October 31, 2008

A Hint Of The Nightmare To Come

It’s Friday desk clearing time for this blogger. “For four years the Neal family called a two-family house in New Haven, home. The Neals have had their house on the market for a year and a half. They’re frustrated but patient. They understand this is a tough time to sell. ‘You’re seeing more and more houses that are in the inventory — I mean there’s tons and tons of inventory,’ Neal said. ‘Everywhere you look there’s a house for sale.’”

“Neal is trying to stay positive and hoping the housing slide is coming to an end. ‘There was an obvious need for a correction,’ Neal said. ‘And it seems like it bottomed out and there’s a lot of good houses, so I think it’s gonna start going back up.’”

“Like many house hunters and homeowners, Walter Stevens and his fiancee Mindy Weiss hang in limbo as banks and mortgage lenders crumble, and the national economic woes weigh heavy on local real estate markets. ‘We really didn’t think we would move this fast and get married, but we bought a dog, so we have a growing family now,’ Weiss said. ‘We’ve had a lot of interest in our house, but I think it’s the financial end that really hurts people. We’ve had a lot of people say ‘We love the house,’’ but they just can’t find the financing to buy.’”

“‘Right now, with the housing market the way it is and the restrictions of the banks and the mortgage situation, I’m sure that fewer sales do affect our town more than other communities,’ said borough Mayor Bill Goldsworthy. ‘I’m sure it (housing market) will come back, we’ve just got to be patient.’”

“So, how is the housing slump affecting everyday Hoosiers? If you’re trying to sell a home, hunker down. For 40 years, Mary Moore has lived in her Butler-Tarkington home, but rising taxes, healthcare and housing costs along with her declining health means she’s desperately trying to sell her home. ‘It’s hard to find people who can get financing,’ said Moore. ‘It’s getting really, really to the edge. That’s the reason I wanted to get out before I’m sitting out on the porch wondering which way to go.’”

“John Elzinga is also trying to sell his Butler-Tarkington home. He said he feels pretty confidant he’ll sell his home in the next six months. ‘If not, I’ll turn it back into a rental,’ said Elzinga.”

“Counsellors who help people through the foreclosure process say that many families just aren’t making holiday plans. Virginia Washington, a 64-year-old grandmother to 10, is already planning a more frugal holiday as she struggles to make payments on the $207,000 loan on her dream retirement home in Tolleson, Arizona, which is now worth about $150,000. ‘The spirit will be there, though many of the things you’ve gotten used to over the years may not be,’ she said.”

“Ann Neukomm, a receptionist from Cape Coral, Florida, filed for bankruptcy in May and now faces foreclosure on a mortgage she took out about two years ago. She’s thinking about using a small inheritance from her father to take her 17-year-old son on a holiday cruise. ‘I’d like to do something with him because it’s probably going to be the last time,’ Neukomm said, referring to her son’s 18th birthday.”

“Jon Falen put his four-bedroom house in Olathe, Kan., with high-end appliances, granite kitchen countertops and a landscaped lot, on the market more than two years ago after health problems forced him to leave his job. Falen and his wife, now delinquent on their two home loans, are finally scheduled to sell their house next month.”

“But there’s a big catch: The buyer has agreed to pay only $490,000, which is $70,000 less than what the couple paid for it in 2002. Making matters worse, Falen and his wife owe $675,000 to two lenders because they used their home equity — which soared during the housing boom — to pay off student loans and remodeling expenses.”

“He is chastened by the drawn-out experience. ‘Any debt right now scares me to death,’ he said.”

“The median sale price for a single-family home in Grand Junction fell by $8,100 from the second quarter to the third quarter, according to Bob Reece, president of Advanced Title Technology in Grand Junction. ‘Some of those people that could have qualified for a loan a year ago or two years ago,’ Reece said, ‘can’t qualify today because they enjoyed, perhaps, zero down payment.’”

“‘When the demand goes down the price goes down,’ he said. “The market eventually finds where it should go. In all the price segments we’ll see a readjustment of the price points in every market range. That’s actually good for the market.’”

“In Chicago last month, Donald Trump stood atop his new, 92-story condo-hotel tower just off this city’s most prominent boulevard, Michigan Avenue. ‘There’s an economic disaster going on in the country,’ Trump dryly acknowledged. ‘A lot of things you think will be built in Chicago and elsewhere will never be built. The banks are shut down. But we got this one built, and we’re proud of it.’”

“Getting it built and getting it sold are two different things, however. Many of the gleaming building’s units remain on the market. Roughly 75% of the 4,900 condominium units under construction in Chicago’s downtown are already sold. But it’s not out of the woods just yet — next year, the number of new units coming onto the market is expected to drop to 4,600, but only 60% are sold, according to Appraisal Research Counselors, a consulting firm that tracks downtown Chicago real estate. Developers are considering alternatives like offering rentals, establishing rent-to-own plans and dropping sales prices. Talk of new projects has ceased.”

“If you build it, they will come. One housing economist says the same phrase applies to home building here. For years now, East Texas has been told our housing market is doing very well. Dr. Elliot Eisenberg of the National Association of Home Builders had positive news for a group of Tyler builders. ‘If Eastern Texas was the national housing market there wouldn’t be a problem,’ he said.”

“Eisenberg says…’Home building pays its way.’ ‘These homes are extremely expensive homes, they are big, they are fancy. These are great new homes for the community,’ said Eisenberg. ‘They are going to pay 3 times as more in property taxes. These homes collectively pay their way and more and they subsidized existing homes.’”

“Tonight as we conclude our series, ‘Anatomy of a Financial Crisis,’ we look in the mirror, at ourselves. How did the greed of American consumers contribute to the mess? As Suzanne Pratt explains, our bad behavior is now forcing us to face the music.”

“Pratt: ‘Our need for things has gravely injured our household finances. Just look at the stats. Between 1990 and 2007, credit card debt more than quadrupled from $214 billion to $937 billion. At less than 1 percent, our nation’s savings rate is the lowest in the developed world. Much of Europe is saving in double digits while China is at a whopping 24 percent. Nobel Prize winning economist and Princeton Professor Paul Krugman says we’re bad savers partly because of easy credit.’”

