A Problem That’s Not Going To Go Away Quickly
The Portsmouth Herald reports from New Hampshire. “As mortgage foreclosures increase nationally, the Northeast has not been as hard hit as other parts of the country. But the region is far from immune. ‘We’re seeing a significant increase in families that are unable to keep up with payments on their subprime mortgages,’ said Kerry York, executive director of CCCS NH-VT.”
“‘Recently, we met with a family trying to deal with a rate increase on their ARM. The rate change increased their monthly mortgage payment from $1,300 to $1,750,’ York said. ‘Most people don’t have that kind of wiggle room in their family budget.’”
“‘Some subprime loans have fairly exotic terms and conditions,’ said David Deziel, at CCCS NH-VT. ‘Anyone who has ever closed on a mortgage knows how tough it is to review a 10-inch-high stack of documents. During the process, there’s a lot of trust in the mortgage loan officer; sometimes too much.’”
“According to Deziel, ‘People need to recognize that there can be a big difference between the amount the lender says you are approved for and the amount that you really can afford. Only you really know what you can handle in your budget.’”
“York also has a new concern. ‘We’re now seeing a scaling back of mortgage products and a tightening of loan approval standards,’ she said. ‘Many people who may have been told that they could refinance if rates went up now might not have that option available to them.’”
“Many subprime mortgages were made in late 2005 and 2006. ‘We’ll be seeing the fallout from this through 2008 and perhaps into 2009,’ York said. ‘This is a problem that’s not going to go away quickly.’”
The Journal News from New York. “The pain of losing a home is hitting hundreds of people in the Lower Hudson Valley, as lenders seek to recover what they can from customers who fell behind on payments.”
“In Westchester, lenders began foreclosure proceedings on 527 homes during the first three months of the year. That’s a 39 percent increase over the first quarter of last year.”
“In Putnam County, the number rose 91 percent from 68 last year to 130 this year. In Rockland County, the clerk’s office reports 200 foreclosure initiations through the first two months of the year, a 33 percent rise over the 150 filed in January and February of 2006.”
“An elderly couple in Rockland County is preparing to give up the spacious home where they raised their two children…they were unable to keep up with the payments on $778,000 worth of loans they took out on their house in October 2005. The husband said he now realizes he and his partner should have shut the business sooner than they did.”
“‘We’re sitting in a house we’ve owned for (decades) and we’re going to lose it,’ he said.”
“‘A lot of people bought homes they had no business buying,’ said Kenneth Polin, president of Banner Mortgage Group Inc. of Scarsdale. ‘Many of those homeowners were introduced to what you would call ‘gimmick’ mortgage products. They had low introductory rates and basically were timebombs waiting to go off.’”
“Wall Street played a role, too, Polin said. Firms gobbled up mortgages, buying them in bulk from lenders. The lenders, knowing there was a lucrative market for their portfolios, pushed hard to make as many loans as possible, often giving money to people without checking their income or without requiring any money down, Polin said.”
“‘Those rates are adjusting and people cannot tolerate the adjustments,’ Polin said.” “John Sauro, the president of North Atlantic Mortgage Corp., which is in Stamford, Conn., said he believes that the foreclosure issue is getting too much attention. The press, political leaders, regulators and consumer advocate groups have all weighed in on the topic.”
“He said it’s important to note that the increase in foreclosures follows a boom in housing sales. It’s logical to expect that more housing sales is going to mean more foreclosures, he said.”
The Courier Life from New York. “The next two years could leave thousands of Brooklynites homeless, as the aftermath spawned by a ‘rogue’ industry comes to light, a federal lawmaker recently warned. A rash of foreclosures fueled by subprime mortgages is the cause, according to Senator Charles Schumer.”
“Schumer, who recently released an analysis of the crisis, said that by the end of 2008, 6,100 families in Brooklyn could be at risk of losing their homes.”
“Oda Friedheim, a staff attorney with the Legal Aid Society said the issue is nothing new. ‘Too bad it took Wall Street’s pain to put the problem on the spotlight,’ she said. ‘They have a bellyache because they swallowed too many bad loans,’ she said.”
