“It All Comes Down To Risk And Reward”
The Washington Post reports on Michigan. “The housing bubble of recent years has burst and home prices are under pressure in many parts of the country. States like Michigan and Ohio, struggling with their particular economic problems, illustrate just how bad things could get in the housing sector.”
“Janet Laitis leaned on a chain-link fence in her front yard and pointed to the homes on her block that lenders have seized in just the past two weeks. ‘There. There. There,’ said Laitis, pointing across the street, down the street and then to the modest ranch house next door. ‘This neighborhood is deteriorating before my eyes.’”
“Three years ago, Brian Minjares left his job at a financial services firm to start his own practice with a partner in the Detroit suburb of Southfield. Minjares took out a home equity line of credit to finance the business. At the time, his house was appraised at $350,000 and he owed $275,000, he said. The bank gave him a loan equal to 100 percent of his equity.”
“As the housing crisis worsened, the value of his home dropped to $260,000. Minjares could not afford to sell it because he owed more than it was worth. He could not afford to keep it because, as the rates on his loans adjusted, his monthly payments jumped to $3,000 from $2,100.”
“He fell behind on his payments and the bank foreclosed on his Colonial in Flat Rock, not far from Detroit. ‘You just have to cut your losses and run,’ Minjares said. ‘You have to take into consideration your marriage and your health and you say to yourself: ‘It’s just a house.’”
“Max, an engineer who spoke on condition that his last name not be used because he is embarrassed by his situation. Max bought a condominium in the Detroit suburb of Plymouth using a traditional fixed-rate mortgage more than five years ago. But three years later, his firm took away company cars from its workers, hiked insurance premiums and cut raises and bonuses, raising Max’s monthly living expenses and reducing his pay.”
“Max responded by refinancing his condo twice. Though he did not realize it then, the second loan was adjustable. ‘I wasn’t even reading the paperwork,’ said Max, who makes $106,000 a year. Weeks ago, Max turned in his keys to his lender.”
The Oakland Press from Michigan. “Recently released U.S. Census Bureau population estimates indicate that over the last six years, Oakland County has seen nearly 50,000 residents pull up stakes and head to neighboring counties or other states.”
“Chris Shoemaker, president of the North Oakland County Board of Realtors, said said the trend of clients looking for bigger homes and more property elsewhere might be even more pronounced if it were not for a sluggish housing market.”
“‘We do have problems selling the houses here so those people can move,’ Shoemaker explained. ‘I don’t feel it’s a problem in Oakland County specifically. I think it’s just the market generally.’”
The Daily Press from Michigan. “Several Livingston County communities are seeing a significant spike in boards of review appeals this year — signs of a struggling housing market and struggling state economy. Boards of review are set up to allow residents to contest the assessed value of their homes.”
“Green Oak Township saw the largest increase in assessment appeals this year at 640, up from 200 last year.”
“Township Supervisor Mark St. Charles attributed the majority of his community’s appeals this year to a 13 percent increase in the township’s overall state-equalized value. ‘We’ve been kind of the bright spot of the building economy and the economic engine in the state as of recent,’ St. Charles said of Livingston County. ‘We are now seeing sales declining, building permits declining. That is catching up to us here.’”
“Unadilla Township heard 114 appeals this year, compared to about 30 last year. This year’s appeals represented 5 percent of taxable properties in the township, Supervisor Jim Peterson said.”
“‘The main frustration was they couldn’t sell the home for what we’re assessing them at,’ Peterson said.”
The Star Tribune from Minnesota. “The subprime mortgage crisis that has gummed up the housing sector nationwide doesn’t carry a ‘Made in Minnesota’ tag. But it almost deserves that label.”
“Minnesota lenders, from Norwest (now Wells Fargo) and Green Tree to Metris, were pioneers in finding ways to cater to strapped borrowers, creating the lending template that others copied.”
“History suggests…that no matter how many times subprime lenders blow up, new ones will rise here, unable to resist the temptation of lending at double-digit interest rates.”