“Pratt: ‘Still, others say blame stretches well beyond U.S. households or busy suburban shopping malls. Krugman questions why we expect the public to have seen the folly when our leaders did not.’”

“Krugman: ‘It’s not up to John Smith in the street or Joe the plumber or whatever to say, hey, this is a housing bubble, look at the price-rent ratio. You expect, you expect responsible people in Washington and New York to be saying that and they didn’t.’”

“A simplistic myth is increasingly voiced - that everything would be hunky-dory if the federal government had not forced otherwise unwilling lenders to make risky loans to poor people. There are several problems with this argument. First, the Community Reinvestment Act includes no provisions for fines, and no bank ever has been fined for a violation. More generally, the law is clear that compliance does not require any bank to make any loan that does not meet usual standards of safety and soundness.”

“A second problem with blaming the Community Reinvestment Act for subprime lending is that the law applies only to depository institutions insured by the FDIC. The vast number of subprime loans, including virtually all ‘Alt-A,’ ’stated-income,’ ‘liar loans’ and those with ‘negative amortization,’ were made by lenders exempt from the Community Reinvestment Act and other federal bank regulations.”

“In 2006, at the height of the boom, lenders subject to the Community Reinvestment Act made only 15 percent of all subprime loans, and their share of all such loans made to low-income households was about the same.”

“Thousands of banks passed Community Reinvestment Act examinations without ever making a subprime mortgage. Western Bank, a family-owned, state-chartered bank in St. Paul, Minn., is a prime example. Steve Erdall, its CEO for the past two decades, said on his recent retirement: ‘I’m really proud that we’re a high-performing bank, that we get the highest grades under the Community Reinvestment Act and that we proved that you could be profitable in the inner city. We’ve been lucky, but you didn’t have to be smart to stay away from subprime mortgages. That was mortgage-broker and investment-banker greed.’”

“Lawmakers and consumer advocacy groups have pushed a plethora of state and federal legislation - everything from laws on predatory lending to programs where lenders rewrite loan principals - through the pipelines in Sacramento and Washington. ‘I’m not confident this legislation deals with the bottom rung of the pyramid (that needs help),’ said Timothy Canova, international monetary policy expert at Chapman University in Orange. ‘It doesn’t deal with the mortgage-backed security issues, which leaves a fear of litigation among loan servicers. That fear of litigation … and the uncertainty out there could be a disincentive to modify loans.’”

“Troubled homeowners, in Canova’s opinion, need a ‘reduced monthly debt burden,’ along with higher incomes. ‘I don’t see troubled homeowners getting any of those,’ he said.”

“As Southland economist Christopher Thornberg put it, the housing market is choking because home prices have been artificially inflated, putting them well beyond the reach of average buyers. Prices have plummeted over the past year, he said, but they still have a ways to go. ‘Falling prices will create liquidity and then a lot more people will qualify,’ Thornberg said. ‘But in terms of a recovery, we’re halfway there.’”

“As the Treasury Department prepares a $40 billion program to help delinquent homeowners avoid foreclosure, it confronts a difficult challenge. Countrywide says it will write down pay-option mortgages to as low as 95 percent of the current value of the home. The borrowers must either be in default or ‘reasonably likely’ to default. ‘I guess they are forcing me to deliberately stop paying to look worse than I am,’ said one borrower with a Countrywide pay-option loan. ‘Crazy, don’t you think?’”

“The borrower, who lives in suburban Los Angeles, took nearly $200,000 in cash out of his house and then paid less than the monthly interest due on his new loan. He now owes about $350,000 on a house that is worth only $150,000. He asked not to be identified for fear he would not get a modification, which could reduce his mortgage to $142,500.”

“Todd Lawrence, an airline pilot who lives outside Norwich, Conn., has a traditional 30-year mortgage that he has no trouble paying every month. But, thanks to the plunging real estate market, he owes more on his house than it is worth, like millions of other people.”

“If the banks, which frequently lent irresponsibly, and many homeowners, who often borrowed irresponsibly, are getting government assistance, Mr. Lawrence says he believes sober souls like himself are also due a break.”

“‘Why am I being punished for having bought a house I could afford?’ he asked. ‘I am beginning to think I would have rocks in my head if I keep paying my mortgage.’”

“It was a hint of the nightmare to come, but they chose to ignore it. Who could blame them? Mary Lou Rosato and Gregory Walker were head-over-heels for a 100-year-old Victorian. Finally, at ages 40- and 50-something, the longtime Los Angeles residents were ready to tie the knot with the bank and become proud homeowners. ‘We had no built-up capital, or anything like that. We had no experience. But everyone told us, ‘Go on, buy the house. It’s fine. It’s time,’ said Rosato.’”

“This was back in 2003, as the housing bubble was starting to soar. Prices were blood-hot, and buyers were acting like zombies, hungry for the next bargain kill. ‘It felt like it was the height of the insanity, but it was only the fifth rung of the insanity of the housing market,’ Rosato recalls. ‘Who knew it was going to exponentially explode?’”

“In L.A., they could never afford much more than a chicken coop. And then in Lincoln Heights, a supposedly up-and-coming neighborhood close to downtown — they found it: a three bedroom charmer for just $240,000 — more than $100,000 less than similar houses nearby. They knew very little about the property.”

“The couple spent many days over the coming weeks at the house, raking leaves and imagining how they would decorate. On one of these visits, while chatting with their sweet elderly neighbors, a man appeared seemingly from nowhere. ‘Do you know what kind of neighborhood this is?’ Rosato recalls the man asking. ‘Well, yes, but this kind of question was a smash in my face.’”

“Why hadn’t anyone told them their house was haunted by violence? Because in California and many other states, when one buys a property from the bank, the bank is not required to submit a disclosure form. ‘We would have needed flak jackets to leave our home,’ says Rosato. ‘Who do you think lives there now? Poor people,’ she sighs and makes the sound of a doorbell. ‘Ding dong. Boom!’”

