April 3, 2006

‘The ARMs Are Coming Home To Roost’

USA Today has this report on adjustable rate home loans. “The real estate market is cooling, interest rates are rising and tens of thousands more Americans are starting to have trouble paying their mortgages. Nearly 25% of mortgages, 10 million, carry adjustable interest rates. And most of them went to people with subpar credit ratings who accepted higher interest rates.”

“‘Within the last year, I would say 60% to 70% of calls to our hotlines are issues related to ARM (adjustable-rate mortgage) loans,’ says Chris Krehmeyer, executive director of a non-profit group that offers homeownership support services in St. Louis. ‘That’s significantly higher than in years past, because the ARMs are coming home to roost.’”

“The number of borrowers in trouble will rise this year and peak in 2007 and 2008 as the largest number of mortgages reset to higher rates. Already, in West Virginia, Alabama, Michigan, Missouri and Tennessee, about one in five homeowners with a high-interest (subprime) ARM was at least 30 days late at the end of last year. After 90 days, the foreclosure clock starts ticking.”

“What worries experts such as Christopher Cagan are the adjustable-rate loans made in 2004 and 2005, at the end of the housing boom. These loans were concentrated in the hottest markets, such as California, where about 60% of all loans last year were interest-only or payment-option ARMs. That’s the highest such rate in the country.”

“Of the 7.7 million households who took out ARMs over the past two years to buy or refinance, up to 1 million could lose their homes through foreclosure over the next five years because they won’t be able to afford their mortgage payments, and their homes will be worth less than they owe, according to Cagan’s research.”

“The losses to the banking industry, he estimates, will exceed $100 billion. That’s less than the damage from the savings-and-loan crisis in the 1990s, which cost the country $150 billion. ‘It will sting the economy, but it won’t break it,’ he says.”

“When Paul and Sandra Wilson moved from California, where they couldn’t afford to buy a home, to Georgia in May 2004, they bought a house with an interest-only loan. But Paul has had a tough time finding work. They refinanced to an ARM with a lower rate but one that reset every six months and that charges a $20,000 penalty if they refinance within three years.”

“‘The loan broker ‘convinced us that it was in our best interest, and in most likelihood within six months our financial situation would turn around and we were going to look at selling,’ says Sandra.”

“In less than a year, their loan payment jumped from $2,275 to more than $2,800. The couple filed for bankruptcy and will lose their home next month. ‘This was our fourth home,’ Sandra says. ‘It’s not as if we weren’t aware, but we’d never had an adjustable-rate mortgage before.’”

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Comment by Ben Jones
2006-04-03 10:51:01

Thanks to the readers who sent this link in.

Comment by johndicht
2006-04-03 10:59:32

4th home and still haven’t learned the lesson. My advice: stop blaming others and you’ll probably do better next time around.

Comment by BigDaddy63
2006-04-03 11:01:33

Not to sound cold, But I agree 100%. C’mon people. If you want someone to blame for your stupidity/ignorance/greed, look in the mirror. No one held a gun to your head and made you sign a contract.

I could maybe understand if this was a first time buyer, but fourth?

Comment by Catherine
2006-04-03 11:39:13

there’s no excuse…there are lots of resources available to homebuyers, like never before..ie…the internet, consumer advising non-profits, etc…..plenty of opportunity to learn before you leap. I call this willful ignorance.

Comment by feepness
2006-04-03 12:08:53

My first home was an ARM. I was 24 and single. I still understood the consequences.

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Comment by Mike OC
2006-04-03 12:20:35

What funny was In the Yahoo head line story they said that he was 78 and I forget how old the wife was, but it was In the 70 plus age.
That’s why there’re having trouble getting work….

Comment by thomasrule
2006-04-03 15:24:00

walmart of kingman will hire them. they do the fog the mirror preemployment test. there the only group of people in kingman that can past the meth test. i am 66 years old and 100% of the cashiers at wallyworld are older than i am.

Comment by Upstater
2006-04-03 12:36:10

“I could maybe understand if this was a first time buyer, but fourth?”
Or how about buying a new house w/o a job.

Comment by mrincomestream
2006-04-03 14:17:20

Exactly, Your going to see a lot of this. People pointing fingers at others when all it took was a little common sense. I didn’t read the article but I see someone up there that posted these folks were 78 and 70 yrs old. Come’on now how did they even get a loan in the first place. Especially an adjustable

Comment by AZ_BubblePopper
2006-04-03 15:19:28

Lend me your ARM so I can get into the housing market before it’s too late. 78 years old. LOL!!

Comment by need 2 leave ca
2006-04-03 11:00:30

I just saw that article on the yahoo page also. People just don’t think when they get the ARM.

Comment by cactuscody
2006-04-03 11:00:59

The time bomb is ticking…

Comment by johndicht
2006-04-03 11:03:08

Vanity kills.

Comment by cereal
2006-04-03 11:04:23

is that a $20,000 pre-payment penalty? it’s gotta be a typo.

Comment by foobeca
2006-04-03 13:58:01

nope, not a typo. That’s pretty typical for a prepayment penalty.

Comment by OCobserver
2006-04-03 11:06:50

I believe Cagan underestimated banking industry’s lost. I think the lost will be doubled the estimated $100 bil.

Comment by The_Lingus
2006-04-03 11:06:59

‘This was our fourth home,’

Is anyone else getting sick of this “home” shit? I’m home right now, in my hotel room that will be my home for the next 3 weeks. I own a house in VT but it’s not my home until I’m there. Assholes….

Comment by sharecropper
2006-04-03 13:11:31

Yes. I always grimaced when our real estate referred to houses as “homes.” It was as if she actually thought by calling it a “home” instead of a house it would make it more likely that we would buy….

Like you say, it wasn’t a home, it was a house.

Comment by Rich
2006-04-03 16:34:08

Home is where they mail you your bankruptcy papers =)

Comment by Jim
2006-04-03 11:07:09

After 4 homes and a move to an “affordable” area, their net worth is less than zero. Nice trading. You just can’t explain some people!

Comment by fred hooper
2006-04-03 11:09:02

This is probably just as good a place as any to ask readers for an observation: I have noticed a substantial increase in the incivility “out there”. I’m not talking about the typical number of a-holes on the road etc. etc.. To me, it’s very palpable and rears its ugly head in the grocery store, on the roads, just everywhere. My girlfriend says to put a big smile on your face and people will react positively. Ok, but what are you seeing? Is it war/politics/illegal immigrant hot button issues, or is it also an indication that our fast-paced society is catching up to us, as well as financial difficulties and concern about the housing bubble. Have any of you noticed and what do you think? Am I overreacting?

Comment by The_Lingus
2006-04-03 11:15:17

Ask Rush LimpBrain, Shawn Handjobbity and Bill “loofah boy” O’Reilly.

Comment by Joe
2006-04-03 11:47:26

Why should we ask them?

Comment by feepness
2006-04-03 12:10:27

Because they are the target of concrete examples of pointless name-calling.

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Comment by Tesla
2006-04-03 12:20:11

I notice a lot of unpleasantness, too…
But I’m in Massachusetts so it’s pretty normal

Comment by hd74man
2006-04-03 14:40:06

But I’m in Massachusetts so it’s pretty normal

One of the nastiest, rudest places in the country.

I was on a XC motorcycle trip a few years back, and had stopped at a KOA up near Helena MT for the night. While I was checking in, the older fellow runnin’ the show came pver and said, You the boys with the Maine plates on those motorcycles?

“Yup-that’d be us”.

Well, the Mrs. wants to have you over for dinner to tell us some stories about your trip…

The he turns and dead serious says, Oh by the way, if you had Mass. plates on them bikes -I wouldn’t even be talkin’ to ya right now.

True story…

Mazzholes-detested even in Helena MT!!!!!!!!!

