a cap on appreciation but sub-prime lending kept it going because these borrowers didn’t really qualify . Of course all sellers try to get the highest price they can but the market eventually puts a limit on wishing price .
“Allstate also will no longer write new homeowners policies in 19 coastal counties of Virginia, said regional corporate relations manager Debbie Pickford. And in the coast-hugging states of Delaware, New Jersey and Connecticut, the company will not write new business no matter where the property is”.
One of these days the northeast will be hit directly by a hurricane and it won’t be pretty. The area is overdue. The storms’ paths are harder to predict and they move faster than those down south.
The last huge hurricane in the area was the “Long Island Express” in 1938. If a storm like that hits today there will be major problems with evacuation because there is so much more population almost 70 years later.
It is frankly amazing that homes built so close to the ocean and bays can get any insurance at all.
A big developer wants to rezone the amusment area of Coney Island to permit condos. I’d say no.
However, a professional weather man has told me (repeatedly) that it is VERY unlikely NYC will be hit by a hurricane, since unless the storm backed in against the jet stream it would either hit NJ and weaken or be pushed east. Long Island and Cape Cod, however, are in the bulls eye.
If following the housing bubble/bust is one of my major jobs, following the tropics is a major hobby/passion of mine. So let me second your friend’s statement that a dead-on hurricane strike in New York City is highly unlikely. Most storms that strike anywhere in the Mid-Atlantic and especially New England (including the L.I. Express) are already in the process of “recurving” to the north, north-northeast, then northeast. While storms sometimes clip eastern long island, Connecticut, Rhode Island, or southeastern Massachusetts before they get completely swept up, up, and away into the North Atlantic, it’s extremely rare for them to barrel west of north or due north into someplace like New York City. It’s also worth pointing out that the worst weather in most hurricanes is in the northeast quadrant … meaning a storm recurving to the north and northeast to the east of New York City wouldn’t give the Big Apple much more than some wind and rain. Last but not least, hurricanes lose strength fast as they get north of say, North Carolina’s lattitude due to cooler ocean temperatures. So even in the off chance New York City got hit, it would be buy a weaker storm (cat 1, maybe 2 vs. some of the cat 3/4/5 monsters we get down here in the subtropics).
That’s probably more hurricane education any of you were looking for this early in the day, but I couldn’t help myself! LOL
This hurricane is remembered locally as “The Long Island Express” for its unprecedented forward speed when it first made landfall on Long Island.
[edit] New York
On Long Island, the storm obliterated the Dune Road area of Westhampton Beach, resulting in 29 deaths. There were 21 other deaths through the rest of the east end of Long Island. The storm surge temporarily turned Montauk into an island as it flooded across the South Fork at Napeague and obliterated the tracks of the Long Island Rail Road. Ironically, the surge rearranged the sand at the Cedar Point Lighthouse so that the island became connected to what is now Cedar Point County Park. The surging water created the present-day Shinnecock Inlet by carving out a large section of barrier island separating Shinnecock Bay from the Atlantic Ocean. The storm toppled the landmark steeple of the tallest building in Sag Harbor (the Whalers Church). The steeple still has not been rebuilt.
http://en.wikipedia.org/wiki/New_England_Hurricane_of_1938
David knocked down a tree next to my house - and I lived near Middletown, 100 miles inland.
Gloria went right over the center of LI, but fortunately weakened, so damage was impressive, but not crippling.
Eduard didn’t weaken - it was 120 mph winds when it was 100 miles south of long island - thankfully, it turned at the last minute, and the only damage was to the barrier islands.
Yes, it’s unlikely that a cat 3 will hit NYC. But not as unlikely as you think. Once every 200 years seems like a probable figure. Myself, I don’t like those odds.
there were stories from earlier in the year how homeowners in Brooklyn had their insurance dropped
‘We’ve already been experiencing problems since last year getting insurance for second-home buyers and the investment class, said Schuyler Benson, an owner of a brokerage on Maryland’s Eastern Shore.’
It is interesting that the insurers seem to be targeting second homes and speculators. They may see these folks as having run up prices in the riskiest areas, and don’t want to be the backstop.
Here in LA, it is almost impossible to get insurance on a 1920s, 1950s or 60s apartment building, which almost all of them are. Back in 2000-2001, it was no problem, Allstate was available. Just a couple years later, I don’t know what happened, but they don’t offer insurance at all, at any price. You have to go through some bogus state sponsored plan now. And as long as we’re talking about insurance, you can’t get health insurance in CA anymore if you’ve had so much as a hangnail in the past twenty years. I have to believe this all has something to do with lawyers.