“Josefina Guzman…lives there with her husband, kids and brother-in-law. I tell them about the violent ghosts of their home’s past. ‘No, no, no,’ Senor Guzman says, ‘these are things of the past.’ ‘It’s a dream, with housing being so expensive,’ adds his brother.”

“I take this ‘dream’ back to Rosato and Walker, adding the information that if the house next door is any indication, their property value would have been way up. Despite the economic chaos and violence, it’s selling for $390,000 — that’s $150,000 more than the house they almost bought. And it’s only half the size.”

“‘That’s like saying that lotto ticket that guy in front of you bought won, and you could have bought that ticket. If it was a gamble like that, that’s really not what we were looking for anyway,’ Rosato says.”




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92 Comments »

Comment by Ben Jones
2008-10-31 14:29:48

Another great week! My thanks to those who support this blog. Please check back this weekend.

Comment by Professor Bear
2008-10-31 14:53:04

“Another great week!”

Ben — You truly are an eternal optimist :-)

Comment by Olympiagal
2008-10-31 15:22:26

Maybe he means ‘great’ for some people? Such as people who think it’s super funny when reality stops lying there snoring and drooling and suddenly wakes up and looks around and gets grumpy and then busts right off its chain and runs around barking and biting idjits!

Yeah–for those people it HAS been a great week. *giggle*

 
Comment by Chip
2008-10-31 16:41:46

I think Ben might have meant, simply, “another great HBB week” as a rhetorical thank-you to the posters who respond to and flesh out the information he supplies in such abundance. No one in the blogosphere has been so faithful in keeping a topic alive so long, IMHO.

Comment by clue
2008-10-31 18:49:10

think about what you just said.

3/2 1800 sqr feet are offered for sale in Florida 50k.

http://www.realtor.com/search/listingdetail.aspx?sby=1&loc=port+charlotte%2cfl&ml=2&mxp=50000&typ=F&sid=e352f6e70c0544319c6615f3684fc34a&pg=22&fhpg=2&lid=1099526627&lsn=214&srcnt=220

fence sitters, you’ve been warned…..just watch the interest rates moving higher…

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Comment by Muggy
2008-11-01 05:46:56

Great link. All that says to me is…

1. There will be some serious neighborhood changes in the coming years

2. Stay on the fence a while longer

 
Comment by Muggy
2008-11-01 05:56:15

“just watch the interest rates moving higher.”

No problem, for every point they go up, your $50K home there will drop a couple G’s.

Knife-catchers and fence-jumpers, you’ve been warned. Hot-plate-touchers, you too.

 
 
Comment by Pullthetrigger?
2008-10-31 19:54:31

There he is! Hey, missed you!

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Comment by Chip
2008-10-31 20:16:56

Thanks. Been in the boonies - waaay out in the boonies. Assuming you meant me and not Ben.

 
 
 
 
 
Comment by aladinsane
2008-10-31 14:41:11

Welcome aboard the Titanic II…

“Ann Neukomm, a receptionist from Cape Coral, Florida, filed for bankruptcy in May and now faces foreclosure on a mortgage she took out about two years ago. She’s thinking about using a small inheritance from her father to take her 17-year-old son on a holiday cruise. ‘I’d like to do something with him because it’s probably going to be the last time,’ Neukomm said, referring to her son’s 18th birthday.”

Comment by DinOR
2008-10-31 14:52:54

aladinsane,

To make it even better, what self respecting 17 year old wants to be caught dead ( on a cruise no less ) with his mom? Again more out of control consumption “for the kids”.

Comment by Jen Bones
2008-10-31 15:15:20

“… what self respecting 17 year old wants to be caught dead ( on a cruise no less ) with his mom [Maude]?”

Set you course for adventure, your mind on a new romance.

Luv,
Jen

Comment by DinOR
2008-10-31 15:59:36

Jen,

LOL! Yeah, I mean, just out there. You’ve just declared BK, you’re on the verge of being FC’d and this is your thought process? It’s sick on so many different levels.

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Comment by SanFranciscoBayAreaGal
2008-10-31 19:52:28

Jen,

Thought you would appreciate the whole theme song from TV past.

Love, exciting and new
Come Aboard. We’re expecting you.
Love, life’s sweetest reward.
Let it flow, it floats back to you.

Love Boat soon will be making another run
The Love Boat promises something for everyone
Set a course for adventure,
Your mind on a new romance.

Love won’t hurt anymore
It’s an open smile on a friendly shore.
Yes LOOOOOOOOOOOOOOOVE! It’s LOOOOOOOOOOOOOOOVE! (hey-ah!)

Love Boat soon will be making another run
The Love Boat promises something for everyone
Set a course for adventure,
Your mind on a new romance.

Love won’t hurt anymore
It’s an open smile on a friendly shore.
It’s LOOOOOOOOOOOOOOOVE! It’s LOOOOOOOOOOOOOOOVE! It’s
LOOOOOOOOOOOVE!
It’s the Love Boat-ah! It’s the Love Boat-ah!

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Comment by wmbz
2008-10-31 15:42:05

‘I’d like to do something with him because it’s probably going to be the last time,’ Neukomm said, referring to her son’s 18th birthday.”

Last time? For what? A f–king cruise, why is earth fixin to go super nova? These folks just need to shut the pie hole!

 
Comment by Mirtika
2008-11-01 15:04:16

Whoa. Where do these people come from? They don’t give a crap about what they owe to whom, and when they do get some money, instead of thinking, “Let me save this for expenses or to pay needed bills, curent and future,” no..it’s time for a fricken cruise.

Unbelievable.

Someone needs to fish slap this woman. Hard.

 
 
Comment by SMF
2008-10-31 14:48:30

We’ve had a lot of people say ‘We love the house,’’ but they just can’t find the financing to buy.’”

I know how they feel…

…I saw this beautiful 8000 sq.ft. mansion that I wanted to buy, but the banks wouldn’t cooperate…

…and they got even snootier when I wanted to get some cashback to purchase that Mercedes that would look so good with the new house…

…and finally got downright nasty when all I wanted was some more cashback for the furniture…

But those bastards went over the line when they told me that if I wanted to buy a $350K ’shack’, I would qualify immediately!!