“‘It all comes down to risk and reward,’ said Jim Campbell, a longtime Norwest and Wells Fargo executive. ‘Taking high risks gets you a lot of reward. It kind of feeds on itself.’”
“‘People get kind of greedy,’ said Andrew Winton, chairman of the finance department at the University of Minnesota. ‘They don’t remember the past. They keep thinking, ‘It’s different this time.’”
“What strikes Campbell about today’s subprime mess is that some of it stems from the lack of cyclical nature of the business and the lack of enough experienced people who’ve seen past problems in the business and can appropriately price for risk.”
“‘You think you can do no wrong,’ Campbell said. ‘Things tighten up. Everything gets difficult. ‘We are not going to do it anymore.’ People retire. Then new people come in and think ‘These are great opportunities.’”
“Subprime lenders such as Green Tree ’set up an accounting system that took in all of the payments on the loans under a present-value formula so that [they] could deliver rapid earnings growth,’ said analyst Richard Bove.”
“‘If you look at Green Tree, they grew their portfolio very quickly,’ Winton said. ‘They were starting to put on loans that were likely to go under.’”
“Green Tree was the first to package loans into bonds and sell them directly to Wall Street investors. Today the mortgage-backed securities market totals trillions of dollars. The model encouraged subprime lenders to make risky loans because they weren’t bearing the risk of default themselves, said Ben Crabtree, a Minneapolis-based analyst.”
“‘If they couldn’t get the loans off their books, there would be less incentive to write riskier loans,’ said Crabtree.”
“Green Tree eventually admitted that it used aggressive accounting practices that inflated its profits by failing to predict how many loans would go bad or how quickly consumers would repay their debts ahead of schedule. In 2002, Conseco sold what was left of Green Tree.”
“Metris Companies Inc. was another high-flying subprime lender in the late 1990s. The recession that followed the September 2001 terrorist attacks nearly bankrupted the company.”
“Metris, based in Minnetonka, prided itself on its ability to determine which customers would pay their bills on time. ‘The Metris model was a fantastic one,’ said Al Gagano, who was the investor relations director at Metris. ‘It was the first time in history a lot of people were given access to unsecured loans.’”
“But the Metris model couldn’t withstand what happened after 9/11. Cash-strapped debtors stopped paying their bills, forcing Metris to take giant charge-offs to cover delinquent debt At the time, Metris CEO Ron Zebeck insisted the company was a ‘healthy baby that’s being thrown out with the bath water.’”
“Zebeck was eventually forced out, and the company was able to trim bad loans off its portfolio and return to profitability. HSBC eventually purchased Metris for $1.5 billion in 2005.”
“‘Subprime was never really tested at the time with a recession,’ Galgano said. ‘Now I guess we know.’”
“Gagano recalls one analyst in the late 1990s — so confident that Metris could handle a recession that she titled one of her reports ‘Bring It On.’ ‘I guess she got her answer,’ he said with a laugh.”
Hey, what happened to Nikki’s Baltimore Housing Blog?
(See the usual link on the right on this page in the list of links.)
Seems it’s gone all Chinese on us. Hijacked?
China bought all the housing debt in Baltimore and then the state run media took over the blog. My Mandarin is a little rusty but I think the first post says something like, “It’s different here. Real estate always goes up!”
Without following up too closely, it looks like it got hacked by link spammers - if they can grab well rated sites, they can drive link ranks up on Google for their ads. Can’t read Chinese though, so can’t be sure.
My wish (probably will not happen) is that 100% of these fb’s who find themselves underwater by just $10,000 stay in their overpriced sh*tboxes until they get thrown out (literally) and let the banks get stuck with the consequences.
Hey, I blame Minnestota for the sub-prime mess. Eh?
(If I had to list people to blame, I don’t think Minnesota would make the long list. But that’s the universe according to the Star-Tribune.)
The Strib (Star Tribune) is notorious for trying to put a MN spin on everything.