- but says $60,000 in student loans is holding him back. The 37-year-old earns …..
Wow! He also has 6k in savings! What kind of education does 60k buy?
So he can use ‘Part of the 6k’ for closing cost….his education must of taught him that he needs no reserves for unexpected cash needs. How can anyone buy a home and have NO Reserves?
“How can anyone buy a home and have NO Reserves?”
Evidently, LOTS of people did exactly that…
this level of financial common sense about equals the amount of gin left at the bottom of Tara Reid’s bar glass.
WHO needs reserves when you have 20% yoy appreciation and you can just heloc
oh i forgot that is over
too bad fb’s
My brother the estate planner routinely does estate plans for Hollywood types making 6 and 7 figures, who have no more than $50,000 in savings.
And on the flip side there are plenty of guys in the mid-west that have never made more than 40k a year and are liquid for 1/2 a mil and have a net worth well in excess of a mil. It’s just a totally different culture. They’re taught to leave the equity in the business, THAT’s your retirement!
DinOR: obviously you missed the memo on how equity is to be “liberated.” Otherwise you are not putting “your” money to work at its full potential.
LOL. I know I’m not the most optimistic guy, but every day the danger signs seem to get larger and brighter. The masses will probably spend the next month or so sweating their Xmas excesses, and then they will get pumped for their mythical spring rebound. Why they are not picking up on these warnings is beyond me. I know that I had a couple of fruitless discussions over the holiday. I think most have no idea how out of control this credit/housing bubble got. In that regard it really is different this time!
“Nineteen states and the District of Columbia have moved quickly to warn state-regulated lenders about the hazards to consumers from nontraditional mortgages.”
My prediction about more MSM articles in 2007 about the disaster in progress called subprime lending seems on track already on Jan 2!
“Regulators have noted that many consumers are unaware that their payments could double or even triple when they reset. At a recent Consumer Bankers Association conference, some lenders marketing fixed-rate loans to borrowers with nontraditional mortgages said that 30 to 50 percent of the borrowers seemed unaware of the resets looming.”
This will end badly.
GS, in one of my psych classes, we watched a history of psychology, and included in it was a piece about the US Army in WWI. For the first time in history, millions of men were tested. The result: nearly half were deemed mentally deficient. I don’t think times have changed very much. These same soldiers had kids and they had kids and they spawned a whole generation of FBs.
BTW, IQ = 100 is supposed to capture the mean. So, roughly speaking, 1/2 of all people have an IQ less than 100…
Whether humanity has changed or the tests have grown deficient or education has better prepared people for such IQ tests, 100 is no longer the median. Now, I would presume they would adjust the scoring but to my knowledge this has not yet occurred.
GS, just so I’m clear, it wasn’t that half had an IQ under 100, it was that half approached 70, which is considered mentally incompetent.
IQ is a norm-referenced test — either the sub-set of soldiers was heavily skewed towards the bottom or the test wasn’t actually testing IQ. If the soldiers were representative of the population then the mean would have been 100.
Not mean but median - sorry — though mean would be close to median in a large enough sample. The point is that the tests used were flawed.
“IQ is a norm-referenced test…”
In principle. But given the stigma surrounding IQ scores below 100, there is a big political incentive for the mean to rise over time. Similar to the children in Lake Wobegon, I would guess that a majority of US citizens have above-average IQs.
” — though mean would be close to median in a large enough sample.”
Sample size does not drive the mean closer to the median unless the population distribution is sufficiently symmetric so the mean and median line up. Standardized test score distributions “normally” follow a normal (bell) curve, and I am guessing the IQ test is no exception (especially given the title of a book I never read…
http://en.wikipedia.org/wiki/The_Bell_Curve ).
LOL — just like SAT scores — thanx for the laugh GS!!
It is a norm-referenced test, but the norm initially established by Binet was of kids in school. The entire purpose of the test was to find which of the school kids should continue to higher education. When drafting in the US for the military in the Teens, you’re talking about a lot of people who never saw the inside of a school. You’d still get a standard distribution, it would not have a median of 100.
In the book IQ and The Wealth of Nations, the author posits the theory that a country with an average IQ less than 90 can not sustain a modern technological society.
Be sure to buy or rent the movie “Idiocracy,” out on DVD next Tuesday.