Comment by ex-nnvmtgbrkr
2008-10-31 17:19:44

Don’t you just dig how across America you have all these lame a$$ people on one hand pointing the finger of condemnation at all those lenders who were too easy with their lending standards, and on the other hand screaming “why won’t they lend!” You have the govt pulling CEO’s and former Fed officials before congress demanding answers for lax lending, and then across the hall they talk about ways to force the banks to lend.WTF?! It’s at times like these when i realize there just isn’t enough Joshua trees.

Comment by Pullthetrigger?
2008-10-31 20:08:22

Hopefully, they’re fine-tuning their economic techniques to avoid a total meltdown. As Quentin Crisp said in “The Naked Civil Servant”: It might work. (I have my doubts, though; the situation may just be just to big for governments to handle) I, for one, do not wish to live in the TEOTWAWKI scenario as described on double u 3X dot time bomb 2000. Lender of last resort? Of course, US taxpayers. Damned if you do, and damned if you don’t.

Comment by Muggy
2008-11-01 03:52:05

Yeah, “It’s hard to find people who can get financing,” said Moore.

“It’s hard to find sellers who can get realistic,” said Muggy.

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Comment by Professor Bear
2008-10-31 14:51:35

“‘Falling prices will create liquidity and then a lot more people will qualify,’ Thornberg said. ‘But in terms of a recovery, we’re halfway there.’”

First we need to survive the illiquid phase of the crash, akin to the situation described by FPSS of a Wall Street specialist facing a market with no bids near the last price on the ticker tape. Who wants to buy a home when prices are dropping by 25 pct or so per year? What lender in their right mind would want to make a mortgage loan under those conditions, when they could loan the same amount a year later with far less collateral risk?

Mark Twain said it best:

A banker is a fellow who would gladly loan you his umbrella when the sun is shining but wants it back the minute it starts to rain.

Comment by Faster Pussycat, Sell Sell
2008-10-31 17:10:41

Only one small (but important) change to your description. You’d have to be long when the bids disappear to feel pain.

If you were short, you’d be running around like a 7-year old on sugar and caffeine.

Of course, the home-pawners are long their houses when the liquidity disappeared. (You can’t really short houses.)

Comment by Professor Bear
2008-10-31 20:56:23

“You’d have to be long when the bids disappear to feel pain.”

Understood. I was making an analogy to being long house when there are no buyers near your wishing price, or anyone else’s wishing price within ten miles of where you live.

“If you were short, you’d be running around like a 7-year old on sugar and caffeine.”

Renting is a lot like being short, and I drink lots of caffeine and run around plenty every day. But I am not 7-years old, so I guess the analogy doesn’t hold up.

 
Comment by Professor Bear
2008-10-31 21:16:16

Any chance you are moving to Cali some time soon? I know you are busy making dough, but we could have serious fun with connecting the dots between the stock market and the housing market.

Comment by Faster Pussycat, Sell Sell
2008-10-31 21:58:07

I’ve thought about it from time to time.

Heck, as a former academic wouldn’t mind a more laid-back life but you know how it goes.

If I ever hit SD, I’ll come there to hang out and you gotta take me to the best food places (serious cook here = high standards = “I’d rather eat the best $1.50 taco than some froo-fraw”)

But you have the best taquerias on the planet so I’m dying to get out there. Maybe early next year?

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Comment by ex-nnvmtgbrkr
2008-10-31 14:54:00

“‘Why am I being punished for having bought a house I could afford?’ he asked. ‘I am beginning to think I would have rocks in my head if I keep paying my mortgage.’”

And there it is. Wait until the talk really spreads of reducing credit card debt. Remember that little thing called moral hazard? Just wait until we see what unfolds next. I’m having a hard time wrapping my brain around how knarly this could become.

Comment by Mormon_Tea
2008-10-31 15:22:14

I’m thinking ‘gnarly’ myself.

Moral hazards abound for the asking. There’s a whole nation out there that has constantly been reminded that the financial experts running (ruining) the economy have $$$ and a plan for everything.

Homeless, houseless, shoeless, friendless, brainless, no matter, Uncle Nanny Sam will make fix it.

There is not a problem out there that a million tractor trailers full of KOLD KING KASH wouldn’t make better.

What, me worry???

Comment by denquiry
2008-10-31 15:55:09

In amerika it has been said that we have transitioned from a manufacturing economy to a FIRE economy. I beg to differ. I think our economy can be categorized as a PTBP economy. AKA the PT Barnum Ponzi economy.

Comment by Faster Pussycat, Sell Sell
2008-10-31 16:37:25

The FIRE economy is the same as the Ponzi economy because as prices rise, you put up the “increase” as “collateral” to borrow even further.

Until it all goes in reverse, and ends in default.

Like now.

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Comment by Olympiagal
2008-10-31 15:24:25

‘And there it is. Wait until the talk really spreads of reducing credit card debt. Remember that little thing called moral hazard? Just wait until we see what unfolds next.’

What’s a ‘moral’? Oh, and what’s a ‘hazard?’
You talk silly. Me no want to hear you. I gotta go put my Hallowe’en costume on now.

 
Comment by Arizona Slim
2008-10-31 15:40:02

True story from Tucson: We hear all sorts of stories about how bad credit card debt is for consumers. Well, the act of accepting credit cards isn’t so good for small businesses. In fact, it’s downright expensive. One of our longtime local businesses just asked customers NOT to charge it unless it was absolutely unavoidable.

 
Comment by JohnF
2008-10-31 15:55:45

Why are you being punished? Because you acted responsibly, that’s why! Down is up, white is black in our world today.

GDP declines and the Dow goes up. People overpay for a home and they get a new affordable mortgage. Politicians lie and they are regularly re-elected.

Anyone that doesn’t borrow to the hilt and saves their money is a sucker in 2008 America…..those of us who have acted that way are learning a very valuable lesson…..

