“Throwing Caution To The Wind”
The Mail Tribune reports from Oregon. “It sounded like the perfect home loan. When times were tight, Lola could pay as little as 1 percent interest on her Ashland home, postponing a payment or two until the end of the loan. And it was an adjustable-rate mortgage, which typically starts out lower than a fixed-rate mortgage.”
“Now Lola, who did not want to give her last name, must sell her beloved house. Rising interest rates have increased her payments, and she can’t make them anymore on a Social Security income. She owes more on the house now than when she bought it.”
“Lola’s not alone. Defaults on home loans in Jackson County have skyrocketed in the last year, increasing by 82 percent since 2005. According to the Jackson County Clerk’s Office, 400 defaults were filed in 2006, compared with some 220 the year before. In December, 71 were filed last year, compared to 25 in 2005.”
“This year promises no better: 46 defaults were filed in January, 40 in February and 57 in March.”
“Once the real estate market slowed, interest rates climbed, and so did the payments. A year ago, only a couple of defaults were filed every week. Now it’s two, three or four a day, said Jackson County Deputy Clerk Chris Walker.”
“Calls to defaulting buyers were not returned or the buyers declined to comment. A summary of the ‘default with election to sell’ statements in the clerk’s office, however, listed many with high interest, payments and balance.”
“A home on Myers Court in Medford showed a $147,000 balance, 9.6 percent interest and delinquency of five, $1,255 monthly payments. Another, on Midway Road in Medford, had $135,000 owing at 8.25 percent, with four payments of $1,015 delinquent.”
“‘The foreclosure rate here is fairly high. I get a list every week and it’s an inch-and-a-half thick,’ said retail loan officer Chris Jacobsen in Medford. He estimates that 80 to 90 percent of foreclosures here are subprime.”
“Said Judi Robinson of People’s Bank in Medford, ‘I call them ’slime-prime’ loans. I saw 16 foreclosures filed in the last two weeks. Most are nonconforming, subprime loans. People were not qualified and got loans with a ’stated income’ program. The way they were qualified was pretty sad. The subprime market was developed for people who don’t pay their bills.’”
“‘Now they owe more than they have,’ Robinson said. ‘They’re unable to sell because they owe more than it’s worth. (Buyers) waited too long to sell. They panic and they do a short sale.’”
“In short sales, sometimes the lender has to ‘eat’ the loss and sometimes the borrower carries it as a debt, she said.”
“‘It’s pathetic, sad, throwing caution to the wind like that,’ Robinson said. ‘The subprime market had no strict guidelines and allowed buyers to extend their debt-to-income ratio out to 55 percent, when it should be under 44 or 45 percent to be safe. If they haven’t paid their bills now, what makes you think they’re going to pay their mortgage in the future?’”
“Referring to the loose standards for qualifying borrowers, and the steep adjustments and harsh prepayment penalties, Robinson said, ‘It makes me vibrate with anger.’”
“The subprime lending industry in 2003 became ‘extremely aggressive’ in getting money lent out, said Jacobsen. Before that time, borrowers couldn’t get a loan with a credit score under 650, but lenders began giving 100 percent loans with a 550 score, he said. ‘The price of property was going up and the quality of buyers was going down.’”
The News Tribune from Washington. “Olympia foreclosures. So last week the state’s capital landed on a top 10 list for foreclosures, as ranked by RealtyTrac.”
“Why all the foreclosures? Perhaps Olympians are being hit harder than others in the Northwest by the subprime mess.”
The Daily News from Washington. “Cowlitz County’s house price are getting more overvalued, according to a new report. The typical house in the county was 35.1 percent overvalued in the last three months of 2006, according to Global Insight.”
“‘It shows you how inexpensive things had been in recent years in regards to affordability,’ said (broker) Jerry Flaskerud in Longview. ‘Cowlitz County is going down the path of catching up with the rest of the west.’”
“For March, the county housing market continued to cool slightly with fewer homes sold and more up for sale. The median price of houses sold in March was $175,500, down for the second straight month.”
“One important number continues to increase. The 602 homes on the market last month was up nearly 63 percent from a year ago. ‘We’ve got quite a bit of inventory,’ Flaskerud said.”
“In a sign of how rapidly the region is growing, the number of construction permits issued by the Cowlitz County Building and Planning Department has increased by 46 percent between 2003 and 2006.”
“The department granted 362 new construction permits in 2003 and 529 last year.”
“The subprime market was developed for people who don’t pay their bills.”
That’s sick!
Today they had a lady on CNBC who was all for a subprime bailout saying “We need to keep lending to subprime customers - just ones with quality credit”. She really said this! She was black btw…(no Imus jokes, please).
Thats funny! Subprime means NO credit quality.
Waaaa… I’m stupid! Waaaa…. Pay my bills for me! Waaaa…. Why should I save for something I want it now! Waaaa….
The government should just give everyone 1 million dollars then nobody would be poor
Not true! My ex wife took much more than that and she is now POOR.
Damn, I wish I’d been married to you. I got screwed.
“The government should just give everyone 1 million dollars then nobody would be poor ”
but then a hamburger would cost 2 million dollars. haha.