“‘Our clients have been suffering for years under these abusive mortgages,’ she added.” Meghan Faux, an attorney with the South Brooklyn Legal Services Foreclosure Prevention Project said she sees firsthand how the dream of homeownership can turn into a nightmare. ‘Some people have had their homes for 30 years or more and are now at risk of losing them,’ she said.”
“In some instances, there have been multiple foreclosures on the same block, she noted.”
Newsday reports from New York. ” As the slide in housing from boom to bust continues, congressional attention is focusing on the skyrocketing numbers of home foreclosures caused by the collapse of the ’subprime,’ or high-credit risk, mortgage market.”
“A study released by the office of Sen. Charles Schumer shows that by the end of 2008, as many as 8,378 families in Nassau and 10,476 in Suffolk could be at risk of losing homes obtained with subprime mortgages. In the state, nearly 100,000 homeowners face possible foreclosure.”
“But not all borrowers were unwitting dupes. An uncertain number used risky loans as speculative gambles, hoping to sell the property quickly to make a huge profit before their mortgages’ higher interest rates kicked in. They deserve no relief.”
The Christian Science Monitor from Massachusetts. “Victor Castro bought his home four years ago, expecting the move would bring stability. The Massachusetts janitor thought he would no longer move from rental to rental.”
“‘I thought it was a step forward,’ says Castro, referring to the day he bought his home four years ago. At the time, land prices were surging in the Boston area, even in Lawrence.”
“Now it looks as if Castro will likely have to take a big financial step back. The home is up for sale. So are two other homes on his block, homes that are now vacant and on their way toward foreclosure.”
“Castro hopes he can get about $300,000 for his house and then give the lenders what’s left after the sales commission, probably about 75 percent of what they are owed.”
“As with many borrowers at risk, several changes combined to bring Castro to this point. Between his paycheck, his sister-in-law’s, and rent from the tenants, he was covering mortgage payments on the loan that had financed 80 percent of his original purchase, as well as on the loan that had financed the other 20 percent of the home’s cost.”
“But in recent months the rental income grew less reliable. One of Castro’s loans adjusted upward, which pushed his total payments to above $2,600 a month. Then came the biggest blow of all: His job was phased out.”
“All this comes at a time when the housing market in Lawrence is reeling. The number of foreclosures in progress doubled in 2006, with 425 as of December.”
“That’s weighing on home values in a city where only about twice that many homes sell in a good year, says Mayte Rivera, who is researching Lawrence’s foreclosure problem.”
“Lawrence is in some ways typical of the excesses of the nation’s subprime boom. The expansion of higher-risk credit was fueled by a confluence of factors: rising home values, rising buyer aspirations, and an influx of eager lenders.”
the CCCP of Vt
cute, maxine waters and others calling for more subsidized rent- the we’ll be like Holland- the postings from the NHZ are scary indeed
they out bubble the US by a mile
I need a JOB………….please the Paralegal job market in NYC is dead….dont bail out stoooopid greedy “homeowners” Chuck schumer..
That’s because you can hire an attorney for about the same cost as a paralegal in NY these days.
I thought all lawyers are very expensive all of the time?
Got 10% down?
I know attorneys that temp doing pretty much paralegal work for $20-$25 an hour. No benefits either.
It doesn’t make sense to hire para-legals when you can get that kind of deal. (And before you ask, these are guys from top tier schools with experience. The NYC market is just overlawyered.
Have you tried looking in Newark? There are some decent sized law firms there and the PATH is an eazy commute. And paralegals don’t have to be admitted in a particular jurisdiction. The pay won’t match NYC pay, but it’s a possibility.
What kinds of loans were people getting that they owned their homes for more than 30 years? Everyone that has a home that I know was able to refinance from a 30 year into a 15 year loan with smaller payments when the bubble started. I dont see the difference if someone is gambling knowing the terms of the mortgage or blindly signing paperwork without knowing what they are signing. Maybe I have more heart for the people gambling with their money than people stupid enough to not read what they are signing.