That said, a lot of financial “innovation” did pass through this state. Wells Fargo is a MN bank (most don’t realize this). It was bought by Norwest years ago but Norwest took the Wells Fargo name.
There are lots of other banking institutions that do big business here as well, like ResCap, GMAC, and so on. I pass by the huge brand-newly built Wells Fargo Mortgage building every day on hwy 35 as well as the Wells Fargo Tower in downtown.
But the bubble hardly started (or ends) here, that’s for sure.
It does interestingly show how intertwined all of our economies are.
good thing “real estate is local”
…and I thought the US had lax lending standards:
http://business.timesonline.co.uk/tol/business/money/mortgages/article1564480.ece
From the Comments section of that UK article
“My Mother, 98, got a 30 year mortgage from a Texas bank. When I asked her about it, she remarked that, 1; she put 20% down on the property. 2; she had over 200k in the bank she got the mortgage from. 3; her pension checks easily covered the payment., 4; her credit score from a credit recording bureau was 820 out of a possible 850., and 5; if they did not give her the mortgage she would have sued for age discrimination because there was no way she would be refused with the same conditions if she were 50. My thoughts; go girl, go!
Florida Doctor, Naples, FL”
Looks like we have the same standard.
A question that naturally poses itself is whether the borrower was required to pay for a life insurance policy that would kick in to cover the loan at the time of his death (surely such a policy would’ve cost a heart and a liver), or whether there was a younger co-signer, or whether there are other assets designated as collateral … I have made some loans to persons who will surely die before the loans are paid off, but they were not high LTV loans, so the heirs can just sell the properties when the inhabitants kick the bucket.
“Max, an engineer who spoke on condition that his last name not be used because he is embarrassed by his situation…responded by refinancing his condo twice. Though he did not realize it then, the second loan was adjustable. ‘I wasn’t even reading the paperwork.”
In addition to fraud on the part of borrowers, I think we’re going to see lots of cases like this. People had adjustables pushed on them because the mortgage industry realized rates were going nowhere but up.
If these loans had been fixed and their financing sources were variable, you’d get banks going belly up like the S&L. Now the rates are variable and incomes are fixed, so borrowers are going under instead. The lender still loses if the value of the collateral drops.
How does someone that stupid get to make $106K a year? In Michigan?
I work in tech, and part of my title says engineer, so I can say this, engineers don’t have the best critical thinking skills, they only conern themselves with “is it feasible” not is it desireable, and computer type engineers are usually so arrogant, they can’t be wrong..
Intentionally or unintentionally, thousands of people misappropriate the title of “engineer.” Each state and territory has a licensing board for engineers and all offer a license lookup function. If you want to verify whether a person is really an engineer, all it takes is a few clicks. Software companies seem to be particularly fond of the misappropriation of the title. If it were happening to medical doctors, the public would be up in arms, but since it’s just engineers, no one cares. Rant off.
FWIW, where I went to school, computer science was in the College of Engineering and we have to take applied calculus, physics, etc. But I see where you’re coming from. I always thought calling myself a software “engineer” was a bit of a stretch.
I know that IBM does not call its programmers “Engineers”. Their job title is “programmer” with a rank descriptor before it: “senior”, “advisory”, etc.
IBM is so 1960’s (not always a bad thing)
Do I need a license to work as a chump engineer? I hope not. Most licensing has to do with holding yourself out as something to the public. The only ones I’ve seen where anyone really cares about licensing is in civil and structural engineering. Where others need a license, one will have one and many still work for them without one. Even if you look at engineering faculty you’ll notice this.
You don’t need a license to work for most companies that employ engineers by the many short busloads, such as defense or aerospace. How many engineers do you know that work solo that aren’t civil or structural?
An article about offshoring engineering by the National Academy of Engineering worth your time to read, imo:
http://tinyurl.com/2cgw8e
I can top that. My mom was in and Ohio hospital. The public restrooms had a sign that if it was not clean to contact the enviromental protection engineer. In other words the janitor.