Then maybe a new Kia would be less than a hamburger. Whee!
Isn’t a 550 credit score pretty low? What did these people have to lose in the housing gamble? Buy a house because real estate only goes up and make a quick buck just like the neighbor.With a trust deed there is no deficiency judjement allowed so if the home loses value the bank cannot come after them for the loss. They get free rent for awhile after the notice of default.If their credit is bad to begin with what do they lose by gambleing just like everyone else? Am I missing something here people?
Check this out, say you had a 550 fico and got a Neg Am ARM with no down payment you could live in a sweet house and pay less than it cost to rent the place! Combine that with cash at close kickbacks and HELOC’s and “homeowners” can do pretty well if their plan the entire time was just to default.
Of course this is fraud
arizonadude,
Exactly. It’s the way I see it also. Now some of our elected representatives want to bail these people out!
“We need to keep lending to subprime customers - just ones with quality credit”
WTF? What were her credentials? Did they pull her off the street?
Come to think of it she did look kind of like a nappy ass ho.
Why do we have to go there! Some folks can’t help themselves it seems. There is enough evidence that AA and other minorities are not the only people caught up in this mess…look at the map of where the hardest hit communities are located!
Looks like they’re getting the “common man” to speak for the REIC now. Kind of like the carpenter from San Diego yesterday who proclaimed that “housing always goes up” after it was announced by the industry that it had gone down.
Pressboard- I’m thinking you’re some kind of a-hole right about now. Please keep your true colors to yourself?
“She was black btw”
Relevance?
I would suspect that a disproportionate ratio of sub-prime loans were made to minorities. So, who better to promote the sub-prime loan industry?
Wasn’t presented that way.
My thoughts exactly.
See comments above, consider what % of AA live in sime of the hardest hit communities like WA, CO etc.
Reasoning is a skill…missing from your skill set or blind bias, either way a flawed conclusion
She’ll call you a “racist” if you don’t support a bailout.
‘The subprime market had no strict guidelines and allowed buyers to extend their debt-to-income ratio out to 55 percent, when it should be under 44 or 45 percent to be safe.”
You think this is only limited to subprime? Hah! i laugh in derision. Let me tell you folks, toward the end of the madness you could run an A-paper, full doc deal through FNMA’s automated system and get an “approve/eligible” with DTI’s in the 55%+ range. My personal record was an approve at 57%, but I’ve heard others have gone higher. This is supposed to be your top-notch paper, the cream of the crop. I keep screaming this: ITS NOT JUST SUBPRIME THAT’S SCREWED!!!!
“If they haven’t paid their bills now, what makes you think they’re going to pay their mortgage in the future?”
Not to worry, we give these folks a loan and sell it off with a bunch of other ‘C’ paper mortgages, it will get an ‘A’ credit rating as an MBS and if it goes bad, the government will bail us out.
From the movie the Wheeler Dealers
Feinberg, Taxi Driver: You’re just like my wife, mister. You don’t understand the economics of the situation.
Henry Tyroon: Then teach me. I’m interested in the economics of about every situation.
Feinberg, Taxi Driver: Well, there are 11,000 cabs in the city - and no new permits for the next twenty-five years. Now suppose you wanna buy a cab and start hackin’… you gotta get a new permit, too. Now the tab on a new permit is eighteen thousand five hundred on the open market.
Henry Tyroon: And how much did your cab cost, Mister
[looks at driver's ID]
Henry Tyroon: Feinberg?
Feinberg, Taxi Driver: Thirty-three hundred… new.
Henry Tyroon: Mm-hmm. Then that makes your investment, uh, with the permit, come to about $22,000.
Feinberg, Taxi Driver: Yeah. But don’t tell my wife… she’ll think I’m rich.
Henry Tyroon: Mm-hmm. Mr. Feinberg, I’ll give you $24,000 for your cab and permit.
Feinberg, Taxi Driver: You wanna buy the cab?
Henry Tyroon: Right. But you come along with it. I’ll need your services for a week, maybe two.
Feinberg, Taxi Driver: No, look, mister, I can’t sell the cab. I need it.
Henry Tyroon: Well, I figured that. So, when I leave I’ll sell it back to you for… $22,000.
Feinberg, Taxi Driver: You wanna lose two grand just to keep your feet dry when it starts to rain?
Henry Tyroon: I don’t lose, Mr. Feinberg. See, I borrow the money and then I get a deduction on the loan interest and another on the depreciation and another on the loss when I sell it back to you. And you make a nice profit.
Feinberg, Taxi Driver: You win and I win. Uh-uh, there’s gotta be a loser somewhere.
Henry Tyroon: Taxman loses. He usually does on a Henry Tyroon deal.
Feinberg, Taxi Driver: Mister, you’ve just got yourself a taxi.
“I want to buy your house but I’m not f*cking paying for it.”
“You drive a hard bargain, but you’ve got yourself a deal!” says the bank.
Isn’t that about where we are right now???
OK, lets do the numbers.
Borrows $24K as business loan, lets assume at 10% for two weeks.
interest will owe to bank/deduction - $92.