Gambling=Bad
IMO, the trend of refi defaults is shaping up to be a big surprise.
“IMO, the trend of refi defaults is shaping up to be a big surprise.”
True, and this little tidbit will blow a hole in the “the problems are confined to sub-prime loans” theory.
‘This is a problem that’s not going to go away quickly.’”
But wait….I was told by an “expert” on Bloomberg this morning that we’ve seen the worst from subprime, that it’s contained, and it’s effects will be all but gone by the third quarter.
shows how subprime was really mostly refi-cash out-throw away the fixed get a low teaser ARM. RE always goes up until it doesn’t.
I don’t know why it would be unless the people “surprised” were totally clueless about what was going on. I’m sure it’s a big issue in Texas where home equity lending has been available for less than ten years.
Re. these surprises. I agree and have been mulling this myself over the past few weeks. People on this board saw the evidence a couple years ago for how bad things were out there for the housing market. But it looks as though even we missed some of the evidence. Makes me wonder and gives me pause…
I feel pretty bad for the older couple who took out the loans against their home (to the tune of $750K) to support their failing business. The real question here is, should you give people enough rope to hang themselves, or should you protect them FROM themselves? I believe that anyone loaning a person money who can obviously see that the borrowers is not going to be able repay has a MORAL obligation not to loan that money. Whether it is a LEGAL obligation I don’t know. I would say that less than 10% of the population is able to decouple their emotions from their finances and manage money in a sound fashion. The rest wander through life leaving a trail of financial destruction behind them…
The problem is that older people will sue you if you turn them down based on their age. Even if there’s no chance in hell that they’ll live another 30 years to pay off the mortgage.
Feeling bad for a failed business? Most business’s fail in the first three years, why would anyone gamble a house at such an age for an investment? You’d think at a little more conservative approach to investing would have been wiser. Victims of their own incompetence they are.
Sometimes it is hard to realize that the game has changed. The old guy didn’t fully grasp that no amount of effort on his part would offset the unfair trade factors of competing with a country with few laws and a manipulated currency.
I guess the “easy money” made it easier for people to take what turned out to be foolish chances. Many of us would like to start our own businesses, but don’t because of the huge financial risks. Instead of having to go through the difficulties of justifying a small business loan, these people could rush in headlong without a good plan.
Alas, this is one situation I would not regulate. If someone has a business opportunity, one of the best ways to raise capital is to mortgage your house. Risking most of your assets is par for the course when starting a business. Again, the flaw is in the lenders… they made bad loans, probably took stated income on the business and assumed the house would appreciate. The discipline is going to come from the lending side, not the borrowing side.
at the tender age of ?
If you dont have a LEAST 2 years salary in the bank, leave the business idea to a later date. When you can afford to go without the income for a substantial period of time.
“As mortgage foreclosures increase nationally, the Northeast has not been as hard hit as other parts of the country. But the region is far from immune”.
And one of the reasons there are less foreclosures (beyond the Yankee work ethic) is we have fewer people who can’t read English.
For example:
% SPANISH SPEAKING:
California 27%
Arizona 20%
Florida 16%
New Hamshire 2%
Vermont 1%
Maine 1%
If you READ the terms, you might not have jumped in.
http://tinyurl.com/3dwje3
One important thing to consider, America…
If we start blaming immigrants for our problems, they can go home.
We can’t.
And that would be bad? Have you taken a look at the California schools lately?
A day without illegal immigrants was great around here. There was much less traffic and and the lines were shorter.
Could we have such a day in Arizona?
I don’t like the Bush immigration plan. It isn’t specific enough. To me the biggest problem is that illegal immigrants aren’t just doing the jobs “Americans won’t do”. It’s not just farm labor anymore. It’s service jobs and construction jobs that people like just fine and used to pay a living wage.
http://www.chron.com/disp/story.mpl/ap/politics/4698905.html
I’m not a fan of the Bush plan either. And don’t give me that crap about jobs Americans won’t do. I can remember when Americans did all of them. And I also remember when immigrants were happy to be here, didn’t have a big entitlement mentality chip on their shoulder, and were only too eager to learn English and be part of this country.