A guy selling cell phones from a kiosk at the mall recently handed me a business card that showed his title as “telecommunications engineer.”
The auto industry hires a lot of contractors. I worked with a girl who’s job was to decide exactly where to place the SSE emblem on the side of a Pontiac. She spent weeks making drawings and presenting them to management.
Max is just a poor money manager. I support a family of 4 in Colorado, quite comfortably, on less money. It’s no wonder he’s embarassed.
There’s a lot of people like Max. I have inlaws who “had” to move to Mexico because $200k/ year just wasn’t cutting it for them in the US. I still hear the violins.
I worked with a girl who’s job was to decide exactly where to place the SSE emblem on the side of a Pontiac.
Maybe she can start a new career deciding exactly where to put the “FB” stamp on the foreheads of subprime borrowers.
Because on your planet there’s a correlation between intelligence and income?
You missed “arrogance.” I work in Finance (for a lot less). Can ya tell?
The auto industry hires a lot of contractors. I worked with a girl who’s job was to decide exactly where to place the SSE emblem on the side of a Pontiac. She spent weeks making drawings and presenting them to management.
Max is just a poor money manager. I support a family of 4 in Colorado, quite comfortably, on less money. It’s no wonder he’s embarassed.
There’s a lot of people like Max. I have inlaws who “had” to move to Mexico because $200k/ year just wasn’t cutting it for them in the US. I still hear the violins!
Stated income…..
$106k and he defaults.
…but don’t worry, the collapse is limited only to subprime!!!
$106K for an enginner in Michigan is pretty good pay. I am a 36 year old former engineer in Michigan and most of my engineer friends make $70-90K. This guy is 44, he probably did very well in the 90’s when the auto industry was strong. Like many people in this state, he blew most of it instead of saving. You wouldn’t believe how many McMansion subdivisions sprung up around here in the last decade. Each one has 2 freshly leased luxury cars/SUVs in the driveway too.
That’s all ending. The mood here is dark and almost everybody I talk to is ready to jump out of a window.
“The mood here is dark”
I think in many ways Michigan is the canary in the coal mine. On top of record foreclosures, the job situation is bleak. No one in Michigan can fool themselves by saying it’s just the housing situation. Ms Goldilocks, she dead.
Txchick57
Maybe he’s origionally from Crawford, Tx ?
He should move back, I heard they are missing their village idiot.
I make exactly that and was wondering the same thing.
These sound like the people who lead lives of quiet desperation that Thoreau wrote about.
I think that was Somerset Maugham.
I take it back. It was Thoreau.
This guy would have lost his home no matter what kind of loan he had!!!
Does anyone have a clue what the hell is wrong with Folsom CA… these idiots out here are buying houses like crazy. I just don’t get it… don’t they read or hear the news…. F….g stupid!
I was hoping it would take a dump here and it still has not…. Now it looks like I am going to have to wait another year before home prices drop to what I think is fair…. under $195 a sq ft. When it gets to $180-$186 a sq ft… I will buy but not till that….
COME ON MELT DOWN…. I am sick of eating popcorn!!!!
Patience, grasshopper. I remember how in early 1990’s San Diego it took a solid 2 years before prices came down. That bubble was popped when the defense/aerospace contractors closed up shop in San Diego. Tens (if not hundreds) of thousands of the best paying jobs in town vanished. I met engineers who could only find work that paid $10/hr. While this started happening around 92-93, the foreclosure/haircut party didn’t start until late 1994. But once it stated it was spectacular. Prices suddenly dropped 30-40%,
We don’t get max resets until ~ Dec. Allow a few months for FB floundering, and a couple of months for foreclosure proceedings, a couple of months for regulators to complain to banks about all the REO that they have on their books…. Next Spring is the EARLIEST to consider buying.
‘Taking high risks gets you a lot of reward.’