Taxi permit is not a depreciating asset.
deduction - $0.
Car is a depreciating asset but value new was $3300 and it is used now. Value at current purchase is certainly lower. Depreciation calculated straight line and call it a 3 year asset and value is $2500.
Depreciation deduction is $32.
Business deduction for loss on sale back to driver - $2000
Total deduction = 2000 + 92 +32 = $2124
Cost = 2000 + 92 = $2092
Oops, we have a problem. We don’t know what it would have cost him to hire a car and driver for the week. At a time when a new car is worth $3300, lets be very generous and say he could have hired a car and driver for two weeks for $500.
So, he pays an additional $1592 of cost for the car and driver using this structure in order to get an additional $1624 in tax deductions (the $500 would have been a deductible business expense too).
He “wins” from a tax perspective if his marginal tax rate is 98.03%.
And that doesn’t even count the driver paying capital gains on the sale of the car and permit for $24,000 ($1000 plus depreciation recapture on the car).
U need to get a life…
I can’t believe you actually figured that out.
I bet you’re the type that checks the math during presentations to verify that the stated percentages are right.
- not being critical, just making an observation.
Yo, folks, this is not rocket science, just basic business stuff. Total time invested was about 5 minutes, maybe less.
The only “decisions” were assumed value of the used car, assumed cost of the car and driver for two weeks and rate on the business loan. I didn’t look them up - I guessed.
I did use a calculator - dividing by 26 in my head is not one of my talents.
Umm,
Yes, he bought the cab. With it comes insurance, sales tax, and lets not forget excise tax. He loses.
Oh man….my post just got eaten.
I did the numbers out on this one. For the purchase/saleback to be better for Tyroon (and assuming he could hire a car and driver for $500 for two weeks which seemed reasonable for a time when a new taxi cab cost $3300) the break even point for the additional deduction is a marginal tax rate of….98%
So, unless his business has a marginal tax rate over 98%, he loses on the deal. So many tax evaders…so little time.
“People were not qualified and got loans with a ’stated income’ program. The way they were qualified was pretty sad. The subprime market was developed for people who don’t pay their bills.’”
Gee, what a newsflash. And all the bailout talk is making me ill. These people never should have been given mortgages in the first place. It is not anyone else’s problem to make them “whole” financially. If the lender wants to cave, great, that’s between them and their stated income-can’t pay their bills FB.
There’s only one problem. The “lender” didn’t use his own money. The big scam was Wall Street packaged these things and conned Moodys and S&P to slap a AAA rating on them, then they sold the trash onto the market.
There are a lot of dirty hands here. Some folks like Fleckenstein called foul on the thing early on, with plenty of time to limit the damage. The GSEs & Wall Steet have too mucy money flowing into Washington, though and it was unstoppable.
‘The number of Americans filing new claims for unemployment benefits rose last week to the highest level in two months. The states with the largest increases were Oregon, with a rise of 1,780, and Missouri, which had an increase of 1,676.’
‘Kenneth Heebner, manager of the top-performing real-estate fund over the past decade, said U.S. home prices may plunge as much as 20 percent because of rising defaults on riskier mortgages.’
‘It will be the biggest housing-price decline since the Great Depression,’ Heebner said today in an interview in Boston. Prices may fall by a fifth in some markets, he said.’
‘The investment banks and brokerage firms that package and sell these products won’t get hurt because they have passed on the biggest risks to the investors, Heebner said. ‘They know the product is toxic; they’re not going to get caught,’ Heebner said.’
Interesting that while the packagers could stick it back to the subprime originators, those buying the MBS do not appear to be able to stick it back to them. Unless I haven’t heard that part of the story yet.
‘The number of Americans filing new claims for unemployment benefits rose last week to the highest level in two months. The states with the largest increases were Oregon, with a rise of 1,780, and Missouri, which had an increase of 1,676.’
No surprise there. Historically, Oregon has always had a high rate of unemployment, oftentimes leading the nation. With Portland as a possible exception, there’s serious economic pain on the horizon for that “poor” state.
Bear, I hear you. I wish it weren’t so because my mom lives up there. OR is going to get hammered. They seemed a bit late to the party, but then really rocketed upwards at an incredible speed. When people say that housing IS the economy, OR is a poster child.
Lumber has come and gone. High tech has come and is going. Only things left are construction and Linus Torvalds groupies. Not a pretty picture.
Prices may fall by a fifth in some markets
Resales bought at the peak (’05) are pretty much already there in my market (exurban Washington, D.C.)
Last July, Heebner in a WSJ Interview was calling for 50% declines. I don’t know whether he’s softened his stance (unwarranted IMHO), or factoring in declines of 20%+ from peak that have already occurred in places like Fla and Ca Central Valley.
I noticed that too. Maybe he’s trying to soften the blow now that we’re inching closer.
That snail’s getting closer to the buzzsaw.
Forgot to mention, the Ashland local paper ran an article last year about all the wonderful mortgage programs out there, how people really could buy their dream home, blah, blah. And the most “popular” financing in Ashland was 103%, which I’m assuming is ZERO downpayment plus closing costs wrapped into the loan.