 
Comment by Leighsong
2008-10-31 16:50:23

As crazy as it may seem, We are sticking to our only plan.

Zero debt, modest, diversified assets, and the usual suspects *snicker* (guns, ammo, water, food, etc).

How easy it would be to cheat the “system”.

We are cursed with a conscious (BLESSED).

Honestly, we find it difficult to judge others faced with a different situation.

Old USAF saying: It’s hard to soar like an Eagle when you are surrounded by turkeys.

Hard, but not impossible.

Beginning to see realistic opportunities, so perhaps our plan will reward.

Leigh :)

 
Comment by ws
2008-10-31 17:07:21

I’ll be honest with you. I’m tired of being a Republican and being against this redistribution of wealth thing. I’m starting to think that it’s my turn. I’d like my mortgage loan balance cut in half and credit card balances forgiven.

That would make me a happy camper.

Comment by ex-nnvmtgbrkr
2008-10-31 17:40:57

Ha! Do i need any further proof? Tear up those statements folks!

 
 
Comment by Professor Bear
2008-10-31 20:58:24

The trick is apparently to pretend you cannot make the full payment on your house in order to get a big write down on your loan, but not lose the house by accident in the process.

 
 
Comment by Left LA
2008-10-31 14:55:53

Funny blog-story related to the Chicago Spire today.

http://featuresblogs.chicagotribune.com/theskyline/2008/10/the-chicago-spi.html

Go to the comments section. A whole lotta backlash against the mayor, IL govenor, and (unfortunately) the Cubs!

 
Comment by polly
2008-10-31 14:57:59

“This was back in 2003, as the housing bubble was starting to soar. Prices were blood-hot, and buyers were acting like zombies, hungry for the next bargain kill. ”

What a great idea for Halloween - dress up as an FB zombie! What would the costume look like?

(I await the brilliant musings of my fellow HBBers)

Comment by ex-nnvmtgbrkr
2008-10-31 16:36:27

Pretty much like any average Joe or Jane, except for the bloody JT stump protruding from the backside. I guess they’ll have to spin around for the householder to get it.

 
Comment by Big V
2008-10-31 17:18:58

They would look just like children.

Comment by dude
2008-10-31 19:08:07

I had to strike my last statement.

I’ll just leave it at that.

OK, it had a lot to do with retardation, and drinking koolaide from a lead cup.

 
 
Comment by Itsabouttime
2008-10-31 18:45:55

I’m going as the Bush Bailout.

Be afraid. Be VERY afraid.

IAT

 
 
Comment by DinOR
2008-10-31 15:04:39

“The banks are shut down” ( Donald Trump )

And did it ever occur to you why… that might be? You know, be it Trump or his legions of wannabes they’re all so contorted it’s just not real. Let me get this straight, real estate prices are plummeting because there’s no money left to be lent on it that hasn’t ‘already’ been?

Perfect.

Comment by Tango in Uniform
2008-10-31 15:44:18

Trump.. ha, ha. How many months before he goes bankrupt again?

Honestly, though, who is actually loaning out there? Even with foreclosures, how can sales actually be *up* in California from a year earlier? If it were my money, I’d be looking at at 30%+ down-payment and some serious scrutiny before I would even think about it.

Who is lending now? Who is buying these loans? I just don’t get it. There is no place in the country where loans without 20% down even make sense right now. Unless the good ol’ govt. is guaranteeing them all.

Comment by sleepless_near_seattle
2008-10-31 16:46:25

Yep. Lenders don’t want to lend cuz they can’t get buyers to be partners at 20%, and buyers are worried they’ll lose 20%. It’s gonna take a few years of 20% down and 10% interest rates before buyers get it.

Sounds like a conundrum…

Comment by Tango in Uniform
2008-10-31 17:07:52

Well, somebody’s still lending and some people are still buying. You’re right that it’s a conundrum, so why aren’t sales down 85% across the country?

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Comment by dude
2008-10-31 19:15:07

Three letters. F.H.A.

The next shoe to drop.

 
Comment by CA renter
2008-11-02 03:40:57

Sales are up in Cali mostly in the areas that have already seen 50%+ drops in pricing. In some areas, we are already at pre-2001 prices.

The OP is correct, most new loans are GSE/FHA loans, and there is a lot of CASH out there, with an inordinate number of homes being bought with 100% cash. Unbelievable, but true.

Many, many investors and flippers out there, too.

The bubble mentality is alive and well. We are still nowhere near the bottom, IMHO.

 
 
Comment by Pullthetrigger?
2008-10-31 20:25:22

Bingo!, (Sleepless)

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Comment by ChillintheOC
2008-10-31 15:09:21

“‘Why am I being punished for having bought a house I could afford?’ he asked. ‘I am beginning to think I would have rocks in my head if I keep paying my mortgage.’”

And there it is. Wait until the talk really spreads of reducing credit card debt. Remember that little thing called moral hazard? Just wait until we see what unfolds next. I’m having a hard time wrapping my brain around how knarly this could become.
——————————————————————————
Exactly! Talk about the Gov making things worse…! Peter Schiffs recommendation to “just stop paying your mortgage” doesn’t sound so far fetched. I wonder how many people who are just barely making ends meet start to let the mortgage go to qualify for one of those “sweet deals”?

Comment by DinOR
2008-10-31 15:49:35

Chillin’

I love Peter like a brother so don’t get me wrong here but he is on thin ice w/ that kind of a comment. David Tice ( Prudent Bear Fund ) got himself in quite a bit of trouble “leaking” negative stories when he was short AOL.

In this instance I’ll assume Peter is short the U.S Dollar. Not a direct link, but too close for ‘my’ comfort. When you manage money, you’re not just like “any other private citizen”. To be fair I also think a LOT of Bill Gross’ comments were over the line too. Cramer..? I mean c’mon, he’s…

Comment by ex-nnvmtgbrkr
2008-10-31 16:45:06

Who cares who says it, it’s out there man. Any fool will eventually come to this conclusion himself. Hey, I made the prediction 2 years ago that good credit will mean absolutely squat because the massive majority will have trashed credit, so whole new models will have to be made up, ie 500 the new 700, 600 the new 800, and so on. I never envisioned this, though. This is just looney tunes time.