Comment by MsTerra
2006-04-03 18:01:40

That’s funny - I’ve driven cross-country twice, through the south, and folks were plenty nice and never gave me crap for being from Massachusetts. If you’re supposed to be an example of down-home Maine good-naturedness you might want to shut yer mouth before your foot gets lodged any further down your throat.

See how testy I am lately? ;)

Comment by crispy&cole
2006-04-03 12:50:15

I agree! These clowns spew hatred all day long and package it as “conservatism”.

Comment by Pismobear
2006-04-03 19:34:12

Let’s boot out all the illegas, put the Army on the border,NO F-CK’N AMNESTY, and we’ll have plenty of affordable housing.Don’t vote for anyone who supports AMNESTY. What don’t you understand about the word illegal?

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Comment by johndicht
2006-04-03 11:19:34

When the going gets rough, this might be the least that will happen.

Comment by Housing Wizard
2006-04-03 11:29:22

I agree fred hooper it seems like people are tense and out of sorts.

Comment by Melody
2006-04-03 11:34:11

I mentioned this before and yes I certainly see it. I think it’s fun to “people watch” and they don’t look happy with their million dollar home and hummer…

Taxes are coming due… uh oh.

Comment by We Rent!
2006-04-03 16:42:07

Took care of mine in early Feb. Balanced it just about right so as to get back only 700ish from Fed. Paid about 200 to CA. Don’t want a big refund (that’d just be dumb), and my wife doesn’t like to have to pay. I pat myself on the back for managing the monthly pull to get into the comfort zone (200-800ish).

Can you believe that people actually get excited over huge refunds “thanks” to their insanely high mortgage interest payments? I get people talking about six to seven thousand back WHILE ACTUALLY SMILING! :mrgreen:

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Comment by Upstater
2006-04-03 12:43:20

Plus don’t forget the increasing #s that think things are setting up for Armageddon, and I don’t just mean a market crash here. That would make one tense; watching it set up and feeling helpless to stop it. Kinda like Global Warming if you’re a scientist, or if a Category 5 ever hit New Orleans…..which I read about every year hurricane season started.

Comment by Hoz
2006-04-03 13:03:44

I see it at work - I am a Loan officer that specializes in foreclosure - for the last 4 years I was doing OK at work - but not like the quick refi LO’s, now that their business is slow and they still have to pay for their Mercedes, these individuals are snapping at anything. LOL

Comment by PS
2006-04-03 11:36:58

No joke, this morning on the freeway I got cut off by a Mercedes C-Class with Century 21 signs on it’s doors. In the stop and go traffic, I eventually caught up with him and peeked over to see the driver SCREAMING into his cell phone. If I could have been a fly on his soon-to-be-repo’d “luxury” C-class.

Something’s gonna snap….

Comment by SB BubbleBeliever
2006-04-03 11:58:26

Fred Hooper,

You psychoanalyst son o’ a beech… what you and the rest of us are all observing is the after taste of the “buzz” of all that free HELOC money, etc.

Folks get drunk on the fact that they can buy stuff they normally don’t have the income to do so…

and once they have it, they realize that life is still a beech- and to boot, they now have to make payments on it. Talk about white-knuckle driving. yiiiiiiikes!!!!!!!!!

Someone on the blog recently recommended to NOT agitate these people with comments about ARM’s adjusting etc. I agree, you never know when someone is going to lose it!

Comment by say what
2006-04-03 12:04:35

How true… My mother in law is slowly feeling the rope around her neck and my husband advised me, regardless of how much it could help, not to mention the possible outcome of her adjustable HELOC because if I did my moms would probably loose it….so we are just keeping one room free for her and her husband in our rental apartment in case they need to move in when the dust settles… God I hope something else comes through….

Comment by Upstater
2006-04-03 12:50:31

Yeah “say what”…my mil knows about my time spent on this blog but I never share with them the condo glut info. I tried to tell them how condos are the first to “bust” in a downturning market, before they bought. But ouch!, kick to the ego…they thought their realtor was smarter than me. Personally I find that no one ever says oh yeah, I remember you trying to tell me that. Some other “smart” person will tell them in the next year and then they’ll try to advise me what’s happening in the market. People are funny.

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Comment by We Rent!
2006-04-03 16:45:05

No, people are stupid. (I know, that’s probably what you meant)

Comment by baselle
2006-04-03 17:21:06

I noticed they didn’t give a damn about agitating us when they tries to pressure us into drinking the economic kool-aid in 2005. Sounds like both sides have to be adult and responsible about the whole thing.

Comment by Anachronist
2006-04-03 12:06:24

Thats what happens when the economic pie stops growing. The only way to increase your share is to take it from others. Factionalism goes hand-in-hand with an end to a civil society. And it works both ways, from the Left and the Right.

Comment by Getstucco
2006-04-03 12:36:01

Well I guess you named at least one reason to thank the builders for keeping the pace of construction at record high level (more homes / pie to go around…).

Comment by feepness
2006-04-03 13:15:03

I don’t need any more pie, thanks.

Comment by Yuip
2006-04-03 19:44:31

I’ll save the spiked kool aid for later !

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Comment by NjGal
2006-04-03 12:07:22

I remember reading somewhere that right before there’s a recession, whether the general public is aware of it or not, people become moody and down, and tend to enjoy things like horror movies more than others. It’s entirely possible that we are all somehow, on a subconcious level, aware that things aren’t what they should be.

Comment by Betamax
2006-04-03 12:40:38

that’s from Prechter and his Wave theory…I don’t believe all of it, but they make an insightful observation that a given culture both feeds off of and feeds into the larger macro issues of the time.

And the current zeitgeist is nasty. Storm warning ahead.

Comment by We Rent!
2006-04-03 16:47:03

My chinchilla is jumping around wildly in his cage. Does this mean anything? :mrgreen:

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Comment by SunsetBeachGuy
2006-04-04 06:27:13

Thanks for the belly laugh. I needed that.

Comment by Upstater
2006-04-03 12:54:38

“I remember reading somewhere that right before there’s a recession, whether the general public is aware of it or not, people become moody and down, and tend to enjoy things like horror movies more than others.” And the media trots out stories like alien abductions, the Bermuda Triangle and other “mysteries” to remind us things could be worse. Watch for Comedy Clubs to make a come back too….some good escapism.

Comment by Out at the Peak
2006-04-03 13:56:06

I watched Slither over the weekend. It’s a real treat if you can believe it (thumbs up). However Basic Instinct 2 was dull since you never care about the characters (thumbs down).

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Comment by MsTerra
2006-04-03 14:14:48

So is that why the National Geographic Channel has trotted out “Is It Real?”, the Discovery Channel is doing “The UFO Files”, and the SciFi Channel is running their “reality” series “Ghost Hunters”? I love those shows, have since I was a kid, which, come to think of it was deep in the 70’s malaise….

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Comment by MsTerra
2006-04-03 14:16:29

I should say I love those kinds of shows, ghost stories, the Loch Ness Monster, etc. When I was a kid we had “In Search Of…” with Leonard Nimoy.

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Comment by Upstater
2006-04-04 07:58:46

Way OT: Friend who just sold waterfront in RI last year is having a seance at her 200 yr old home she just bought for less than 1/2 the price. Thinks her master BR is haunted. I have to say I get a weird feeling up there myself and their Great Dane refuses to climb the stairs up there. Just sits at the bottom and cries but will take the stairs to BR that go in the opposite direction (it’s a big house) Haven’t thought about stuff like that in years. It’s a great diversion.

Comment by Pismobear
2006-04-03 21:12:10

I enjoy the housing bubble 2 and F’d borrower blogs.

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Comment by foreclose_me
2006-04-03 13:10:27

Here is the clip that claims a correlation between music & stocks — because both are driven by social sentiment.


Comment by Moopheus
2006-04-03 14:53:36

When I worked as a science fiction editor, we had a similar theory–horror sells during republican administrations, mysteries during democratic ones.

There’s been a lot of splatter in the theaters of late.