Something tells me the sob stories will snowball from here.
Ashland/Medford/Jacksonville are going to be an absolute bloodbath. Im tossing in Bend as well…. growth is unsustainable, and toxic mortgages will upend any sort of buiding love affair. AS for Portland, prices are just plain dumb.
I agree. Some posters here may not realize how incredibly poor areas like Medford, Grants Pass, and the like have been. I see a return to the past in their future.
Many, many people living lives of quiet desperation in the Rogue Valley, but they haven’t taken up pitchforks yet.
Yes, Bend is not looking to good. YOY March numbers were -18% down in sales and YOY inventory is +170%. Prices are coming down slightly but most are holding out for last years prices. Not much drop in the median price…yet.
The local media spins all the bad news and most everyone is still in the ‘we are different’ phase and proclaim in-migration to be the savior of all our woes. My guess is that the second quarter numbers will be even worse which should start some pretty good price drops. There is alot of RE greed in this town so this good drag on.
…this could drag on. sorry.
I was wondering where you got the Bend data from? I would like to be able to track this myself. Thanks!
The size of the snowball is what amazes me. Okay fine, some people don’t read fine print, there’s a sucker born every minute, some people are greedy, some are shamed into buying. But 2.4 MILLION poeple? The magnitude of this scam is overwhelming! And people are still lining up to buy, to refi, “mortgage-free for a year” scams, STILL. It’s got to be the greatest fraud ever perpetrated on a people in the history of man.
But hey, what do you expect? I guess some people still smoke, too.
Man, you should see the local MLS realtor electronic bulletin board…full of “owner desperate, you MUST make any offer”, “owner is sick, needs to sell NOW”, “realtor/owner - must pay bills!”, “MAKE offer, before foreclosure!”, etc., etc. And the incentives…the most retarded one I read was in February, “free roses for a YEAR to buyer!”…on a 1.5 million listing. Free roses????
A good seller should never let the buyers no their financial situation.If I listed a house I would not even let my realtor know if I was desperate or not.Once people find out your motivations for selling their offers will reflect it for sure.
agreed…but these remoras just don’t care who knows what, as long as they get a commission. Plus, many are posting that stuff at the urging of their seller…they ARE desperate and they don’t care who knows! It’s easy enough for a savvy buyer to look up what the seller paid and how much he’s into for….you can find out just how hard he’s HELOC’ed into a place.
Awww poor FBs…if I were either Jesus, Mother Teresa or Superman, then I would surely come to rescue…but sadly, I’m not, I’m just a bitter, loser renter patiently waiting to take your house after a massive 50%+ price cut.
Damn, I must have either been a shark or a vulture in a past life.
It takes a lot of patience to sit out the bubble here in Ashland, let me tell you. People still talk about Ashland being the next Aspen.
The good thing is that rents are so cheap here in comparison to the ridiculous house prices. Average household in Ashland is $50,000 — Average house price somewhere north of $400,000.
Inventory has now reached the high of last fall, and the prime selling season hasn’t even started, so this summer and fall are looking like a a real reality check for Ashland.
We’ll start looking in the fall of 2008. We won’t be near bottom by then, but I think the market will look significantly different.
It’s best to not even look at homes and listing prices right now. Just take your ball and go home for a while. Let the greedheads roast for the summer.
Ashland Renter:
I’m looking to buy same time, Fall 2008 or Spring 2009. I’m hoping the market will indeed be different by then. Perhaps the wishful thinking that CA money will bail out every Ashland homeowner just in the nick of time will be over.
I was in Ashland in the summer of 2001. I assume it has changed since then, but Aspen it wasn’t. Has the downtown picked up at all?
We did see a reasonable production of Troilus and Cressida.
“Rising interest rates have increased her payments, and she can’t make them anymore on a Social Security income. She owes more on the house now than when she bought it.”
Didn’t she know she was on Social Security or going on Social Security when she took out the loan? Could anyone actually be this stupid? And could anyone actually be immoral enough to get her into a house loan knowing she couldn’t pay it back?
Obviously, it is true these loans were created for people who couldn’t pay them back. The whole thing is a scam, unloaded on unknowing investors at the bottom of the pile, while everyone else makes out like bandits, which, of course, is the whole idea. Redistributing wealth from those who have little or none to those who have more than anyone on Earth could possibly need. Surely somewhere in the grand scheme of things, these horrible schemers will be brought to justice???
Doubt it. Worst case, they can’t package anymore or the cost/risk for doing so will be such that they move on to something else.
They are STILL doing these types of loans in So Cal-Oceanside. My daughter’s employers’ son is getting one these as we speak for a 500K home. He’s been trying to talk my son-in-law into this …in his words “No risk loan”. He’s a FLAKE of the hghest order. NEVER pays his bills or employees on time; no savings, can’t even get a credit card. I could go one about his “credit worthiness”… but he’s getting a loan nonetheless. I will NOT support a bailout of these loans. No way no how!