If we start blaming immigrants for our problems,…
Know the difference between legal and illegal?
Bring the illegals into the country, give ‘em mortgage loan agreements they can’t read, lend to them at ridiculosuly low — but adjustable rates and prop up housing.
Isn’t the problem that the people that CAN read English did not read the terms?
The list of the duped runs deep.
Are we to believe the far left publications like the Christian Sciene Monitor didn’t notice years ago that lending large amounts of money to people with small brains - was not going to result in a disaster down the road?
Gee who could have seen that?
Can you imagine a society that takes its least financially educated citizens and educates them, and provides them with credit appropriate to their ability to understand and repay?
Instead, we have a society where the top 1% richest use the financially uneducated as dupes to be raped of their last penny. There will be a price to be payed for this injustice - social stability will be undermined…
True.
They don’t call us a Kleptocracy for nothing!
“Instead, we have a society where the top 1% richest use the financially uneducated as dupes to be raped of their last penny. There will be a price to be payed for this injustice - social stability will be undermined…”
If the Democratic dudds (Dodd, Clinton and Osama) wanted to exhibit leadership on this issue, then your approach would be a good choice. But instead, they test the waters for a “save our homes” campaign, which would merely serve to steal from the financially prudent in order to reward the financially foolish,
and to reward the lending industry for making bad loans.
Better get a new keyboard, Stucco, there seems to be something wrong with your ‘B’ key.
This is Obama’s official release on the housing issue:
click here.
If you can find any evidence that he wants to use taxpayer’s money for a bailout, let’s see it. Put up or shut up.
Have you found those WMD’s yet BTW?
Hey HarryD, you might want to try thinking/researching before shooting off your mouth about the incompetent liberal media….here’s a blurb from just one of several articles in the CSM on the Housing Bubble
from the April 24, 2006 edition
Warning flags flutter on economy
By David R. Francis
Economists are reluctant to forecast recessions, especially since they have become less frequent in recent years. It is professionally damaging to wrongly predict such a slump.
Economists are less reluctant to warn of trouble ahead, such as a housing bubble bursting, trillions of dollars in loan-related financial packages coming unglued, or the dollar plunging as huge United States trade deficits continue.
And here’s a little anecdote for you…I have a friend who works for a well-known, publicly held company (probably has around 90% name recognition since their ads are on TV all the time)…Anyways, his company brought on a guy from to be a division VP, and the guy couldn’t sell his house he’d purchased recently in one of the more bubble-licious markets in the North East, but no worries, cause the company is gonna buy the house from him. If VPs of large companies with more than $20 Billion in market cap, whose salaries are in the $300K plus range were not capable of recognizing that we were in bubble territory a couple years ago, then how do expect Joe Sixpack to know any better.
The segment about Castro. They state his job, janitor, then the article goes on to talk about other items. They then come back and state his house is 300k and that he lost it due to his job being phased out. There is more to this story.
It doesn’t say how much he makes, but what’s the going salary for a janitor? Not enough to be able to afford a $300k mortgage I would guess.
It is WORSE than that. $300,000 is what the janitor’s house is worth now, and they say that is only 75% of what is owed the bank. So the mortgage was $400,000!
I talked to Victor Castro the other day. He said his next investment will be with a guy from Nigeria that is trying to get his get his lottery winnings out of the country…He only needs 20K…He is looking for someone to loan him the money.
I’m guessing there are about 6 of you that have not heard of the Nigerian Letter…
(not to be confused with non existant sales of yellowcake Uranium from Niger, to Iraq)
http://en.wikipedia.org/wiki/Advance_fee_fraud
This was a multifamily, and the owner was only paying a portion of the mortgage, with rents from tenants and his sister-in-law covering the rest.
His problem wasn’t the size of the mortgage, it was that he was undercapitalized in order to cover dead-beat tenants and/or turnover of tenants and then his job was “phased out”, something he obviously didn’t expect.
Moral of the story: when you purchase any property, make sure you have savings to hold you over during difficult times.