Comment by MsTerra
2006-04-03 12:29:33

It’s a little hard to say, living in NYC where incivility is a way of life. ;)

But seriously, I do think people are getting more tense. I know I am. The future seems so uncertain - the economy, the war, etc. - and it feels as though we’re perched on a precipice. On the other hand, it occurs to me that hard times may be just the remedy we need at this point. You hear about all the “character-building” benefits of the Great Depression and WWII, and right after 9/11 people in NYC were incredibly nice to each other. Some of us have known for a long time that money and possessions don’t necessarily make people happier; clearly, many others need to be reminded of this.

Comment by hd74man
2006-04-03 14:48:50

You hear about all the “character-building” benefits of the Great Depression and WWII

These little fat azzed, spoiled- brat kids with their mommies cartin’ them all around the universe in their gaz-guzzlin’ SUV’s could use a heapin’ dose…

But guess what? They’re gonna get it, thanks to the Mortgage- O crowd

Open wide…bed medicine comin’…

Comment by We Rent!
2006-04-03 16:48:25

And it ain’t gonna be cherry flavored.

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Comment by Upstater
2006-04-04 08:04:18

Hate to break it to you hd74man…for the kids you just described, Daddy is still bringing home the deep six figures (or more) so I don’t think they’re gonna even know that others are feeling the blip. Kids aren’t allowed to watch the news ya know….knowing things about your world is too scary and damaging.

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Comment by Chrisinpnw
2006-04-03 13:08:13

I have noticed it also Fred. I call it “dis ease” which comes from too much debt, fear of job loss(or at least pay cut), war, inflation if the things we use every day(food & energy).
People know “things arn’t right”.

Comment by Sammy Schadenfruede
2006-04-03 18:44:25

People feel atomized and alienated. There’s no connection to their communities or neighborhoods. I’m disturbed by all the casual profanity I hear from people who should know better and show more class. As a kid I could play kick-the-can after dark, in LA no less, without being bothered — not now. I think sometimes we may be entering a new Dark Age.

Comment by bluto
2006-04-03 11:12:52

I chocked it up to moving from small town Montana where every four way stop sign invited a gentlemen contest to NoVa where the beltway gives new meaning to rubbin’s racin’ as a quick example. Even here though a smile and kind word will usually still work wonders on all but the angriest people.

Comment by Northern VA
2006-04-03 11:29:32

I know why people seem so angry today.

They are paying $60 to fill up their SUV on their 2 hour drive home to their Mc Mansion in West Virginia with a mortgage that takes 60% of their after tax income. They get home after dark with enough time to choke down some Mac and Cheese and turn on the TV to see how many people were blown up in Iraq today and Mexican flag waving protesters at our capitol steps demanding their rights! Then they pick up the latest businessweek and find out the housing market is turning and their chief economist predicts a 10% decline in housing values over the next 2-3 years. The whole world is going to hell and they are going broke and some A-hole cut them off on Rt. 15, 6 miles past Leesburg.

Comment by bluto
2006-04-03 11:35:22

Surely that isn’t the only reason (if only because my neighbors only have to traverse 10 miles on the GW parkway). More of my neighbors are probably still more concerned with never being able to afford a home (young apartment loaded neighborhood). NoVa is certainly weird, it has fewer of the benefits of a relaxed southern city or diversity of life and culture of a NYC but seemingly the issues (a large population of locals who can’t imagine anything but their way of life and rampant competitive materialism) of each.

Comment by Arwen U.
2006-04-03 12:40:36

Northern Virginia - have you heard? - the city of Southern Efficiency and Northern Charm -

(Except I take that back about Southern efficiency as the South seems to be rising again in some ways).

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Comment by sm_landlord
2006-04-03 11:47:09

In L.A., we have free-fire days on the freeways to relieve tension.
That’s why we’re so laid back :-)

Comment by bacon
2006-04-03 12:24:57

that sounds very therapeutic. outer loop watch out!

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Comment by vioviv
2006-04-03 13:10:18

We also have some killer weed in SoCal. Medical marijuana growers here have developed some very mellow varietals. I think every foreclosure proceeding should be preceded by everyone involved taking a few bong hits.

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Comment by mrincomestream
2006-04-03 14:25:00

That’s funny

Comment by sharecropper
2006-04-03 13:07:02

Beautiful summation of life in the box.

Comment by circling_vulture
2006-04-03 15:09:26

ROTFLMAO - very well put.

And in response to what some of the others here have been writing - yes I’ve noticed all this tension in the air too.

Furthermore, almost every time I get cut off (or flipped off) on the roads these days it’s some prick driving an expensive end vehicle (BMW, Benz, Lexus, SUV). I actually got into it with one jack-ass driving a brand-new SUV. I asked him what made him think he had the right to cut people off. He told me (I kid you not): “I can afford a big vehicle that’s what. If you made enough money to afford one you could too”.

Must be stressful living beyond your means. That’s why I avoid it.

Comment by Housing Wizard
2006-04-03 11:18:39

I don’t get it …the greatest risk buyer/borrowers are tied to the the worst loans for increase payment potential and negative amortizing. Whoever designed these loans was not thinking with a full deck .Years ago I designed a loan that was taken up by the industry. The secondary market as well as consumers liked the loan.
My belief is that people should qualify on the adjusted up rate ,not on the the first year payment . Adjustable loans should never be made with no down payments .GOD I JUST CAN”T BELIEVE WHAT HAPPENED.

Comment by johndicht
2006-04-03 11:30:09

They are more creative than traditional types like you. The industry has changed dramatically. Accounting gimmicks in the financial industry encourage all of these practices — that’s how they got all those record profits.

Comment by Rental Watch
2006-04-03 11:32:32

It’s very simple–those writing the loans had a “not my problem” attitude with an incentive to get deals done. Loans don’t adjust for 6 months to several years, loan brokers and agents get paid once the deal is done, and the banks originating the loan for the most part are selling the paper very quickly after the home close (once a big enough pool is created).

The ultimate buyer of the risk is as far away from the underwriting as they have ever been. Global liquidity is at an all time high. There are two levels of middlemen getting paid just for the transaction to take place (the individual originator getting fees, and then the bank making a spread when selling the loan on the secondary market).

We’re all going to get stung on this one–as these defaults occur, foreign buyers of the mortgage backed securities are going to get hurt, dimishing their appetite for more US home mortgages, increasing the spreads for new loans–impacting the rest of the US by increasing the real cost of borrowing, regardless of where treasury yields go.

Comment by feepness
2006-04-03 11:47:09

Make that six levels of middlemen including the agents, appraisers, brokers, banks, bond-traders, escrow companies, and local property tax collectors.

Wait, sorry. That’s seven. And that’s only counting agents once.

Comment by Getstucco
2006-04-03 11:40:25

Sorry, but your industry has gone down the toilet, and degenerated into a scammer’s game of hot potato where the potato in question is subprime lending risk which all the players are trying to pawn off on someone else who is willing or ignorant enough to buy it. My guess is the US taxpayers and pensioners will end up with more than their fair share at the end of the game.

Comment by SB BubbleBeliever
2006-04-03 12:01:17

Oh Boy! Mashed potato’s for everyone!! :)

Comment by athena
2006-04-03 12:01:39

all I can say is if we are forced to do a taxpayer bail out I am going to want to see some perps! Lots of perps!

Comment by We Rent!
2006-04-03 16:53:01

I’ll take my hard-earned taxes back to Japan before I let some turd off the hook, thankyouverymuch.

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Comment by circling_vulture
2006-04-03 15:15:25

absolutely. i feel a little better knowing there are at least a few of us out here who see that this mess is no accident.

Comment by Upstater
2006-04-03 13:07:44

Housing Wizard, are ARMs new or was the way they are approved different now than say 20 years ago?

On an aside, When H and I moved to Central NY he had a good job but if he lost it there weren’t a lot of other options. That concerned us. So we chose to carry a mortgage that we could both work at McDonalds and pay, just in case. The only problem with that plan is it assumed all other bills would stay the same too and of course that has not been the case at all. Thank goodness we haven’t had to look at the McDonalds back-up.