This shit is still going on, right now, even as we type. My wonderful, fabulous, lovable landlady in Santa Barbara is 87 years old. I rent her beach house and, ergo, have her old phone number. I get something like 10 calls a week from predatory lenders, trying to lure her into refinancing the property she has owned since 1959 (which I assume is pretty much paid off;), even though I have taken it upon myself to put her on the “do not call” list. Typical call:
PL: “Hello, YourGrandmother’sFirstNamehere?” (they never call her Mrs. X, always use her first name).
Me: “Yes?”
PL: “I have the paperwork on your mortgage on my desk…”
Me: “Do you currently have a business relationship with Mrs. X?”
PL: “I have her paperwork right here on my desk! Are you a relative?” (I assume, if I said I was a relative, they would try to lure me into signing away my mother’s/aunt’s/uncle’s property, in order to pay off my own credit card debts (happened at my mother’s house in Texas; am still not speaking to my sister, who did the deed).
Me: “Do you have a list of people who you do not call? Would you please put us on that list?”
CLICK!
Yes, the mortgagers need business now. In the past I’ve only receiving mailings. Now I’m getting phone calls - it’s a pleasure to hang up on them.
“loans for people who could not pay them back”…since when is this new? It was and is a scam from the start. Few know their history sorry to say other wise more would be up in arms as the lenders under private federal reserve at 4.2 cents costs to print per bill regardless of denomination created the money and lent it out. It is monopoly money to them and “real” money to those who have to pay it back. Great system. Great scam until the public wakes up. Is this not like all cons that sooner or later get discovered? This one unfortunately has been going on for some time and by far the majority of the public still don’t get it. Some day it will all “pop” and only a few will see it coming as our history is set to repeat.
I met her on a blog down Ben’s way
Where you drink in information and it tastes just like cherry cola
coca cola
c-o-l-a cola
She broadbanded towards me and I fell in her trance
I asked her name and in a silent internet voice, she responded… Lola
L-o-l-a Lola lo lo lo Lola
Well i’m not the world’s least sarcastic guy
But when she metaphorically tried to put the squeeze on me, I held tight
Oh, my Lola, no last name please, Lola
Well i’m not dumb but I can’t understand
how did people fall for such obvious flim flam, like Lola?
roflow
ben dover
“It sounded like the perfect home loan. When times were tight, Lola could pay as little as 1 percent interest on her Ashland home, postponing a payment or two until the end of the loan. And it was an adjustable-rate mortgage, which typically starts out lower than a fixed-rate mortgage.”
“Now Lola, who did not want to give her last name, must sell her beloved house.”
No shit.
That’s when i dawned on Lola: “I must be the GF.” Someone needs to go around with a ‘GF’ rubber stamp and smack it on the forehead of all of these idiots just so they know. They seem to be having a hard time figuring it out on their own.
Sorry… what’s GF?
If you’re playing poker, and you don’t recognize the Sucker…
….YOU’RE the Sucker.
Someone should have told Lola that with her income that was never her house and never could be her house. She just occupied it for a while and paid rent.
Screw Bailouts for BAG Holders…
Start passing out Orange suits with NUMBERS and long term Federal Commitments !
Could someone please explain to me how the stock market can by up .5%, given all of today’s bad economic news (consumer spending is down; lnflation up up; unemployment is up.) Apparetly my wee-little non-rocket-scientist brain doesn’t understand.
1)Consumer spending down.
A lot of the companies in the market may not regard themselves as dependent on American consumers–indeed, they may be right.
2)Inflation is up.
Good excuse to raise prices of products (and toss in some more for profit, just because).
3)Unemployment is up.
Easier to squeeze the little guy who won’t complain out of fear of losing their job.
See. Bad news (for you) is really GOOD NEWS (for them)!
IAT
time to open a school of pole-dancing
“Could someone please explain to me how the stock market can by up .5%, given all of today’s bad economic news (consumer spending is down; lnflation up up; unemployment is up.)”
——————————————-
That question gets asked a lot on Ben’s blog. The short answer is if we could predict the market’s direction from today’s headlines we would all be bazillionaires.
“Could someone please explain to me how the stock market can by up .5%, given all of today’s bad economic news (consumer spending is down; lnflation up up; unemployment is up.)”
I wonder how much of this is individual investor money rotated out of RE and back into the stock market?
There was no “money” in real estate…. just credit…
There was no “money” in real estate…. just credit…
There was money if you sold in time -);
I wonder if I should cash out some mutual funds now to weather the upcoming storm or just let them ride the wave for the next 10-15 years.
Depends how much you have, if you can afford to average down, you should be OK, IMO. Don’t put more on the line than you can afford to lose.
Inflation is coming. Slowly move your mutual funds into FXE.
Well… have you ever seen professional wrestling? The market is just like that except that Wall St is rigged.
thank you stock riggers for allowing me to make so much money in the market since 2002.
the riggers at COST, LUK, AEOS, and BRK have been especially helpful.
Oh please. Just because you happened to maybe make some money does not mean there is no rigging of the game. Lotsa people make money everyday who have no connections. But the game can still be (and is) rigged.