 
 
Comment by The Housing Wizard
2008-10-31 16:29:28

IMO ,you just can’t give some people a deal and let others pay the full fare because they were responsible or didn’t lie on their loan applications.
I have never been against a lender bringing down the rate on a gouging
toxic adjustable loan to between 5 and 7 % for at least 5 to 7 years
.It seems to me that the lenders should try to adjust the interest first . A lender can re-work a loan balance if they want to if the borrower agrees ,but any attempt on the part of the government to give a principal cram down that would only benefit the worst borrowers would be a disaster . In fact currently the government already has the bail-out program in which a borrower could get a loan modification if the lender agrees , so why aren’t they having very much success with this program ?

I don’t think people would accept the concept that preventing foreclosures would be good for them ,therefore keep paying the full
fare while we give the flakes a benefit of between 50k to maybe up to 300k . People would just default so they could get the benefit also ,or they would walk when they normally wouldn’t .

The government needs to come to terms with the fact that many of the defaulting borrowers were operating under mania conditions and
they had the wrong reasons for purchasing the house to begin with .

My next door neighbor lost their family farm during the Great Depression . Eventually the lenders started trying to allow people to rent until economic conditions changed . In other words ,the lenders put the loan in abeyance and turned the house into a rental until conditions changed . So, what happened with my neighbor was that they were able to rent the Family farm . Because my neighbors father died during that time period ,the family was never able to get ownership of the farm back again . Eventually my neighbor sold her horse for 85 bucks and came to California . Trying to keep people in
farms that were their bread and butter is a different story from keeping people in houses that are just houses .

People who lost their jobs have historically lost their houses eventually if they could not obtain new employment or sell the house . A certain percentage of foreclosures these days are a result of simply job loss ,yet the government is not addressing that the recession is responsible for some of the foreclosures . Now maybe a lender could be nice and freeze a loan until a person obtains new employment ,given they are given a time span to perform ,in the interest of hardship . For years hardship was usually the only reason behind allowing a short sale ,and you had to qualify .

My point is that the government just can’t paint a broad brush and just bail out people who default on a loan contract without creating
a situation that paying homeowner won’t default also in order to get the benefit . The government needs to understand human nature and they need to understand that we are de-leveraging from a fake value mania in which many people were just trying to make short term money off a real estate bubble investment scheme .

Comment by Chip
2008-10-31 16:48:04

Wiz - your logic is OK, but I think that governments that want more control don’t care about logic nor fairness. That is what we are facing, IMO.

Comment by dude
2008-10-31 19:21:52

What exactly will survive this debacle and still remain in private hands?

Genitalia?

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Comment by dude
2008-10-31 19:28:30

BTW, does anyone know if they are running asset checks on these folks who are requesting the dole?

 
 
Comment by dude
2008-10-31 19:17:42

My LL let me know this month he is letting the house go back to the bank. He is one of those who can see the writing on the wall. He can totally afford the payment, but why keep the alligator when he will be able to replace it with an identical rental prop for half the cost next year or the year after?

Comment by sleepless_near_seattle
2008-10-31 23:18:52

That’s an outrage. How can he get another property within a few years after an FC?

Comment by dude
2008-11-01 11:36:12

Hah ha.

Cash.

That’s my point. It’s a bidness decision for him.

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Comment by Anthony
2008-10-31 15:21:49

“Jon Falen put his four-bedroom house in Olathe, Kan., with high-end appliances, granite kitchen countertops and a landscaped lot, on the market more than two years ago after health problems forced him to leave his job. Falen and his wife, now delinquent on their two home loans, are finally scheduled to sell their house next month.”

But, but, home prices never go down in rich, snooty Johnson county! Hah! Better move to Wyandotte county if you can’t afford it. I suspect that the illusions of wealth in Johnson county Kansas are almost as much as Orange county California, just on a smaller scale.

Comment by DinOR
2008-10-31 15:55:23

Anthony,

$675k is still considerable in my book but then again I’m not an idependently wealthy former air traffic controller.

Speaking of which ( knowing the FAA the that I do ) they are VERY clear about any medical problems that may disqualify you. Even in the military the training is expensive and a lot of people are thinned out almost immediately. Was this some sort of disability claim or something? I realize it’s not impossible to have med. issues at 33… but the candidate process is pretty stringent.

Comment by Gulfstreamfixer
2008-10-31 16:26:27

The guy probably worked at the ENROUTE traffic center in Olathe. Don’t confuse an enroute center with the tower at JFK @ 6:00pm on Friday. Have been at this facility personally……enroute work (90% of the time) is pretty laid back

If he has a disability for “stress” at an enroute center, he wouldn’t make it ANYWHERE in the private sector. (But this is JMO….)

When I grew up in Olathe in the 70s, the KC center ATC guys were already known for their full paid “early retirements” at 40. 100% of them already had side businesses of some kind going……most of it under the counter.

And yes, as Anthony said, real estate prices never go down in Johnson County

 
 
 
Comment by need 2 leave ca
2008-10-31 16:15:57

So, should I stop paying my mortgage so that the Tan Man can rewrite by loan, or eliminate it just for kicks. I want my bailout too. Should I max out the credit cards and go on an extended trip with the money and then let uncle government tell the cc to eliminate the balance just because? That is what it seems like I am reading. I was responsible. I wan’t the same out the irresponsible are seeming to be destined to get.

Found the best political postcard - caption “Board of Directors” - substitute any politician, CEO and managements. A picnic table in the middle of nowhere desert. Around it is 4 jackasses having a meeting. One almost facing backward. Classic.

 
Comment by Professor Bear
2008-10-31 16:22:18

“Krugman: ‘It’s not up to John Smith in the street or Joe the plumber or whatever to say, hey, this is a housing bubble, look at the price-rent ratio. You expect, you expect responsible people in Washington and New York to be saying that and they didn’t.’”