Comment by Housing Wizard
2006-04-03 14:14:08

ARM loans were different 20 years ago . The ARM’S had lower margins ,(profits for the lender), better underwriting ,down payment requirements were standard . 20 years ago they never had interest only low down loans . Hard money lenders use to do the interest only loans which usually carried a ballon balance in 2 to 7 years .Hard money lenders are subprime lenders who get private investors to fund the loan . They are usually bail out loans at high rates for people that can’t qualify for prime rate loans . The borrower is usually in trouble and is just buying time . The Hard Money Lenders usually looks at the property carefully ,(because they think they might get it if the borrower defaults), and they usually won’t make a loan unless they are at about 70% loan to value or less.Now its a whole different ball game . You have alot of high risk loans out there with no protection .

Comment by hd74man
2006-04-03 17:27:05

The Hard Money Lenders usually looks at the property carefully

If the appraiser is the “eye” of the lender, then the HML’s outta be scared shiteless with the current crop of bozo’s licensed to appraise properties these days.

State licensing programs are a sham.

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Comment by circling_vulture
2006-04-03 15:12:24

I agree. And that’s why I and others think that there must have been some foul play going on here. Surely the lenders are not THAT dumb. I firmly believe that somehow, someway, joe taxpayer is going to bail the lenders out no matter what happens.

Comment by Rich
2006-04-03 17:07:20

The big differance today is (computers?) the ability to rapidly package loans into MBS and sell them into the open markets. This function was the basic premise for Fannie Mae and Freddie Mac, except they used the Gov for the market (gov. bonds). The ability to offload all risk on virtually all loans you write is the crux of the problem.

In the past you had no guarantee of selling the loan you wrote unless they were FHA/VA insured. Fannie/Freddie were limited by to how much the gov. was willing to loan them in the past.

In 99′ the gov took their leashes off and allowed them to sell bonds to the open market to buy more mortgauges. This was also done by many other organizations.

A sure way to millions of defaulting loans is to take all the risk away from those in the trenches giving away OPM (others money) and tying their pay to volume =)

This is surely the most beatiful “Ponzi Scheme” in history. Every single entity historically in place to stop such an event was flooded with money to STFU and just go with the flow.

Reminds me of the cocaine corruption that broke down the police system in Florida in the 90’s. So much money that if you stood in the way you would be crushed by cash.

Comment by Housing Wizard
2006-04-03 19:32:29

Well said . To have this happen on such a National level is also
hard to believe , but the evidence is pointing to it .

Comment by nhz
2006-04-04 01:09:40

even harder to believe it’s happening on a worldwide level but it is …

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Comment by jim A
2006-04-04 04:27:32

I’m reminded of the “bagholder, bagholder who’s the bagholder?” discussions here a year ago. To what extant are MBSs gauranteed and by whom? At what stage in this game of musical chairs will one of the GSEs be insolvent due to borrower defaults? Hang on it could be a very rough ride down.

Comment by bubble-x
2006-04-03 11:21:02

I think area with a lot of ARMs are getting hit first, and hit hardest. The real meat of the country, areas with fewer ARMs, have not suffered as much.. YET. When long rates rise, it’s going to get ugly. Here in the Northeast, you can, on your own, see inventory piling up like never before. If you want, you can check out an interview we did with a realtor at an open house this weekend. It demonstrates what I mean.


Comment by Robert Cote
2006-04-03 11:21:53

“Of the 7.7 million ARMs past two years, 1 million could lose their homes through foreclosure t five years…
“The losses to the banking industry, will exceed $100 billion.

If a million people default to the tune of $100b and the median house is $200,000 then they expect a 50% decline.

Comment by Moopheus
2006-04-03 11:55:21

The median value of ARM loans are probably higher, since the riskiest loans are used to finance homes people couldn’t otherwise afford.

Presumably the $100B value is dependent on assumptiosn about how much of the loan value can be recovered in the resale of the property. Anyone know how much that was in the last bust?

Comment by Robert Cote
2006-04-03 12:00:27

I thought of that but a lot are HELOC and 2nds. I just “wagged” a large number to show that the problem is much larger than they claim. By much larger, I mean, not enough digits!

Comment by Moopheus
2006-04-03 12:21:26

If there are a lot of defaults on 2nds, then presumably they would be 100% writeoffs, or nearly so. Then I guess a reasonable question would be, are there any good numbers on the value of loans that are 2nds and helocs at risk?

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Comment by circling_vulture
2006-04-03 15:24:14

“The losses to the banking industry, will exceed $100 billion.”

Unless Joe taxpayer does his “civic duty” by bailing them out. How much you want to be that will happen? This is such an obvious scam.

So hey, why not keep making loans to people who will never pay them back?

Comment by rms
2006-04-03 16:15:12

“Unless Joe taxpayer does his “civic duty” by bailing them out. How much you want to be that will happen? This is such an obvious scam.”

If any of these entrenched politicians sign off on a bail out, they’ll never see another vote from me, period!

Comment by nhz
2006-04-04 01:14:54

maybe they are making the clever assumption that 1 million defaults will not only impact the value of the foreclosed homes, but of the other 100 million or so in the US as well (or maybe even the 1 billion or so in the anglo-saxon world, where the banks are also heavily invested)?

In that case the decline, percentagewise, could be much smaller.

Obviously, if they are not taking this collateral damage into the equation total losses will be much bigger tna 100 billion.

Comment by pt_barnum_bank
2006-04-03 11:22:46

Sheep-sle like to buy things on monthly payment. And they assume that because a bank (lender) is willing to give them the loan for that much, that means they can afford it.

What they don’t realize is that San Diego county’s household income is no different (maybe even less) than say Chicago, or other areas of the midwest, yet the homes cost twice as much. There are people (sheeple?) buying $700k homes on $50 - 60k in yearly income.

Comment by circling_vulture
2006-04-03 15:32:37

“Sheep-sle like to buy things on monthly payment. And they assume that because a bank (lender) is willing to give them the loan for that much, that means they can afford it.”

Yes, and believe it or not there are still others who *know* they can’t afford the payment once it goes up, but DON’T EVEN CARE. All that matters is getting that home NOW - no matter what. Gotta look rich NOW. Gotta impress everyone NOW. Their attitude is “I’ll deal with the future when I get there”.

Comment by Larry Littlefield
2006-04-03 11:29:55


My feelings exactly. It is just unbelievable that such loans for such absurd home values relative to incomes were ever offered, or accepted.

I have to believe that those accepting the mortgages were folks who never think of tomrrow, while those offering them expected to make money on the foreclosure. Falling (or even stagnant) home values will give them the shellacking they deserve.

Comment by dwr
2006-04-03 12:14:06

“I have to believe that those accepting the mortgages were folks who never think of tomrrow”

Of course they were thinking of tomorrow. Specifically they were thinking “My house will double in value in three years, so why worry?”

Comment by SB BubbleBeliever
2006-04-03 16:13:02


A great point to suggest one possible “reason” for these dinks doing what they did.

Comment by josemanolo7
2006-04-03 14:44:08

i think the reason why so many such loans were approved is because of a 20% down, borrowed through an equity loan from an existing “appreciated” property. it still paper money.

Comment by SB BubbleBeliever
2006-04-03 16:16:45

“it still paper money. ”

Well said Jose Mannolo 7. Unless you ACTUALLY SELL the property- it’s only a figment of the imagination of the owner, as to what this newfound “wealth” is.

And therein lies the problem with the mass herd. Everyone now thinks they are “rich” because they own a home, er ah I mean own a mortgage.

Comment by Getstucco
2006-04-03 11:31:04

“‘Within the last year, I would say 60% to 70% of calls to our hotlines are issues related to ARM (adjustable-rate mortgage) loans,’ says Chris Krehmeyer, executive director of a non-profit group that offers homeownership support services in St. Louis. ‘That’s significantly higher than in years past, because the ARMs are coming home to roost.’”