Do I hafta spell it out for you? I mean, do you really believe that the full set of Joe sixpacks investing in the market based on reading the newspaper have a snowball’s chance in hell of coming out ahead on a consistent basis in comparison to those who spend their entire day (and much of the night) dreaming up deals, writing contracts with nice escape clauses, constructing financial instruments too difficult for anyone to understand, and–most important–smoozing with all the right people who have the power to write and re-write rules at any moment during the process and a demonstrated willingness to do so when their friends are in peril? For example, do you really think J6P has a chance of consistently recognizing and avoiding the old pump and dump? I mean, really?
When an elevator goes up, yes, a few ants may happen to have gotten on it and of course they will rise with it. But only a severely challenged person would maintain the ants actually pushed the button to make it go up, or had anything but luck behind their getting on or off at the right time.
Sorry to be so blunt, but this mainstream brainwashed thinking (e.g., Wall Street is fair?!?!) is getting about as frustrating as the FB’s wailing for a bailout.
IAT
There is of course some manipulation of stock. But anyone can go to Yahoo Finance and look at the graph of the average blue chip like XOM, AXP, MCD, JNJ, PG, WMT, etc., and go back 15 years and it would be impossible not to make a very good profit, about 10%/yr on average, by buying and holding.
Right. All you need is a time machine so you can “go back 15 years”.
ROTFL!
IAT
It has to do with some rumored acquisition of company ABC by company XYZ, or the fact that even though profits were short, they weren’t short by as much as was expected. Because the news was better than expected, the stock price jumped. Didn’t you get the memo? All the bad news is already priced into the stock market.
It’s all very simple.
But I thought Oregon and Washington were different. They are! Salmon fishing and lumbering have been curbed by the environmentalist so what’s left up that way other then SS.
You forgot Microsoft and Boeing. I’m being told that these two employers are the sole reason housing prices will never depreciate in the Pacific Northwest. The Seattle area is truely special and different and don’t you forget it!
Don’t forget about Intel in Portland.
And Nike and Xerox and Adidas and…
You were not in Seattle in the 1960s when Boeing took a dive. Boeing is no different than an automobile manufacturing facility. And with foreign aircraft looming on the horizon, can Boeing compete.
Microsoft generates wealth for a select few. Most employees at Microsoft, stuff CDs into boxes for a tad more than minimum wage. Microsofts direct impact on Seattle is minimal. (indirect impact - support companies serving Microsoft - is huge).
“Referring to the loose standards for qualifying borrowers, and the steep adjustments and harsh prepayment penalties, Robinson said, ‘It makes me vibrate with anger.’”
The CDO bagholders will be vibrating at about 8.0 on the Richter scale when the magnitude of their losses sinks in. Just wait until some hedge fund or pension fund discovers that it is the proud owner of half of the houses in a town like Medford, Sacto, San Berdoo, or Palmcaster. And can’t sell them for more than 30 cents on the dollar.
Let’s hope it works out that way. In a free market, the lenders would suffer severe losses and adjust their lending standards. Unfortunately, many (far too many) owners of low quality bonds are owned by foreign governments (such as China). They seem to care less about losses than they do supporting their merchantilist economies.
Is China the new Henry Ford? Isn’t the story that he insisted on paying his employees enough to buy his product to create the market.
Is China willing to keep pumping money into the US housing market via MBS’s just to keep Americans buying the goods that China manufacture on credit?
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The British India Company was willing to extend all the credit to the Manchus for their opium purchases. The Chinese hell lasted for 200 years…
Is China the new Henry Ford? Isn’t the story that he insisted on paying his employees enough to buy his product to create the market.
Yes that’s the story, and it’s not true. Any idiot can understand that a business cannot make a profit by paying its own employees to buy its own products.
Ford paid his employees crap wages until the UAW hit the scene.
The story was made up by Amway distributors to try to convince dupes they could make themselves rich selling each other soap.
What would you say?
Although I’ve been following this blog for a couple of years now, I still find it difficult to converse with bullish types. I just fell in to the trap of speaking with a bull, though, and I did not know how to answer one of his points. Can I ask how any of you would answer him?
He said that you can either pay a high price and get a low interest rate or pay a low price and get a high interest rate. That’s why buying now or buying later are the same thing.
Of course, I know this is wrong, but I could not find the right response. What should I have said?
Well, you can buy now and get a low rate and high price, or buy later and get a low price and (maybe) a higher interest rate. But interest rates go up and down, while the price you negotiate is forever. So, if you buy later at a lower price, even if the rate is higher than today it may be possible to obtain a lower rate further down the line. But, if you agree to buy the house today at 400K, no one is going to come back to you in five years and re-sell your “own” house to you again for 200K.
At least, that’s my sense of things.
IAT
If you pay cash you pay no interest. You don’t HAVE to finance 100% of your house - you do have to eventually pay 100% of the price you agree to (unless you default).
My wife doesn’t get this one either. She’s just never gotten used to having money. Some folks have just gotten completely trapped in the debt serf mentality.
You either get interest or you pay it. Your buddy obviously doesn’t get it.