“As with many borrowers at risk, several changes combined to bring Castro to this point. Between his paycheck, his sister-in-law’s, and rent from the tenants, he was covering mortgage payments on the loan that had financed 80 percent of his original purchase, as well as on the loan that had financed the other 20 percent of the home’s cost.”
Rent from the tenants? I thought he bought this home to live in, so he could stop moving from rental to rental…..
The Shadow Knows
Renting out rooms to strangers or relatives to cover the mortgage.
Just another sign of the top of a housing bubble.
A janitor in the UAW with 20 years seniority working the 2nd shift, with mandatory overtime makes 90K+/yr.
Janitors making $90k+ in annual wages are themselves an excellent argument for their jobs being “phased out.”
Hoz, what is the hourly wage of a UAW janitor with 20 years seniority, and how do you know this?
Got 10% down?
As the economy slows, there will be blocks and blocks of empty homes all across America.
Interestingly, as the economy slows, I believe employers will feel more and more pressure to offshore jobs in order to reduce costs, further worsening the situation. One problem with having homes sitting empty, is that they can become the target of squatters, who often destroy homes and can be very difficult to evict.
The ONLY answer to the current bubble is to allow it to pop, so we can all go about our lives like before the monster. Efforts to keep it inflated will only worsen problems over the long haul.
And pop quickly - like ripping off a bandaid. That’s how I feel.
That’d be ok, but some idiot used superglue to affix that bandaid to our collective bits of skin…
Come to Palm Beach county. There already are blocks of empty houses. I live on one of them!
Also, for those who did not see it; another huge haircut in my neighborhood, below ~30K below last sale (2005). I will be happy to repost it if anyone missed it.
It’s expensive to air condition these McMansions; even if you don’t live in them. It be durn hot down herre in S. FL.
Oh, and season is either over, or almost over (depending on your defention). The long, hot, expensive summer season starts soon; another 200 bucks a month in electric for the FB to keep the empty air circulating (for those who don’t know, you can’t ever turn off the AC in S. FL; the mold will eat your home in no time flat).
and freezing in the North peels the paint
weeeeeeeeeeeeee
2nd homes for everyone
It’s expensive to air condition these McMansions; even if you don’t live in them.
Yep… if you don’t run the A/C, the mold quickly destroys FL homes.
Neil
What did people do before A/C?
BC: Before A/C Florida was a swamp. The locals lived in huts on poles — the dung-and-clay mix probably controlled the mold. Maybe one could stucco the interior of you MacMansion with some organic anti-mold paste?
don’t forget insuring them, if you can get it.
And… Certainly don’t forget those millage rates approaching 2% in Palm Beach County. Ouch. An empty $750K McMansion costs around $15K per year in taxes alone. The $200 monthly AC bill is miniscule compared to the taxes.
“rising buyer aspirations”
Nice way to describe consumer greed. These victims merely tripped over their “aspirations”–not their appetite for expensive toys and trips they could not afford, or houses priced far beyond their salaries. There is such an effort to gloss over buyer’s irresponsibility in all this. The mortage paperwork is too hard, and has too many pages–so they just signed. They can’t be asked to think for themselves–so blame the brokers, lenders or re agents. They can’t be expected to know what they can and can’t afford. And they certainly can’t be asked to do without anything they see advertised on television.
People with nearly paid off 30 year mortgages taking out huge Heloc’s and losing their homes…are they going to be bailed out too? After all, they did their patriotic “shopping”.
For all the talk about fundamentalism in this country–the real religion is consumerism.
millions worship each night at the alter of the televion getting their daily sacramentof advertising.
‘Anyone who has ever closed on a mortgage knows how tough it is to review a 10-inch-high stack of documents.’
WTF?? I have NEVER seen a stack of documents 10 inches high for a residential real estate transaction. Our might have ranged to 20 pages, but that wasn’t even half an inch. In fact, we could read them all word for word the night before. They’re exaggerating in order to wring sympathy for people who are too greedy or lazy to read the agreements they enter into. I call bullsh1t.
Yep - agree completely.