It is understandable that St. Louis would have a problem with ARM resets, being the red-hot bubble market that it is…

Comment by Getstucco
2006-04-03 11:33:54

P.S. I did not realize that homeownership had reached the same depths as substance abuse. Do they have 12-step programs for homeowners these days?

Comment by Housing Wizard
2006-04-03 11:51:34

LOL. Strange isn’t it .

Comment by Patriotic Bear
2006-04-03 15:01:48

I am probably the only person that does not know what “LOL” means. Would somebody tell me?

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Comment by circling_vulture
2006-04-03 15:20:56

LOL means “laughing out loud” or “lots of laughter” etc.

Comment by We Rent!
2006-04-03 16:57:29

Yes, Laugh Out Loud. And P.O.S. is what all these people are paying 750k for in San Diego - just so you know. :mrgreen:

Comment by ajh
2006-04-04 01:33:48

LOL can also mean “Lots of Love”, depending on context.

Another common blogronym is ROTFLMAO, or variants thereof. “Rolling on the Floor Laughing my A$$ Off.” :D

Comment by SB BubbleBeliever
2006-04-03 12:03:14

Yeah. I heard that STEP 1 is admitting that you are a FB…

Comment by Housing Wizard
2006-04-03 12:10:03

STEP 2 is BK

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Comment by circling_vulture
2006-04-03 15:25:38

Step 3 is blaming someone else for your greed and stupidity.

Comment by SB BubbleBeliever
2006-04-03 16:19:46

Step 4 is rage. Rage comes when no one is listening or cares about the sob story…

Comment by chilidoggg
2006-04-03 17:15:51

there are only 7 steps…it’s all reconciled in “Chapter 7″

Comment by Sammy Schadenfruede
2006-04-03 18:50:38

What about “search for the guilty” and “punishment of the innocent?” Aren’t those steps?

Comment by SB BubbleBeliever
2006-04-03 19:44:31


yeah, those are good for steps 5 and 6. Chilidoggg got a little head of the program.

Comment by Kathy
2006-04-03 12:35:12

I was just there this weekend. They have a lot of the same speculative development you see elsewhere - loft condos in the desolate downtown, tear-downs in the inner-ring suburbs; and it seems like houses are a lot more expensive than they used to be. Also, I don’t have the demographics at hand to prove it, but it seems like there is a lot more poverty there than in other cities (East St. Louis excluded).

Comment by Kathy
2006-04-03 12:36:46

Also - this month’s St. Louis magazine was all about real estate. For a non-bubble city, they sure are enamored of it.

Comment by St. Louis Blue
2006-04-03 15:20:27

They do a real estate issue every April. Last year’s issue was more aggressive in promoting home-buying, with detailed info on prices and appreciation, etc. for various neighborhoods. This year’s RE special is more generic with fewer specifics.

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Comment by St. Louis Blue
2006-04-03 15:16:34

Yes, as a long-time St. Louis resident, I can confirm that there is indeed a great deal of surplus housing here, much of which is seriously over-priced.

The much-touted downtown loft district is pretty dark at night - they keep doing more conversions, but it’s not clear who (if anyone) is actually buying them - there’s really nothing else down there at all to attract people. The various nightspots on Washington Ave. (originally the main impetus for revitalizing the loft district) are now being forced out by excessive rent increases, and the only stores down there are those selling fancy bathroom fittings and interior decor items to incoming loft buyers! Even the near-derelict downtown mall is scheduled to be condo-ized…

In the Central West End, there are several new condo projects in various states of development, including a 26-storey high-rise that is actually under construction, but the area already has an excess of over-priced condos and houses. I live in an inner-ring suburban neighborhood which seems to have become tear-down central, yet most of the newly built houses are unoccupied - many seem to be spec construction - and several “developed lots” have been sitting vacant for over a year. I’ve seen some of the new-build houses go up, and have been astonished at the flimsiness of the construction. Every residential street has multiple “for sale” signs (usually with “new price” plates attached), and many condos have been on the market since last fall.

Some of the condo conversions are simply pathetic. A down-at-heel c. 1940s-vintage apartment building with six 2-bedroom units just finished conversion and prices start at $600K. Anyone familiar with the neighborhood or the previous condition of the building knows how outlandish this is. At the weekend, there was a flatbed with a big ReMax balloon parked outside and strings of bunting to attract customers. Needless to say, it looked completely deserted.

Even more ridiculous is the ongoing conversion of run-down former apartment buildings in some of the less prosperous city neighborhoods. The only way they used to be able to get tenants in these buildings was to cut a deal with the local universities to use them as subsidized student housing. The buildings have nothing to commend them; in many cases, it’s obvious from the outside that they’ve been poorly maintained, and the neighborhoods are notorious for street crime.

Over the last decade, many people seeking affordable SFRs have apparently moved across the Missouri to St. Charles, but that’s now built out (including much of the flood plain…).

Comment by St Louis Blue
2006-04-03 17:59:03

As a long-term St. Louis resident, I can confirm that there is indeed a surplus of housing in the area, much of it grossly overpriced.

Almost every week brings the “grand opening” of a new loft building, yet many of the existing buildings are mostly dark in the evening. The local media can always find a few people to extol the virtues of “downtown living”, but there’s really nothing down there. The nightspots that helped rejuvenate the loft district in the first place are being forced out by excessive rents, and the only stores are those selling expensive bathroom fittings, etc., to new loft dwellers. Even the near-derelict downtown shopping mall is being condo-ized!

I live in one of the inner-ring suburbs where tear-downs are becoming endemic, yet many of the large (and flimsy) houses built on the cleared sites don’t seem to be selling and a number of “developed lots” have been sitting vacant for over a year. Every street is sprouting “for sale” signs, usually with “new price” plates tacked on to them.

Most ridiculous are the overpriced condo conversions of aging apartment buildings. A run-down ’40s-vintage building with six 2-bedroom units recently finished conversion and the asking prices start at an insane $600K. One large property management company has begun converting its apartment buildings that for the last 15-20 years served primarily as subsidized rental accommodation for students at the local universities - no one else would live there, as the neighborhood is unattractive for a number of reasons and is plagued with street crime.

There are several up-market condo towers planned for various locations in the central corridor, but only two of them are actually under construction and it’s unclear who is going to be able to afford to live in them. Basically, it seems there are a lot of developers chasing the same small pool of wealthy buyers, while ignoring the potential demand for more affordable housing options.

Comment by Getstucco
2006-04-03 11:32:40

“Of the 7.7 million households who took out ARMs over the past two years to buy or refinance, up to 1 million could lose their homes through foreclosure over the next five years because they won’t be able to afford their mortgage payments, and their homes will be worth less than they owe, according to Cagan’s research.”

“The losses to the banking industry, he estimates, will exceed $100 billion. That’s less than the damage from the savings-and-loan crisis in the 1990s, which cost the country $150 billion. ‘It will sting the economy, but it won’t break it,’ he says.”

Too bad Cagan is only talking about the tip of the iceberg here.

Comment by Mo Money
2006-04-03 11:48:12

Anyone taking bets that this turns into an elections issue ?

Comment by SB BubbleBeliever
2006-04-03 12:04:32

Are you suggesting Billary is going to stump on this??

Comment by Mo Money
2006-04-03 12:10:44

Don’t know if anyone will, but it will be an issue certainly with people losing their homes. Maybe we’ll just get endless senate hearings…..

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Comment by Upstater
2006-04-03 12:57:08

“Are you suggesting Billary is going to stump on this??” She could steal his line: I feel your pain.

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Comment by va_investor
2006-04-03 14:47:53

r u kidding me? Mrs. Whitewater campaigning on Real Estate scams! I can’t wait.

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Comment by chilidoggg
2006-04-03 17:18:57

the GOP is praying the Dems win congress this year so they can blame the libs for the disaster awaiting in 07 and 08.
… and it’ll work.