It’s not up to John Smith or Joe the Plumber to say ‘it is wrong to charge people who did not borrow more than they could ever hope to repay for the cram down and loan guarantee on my unrepayable debt.’

Comment by Chip
2008-10-31 17:01:20

PB - what’s worse, I think, is that the farther we go into this collapse, the more the price-to-rent ratio is distorted by the “new experts.”

Way back before you were PB and Calculate Risk was here and Robert Cote and we all talked about the ratios, as best I recall there were three principal rent-vs-buy ratios that most agreed on:

100x monthly rent = the price at which the professional investor buys.
120x monthly rent = the price at which the average wannabe homeowner buys if they want a decent value.
150x monthly rent = the price that a wannabe homeowner buys if this is the “omigosh can’t live without it” house for them.
200x monthly rent = the amount a foolish buyer with more money than sense, and an expectation of loss, buys.

What is not mentioned, in any of the contemporary MSM articles that I read, is the significant offset created by the steady increase of the Standard Deduction, relative to the deductibility of home ownership expenses.

I am on the older edge of all of Ben’s regulars and I cannot recall any changes in the financial and economic environment, as relate to renting and owning, that have been more violent or wide-ranging as right now. It’s a roller coaster I never hoped to ride, but so far I’m hanging on and have watched a number of fellow riders fall off.

Comment by Professor Bear
2008-10-31 21:03:34

We are headed towards 120X rent pretty quickly out here in SoCal. I am perfectly content to maintain Ben Jones’ hypothesis that the PTB really have no means of stopping the home price crash so long as the data are in line with the hypothesis. The economy is so wrecked and qualified buyers so scarce and scared that I personally have no reason to believe anything the government tries to prop up home prices will work. I don’t expect that to stop them from attempting blatantly socialistic interventions, though.

Comment by Professor Bear
2008-10-31 21:05:59

P.S. I never carefully checked this, but I estimate we bought in 1996 for about 120X rent. This was about six years after the onset of price declines in California — analogous to 2012 in the current cycle.

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Comment by Gulfstreamfixer
2008-10-31 16:31:11

“……we bought a dog, so we have a growing family now……..”

Sometimes, I just know Ben reads something like this, and just KNOWS he has to post it, just to hear the blasts from the HBB peanut gallery.

I’ll bite……:)

Comment by Faster Pussycat, Sell Sell
2008-10-31 16:43:14

Well, as a proud member of the peanut gallery, I’ll chime in: these people are a waste of good oxygen..

BWAHAHAHHAHAHHAHAHHAHAHHAHAHHHHHHHHHHHH!!!

Comment by Itsabouttime
2008-10-31 18:53:42

The people are a waste of good oxygen, true, but not the dog. The dog didn’t ask to be brought into their house.

BWAHAHAHHAHAHHAHAHHAHAHHAHAHHHHHHHHHHHH!!!

IAT

Comment by dude
2008-10-31 19:25:48

At least they have some food storage.

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Comment by Arizona Slim
2008-10-31 16:43:33

Does the dog bite?

Comment by SanFranciscoBayAreaGal
2008-10-31 19:47:46

Does the dog have teeth? If it does I would always assume a dog bites. :)

Brings to mind a great dialogue piece from the Pink Panther Strikes Again Movie:

“Does your dog bite”

“No”

- dog bites Inspector Clouseau

“I though you said your dog doesn’t bite.”

“That is not my dog”

I loved Peter Sellers in the Pink Panther Movies.

 
 
Comment by oc-ed
2008-11-01 10:51:34

“……we bought a dog, so we have a growling family now……..”

 
 
Comment by Chip
2008-10-31 16:33:29

Re the Hoosier article:

“For 40 years, Mary Moore has lived in her Butler-Tarkington home, but rising taxes, healthcare and housing costs along with her declining health means she’s desperately trying to sell her home.

“It’s hard to find people who can get financing,” said Moore.”

With no malice toward Ms. Moore, she is not “desperately” trying to sell her home. The news reporter apparently thinks differently. Since there was no such thing as a 40-year mortgage 40 years ago, Ms. Moore, presumed to be a prudent Hoosier, has long since owned this house free and clear. The listing price is too high. Possibly much too high.

So Ms. Moore was convinced by someone - someone nefarious, I say - to ask significantly more for her house than it is worth in today’s market. I hope that she ditches whomever gave her that pricing advice and lists with an honest broker, so that she’ll have the house sold in a minute, be able to forget about property taxes forever and deal with her personal healthcare costs with her proceeds, not mine. All’s well that ends realistically.

 
Comment by The Housing Wizard
2008-10-31 17:01:04

If you take for example a borrower who made 60k a year who purchased a 600k property on a low down no doc. adjustable loan ,they were a gambler . How did that person ever think they would really qualify for a conforming fixed loan, even in a couple of years after they purchased the house ? The entire industry was selling this refinance investment scheme of using leverage by constant refinancing or house flipping .

I do not condone the way the real estate and loan industry was selling property and time-bomb loans ,but the borrower was taking a gamble based on a belief that
real estate will go up and cover their bet . The people who could afford their loan have been harmed by all the gamblers and corrupt
players in this real estate leverage investment scheme that defied all logic . You can’t bail out people who purchased real estate for the wrong reasons in my opinion .

The government is going to get good borrowers defaulting if they attempt to bail out the liar loan borrowers or gamblers .

Comment by Ken Best
2008-11-02 00:03:56

“The government is going to get good borrowers defaulting if they attempt to bail out the liar loan borrowers or gamblers .”

Now is the time to default. When the bail out comes, it’ll specify
that those who have defaulted will be given money. Those that have not will not get any money. So, stop paying NOW!

 
 
Comment by Big V
2008-10-31 17:15:29

BOO!

Comment by sm_landlord
2008-10-31 18:18:49

Happy Halloween, everyone.

I’m going to go fire up my synthesizers, program a killer pipe organ, and do a little improvising in minor keys. Might as well get into the mood of the month.

 
Comment by SanFranciscoBayAreaGal
2008-10-31 19:49:02

Are you and your duck going out for Halloween Big V?