And to clarify. As interest rates go up your savings compounds faster making it easier to save up a downpayment. The bigger your downpayment the less you have to worry about interest rates. If house prices fall, the process is even more favorable. This could be the first rising interest rate environment where house price do decline. Usually rising interest rates = rising inflation = higher nominal house prices (house prices often lose value during inflation in real dollars even if they go up in nominal dollars).
You can refinance a loan if interest rates fall, but you can’t refinance the purchase price of your house. Your’e stuck with it.
You can refi if you buy at a low price/high rate and the rate drops. If you buy at too high a price, you cannot negotiate the price back down at a later date and you cannot refi as you don’t have as much wiggle room on the rate.
Of course, this assumes we’re talking about fixed-rate loans. If we’re talking ARM and you buy low-rate/high price, you are gambling that you’ll be able to sell or refi at a high enough price to cover the loan.
It’s an understandable argument; after all, a 500k house at 10% and a $1 mil house at 5% both cost you the same $50k/year. However, you might want to consider two other factors: property taxes and refinancing. First, the property taxes. If you’re charged 1% in property taxes each year, then the lower-priced house actually saves you money - in this example, $5,000 each year. Second, refinancing. High interest rates generally depress house prices (since it costs more to borrow money). But at least with cheap house and high interest rate, you still have the potential to make money when interests rates fall and you can refinance. The same can’t be said for the high price/low interest rate combo. Hope this helps!
You should have told your friend that he’s right in a traditional market where interest rates, wages, population growth are driving housing price. Things get out of whack when money becomes too easy to borrow. In that case, a bunch of people who couldn’t normally afford to buy, buy and sometimes buy many homes. All of these people competing to buy homes on borrowed money push the demand for houses (and prices) upward to where the prices are ridiculously higher than just low interest rates would drive them. The bottom drops out when people can’t afford to pay their mortgages and have to put their houses up for sale. More houses on the market pushes prices down across the board, theoretically (if lending standards are returned to normal) to where they were prior.
In a nutshell, housing prices are articifially high now not solely because of low interest rates, but because of a host of other unsustainable factors.
Don’t forget that an “unsustainable” high price could bite you should you need to sell (job transfer, etc). If you can’t sell for what you paid, you are still obligated for the difference.
Besides refinancing point mentioned above,
another important point is your property tax will be low if price is low.
Something none of you considered.
As interest rates are coming up and your house value is going down, and you decide to move, you can not. Your under water on house.
However, you can buy when interest rates are really high and start coming down because your house prices appreciates, you’ll even have equity.
What a novel idea.
why would anyone over 55 get a mortgage ?
except in WA or OR where it’s different
“why would anyone over 55 get a mortgage?”
It might be a good way to gamble on high future inflation.
I want to know if it is constitutional for government to aid homeowners who face forclosures with taxpayers money. If yes, why government can’t help me to buy a house in Beverly Hills , whtat is the difference, I am taxpayer too ?
It’s about as Constitutional as the income tax, money not backed by gold, the Federal Reserve, etc, etc….
“Now Lola, who did not want to give her last name, must sell her beloved house. Rising interest rates have increased her payments, and she can’t make them anymore on a Social Security income. She owes more on the house now than when she bought it.”
All were going to need is for some poor “Lola” to be some politician’s grandmother
Financial literacy (or the lack of it) is a favorite topic on this blog. Here is a ray of hope.
I thought I (renter) was already supporting homeowners by giving them a tax deduction on mtg interest and property taxes.
“‘It’s pathetic, sad, throwing caution to the wind like that,’ Robinson said. ‘The subprime market had no strict guidelines and allowed buyers to extend their debt-to-income ratio out to 55 percent, when it should be under 44 or 45 percent to be safe. If they haven’t paid their bills now, what makes you think they’re going to pay their mortgage in the future?’ Referring to the loose standards for qualifying borrowers, and the steep adjustments and harsh prepayment penalties, Robinson said, ‘It makes me vibrate with anger.’”
Maybe I am confused, but it seems like only ten years ago that 30 percent debt-to-income was the industry standard? I am not sure about whether this was the rule-of-thumb for the mortgage portion of debt-to-income or for all debt-to-income?
Actually, I recall 28% was the old-school ratio. Then they bumped it up to 30, 33%, and that still wasn’t enough to make the numbers “work”, so up, up, up she goes.
28% was the norm with up to 33% allowed for “sterling credit”.
28% for PITI, and 36% for PITI plus all other credit pmts
For all debt
Well, I threw all my chips on red (short) at day’s end plus increased gold holdings. Either going to be very right or very wrong tomorrow and next week.
I’m having trouble convincing myself to buy more gold at $669. Are you using leverage so that you can win on small moves, or do you expect a blow-off?
I bet on red a little earlier in the day and got my ass handed to me. I hope you are right about tomorrow.
When buying gold just remember 1 thing. Gold always finds a way of matching the Dow at a 1:1 ratio. It may take several decades but it is historically accurate. Even if the Dow and Gold met at a 5 to 1 ratio, Gold would be trading over $2000.00 an ounce.