Herein lies the flaw in the thinking of a lot of lenders, investors, flippers and FB’s . . . high risk does not guarantee you high reward you greedy a-holes. Taking high risk give you the POTENTIAL for high reward.
Pigs get fat, hogs get slaughtered.
‘Taking high risks gets you a lot of reward.’
One factor that these fools never gave a thought to was that RE is not liquid and therefore had high carrying costs.
The two concepts are not exactly related. Gold is particularly liquid, but has decently high carrying costs. Corporate bonds are rather illiquid, but have fairly low carrying costs.
Precious metal ETFs generally do not have high carrying costs…
Corporate bonds are pretty liquid (unless defaulted on). You might not get the price that you would like, but like stocks they can be sold in a matter of hours, if not minutes.
Maybe substitute “thinly traded stocks” (illiquid but no carrying costs). Assuming there still ARE thinly traded stocks. I remember single-handedly causing a 20% change in the price of AMEX-traded “Friedman Industries” back in the 1970’s when I was a poor schoolteacher.
Smithers - you hit the nail right on the head.
I thought it was pig get fed, hogs get slaughtered. Anyway, that was what the federal judge that I heard it from first said as I continued to press for more after he had ruled mostly in my favor. Almost forgot the first rule. When the judge is going your way, shut up.
“Max responded by refinancing his condo twice. Though he did not realize it then, the second loan was adjustable. ‘I wasn’t even reading the paperwork,’ said Max, who makes $106,000 a year. Weeks ago, Max turned in his keys to his lender.”
I didn’t think much of this story until the “he makes $106K” part. How much do condos in Plymouth cost that someone making that much money can’t afford to pay for it and other fairly normal expenses such as car payment and insurance. AND he bought 5 years ago, not in 2005.
Something reeks. I think a few details have been left out. We never hear about the drug, alcohol, and gambling addictions as well as other unsavory character flaws.
He might have a whopping divorce settlement too. Something tells me that women may initially be attracted by his job title, but later repelled by his lack of common sense.
LOL I think I dated him or his clone >; )
Sounds like he had one too many trips across the border to Windsor.
What’s in Windsor?
Nothing - I lived across the river from Windsor as a kid. But it was fun to drive through the tunnel and visit Canada for the day. And Toronto was a 3-4-hour drive.
Night clubs and a lower drinking age. A lower age of consent as well, if I’m not mistaken.
I think they have gambling there.
Uhhhhh…….I think Snake Charmer is referring to another type of “entertainment”….:)
All of the above.
Windsor’s the best part of the Detroit area. It has a great “little Italy”. Actually many of the Windsor residents align themselves with Detroit more than Toronto - because it’s auto related. They also root for the Detroit sports teams.
In the old ABC video clip ‘The thrill of victory and the agony of defeat’, Max is the skier. He should be embarrassed.
Indeed. A quick visit to a payroll calculator for MIchigan, TY 2006 shows that $106,000 annual salary with deductions for a wife and two children should have resulted in a net (not gross - gross was over $8,800) monthly paycheck of $6,600.00. If his mortgage was $3k, he should still have had $3,600.00 to live on. I know for a fact that many, many people live and support families on far less than $3,600.00 per month. Something is amiss here.
Of course there must be huge car payments, ample credit card balances, etc.
Could also be an ex-wife that took him to the bank.
Actually, Plymouth was kind of trendy. My parents lived there in a condo about 5 years ago that they sold for about $400K.
“‘You just have to cut your losses and run,’ Minjares said. ‘You have to take into consideration your marriage and your health and you say to yourself: ‘It’s just a house.’”
It’s just a house.
It’s only a movie.
It’s only someone else that will end up paying for my loss ,what the hell ,I need to think of myself .
‘You just have to cut your losses and run,’ Minjares said. ‘You have to take into consideration your marriage and your health and you say to yourself: ‘It’s just a house.’”