Comment by Pismobear
2006-04-03 21:08:20

Won’t you just love Rangle in charge of Ways and Means and Conyers in charge of Judiciary. Bend over and get ready for more and higher taxes and impeachment for Bush. Don’t all clap at once.

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Comment by Out at the Peak
2006-04-03 13:57:39

worth less or worthless? ;-}

Comment by khuezee
2006-04-03 11:49:48

for any SNL fans, here is a HILARIOUS skit that steve martin did recently about consumer debt. If the video doesnt work, here is the transcript (but you have to watch the clip to get the full effect):

Don’t Buy Stuff You Cannot Afford

Wife…..Amy Poehler
Husband…..Steve Martin
Agent (CP)…..Chris Parnell

[ open on couple trying to balance their checkbook ]

Wife: (sighs) I just can’t get these numbers to add up.

Husband: Like we’re never going to get out of this hole.

Wife: Credit card debt, does it ever end?

CP: [walks in] Maybe I can help.

Husband: We sure could use it.

Wife: We’ve tried debt consolidation companies.

Husband: We’ve even taken out loans to help make payments.

CP: Well, you’re not the only ones. Did you know that millions of Americans live with debt they cannot control? That’s why I developed this unique new program for managing your debt. It’s called [presents book] “Don’t Buy Stuff You Cannot Afford.”

Wife: Let me see that… [grabs book, reads] “If you don’t have any money, you should not buy anything.” Hmm, sounds interesting

Husband: Sounds confusing.

Wife: I don’t know honey, this makes a lot of sense. There’s a whole section here on how to buy expensive things using money you save.

Husband: Give me that… [grabs book, looks at it] And where would you get this saved money?

CP: I tell you where and how in Chapter 3.

Wife: Ok, so what if I want something but I dont’ have any money CP: You don’t buy it.

Husband: Well let’s say I don’t have enough money to buy something. Should I buy it anyways?

CP: No-o-o-o.

Husband: Now I’m really confused!

CP: It’s a little confusing at first.

Wife: Well what if you have the money, can you buy something?

CP: Yes.

Wife: Now take the money away. Same story?

CP: Nope. You shouldn’t buy stuff when you don’t have the money.

Husband: I think I got it. I buy something I want, and then hope that I can pay for it right?

CP: No. You make sure you have money, then you buy it.

Husband: Oh, THEN you buy it. But shouldn’t you buy it before you have the money?

CP: No-o-o-o.

Wife: Why not?

CP: It’s in the book. It’s only one page long. The advice is priceless and the book is free.

Wife: Well, I like the sound of that.

Husband: Yeah, we can put it on our credit card.

CP: [shakes head]

Announcer: So get out of debt now, write for your free copy of “Don’t Buy Stuff You Cannot Afford.” If you buy now you’ll also receive, “Seriously, If You Don’t Have the Money, Don’t Buy It!” Along with a 12-month subscription to “Stop Buying Stuff Magazine.” So order today!

Comment by Housing Wizard
2006-04-03 12:11:32

Funny , but so true .

Comment by Melody
2006-04-03 19:37:27

I saw this and yes, it’s very funny. So funny it’s true :(

Comment by Portland, Mainer
2006-04-03 11:50:39

Sorry this is off topic.

Just read in today’s Potland Press Herald that homeowners insurance will be going up in the northeast because we are overdue for a big storm, e.g.,

“Fear that the Northeast is overdue for a major hurricane is among the factors that could push Maine homeowners´ insurance rates higher.

Other forces that could nudge insurance rates upward include rising costs of reinsurance, the backup insurance to cover carriers in case of major catastrophes, and lackluster returns on investments that would otherwise ease some of pressure to raise premiums.

The impact of reinsurance looms as a potential factor largely because of last year´s trio of hurricanes Katrina, Rita and Wilma.”


OK, so add one more cost to the already high cost of howme ownership. This can’t help support growth in home prices. People are going to run out of money.

Comment by feepness
2006-04-03 12:16:31

As opposed to rates going up when a big storm hits.

So let’s see:

Big storm hits: Raise rates!
Big storm hasn’t hit for awhile: Raise rates!

Nice business guys! I hear you do trash collection up there too!

Comment by DannyHSDad
2006-04-03 12:48:01

Just like preemptive strike (pre-war to prevent greater loss), it sounds like they want to do preemptive adjustments to avoid losses in the first place [gotta look good to the stock holders].

Insurance cos used to adjust rates after the bombs (9/11, Katrina, etc.) but it makes sense that they’ll want to cover before things take place. [Actuaries at work, I believe.] This way, they never have to have a losing quarter for an unanticipated “big” loss.

So, will the insurance premium and/or property tax hikes kill the real estate bubble instead of the ARM resets? Or will all 3 combine into a perfect storm?

Comment by Wide-Eyed
2006-04-03 13:18:03

But, insurance companies never paid the “losses” out of their own pockets: they pass the buck to their customers, hiking rates to cover the “losses” (and probably adding in some extra profit as well).

What a rip.

Comment by hd74man
2006-04-03 14:56:49

Boo-hoo, cry me a river for all the rich, arrogant, shorefront owing azzholes in Cape E., Falmouth Foreside, and Biddeford Pool.

But of course in the good People’s Socialist Republic of ME, the legislature will enact a tax surcharge to be placed on all mobile home sold inland, with proceeds to be put in a coverage pool to lower the burden on these “poor” shorefront owners.

Class warfare revenge at it’s finest.

Comment by Sammy Schadenfruede
2006-04-03 18:54:12

Actually, it’s not that the NE is overdue for a killer storm. It’s that Mass. sucks so bad, it’s pulling in all the outside air in a violent rush.

Comment by neuromance
2006-04-03 11:50:51

This market seems like a pyramid scheme, with heavily indebted, unsophisticated investors at the bottom.

Towards the top and middle, there are those who have been paid with the bottom tier investors’ debt.

I feel like a lot of people were bamboozled by sophisticated loan salespeople.

A fool and his money are easily parted I guess.

Comment by SB BubbleBeliever
2006-04-03 11:51:17

“These loans were concentrated in the hottest markets, such as California, where about 60% of all loans last year were interest-only or payment-option ARMs. ”

In Santa Barbara it is 86 % of all loans taken for single family residences!

You better believe that when those $1.5mil. crackerbox $h!thouses that the rich folk won’t live in, nor want to buy… tick to the new adjustable rate- there are going to be more “opportunities”.

On top of that… 30 % of all buyers for the past 2 years were speculating that prices were only going to go up. Now that the evidence shows that this is not happening, more people will be forced to sell at a less than asking price.

Comment by Hoz
2006-04-03 13:44:07

They will never get a chance for the loans to adjust, the houses will be sold for tax payments first.

Comment by SB BubbleBeliever
2006-04-03 16:25:53


You’re probably right. $15,000/yr in property tax for the $1.5mil cracker box. Prop. 13 at work in CA.

And believe it or not, I am a supporter of Prop 13.

Comment by The Hopper
2006-04-03 11:52:47

I think one of the things we are seeing come to light in all of this is the amazing greed that people tricked themselves into believing was simply a need for shelter. My father-in-law was over on Saturday and was complaining about the roads, esp. in the Inland Empire where they live. He kept saying how people had to move out there and then commute to LA because they couldn’t afford a place closer to work.

I can guarantee they can afford somewhere closer. Will it have 4 large bedrooms and a place to park their toy hauler? No. Will they own it? Probably not. But (for the most part) these people moved cause they wanted to have a bigger house, wanted to have a place to put all their stuff.

These are the same people that have overextended their finances, not read the paperwork, and cashed out their equity, all for the outdoor living room and the pair of jetskis.

I’m as guilty as the next person of “coveting thy neighbor’s house” however, that doesn’t mean I am entitled to own one. Renting can suck, but I would much rather live where I do and have a 9 mile drive to the office, than sit on the freeway for two hours every morning.