If you can’t read mortgage documents, you really shouldn’t be buying a house. Otherwise you’re asking to be screwed by every repairman that works on your house, by the tax man, etc etc etc. You have to be willing to take the time to look at the documentation - at least the key points anyhow.
In practice, all of the important stuff is on the single TILA statement anyway (APR, term, adjustable or fixed, balloon payments, demand feature, etc.). Our closing packet was 1″, and I read it all ahead of time, but even if you just focus on the TILA you can prevent all kinds of trouble.
Not to mention that (at least in NY), you pay a lawyer to read it and explain it to you too.
dont forget the morons who cant read english who signed these loans
“According to Deziel, ‘People need to recognize that there can be a big difference between the amount the lender says you are approved for and the amount that you really can afford. Only you really know what you can handle in your budget.’”
I suppose in some ways I agree with this, in that I have several credit cards with total lines well over 100K. Being responsible, however I recognize that this is not a license to shop. I believe however that in the current real estate market, the amounts folks are approved for is often two to three times what they are able to repay, and given current housing prices demand every cent we have a serious problem. Tightening credit markets will to wonders for the price side but all in good time.
I would definitely not be investing in the cruise industry for a few years.
The cruise industry is largely responsible for allowing the citizenry of the world to go to exotic ports of call and see nothing, and come home and think they’ve seen something…
Or you might short sell it (CCL). Disclaimer: no idea what the chart looks like at the moment but I had a good short on it last year.
What they dont tll you when you book your cruise is that all of the booze and excursions are extra. When you pay off that tab before you disembark you bend over and receive your credit card bill for those giant poolside pina coladas.
The 30% of annual household income on mortgage payments (with income verification) served just fine for years and years; why throw away a rule of thumb that worked well for generations?
Because it made it really difficult to sell homes at 2X the last sale every 3 years.
That’s what I find hard to answer. If it ain’t broke, don’t fix it.
“It’s logical to expect that more housing sales is going to mean more foreclosures, he said.”
NO! after a housing boom it is logical there will be more foreclosures because prices were too high for folks to afford, and credit was too loose and of course there is a staggering number of toxic loan products floating around right now, each one a time bomb for the holder.
Anyone who has ever closed on a mortgage knows how tough it is to review a 10-inch-high stack of documents.
WTF?? I have NEVER seen a stack of documents 10 inches high for a basic residential real estate transaction. Ours might have ranged to 20 pages, but that wasn’t even half an inch. In fact, we could read them all word for word the night before. These people are exaggerating in order to wring sympathy for people who are too greedy or lazy to read the agreements they enter into. I call bullsh1t.
10″ is nuts. Ours was far more than 20 pages and easily a couple inches thick as a total package.
I caught some errors/typos like a misrepresented rate in our 10% bubble loan and fees that did not apply to us. Also we used the same Title Co when we refinanced out of the bubble loan and, by CA law, can get a discount on the title fees - that was missing in round two.
I feel for people bc this is a hard process to follow but if they’re using some bozo mortgage firm to get a low, low rate, well it’s added risk over a long term Bank that’s regulated. There’s no free lunch.
” As the slide in housing from boom to bust continues, congressional attention is focusing on the skyrocketing numbers of home foreclosures caused by the collapse of the ’subprime,’ or high-credit risk, mortgage market.”
Shouldn’t this read
skyrocketing numbers of home foreclosures caused the collapse of the ’subprime,’ or high-credit risk, mortgage market.
Adding the “by” reverses the order.
10-year note up 1.56% today - big move.
http://tinyurl.com/9jfay
It’s a bad time to be long on long-term Treasuries, as it appears the Fed has decided to test whether the Phillips curve is extinct, or merely dormant. I personally vote dormant, and soon to be reactivated.
That is a big move. It’s done nothing to change the shape of the inverted yield curve, however.
http://www.bloomberg.com/markets/rates/index.html
The yield curve seems to be insisting that a recession is in the pipeline over the next five years.
The yield curve seems to be insisting that a recession is in the pipeline over the next five years.
And people are going to re-learn to listen to the yeild curve.
Got popcorn?