1. You can run…but your credit history can’t hide
2. It’s just a house…you no longer have over your head
3. Marriage and health do well when you find yourself homeless
4. If at first you fail…please, try…try again!
1. True, but not your problem. And really none of your business.
2. Are you mocking this guy, because he might be homeless? (Check and see if you have a pulse.)
3. Lousy sarcasm. Cheap wit.
4. Try again? Now you’re Ben Franklin?
Take your conventional wisdom peddling somewhere else.
K, get over it. Someone making 106K a year where he is and bought 5 years ago. He BLEW IT OUT HIS BUTT BIG TIME! What a fool. The other posters are right, esp. the ones who ask about the character flaws. What the so-called “journalasses” never ask is where does the rest of your salary go? Did you blow it on taking the family on the Queen Mary II around the world for 3 weeks at a cost of 100K because, heck, you only live once, right? See, someone making 2K a week, is doing pretty well in this country, esp. in the Michigan area. No pity here, either, if he blew his chance. Unemployment, health-related issues, maybe a divorce, I can understand, but when I read these sob stories, esp. of 6-figure guy and gal, no pity if they are just plain stupid.
Oh boy! Do we get to make fun of cancer patients if they had been smokers? And heart disease patients if they were overweight? No pity here…
Yeah, the FB were dumb. Yes, they should not have been lent the money. Yes, they should realize that real estate is a pure written-document business and if you don’t understand your contract you are a fool. But I still feel a bit sorry for them…
“if they are just plain stupid.”
Or reckless beyond belief. The guy admits he didn’t bother to read the loan docs…didn’t know he had a variable rate. There’s no sad story here, he intends to dump the condo, as augur points out, on the bank and it’s shareholders. Yeah, that’s right, let other people pay for his mistakes and stupidity.
if he had made bank on his condo, do you think he’d be sharing the profits with them?
The guy’s a deadbeat…
Who exactly do you feel should suffer for this guy’s decision?
He agreed to the purchase price, agreed to the loan provisions and now thinks that it is OK to throw the keys (and loss) back to the bank to eat? Why should the bank’s depositors or stockholders suffer the loss?
I say let this guy spend the next 20 years working overtime to payoff the loan. The new BK laws were designed specifically for guys like this who think that everyone else should suffer for their decisions.
“The new BK laws were designed specifically for guys like this who think that everyone else should suffer for their decisions.”
No they were pushed through by the Financial Sevices Industry in order to make their sucker loans and their unsecured credit card debt stick!
I don’t feel sorry for the FB’s, but the Financial Services Industry are a bunch of low lifes in suits! I read one story were a couple of low income mentally retarded people were takled into refinanacing out of a subsidised low interst Gov loan. Then about a year later, the lender forclosed on them.
Predatory lending practices!
Buyer Beware!
Dear kThomas,
1. True, but not your problem. And really none of your business.
(In truth, noboby’s post on housing in this blog are my business…you win!)
2. Are you mocking this guy, because he might be homeless? (Check and see if you have a pulse.)
(Yes, I have a pulse…sort of…mocking his “decision process” that might lead him towards homelessness, yes, same as I did my sister’s “significant other” decisions made while under the influence of her heroin addiction, you’re right!)
3. Lousy sarcasm. Cheap wit.
(lousy & cheap… observant and profound in the same comment, you’re keen…sorry for engaging you’re neuron’s on that one, I apologize, sincerely, to you personally)
4. Try again? Now you’re Ben Franklin?
(Might have been “over-the-top” on that one…just trying to give energy to lenders to offer more “products” to folks like Minjares, was it Ben Franklin?…thanks for pointing out that slip…need to give credit where credit is due…thanks for the input and self reflection)
Re: the conventional wisdom going elsewhere…how about this guy below,? I was thinking he could use some of your… “useful advice” :
“Three years ago, Brian Minjares left his job at a financial services firm to start his own practice with a partner in the Detroit suburb of Southfield. Minjares took out a home equity line of credit to finance the business. At the time, his house was appraised at $350,000 and he owed $275,000, he said. The bank gave him a loan equal to 100 percent of his equity.”