It sounded like the perfect home loan. When times were tight, Lola could pay as little as 1 percent interest on her Ashland home, postponing a payment or two until the end of the loan. And it was an adjustable-rate mortgage, which typically starts out lower than a fixed-rate mortgage.
Now Lola, who did not want to give her last name, must sell her beloved house. Rising interest rates have increased her payments, and she can’t make them anymore on a Social Security income. She owes more on the house now than when she bought it.
My God……
Who says she can’t get a job? If she really loved the house she’d be willing to work for it. Unless she’s totally skillless or 100% disabled she should be able to do something to earn more money.
My grandma (90+) can barely walk, but she still makes quilts for her great grand kids. They’re top quality too.
“Now Lola, who did not want to give her last name, must sell her beloved house. Rising interest rates have increased her payments, and she can’t make them anymore on a Social Security income”
——————————————————————————
Isn’t giving someone like Lola (on a Social Security pension)a RE loan like beating up a retarded person?
I’m not sure, let’s get Lereah over here and find out.
“‘It shows you how inexpensive things had been in recent years in regards to affordability,’ said (broker) Jerry Flaskerud in Longview. ‘Cowlitz County is going down the path of catching up with the rest of the west.’”
“One important number continues to increase. The 602 homes on the market last month was up nearly 63 percent from a year ago. ‘We’ve got quite a bit of inventory,’ Flaskerud said.”
Boy, this guy’s a real winner. Talk about stupid. Where do they find these dimwits anyway? Has this guy ever heard of market fundamentals? Apparently not.
I’d be interested to know what percentage of foreclosures and sour loans in Ashland, Medford, and Bend went to equity locusts vs. long time locals who felt they had to compete with all the newcomers when prices shot up.
Don’t buy what you can’t afford, but I must admit some sympathy for natives if they are the majority of those being foreclosed. I really despise what these communities have turned into in just 5 years.
I met a couple (Im on Roseburg, 100 miles north of AShland), who moved into the neighborhood after selling a house in Ashland. And, after being here a solid three weeks, it turns out they sold a house on a 30yr fixed, made a bunch of money, and bought the new house with a negam…. I was shocked.
I asked them if they were planning on giving the keys back to the lender or getting a “real” loan….. havent seen ‘em in a month.
Throwing Caution to the Wind ?
I Don’t Invest in Real Estate or Marriage ONLY because I DON’T believe in Slavery…Especially my OWN !
I don’t share very well either
From an MSN article out today:
“Citigroup and Bank of America will provide $1 billion of mortgage financing to help about 7,000 victims of abusive lending practices avoid losing their homes. “We demand that others commit the dollars needed to modify people’s loans,” said Bruce Marks, NACA’s chief executive, in an interview. “If other lenders intend to foreclose, we will go after their decision makers.”
Ah, so FB’s are victimes of “abusive lending practices?” Gee, I thought they were just victims of their own stupidity. Let the bailouts begin.
Is that why Citigroup is laying off 17,000 people? Free up a few dollars?
“We demand that others commit the dollars needed to modify people’s loans..”
What’s up with this? “We demand”–other people’s money. In the adult world, this is known as theft.
From NACA’s home page…
“NACA’s program is designed to make homeownership a possibility for every working person. With no down payment, no closing costs and a below-market interest rate, NACA’s mortgage product redefines affordable. NACA applies a problem-solving approach to each Member; credit problems are seen as challenges to be resolved, not as excuses for denying credit. ”
So many credit challenges you’re now demanding a bailout. Seems like you guys failed, big time.
Wonder if this will cause further tightening?
Citigroup and Bank of America will provide $1 billion of mortgage financing to help about 7,000 victims of abusive lending practices avoid losing their homes.
I wonder what kind of fees (or increased fees) I’m gonna see now from B of A to cover for this?
At least Citi is cutting its workforce.
That was yesterday. Who will cut tomorrow? It’s confession season.
“Citigroup and Bank of America will provide $1 billion of mortgage financing to help about 7,000 victims of abusive lending practices avoid losing their homes.”
And just how is this going to work? Ok, for discussion sake let’s convert them to fixed rate loans with no fees in the restructuring. How many have the income level to support the conversion? How many after getting converted are going to sit in their house when property continues to drop and they find themselves $50K to $100K underwater? They are going to turn in the keys and walk away and the game goes on and will go on until everything goes down in price by 2/3 rds and location, location, location once again become the law of RE-land. Any government interference or quick fixes by the banks is going to keep the game going longer and the pain will go deeper.
This NACA is a “non-profit” with a focus on minority ‘hoods, and has now successfully extorted 1b from shareholder-owned banks.
Opens up new avenues for Sharpton and Jackson–no longer do they have to confine themselves to extorting money from the government with their poverty scams.
“How many after getting converted are going to sit in their house when property continues to drop and they find themselves $50K to $100K underwater?”
Bingo. These are people who don’t have a great track record with paying bills in the first place. Do you think they’re gonna want that house when it will never again be worth what they paid for it? To keep living the “Ramen Lifestyle” for no financial gain?
No way. They will walk and leave the keys on the granite countertops.