Neil
To last for five years or to start in five years.
I thought a recession had been predicted to start sooner.
Beautiful reader comments on the Newsday website:
I’m all for bailing them out….bailing them out a cupful of soup from the big tub at the flophouse.
I concurr, a breadline is the appropriate bailout. I’ll be there handing out loaves of bread. We’ll even have tubs with little packes of mayonase and butter.
Ok, small exageration (except for Detroit and Florida).
Got popcorn?
Neil
In the soon to be coming summertime…
A pint of Stephen Colbert’s Americone Dream ice cream, would satiate, if only temporary.
Another deviously good Ben & Jerry’s concotion
Not as useful of a tool, in the winter.
Suzanne and Neil - funny! We’ll soon be needing more soup kitchens.
As long as politicians are in bailout mode, why not propose a general bailout for all debtors? This would include forgiveness of consumer debt on charge cards, auto loans and student loans, a repeal of the recently-passed new bankruptcy law and offers of low-interest fixed-rate refinancing for anyone who is having trouble managing their debt burden. Why limit bailout largess to only the biggest ticket item (homes priced at $400K on up)?
Cool.
I am going to sell my Acrua and go buy that M3. I knew I deserved it; and if we are propsing a massive credit bailout, I want to make sure that I am going to participate!!
Shoot, forget the M3. I really deserve a Masarati. Maybe I can get a teaser rate loan on it; that will truly make me a “victim” of the evil lenders!
Your chances of a glimpse of that M3 went away long ago…
For you Roman history buffs, that is exactly what a senator named Cataline proposed in late-republic Rome. There was a lot of “predatory lending” going on in the country and a lot of senators, ex-soldiers, and common people (FB’s) were up to their eyeballs in debt. Cataline proposed a general cancellation of all debts. The aristocracy (the Goldman Sachs crowd of ancient Rome) didn’t like the idea and drove Cataline out of Rome. He eventually tried to to create an armed uprising and was crushed by Republican forces.
Let’s hope history repeats itself in this case. Perhaps one of the blue state presidential candidates can replay Cataline’s role.
Invest in a condo in Catalina?
And, there’s actually a Judaic precedent for it - the “Sabbatical Year”, which occurs every seventh year.
From Wilkipedia, “The regulations of the Sabbatical year include also the annulment of all monetary obligations between Israelites, the creditor being legally barred from making any attempt to collect his debt.”
But since it was right there in the laws and everyone knew about it, I’m sure the number of loans made in each year (and the amount of time required before repayment) changed during each year in the cycle.
It was a limit on lending practices, but the market can adjust for known quantities. Also, weren’t there exceptions to the 7 year rule, but not for the jubilee year that was every 50 years (after every 7 cycles of 7)? Something about land remitting to the original tribe every 50 years so that in effect there were no land sales but only long-term leases? Same thing for Israelite slaves?
I forget the details…obvuiously.
And lets go ahead and bail out people who can’t pay their rent.
Let’s just go ahead and bail out everybody who owes anything.
“And lets go ahead and bail out people who can’t pay their rent.”
I totally agree. I have been eyeing these 3000+ sq ft McMansions in my zip code that rent for $3000/mo on up. We really can’t afford to rent anything this expensive, but if I nonetheless sign a lease then don’t pay, maybe a well-timed government program will kick in that implies no worries.
“An elderly couple in Rockland County is preparing to give up the spacious home where they raised their two children…they were unable to keep up with the payments on $778,000 worth of loans they took out on their house in October 2005. The husband said he now realizes he and his partner should have shut the business sooner than they did.”
VERY poor business decision. In Summer 2005, wife & I looked at the economy. We factored in at that time the pending refi & arm resets. We adjusted our business (was never cash flow negative, but we knew it would be in 2007).
We closed ALL retail operations (so sorry folks, last paycheck, time to go. We’re closing it, good luck).
We killed ALL retail, we kept commercial & product manufacturing as it does not have the same tie to consumer finances, nor the overhead.
We now have ZERO overhead, and are much more profitable (We just use the shop in the back of our place), less stress, more net income, less carrying costs (inventory, lease, CAMS, personel etc…).