“Three years ago, Brian Minjares left his job at a financial services firm to start his own practice with a partner in the Detroit suburb of Southfield. Minjares took out a home equity line of credit to finance the business. At the time, his house was appraised at $350,000 and he owed $275,000, he said. The bank gave him a loan equal to 100 percent of his equity.”
Starting a business is a huge risk. Not only that, but go look at all the small business websites all over the internet. Unlike the real estate industry, they don’t even attempt to hide the risks. It’s all about “do activity X this way and increase your odds of success!” with nearly every single article using the high failure rate in the first paragraph to justify why you should bother reading the rest of the article.
I’ve started two businesses and both failed. Neither time was I dumb enough to risk the roof over my head on them. This guy had a poor reason for a HELOC. It had nothing to do with business and everything to do with a bad real estate decision.
don’t sweat it hwy50, we love you here.
OT, but I just wanted to say great job with the interview earlier, Ben. You guys covered a lot of ground in a short half hour, considering the size of the issues involved.
Gee, Ben, does this mean we need to break in a whole new crowd of HBB rookies and assorted trolls as well?
Come on, Arizona, we’re not that bad.
Hopefully a huge number of people new to this site show up; that way the facts can be distributed. I visit this site for information and would love to see the mainstream do so too. (Ghad… comment sections of 10,000+ posts.)
Got popcorn?
Neil
I agree. Always glad to see new people here. Have been sending some observations from here to all my non-bear friends, prodding them gently (it’s thankless, so far) .
Good Job Ben.
The interviewer was decent as well.
One of the things I’ve learned from this whole episode is the number one rule of journalism: “Thou shalt not speak of ill of one’s own real estate market.”
The Washington Post, The New York Times, whatever, will do stories about how bad the other guy’s back yard is doing, while either ignoring or spinning the local real estate scene.
If I want to learn about DC, the last place I would ever look would be the Washington Post. If I want to learn about LA, the last place I look is the LA Times. I hope all the newspaper editors get completely hosed by their houses.
Good point.
Maybe why the first articles on the US housing maket as a whole being unbalanced were from European news sources?
Got popcorn?
Neil
From Time Magazine:
“Radena Stager, 28, borrowed $440,000 from her parents two years ago to purchase a home in Cupertino, Calif. She’s paying a fixed rate of 4.9%, vs. the 5.9% market rate at the time. “I’m in more house than I could ever have afforded on my own,” she says. Mom and Dad, meanwhile, are enjoying income above what was available in a bank CD.”
Either her parents are very rich, or they are going to be very unhappy.
Borrowing from family? At a fixed rate? And her parents, no less.
That’s weird. I got no problem helping family, but to charge interest? I don’t care how much money it was!
Considering that housing is depreciating and a money pit of maintenance and upkeep, she did well to get a loan of that amount with interest from her parents. They put a chunck of cash on the table and have a right to charge interest, just as easily as if they said no interest and it is a gift. Get over what her parents are doing. It is their money and at 4.9% fixed on what 10 years ago would have qualified as a jumbo loan, she is doing well.
might be tax reason’s for this type of action…
Goodness, K, you got up on the wrong side of the bed today. Who would look $400K in the mouth? She is a very lucky daughter.
A simple arbitrage, eliminating the banker / middleman.
I assume a formal loan document, so that the borrower can deduct the interest from taxes. When the loan was made, it was probably at a rate equal to or higher than buying a 10 year treasury. Daughter defaults? Mom owns the house. Seems to work for everybody - the borrower (cheaper rate), the lender (higher rate) and good collateral.
Does anyone remember the story last summer (I think) about a spoioled young woman in Miami who got her parents to co-sign for a “luxury” condo with granite counters and stainless steel appliances? When she saw the place, she knew she HAD to have it. “I deserve this,” she said. I wonder if the truth of that statement is now sinking in.
“spoiled,” that should read.