I hope that one day we can afford to buy a home in Orange County. But if not, we’re still not going play the commuting game. Stop blaming rising home prices and commuter traffic for your own selfishness.

Sorry about the rant…

Comment by say what
2006-04-03 12:30:08

Renting doesn’t have to suck, you do the same stuff in your rental as you would in your house. I belive that if you can not be happy where you are now it doesn’t matter where you go you will still be miserable. That is what fuels this living on money we don’t have. We think that bigger, newer, faster etc, will make us happier than we are. -often the new stuff will create a whole new set of problems as have meen mentioned before in this blog, maintenance bills and work, or the bills that eventually have to be satisfied somehow…

Comment by lunarpark
2006-04-03 13:38:16

Right on.

Comment by The Hopper
2006-04-03 14:13:04

Oh- I don’t need more stuff. I would love to have one big garage/ebay sale….

The sucky part of renting is having to move. We’ve hit a streak of bad luck (or landlords who want to cash out) and have moved three times in the last couple of years. A 1 year lease provides some stability, but I’m starting to feel like we’re back in college, moving dorms every school year.

That’s pretty much the only reason I’d want to buy…and to paint the walls a color other than white. But maitenance, taxes, hoa—renting now doesn’t seem that bad. :)

Comment by rallymonkey
2006-04-04 05:47:57

I’m renting because I’m not dumb enough to buy right now, but owning your own home and land has its advantages. I’ve never met a landlord who’ll let me build a bunker on his property.

Comment by oc-ed
2006-04-03 20:16:19

You are not alone. There are many in OC renting as you are. Unwilling or able to buy here and choosing not to move inland and commute. When I moved here in 1992 local folks at one job interview told me that the trick was to buy in Riverside and commute. I chose to rent in CdM and have a 5 minute trip to the office. One associate spent 3 to 4 hrs each day on the road and when he took a job in Denver in 94 he could not sell his house in Moreno Valley.

There is ample argument against buying inland, but I like a simple “I do not want to live there” reason.

Patience, the tide is turning. Save your pennies and sit back and watch.
And do not be surprised if the bulls do everything in their power to try to overcome the inertia. But they will fail for we have passed PEAK RE ….
“Turn out the lights, the party’s over ….”

Comment by grim
2006-04-03 11:53:59

Did I read that right.. Did you guys miss that..

“What worries experts such as Christopher Cagan are the adjustable-rate loans made in 2004 and 2005, at the end of the housing boom.

at the end of the housing boom?

end of the boom?

I didn’t think I’d read those words in print for at least another few months. Especially said in such a nonchalant way..


Comment by Getstucco
2006-04-03 12:28:58

He has been more-or-less acknowledging the end of the boom for over a year now, with reports entitled “Has the Fire Burned Out?” and “As the Cycle Turns.” You can find the .pdf files on this web site if you have not seen them yet:


Comment by need 2 leave ca
2006-04-03 12:04:23

The Steve Martin video clip stated it was removed when I checked.

Comment by khuezee
2006-04-03 12:11:19

found a better link:

try this one for the steve martin debt comedy skit

WELL WORTH IT….HAHA. such an accurate representation of America.

Comment by scdave
2006-04-03 13:27:21

I can’t get it either…

Comment by watcher
2006-04-03 12:21:56

“When Paul and Sandra Wilson moved from California, where they couldn’t afford to buy a home, to Georgia in May 2004, they bought a house with an interest-only loan. But Paul has had a tough time finding work. They refinanced to an ARM with a lower rate ”

They moved and bought a house BEFORE he had a job? Way to do things backwards.

Comment by HerdChemist
2006-04-03 12:28:10

Used to be that it would be damn-near impossible for you to just move somewhere and finance a home with NO JOB….not unless you had considerable skin in the game and even then the better lenders would balk.

I can’t believe the way that time honored standards of lending have been tossed to the curb in favor of a quick buck and a quickie offload of bundled MBS’s to the foreigners.

This thing is gonna hurt alot of people and we will see the results of this VERY soon. For the longest time I felt this thing would slowly readjust ( 3-5 yrs ), but in the bubble area of Central Florida I look for this mess to crash back down to a sane level in the next 12-18 months.

Comment by hd74man
2006-04-03 15:02:31

I can’t believe the way that time honored standards of lending have been tossed to the curb in favor of a quick buck and a quickie offload of bundled MBS’s to the foreigners.

HerdC-You state the crux of the problem.

‘Taint really the sales people or even the crooked appraiser…

It all begins and ends with the moneychangers.

Comment by rms
2006-04-03 17:12:15

“It all begins and ends with the moneychangers.”

Exactly, and these thieves belong in a prison cell, or dangling at the end of a rope from the nearest thing that will support the weight!

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Comment by climber
2006-04-03 14:55:02

I’ve had a job every time I’ve moved. I still rented first. These guys are nuts.

Comment by HerdChemist
2006-04-03 12:23:05

Cock-A-Doodle-Doo !!!!

Yup. This Housing Bubble is set to bust.

And I have refrained in dabblin’ in this $hit, so as not to splash any of it upon myself.

It was tempting living here in Central Florida. But I was able to stay away from the toxic loans. For the last three years I have had to resist the siren call of the Realtors(tm)…that I would be “priced out forever” and that the best time to buy was “NOW!”.

Three years ago I could have afforded a modest home for myself. And soon, when the Greedy People have to go to wearing blue smocks and nametags, I will be able to afford a modest home once again.

LOTS of “got-to-have-it-all-right-now-twenty-and-thirty-somethings” are fixin’ to learn a hard lesson this time around. A REAL HARD LESSON.

Comment by auger-inn
2006-04-03 13:29:06

Three years ago I could have afforded a modest home for myself. And soon, when the Greedy People have to go to wearing blue smocks and nametags, I will be able to afford a modest home once again.

To quote a line from Caddyshack; “Well, the world needs ditch diggers too, you know”!

Comment by hd74man
2006-04-03 15:04:52

Friggin’ eh right, you are…

I got a 28YO niece goin’ down in flames-$400k debt with no job.

Crash and burn, baby…

Comment by nhz
2006-04-04 01:26:24

looks like there is not much left to burn on that baby…

and that’s the general problem with all these ARMs: it is other peoples money that is going to be burned.

Comment by Upstater
2006-04-04 07:46:49

400K? Is that school debt? I do worry about kids having accumulated education debt. My neighbors are spending $120k per kid. One is going for a music degree. Hope market /jobs aren’t part of the crash as these people will be in major pain.

Comment by SeattleSis
2006-04-03 13:13:43

Some homeowners struggle to keep up with adjustable rates

By Noelle Knox, USA TODAY Mon Apr 3, 7:00 AM ET

For 45 years, Robert and Lorraine Brown have lived in their ranch-style home in Florissant, Mo. One of their four children was even born there. But for the past eight months, the couple have been locked in a sleep-wrecking race to keep up with their rising mortgage bills. They’ve switched to cheaper phone service, cut back on groceries, and sometimes put off ordering medicine.

When they refinanced their home two years ago to pay off some bills, Robert, now 78, was working as a deliveryman. But his employer went out of business last April. Now he and Lorraine, 72, a retired nurse, are both seeking work. The rate on their mortgage has jumped from 7% to 10.5%.

“We were having a hard time meeting bills at the time we refinanced. It seems once you get behind, you do desperate things to catch up, and you never do,” says Lorraine, trying to hold back tears. “At the time of the loan, they tell you, ‘Well, it may go up, but it’s probably going to go down.’ You want it to be so, so you believe it.”

See the link above (hope it works!) for the rest of the article.

Comment by Bryce Mason
2006-04-03 13:38:28

I thought the only financial benefit of being a home owner was that in your golden years you didn’t have to pay to live somewhere (except property tax). They should have just been renters. They’re lame if they haven’t paid the damn thing off in 45 years.