 
 
Comment by need 2 leave ca
2008-10-31 18:18:24

Housing Wizard. Good summary of what will happen with the socialistic bailout of the gamblers.

 
Comment by need 2 leave ca
2008-10-31 18:31:25

Everyone saying they are cutting back on things like dining out, etc? Not me. I have more of that than I can handle. I do it through mystery shopping, and no shortage. Best to get paid to go out, or last least meal paid for. But I can attest that many places have their business down.

 
Comment by 2banana
2008-10-31 19:26:45

First, the Community Reinvestment Act includes no provisions for fines, and no bank ever has been fined for a violation. More generally, the law is clear that compliance does not require any bank to make any loan that does not meet usual standards of safety and soundness.”

What a law says and how it is enforced (especially for votes under a far left administration) are two entirely different animals.

Under the Clinton administration, federal regulators began using the act to combat “red-lining,” a practice by which banks loaned money to some communities but not to others, based on economic status. “No loan is exempt, no bank is immune,” warned then-Attorney General Janet Reno. “For those who thumb their nose at us, I promise vigorous enforcement.”

The Clinton-Reno threat of “vigorous enforcement” pushed banks to make the now infamous loans that many blame for the current meltdown, “Banks, in order to not get in trouble with the regulators, had to make loans to people who shouldn’t have been getting mortgage loans.”

This threat combined with the government backing of Fannie and Freddie set the stage for the current uncertainty, because the “banks could just sell the loans off to Fannie or Freddie,” who could buy them with little regard for negative financial outcomes.

Comment by Professor Bear
2008-10-31 21:11:28

The redlining story makes no sense from an economic competition standpoint. Any qualified borrower who happened to be black or in another supposedly redlined group and thus fell victim to discriminatory lending practices would represent an arbitrage opportunity for a rival lender who was willing to overlook the color of a client’s skin for the quality of the potential profit opportunity. This does not mean that discrimination in lending never occurred, but rather that Friedman’s concept of equality of opportunity provided by free markets would naturally tend to eliminate it from the economic landscape over time.

Comment by Professor Bear
2008-10-31 21:13:32

P.S. I suspect “affordable housing programs” aimed to increase loans to “under served minorities” have screwed up far more minority household financial pictures than the whole history of discriminatory lending that preceded the recent episode in lending debauchery.

 
Comment by Faster Pussycat, Sell Sell
2008-10-31 21:53:43

Hate to say this but humans are weird.

Actually knew someone in Chicago who basically belongs to the “rational reasonable” school that you are talking about. Heck, I was dating his offspring.

Cool guy. Made some ungodly sum of money doing exactly the kinda arbitrage you were talking about because no “white man” would bother to do that.

Whatever. We’re talking about a self-made multi-mega-millionaire here!

Here’s the best part. The academics at the Univ. of Chicago looked down their noses at him because he threw the coolest parties, and they kept arguing that he must be “wrong” theoretically but he kept making ungodly sums of money so they liked the booze.

 
 
Comment by Skroodle
2008-10-31 23:48:25

Dude, that was 10 years ago…I don’t think that many houses purchased in 1998 are causing all the problems.

 
Comment by PeonInChief
2008-11-01 07:39:13

The Community Reinvestment Act has been in existence for more than 30 years. Nothing in the CRA would require a bank to make an interest-only negative amortization no doc loan. Ever. In fact, if banks subject to CRA were making some of the loans that were made in low-income communities, they might well have been fined for steering low-income and minority borrowers to the kinds of loans that were being offered in those communities. The CRA looks at disparities in loan terms for borrowers and one of the reasons for its passage was that banks were giving less good loans to minority borrowers, when white borrowers with the same credit profiles were receiving better loan terms.

Many years ago, I did housing testing and we found the same thing in rental housing. Minority tenants were charged higher deposits and faced more restrictive leases (pets okay for white tenants, but not for African Americans, for instance), even though the profiles were set up to be substantially similar.

 
 
Comment by packman
2008-10-31 20:16:12

With regards to the Idaho Statesman Article (I’ll have to write more tomorrow) - I’ve seen the CRA as a cause of the housing bubble presented as a “myth” like that. However it’s always taken to the extreme - with the conclusion that the CRA was just not “the cause of the bubble”. In reality it was one of the many causes of the bubble. It was an early contributor that started the snowball rolling. Without more snow - primarily in the form of changed regulations and especially the insane interest rates - the snowball that was the CRA would have indeed faded and melted.

No one flake of snow claims to cause an avalanche. No one drop of rain claims to cause a flood.

Comment by PeonInChief
2008-11-02 12:42:24

No, the CRA was not an early contributor to the bubble. It wasn’t a participant at all. The CRA doesn’t require that loans be made to unqualified borrowers at all. What it requires is that all qualified borrowers be treated equally–that minority borrowers receive the same terms as white borrowers, assuming comparable borrower profiles. It was passed because banks were making less good loans to minority borrowers and redlining perfectly decent neighborhoods because a substantial plurality or majority of the residents weren’t sufficiently white.

Nothing, again nothing, in the CRA suggested that banks goose their minority lending by making dangerous loans to unqualified borrowers. I almost get the feeling that banks are promoting this position so that they can go back to old-fashioned discrimination and redlining.

 
 
Comment by calex
2008-10-31 23:30:28

“On October 31, 2008, Freedom Bank, Bradenton, FL was closed by the Florida Office of Financial Regulation and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. No advance notice is given to the public when a financial institution is closed.”

Back to FDIC friday’s?

 
Comment by smathis
2008-11-01 05:45:55

“‘I mean there’s tons and tons of inventory,’ Neal said. ‘Everywhere you look there’s a house for sale.’

“Neal is trying to stay positive and hoping the housing slide is coming to an end. ‘There was an obvious need for a correction,’ Neal said. ‘And it seems like it bottomed out and there’s a lot of good houses, so I think it’s gonna start going back up.’”

Flawless logic. There is “tons and tons of inventory,” so naturally that means the housing market can only go up.

Clearly, Neal is a former Rhodes Scholar.

 
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