I remember that story being posted on this blog. To think, kids used to be considered spoiled if they wanted Atari or now, a PS 3. Not good enough anymore, we want the 500K condo. Nice country we live in. Freggin’ spoiled brats who think they deserve everything they want under God’s green creation. Last time I looked, you are entitled to life, liberty, and the pursuit of happpiness. You of course also get freedom of speech, press, etc., maybe some guns. HOWEVER, A CONDO IN FLORIDA WITH ALL THE TRIMMINGS IS NOT, I REPEAT, IS NOT, ONCE MORE, IS NOT, FREGGIN’ A CONSTITUTIONAL RIGHT! Man, people like her make me sick. Actually, I respect the woman above who is not only paying back her parents, but with some interest. Now, that is someone with skin in the game!
I just hope her parents really had an extra $440k sitting in Bank CDs, and that they did not empty their retirement accounts to loan their daughter money.
A condo in Florida with ALL the trimmings may NOT be a constitutional right, but if a Hurricane comes in and blows it away, there’s an amendment in there somewhere that says they get a brand NEW condo with a FEMA trailer to boot!
>Last time I looked, you are entitled to life, liberty,
>and the pursuit of happpiness.
Actually, you’re not even entitled to that. Those words come from the Declaration of Independence, not the Constitution.
“As the housing crisis worsened”
Cost of Living goes up thats bad,
Oil prices goes up that bad,
Home prices go up thats good?
More Koolaid for the ATM-oholics!
Media must be full of home equity hogs
who still think equity is somehow wealth.!!!
Lots of Americans FBer’s will be turning in the house keys and trying to get out of Dodge with the credit crunch and re-sets closing in on them.
Problem is where in the US do they run to that offers jobs and housing better than they left ?
“Problem is where in the US do they run to that offers jobs and housing better than they left ? ”
If they’re leaving Michigan, pretty much any place else.
Be nice. You won’t find housing cheaper than in Detroit.
I remember during the 90’s crash in San Diego there were a lot of squatters. They would find an empty foreclosed house, break in, change the locks and get utilities set up. From what I read they often could stay put for 6 months or more before getting kicked out. A friend who used to live in Escondido told me that the neighborhood watch program included watching out for squatters. Unfortunately the police didn’t seem to care, and wouldn’t respond when called.
What a great way to save up for a downpayment.
Good question,
folks are fleeing Florida, Cali, Michigan, Mass, and I’m guessing the U-hauls will be leaving AZ, and Nevada soon.
Best guess, everybody ends up in the Carolinas or Tennessee.
“folks are fleeing Florida…”
Not a mass exodus out of FL. We won’t see population decline as they’ve seen in MI in FL…That said, we sure won’t see the rate of growth in FL that’s been there for the past decade. Too big, too quick. Combine that with the insurance mess and poof!
I remember during the 90’s crash they had to pay people to drive the U-Hauls back to California, as it was a 1 way exodus.
“I remember during the 90’s crash they had to pay people to drive the U-Hauls back to California, as it was a 1 way exodus. ”
That’s right…and California still didn’t suffer a large population decline.
Yep - I moved there in 94 from Denver, and to get a huge truck and a car carrier cost me all of $700.
I actually just moved from Portland to San Diego, the Penske rental cost $450 including $100 for insurance for the big truck. THe other way was 3 grand or something.
Maybe we’re all moving to Mexico!
“Maybe we’re all moving to Mexico!”
Maybe we should. All the Mexicans are moving here!.
The irony is; once we do move there and get Mexico up & running, efficient, productive and competitive, they’ll all wanna move back to it again.
I still don’t know how Max the Detroit engineer can’t afford a condo. The average condo in Plymouth is $175,000, which is only 1.75 times his annual salary. How can the MSM not ask a couple of followup questions for this guy?
I think everybody choked on their Cheerios when they read that one today. It is really hard to imagine making that kind of salary and not being able to make it work out for you somehow…