Ugly, Painful And Maybe A Good Thing
It’s Friday desk clearing time for this blogger. “Grace Morgan has faced foreclosure not once, but twice, and she’s scared it could happen again. The Salisbury resident and her husband have been out of work for some time and they simply weren’t able to pay their mortgage. Morgan was able to make one mortgage payment on her own and through the United Way, was able to make another. ‘It could happen again. We are just taking it day-by-day. I don’t know what we would do,’ she said.”
“She said years ago, she didn’t have any money problems. ‘I had plenty of money in the bank,’ Morgan said.”
“Between them, Jeff and Jennifer Felts had seven children when they wed in 2002, so they decided a bigger house was in order. Their ordeal began in December 2004 when they contracted with a builder for a custom house costing about $800,000. They were comfortable with the debt, based on his earnings as a truck driver for 28 years and her higher income as an insurance agent.”
“Last week, with him out of work and her earnings down, they won a 60-day delay in foreclosure on their Kannapolis home. Their case is one of more than 63,000 started last year in North Carolina, a record jump in foreclosure filings amid a weak economy. ‘It’s a nightmare,’ he said.”
“About March last year, they began negotiating with their lender, Wachovia, part of Wells Fargo. They rejected a loan modification last fall because they want the bank to reduce the principal to reflect the lost value of the house. ‘We’re just trying to get them to do right,’ he said.”
“Only NBC2 was there as U.S. Senator George LeMieux (R-FL) got a first-hand look at Southwest Florida’s foreclosure crisis. Now, he’s promising to do everything in his power to fight the blight. Members of the Galvez family say they enjoy their Cape Coral property and don’t want to leave it. ‘I’m trying to save this house, but the bank is not allowing me to,’ said Romy Galvez.”
“The senator says he plans to help get federal dollars. And after this trip, he’s anxious to hold meetings with bank executives. ‘I can say, ‘Look. I was right here in Cape Coral. Look at the map. Look at that every house on every street, practically, is in foreclosure. What are we going to do about this?’ said LeMieux.”
“Foreclosures dominated last year’s market in the Victor Valley, with local Realtors estimating they accounted for up to 90 percent of homes sold. That trend is expected to continue in 2010, but the supply has slowed down due to federal programs that have allowed defaulting homeowners to stay in their homes longer. Still, more foreclosures are expected here in 2010.”
“‘A lot of the loan modifications done last year are already delinquent,’ said Caroll Yule, broker in Apple Valley.”
“Joblessness and a weak housing market don’t appear to be going away any time soon, said William Emmons, an economist at the Federal Reserve Bank of St. Louis. And so, he said, neither will foreclosures. ‘I think it’s really not an exaggeration to say this is something like a 100-year flood that’s hit us,’ Emmons said. ‘And unlike the ‘93 flood, this is not going to recede in a few weeks or even months. This is going to last years.’”
“In recent months, some economists have begun to argue that massive government efforts to prevent foreclosures are only dragging the crisis out and slowing economic recovery. Through mid-December, some 759,000 borrowers nationwide — about 9,000 in Missouri and 37,500 in Illinois — had mortgages modified through the government’s $75 billion Making Home Affordable Program. But only 31,000 of those people — about 4 percent — have received permanent modifications. That raises worries about what will happen when these trial runs end.”
“‘This program is not working the way we had hoped it would work,’ said Todd Swanstrom, a professor at the University of Missouri-St. Louis.”
“One out of 10. That’s how many properties in Merced County got foreclosure filings last year. RealtyTrac reports countywide numbers. Merced Mayor Bill Spriggs said the city has about 750 vacant homes right now, measured by the number of homes that have canceled garbage service. About 215 homes in the city are up for sale right now.”
“‘So you know the numbers don’t add up. Lenders are holding foreclosed homes off the market. If they flooded the market, it would really hurt value,’ Spriggs said.”
“Spriggs said he wasn’t surprised by the county’s presence at the top of the foreclosure rankings. ‘I think this market was way too speculative,’ he said. ‘When the downturn hit, I think we were more impacted than other markets. We had lots and lots of out-of-area investors which really compounded things, too.’”
“Nevada’s congressional delegation demanded answers Thursday after the Las Vegas Valley did not receive a penny of nearly $2 billion in federal stimulus money aimed at helping areas most affected by the nation’s housing crisis. The news also upset Las Vegas Mayor Oscar Goodman. ‘It’s a slap in the face. It defies logic,’ Goodman said. ‘Only a moron wouldn’t know how much we needed the money. It’s inexcusable. It makes me sick. It seems like every other city in the country got money except us. We’re the poster child for economic woe at this time.’”
“The mortgage interest deduction, a tax break long considered a fundamental piece of the American dream, played a major role in the collapse of the housing and financial markets, according to a University of California, Davis, School of Law professor. Dennis J. Ventry Jr., an expert in tax policy, reached that conclusion in an article titled, ‘The Accidental Deduction: A History and Critique of the Tax Subsidy for Mortgage Interest.’”
“Ventry writes that the deduction, which permits homeowners to reduce their taxable income by the amount of interest paid on a home mortgage, was never intended to promote homeownership. Rather, Congress enacted the subsidy in 1913 as a general deduction for consumer interest. ‘Over the course of 50 years, however, politicians and the housing industry transformed the subsidy into a sacred cow,’ Ventry explains. ‘At the same time, Congress lowered income-tax exemptions, making more Americans eligible for the deduction and allowing the housing industry to link it to the value of people’s homes and one’s ability to achieve the American dream.’”
“‘If you’re a homeowner, your real estate agent and mortgage broker almost certainly told you that you’d get a tax benefit in the form of this mortgage interest deduction and perhaps a property tax deduction To the extent the market incorporates these subsidies into the value of homes, it raises their cost. Indeed, many economists believe they artificially raise housing prices by as much as 25 percent.’”