Anyone who runs a business MUST watch the economic tradewinds to gauge their pending activities and be proactive. Reactive behaviour results in bad things.
We KNEW we would be cashflow negative in 07, so we made our adjustments in 06. Just because your business made money this, it does NOT mean it will do so next year.
Dumping 3/4 million into a sinking or stagnant business is all emotion. It is not just subprime people who will go through this economic event with bruises. Businesses in bankruptcy are up over 60% so far in 07. Businesses with CC debt over 30 days is up over 300%. These are the economic indicators one must match.
Why didn’t they do a reverse mortgage if they are “elderly”??? Then wouldn’t they still have their home? I keep thinking I can’t be amazed anymore, but then one more moran blows that belief away
I like your strategy! Less is more in many cases. I truly helieve that your PPE (profitability per employee) goes down with each that you add - regardless of business or model.
Absolutely agree 100000%. We have always done our best to keep headcount low for that exact reason. Most folks don’t realize that an employee costs 200% of it’s wage, and thus needs to generate 400% of it’s wage in revenue to justify it’s existance.
Arioch: Maybe you should say “his” instead of “its”, unless your employees are not human.
“But not all borrowers were unwitting dupes. An uncertain number used risky loans as speculative gambles, hoping to sell the property quickly to make a huge profit before their mortgages’ higher interest rates kicked in. They deserve no relief.”
This gets to the heart of the problems with offering a bailout. How can you separate the speculative gamblers from the unwitting dupes? And why would you want to reward either group with a bailout, for that matter?
I agree. And in the way of things governmental, the speculators and fraudsters will elbow their way to the front of the line while the unwitting dupes screw up their paperwork and miss the deadline.
“As with many borrowers at risk, several changes combined to bring Castro to this point. Between his paycheck, his sister-in-law’s, and rent from the tenants, he was covering mortgage payments on the loan that had financed 80 percent of his original purchase, as well as on the loan that had financed the other 20 percent of the home’s cost.”
How many people were stuffed in that house? This is the typical business for immigrants, illegal and otherwise, to join the “ownership society”. Leverage your small paycheck with 8-10 other small paychecks to buy a house you would never be able to afford. The problem with this business model is that it increases the risk you will lose your house. With 100%, zero-down financing, I’m betting Mr Castro based his ability to pay his mortgage on every one of his tenants having a reliable income and on his payments never going up. If any one of his tenants loses his job he can’t pay the bill. Plus, it’s a fair bet that most of his tenants are in the same leisure-construction-maintenance-type jobs. Heck, they’re probably all janitors like himself. Any downturn in the local economy for those types of jobs will wipe out his “dreams”.
Also , apparently the lenders didn’t care what they were lending the refinance money for regarding this elderly couple .Old time underwriting would have serious questions about why a borrower needed money for a business ,(the same business that was used to qualify for income on the loan ). If the borrower knew they were going down in the business in 2006 than I’m sure the income they put on the loan application was a over-estimate .
It just goes to show that the lenders didn’t even underwrite these loans and question the reasons for such hefty dollar amount refinances .Also, I’m not so sure that some of these refinances aren’t just people pulling out money before they go BK so they have a pauper story to tell the Judge and creditors .
Business is all about risk management. If you risk your home for some business prospects, you’d better be darn sure about those prospects. A much smarter choice would be a business loan, or pick up another partner. If you can’t get said business partner or loan, then maybe it’s time for a different venture.
A smart businessperson won’t lose all his/her important stuff just because some prospects fell through. Unless of course they like standing in line with their family at the soup kitchen.
You can’t protect people from failure, just offer a minimal safety net i.e. SS and Medicare.
I’ve been in business for a long time. But there’s no way that I would bet my house on the business. Sorry, but that’s just too risky for my taste.
Chance the Gardener: “Yes! There will be growth in the spring!”
Alt-A lender (not subprime) in trouble: AHM cuts profit forecast.
http://tinyurl.com/35vjh9
(dated Apr 6 - sorry if old news but thought it worth posting)