Comment by The Hopper
2006-04-03 14:19:38

Grandparents bought their house in San Bernadino CA 56 years ago for 7,000. It’s been paid off for decades. Decades!! How could someone who bought a house in the 1960s not have paid it off? A nice place in a prime location today might have cost $50,000. Might have!

It seems like the real troubles were ages ago and just now hitting the fan? I don’t understand how you could get to be 70 and not have learned a thing or two about life.

Comment by LA notary
2006-04-03 14:48:04

That is another scary aspect to all of this madness. Let’s just for a moment live in the dream that all of this does just end in a “soft landing” Evenyone who bought their homes or refi’ed the hell out of their homes in the past couple of years are never going to truly own them. I know people who have owned their homes for over 10 years and started out with a 30 yr fixed, however in all this madness have tapped into some, actually A LOT of their equity and now have I/O payments so that they could spend now, and I guess pay later. But how are they ever going to retire?? That is sooooo scary to me. Because even if we do still have social security to draw on, that will barely cover the property taxes.

So basically I guess what I am saying is that even if in the short term this ends up as a “soft landing” how is everything going to be ok in the long run?? I just don’t see a rosy future either way we go.

Comment by Betamax
2006-04-03 15:11:07

excellent point: they’re FB’s either way.

(Comments wont nest below this level)
Comment by climber
2006-04-03 15:39:45

The bank gave them a 7% fixed after the reporter called. I bet they still can’t handle their situation even with the interest rate “gift”.

Comment by spacepest
2006-04-03 13:52:38

‘This was our fourth home,’ Sandra says. ‘It’s not as if we weren’t aware, but we’d never had an adjustable-rate mortgage before.’”

Duuuuuuuuh. Don’t people ever read the goddamn mortgage papers they’re signing.

I bought my first home when I was 23. I remember clearly going over the mortgage options when financing my home…I had a choice between an adjustable rate or fixed rate mortgage. I simply laughed at the mortgage broker when he tried to push an adjustable rate on me. Even then I could see that getting a home mortgage on an adjustable rate mortgage with fluctuating payments could be a pontentially dangerous thing.

I don’t feel sorry for anyone that got an adjustable rate ARM timebomb loan and didn’t bother reading the terms of their loan.

Comment by Joe Schmoe
2006-04-03 14:07:06

Yeah, I mean there is such a thing as an unexpected expense. Medical bills, job loss, a relative who needs your help, etc. — these things happen.

But the people in the article are in their 70’s! They are collecting Social Security! Why not just live off that? It’s not the greatest standard of living, but you can certainly get by on it, my in-laws do so, and in SoCal, no less.

It’s hard to see their situation as tragic.

Comment by The Hopper
2006-04-03 14:22:17

I finally understand why all the new OC communities are building all of those over 55 apartments. Even with rising home prices and alleged equity cushions, these people don’t have the financial sense to not need to rent when they’re 80.

Comment by ChillintheOC
2006-04-03 14:56:38

We have to remind ourselves that we’re experiencing an unprecedented event in US history. Never before have we experienced a home boom tied to such shaky lending practices. Buying a home prior to 2000 required some down payment money along with a lending institution crawling up your ass to verify income, credit, financial reserves, etc.

Today, the amounts of debt being carried these is truly staggering! It used to be a big deal (for me at least) to have a $ 200 k mortgage. Today, that would be considered on a low side of a typical debt level. I see what many people carry in terms of credit card debt and I’m truly amazed at how they sleep at night.

Anyway, I see a lot of stressed out people here in the OC because the golden goose has stopped giving! No more refinancing to cover blissful consumption - time to pay up!

Comment by SB BubbleBeliever
2006-04-03 16:37:56

Chill in the OC,

You have made some great points. I too, am amazed at how “risky” loans of a few years ago- are now considered standard loans- you know, the ones you have to sign up for to get a house.

This insanity will be recorded in History… and because we are in UNCHARTED WATERS- never seen before, only time will tell how F’d up it really might become.

Comment by accroyer
2006-04-03 15:32:06

I will say this again for everyone. There is something going on right now with our country, it’s like the calm before the storm. People are on the edge all the time now, mnay feel they are caught up in a vicious cycle and cant get out. GM is being torn apart , jobs are being outsourced and wages have all but froze. What is there to be happy about, to top that off interest rates are rising, inflation is going up and the dollar is declining. Coutries are threatening to move their money from US currency to the Euro , resulting in a weaker dollar. It’s time people wake up, we have been sold out, but now sadly we will be indentured slaves when our houses foreclose on us and we cant file bankruptcy. The New World Order is here.

Comment by nhz
2006-04-04 02:04:33

don’t worry about the euro, it will be just as worthless as the mighty US dollar and all other fiat money. The ECB will do everything they can to keep the euro from appreciating.


Comment by UES
2006-04-04 11:33:56

I think the French might beat them to it.

Comment by Bryce Mason
2006-04-03 15:46:11

Today I called my bank, Premier America Credit Union, and demanded for them to divulge to me their loan portfolios. I asked to see the types of loans they made and how many they held on to vs. sold off. The loan officer I spoke to was very nice and she forwarded me an annual report. She also let me know that they only sold off 20% of their portfolio in the MBS market, and that was only one sale 3 years ago. They said they don’t want their customers to be on the 11 o’clock news badmouthing their institution after they get foreclosed on, so they have comparatively tight lending standards.

So, on one hand, I am happy my institution has the incentive to make good loans, since they hold on to them, but on the other I am scared for precisely the same reason. If the market goes too far south, my bank might go under for overexposure.

On another note, she said that they recently had a meeting and everyone pretty much bought into the soft landing theory. I told her about my feelings and that’s why I called. I said I didn’t want my money in an institution that was super exposed.

Maybe people can find these things out from their banks. I bet my bank had no idea what to think when they got my phone call. Who the hell asks their bank that kind of question? It’s a miracle they called me back with someone who could answer the questions.

Comment by xofruitcake
2006-04-03 16:18:21

if you bank if FDIC and you stay withing the insurance limit, there is no reason to worry about their loan problem. Why are you worry?

Comment by Bryce Mason
2006-04-03 18:26:24

I’d rather not have to go through the process of claiming the FDIC insurance. Mostly I was just curious!

Comment by Pismobear
2006-04-03 21:47:25

Check out that idiot bank in Santa Monica - FED

Comment by Rich
2006-04-03 16:32:37

100 billion loss in lending industry, bullshit!

Thats only 100k (each) loss on 1 million loans.
The lenders are dreaming about losing 100 billion. Hell they will easily eat more than that just in CA.

Comment by AZ_BubblePopper
2006-04-03 19:46:59

You’re most probably right. Some lenders lend to businesses that are also super-exposed. The FEDs will step in and mop up, the dollar will drop big and even those that played conservative will pay. No one is going to emerge unscathed this time around…

Comment by seattle price drop
2006-04-03 17:56:09


I too went to my bank with loan/solvency questions a few months back. It was a polite conversation but they seemed astounded that anybody would ask or that (here’s the scary part) we’re in a housing bubble.
Like you, I walked away not wholly reassured but at a loss as to what to do next.
I’m still mulling it over a few months later.

Comment by Sammy Schadenfruede
2006-04-03 18:38:40

““In less than a year, their loan payment jumped from $2,275 to more than $2,800. The couple filed for bankruptcy and will lose their home next month. ‘This was our fourth home,’ Sandra says. ‘It’s not as if we weren’t aware, but we’d never had an adjustable-rate mortgage before.’”

Um, yeah. When these people fell off the turnip truck, did it run over their heads?

Comment by ca renter
2006-04-03 20:52:14

Sign of the times. I just received this article in an e-mail from a RE bull friend of mine who always argued against a bubble. The comment line said: “We’ve talked about this before.”

Looks like the tide is turning. Also, have **not heard a thing** from all the former RE bulls who used to brag about all their riches while harassing us about buying a house. Some have even started to say, “Gee. You guys might be onto something there.”

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