Badly for taxpayers, who are being set up to pay for this coming bailout.
I wonder who will get the bailout, the FB’s or the holders of the mortgage back securities? I suppose it will depend on which party is in power in Washington.
Ruth –
Do you think the “soft landing” mantra is part of the setup strategy? Because if “everyone” was expecting a soft landing, then “everyone” could act really surprised when the housing market tanks, which could help to justify an emergency ad hoc, taxpayer-funded bailout to fix the situation.
There will be no bailout.
At first I would have agreed, now I am not so sure. They let this get big enough–it may have to happen. Rational people will be disgusted, but we may have to hold our collective noses. We have forgiven plenty of third world debt, maybe it may work the other way this time. For anyone who currently owns and has deep equity, it would put a pretty good bid under their home. The FBs would be put in some kind of “program” to let them hang on to their beloved “investment”, but at the same time it would just keep them chained longer to a lousy resource allocation in their own lives, but the lenders and bondholders would get something (and possibly quite a bit) back. We saw this with “bad” debt to banana republics.
It’s already too big too happen.
Here is the list of nineteen (+1) states which have moved quickly. I guess nontraditional mortgages are not a serious concern in California, New York or Florida, as they are missing from the list…
http://www.csbs.org/Content/NavigationMenu/RegulatoryAffairs/FederalAgencyGuidanceDatabase/State_Implementation.htm
Last year I was waiting for YOY price drops as the big news. This coming is the guidance implementation for CA. This will accelerate the downturn by 2 years. There will be no liquidity.
According to many posters on this blog, increasing liquidity is a simple matter of some virtual helicopters dropping some virtual paper printed on virtual presses. Why would issuing some CYA guidance implentation with no regulatory teeth have any effect whatever on liquidity?
I respectfully disagree with this conclusion. Creating money and dropping it from helicopters does not mean an increase in liquidity. If Ben gave you $2,000 right now, knowing what we think is coming, would you spend it or save it? Once things get worse, average Joe Soccer Starbucks will do the same. As defaults (all kinds) increase, official source of liquidity will also dry up. Even if they have $ “in the bank” (or if they ARE the bank!). (Oh yeah, Japan tried this and it failed - I know we’re not the same, but this means it is at least possible)
My .02
More lengthy and well-though out from Mish today:
“How Will Deflation Play Out?”
http://globaleconomicanalysis.blogspot.com/
“CYA guidance implentation with no regulatory teeth”…
Now I may be completely wrong here (optimistic):
I believe banking/finance is typically regulated with guidance. Don’t follow the guidance? Then bad things happen (FDIC protection, permission to do things banks do, etc…).
Regardless, this provides a category for the industry to label risky loans and admits there is a hole in the dike. Up to this point, there was not really a “crap” MBS category. Now there is. Now that defaults are up, crap MBS will cost more, crap mortgages will cost more, and, ergo the cost of money goes up, less houses are bought, less money in the economy,… deflation.
Even if there were a “helicopter drop,” how would the FED control where the money went? The stock market has been rallying for no reason, so why wouldn’t any helicopter drop money just go there instead of into housing?
“If Ben gave you $2,000 right now, knowing what we think is coming, would you spend it or save it?”
Like most Americans, whose collective savings rate recently turned negative for the first time since the 1930s, I imagine I would be torn, as my crystal ball is very murky on whether inflation is going up or down in the near future.
Well, that could buy almost 3 ounces of gold, almost certainly more than it will buy in a year.
I read the one for Georgia. Mumbo-jumbo until the next-to-last page, where the wording seems to be part of the Let’s Get Ready to Feed the Lawyers Act.
GS,
I was so peeved that CNN dropped their Special: Mortgage Meltdown that I actually called Atlanta and was on hold for 10 minutes. You know, how about a little heads up? So….. now it turns out that will air “some time” this week. Forecast, intact.
“Assessment notices mailed to 661,000 Maryland property owners showed another huge jump in home values despite talk of a flat housing market.”
Translation: Maryland state officials rush to cash in on phony home values before realistic pricing limits property tax grab.
“Allstate also will no longer write new homeowners policies in 19 coastal counties of Virginia, said regional corporate relations manager Debbie Pickford. And in the coast-hugging states of Delaware, New Jersey and Connecticut, the company will not write new business no matter where the property is.”
Gonna get more expensive if you’re looking for insurance. Yikes, if you’re an Allstate agent - Paycuts on the horizon as far as the eye can see.
More marginally semi-skilled bloated overhead following RE complex dolts down the road to insolvency. Gonna get nasty out there…
Costal insurance policies going up now but watch for inland costs to rise in CA and other areas prone to fires during the summer season or even the pacific northwest due to the heavy rainfall this past Nov. Gotta love those insurance companies.
AZ_BubblePopper
Yikes, if you’re an Allstate agent - Paycuts on the horizon as far as the eye can see.
Why? Allstate wants to write more policies not less, it now is saying that it won’t write them near the ocean. Seems that they are going to be grateful for the agents that can write new policies that meet their stricter criteria.
OK, if you’re an Allstate agent near the coast (where most of Americans live and therefore the bulk of the $$$$$$$$ is) you can forget about at least 1 annuity rolling in.
Translation: PAYCUT.
Hrm, wonder if they’ll convert my rental insurance into a homeowner’s policy since I’ve been such a good customer for so long…
Substitute: –THEY & WE– for [Realtors/Mortgage Brokers/Banks/MSM]
There’s always fools for a Ponzi scheme
“‘They were ready for this; they wanted it,’ .....‘We had a national need to do this.’”“Allstate also will no longer write new homeowners policies in 19 coastal counties of Virginia, said regional corporate relations manager Debbie Pickford. And in the coast-hugging states of Delaware, New Jersey and Connecticut, the company will not write new business no matter where the property is”.
This Allstate news sounds huge to me, and a possible omen of things to come.
I know someone in coastal South Carolina, about 5 miles from the water, who is worried he may soon be paying over $10,000 a year for homeowners insurance. By contrast, we’re near the Carolina mountains and pay under $1K (about 1/4 of a percent) for homeowner coverage.
Looks like the Florida insurance debacle is spreading north.
Forget risk, that has to be mega profitable for the insurance companies.
Yeah, they really stick it to anyone near ocean. Maine house I sold last summer they wanted 2% per year of its rebuild value. Nonsense, the house was 65′ above sea level and had stood for more than 100 years. So I didn’t buy any insurance. New buyer of house maybe got a better deal from insurer of some of her other assets. Of course a part of the insurance scam is that nobody buys a house for cash any more, so lender can insist on insurance no matter how overpriced.
For that kind of money, you might as well go bare and re-build yourself.
my thinking exactly
warren buffet cleaned up last year writing policies for the coasts.
And how long will it be before people begin to mimic Buffet’s success again?
This “won’t insure” anything even near a coast is a joke.
Maybe the insurance guys are worried about the big island/volcano that is going to slide into the Atlantic ocean and create biblical tsunami waves on the eastern U.S.
Yes, but think of all the “new” oceanfront property that will be available after the tsunami!
all the gov workers that prepare these old useless reports just got a raise !
yeah, but their NOVA/DC “equity” just dropped another 10%!
btw, NOVA now stands for “Not Virginia”. a product of immigration and DC’s sprawl.
I haven’t read the thread yet and I’m sure it’s been mentioned but THIS:
“‘I don’t think we’ve ever seen this many adjustable interest-only loans on the books in all of history,’ Face said. ‘I am concerned. There are so many out there, and when the rates start adjusting, it’s not clear that borrowers will have prepared themselves.’”
it the clearest case of covering your ass I have ever seen. Too little too late guys. Where the hell were you when I was thinking about buying a house but had to watch as prices skyrocketed beyond the limits of my sanity, mostly due to these “fecal mortgages.” Hey, I think I just coined a phrase there.
the problem is we have a negative savings rate.
No problem. Print some more of the green stuff and the stupid foreigners keepp buying it.
“‘I don’t think we’ve ever seen this many adjustable interest-only loans on the books in all of history,’ Face said. ‘I am concerned. There are so many out there, and when the rates start adjusting, it’s not clear that borrowers will have prepared themselves.’”
“In 2003, just 10.6 percent of new loans tracked by First American LoanPerformance, were nontraditional mortgages, but during the first nine months of 2006, about 34.1 percent of all borrowers used these loans to buy or refinance homes. In the Washington area, about 47.7 percent of loans originated in 2006 were nontraditional, compared with 10.7 percent in 2003.”
As much as we all speculate here about the various factors that will bring sanity back to this market, I believe this is the most important.
Affordability!
You have to take the candy away from the children to prevent their teeth from rotting. They will never stop eating it just because it’s not good for them.