“Ventry concludes that the deduction does a lousy job of increasing the number of homeowners. ‘It might sound counterintuitive, but rather than raise rates of homeownership, the subsidy merely promotes overinvestment in residential real estate and encourages Americans to buy bigger and more expensive homes — sometimes more expensive than they can afford.’”
“Lane County saw a steep increase in home foreclosure filings in 2009 as homeowners — who’d been hanging on by their fingernails — fell into default. The borrowers who received notices in Lane County on Tuesday owed anywhere from $108,000 to $400,314. ‘We’ve had million-dollar properties that ultimately ended up selling for $600,000,’ said Joyce Leavitt, broker with Century 21 Westover Realty. ‘It affects the appraisals we’re getting. Every month, the price goes down another $5,000 to $10,000 on these properties. That’s what’s forcing the prices down on all the regular real estate.’”
“The depreciation in turn spawns foreclosures, said independent broker Rick Richardson. ‘If the market is appreciating at 3 to 6 percent a year, you only need to own the house for one to two years in order to be able to sell it and cover all your closing costs,’ he said. ‘In a depreciating market, a person who used to have 10 percent equity probably doesn’t have that, and he’s probably in the hole.’”
“Finance professors Stephanie and Andreas Rauterkus teamed with University of Florida geography professor Grant Thrall in an analysis that attempted to dig deeply into reasons delinquenices are rising. Though Center Point is slightly wealthier, the report estimates that Center Point has a 6.2 percent default rate, compared to 4.7 percent in East Lake. Residents of Center Point tend to be younger, college educated folks buying their first homes, they found. East Lake homeowners, by contrast, were older and tended to own fewer vehicles.”
“Another finding that surprised David Higginbotham of Alabama Title, who keeps a tally of mortgage defaults in the Birmingham metro area: The report’s assertion that 26 percent of foreclosures are ’strategic,’ meaning the homeowner chooses to spend money on things other than the mortgage and give up the home despite the consequences.”
“‘I thought that was a high number and that the moral obligations to repay would win out,’ Higginbotham said.”
“Defaults are increasing among Alternative-A mortgages, which generally fall between conventional and subprime home loans. Though a small part of the U.S. mortgage market, Alt-A mortgages grew in popularity during the past decade, St. Louis Fed economist Rajdeep Sengupta said in his report.”
“After 2003, with mortgage rates climbing and house values rising, many homeowners seeking equity turned to Alternate-A mortgages, Sengupta said. ‘The share of borrowers using Alt-A products to extract equity in their homes almost doubled between 2000 and 2006,’ he wrote.”
“A group of business leaders, academics and politicians doubts there will be a quick recovery for Las Vegas’s economy and suggested the future won’t be bright for Southern Nevada unless a greater emphasis is placed on diversification. ‘The foundations upon which Las Vegas was built: growth without consequences, home values always rising, a limitless oasis of jobs and unbridled opportunity for a monolithic economy are cracked,’ the report will say.”
“When I saw the news about Smurfit a few weeks ago, I knew it was going to be ugly, painful and in the long run, maybe a good thing. This week on NPR, folks from an industry group and the legislature talked about how they would be studying biomass next spring so that they could find a way to deal with the losses in the resource industry. What concerns me is the lack of news stories about the business that thought ahead and found another use for these materials, created a market and dodged the Smurfit bullet.”
“Why in the world do we think it’s OK wait on industry groups, the Governor and the Legislature to solve this for us? Any solution that goes through the state and industry groups will also likely go through DC. Hello politics.”
“Next thing you know, they’ll be putting a clause into farm subsidy legislation to pay us not to grow trees. Or to grow trees that don’t produce heat. Are we so comfortable in the land of complacency that we’re willing to wait until Brian and the Legislature come to us with a solution that everyone’s willing to sign but no one really likes?”
“What’s the most dangerous number in business? The Smurfit-Stone situation reminds us once again. It’s ONE. If your business is dominated by one income stream, gets all its raw materials from one supplier, depends on one cheap raw material, or ‘falls apart’ when one person is on vacation, you have one big potential problem. Solve it while you still can. Start with two.”
“‘A lot of the loan modifications done last year are already delinquent,’ said Caroll Yule, broker in Apple Valley.”
Hate to say I told you so Caroll but then yule just get angry at me.
Is it Christmas again already?
Their ordeal began in December 2004 when they contracted with a builder for a custom house costing about $800,000. They were comfortable with the debt, based on his earnings as a truck driver for 28 years and her higher income as an insurance agent.”
Damn! I knew I shoulda’ gone to that long haul trucking school they advertise on the matchbooks! 7 years of college down the drain.
Are they picking these stories on purpose?
“Are they picking these stories on purpose?”
I honestly wonder.
I made a promise to myself that I would no longer go berserk over a$$wipes like these two but there always seems to be another story that is just so flippin’ over the top that I can’t resist. This one tops the $7/hr fruit picker in Calif. I can’t imagine what $800k bought in NC back in 2004. Today it ought to buy an entire town.
Exeter, when we lived outside of Charlotte in 2004 there was a development down the road from us that I considered the “rich” development. The whole area was new but this was really the high end. All of the houses seemed to be priced at $799,900. Many sat for a long time before they got sold. Some of them seemed to take a while to get sold. Here is what you got for $799,000.
- 3/4 of an acre lot (that was far bigger than the houses in the other developments)
- 6,000 square feet
- Custom driveways
- Custom woodworking
- A high end barbecue in the backyard
All of these houses were unique. They were beautiful. We would look in the windows with amazement. That is what $800,000 got you in North Carolina in 2004.
Wait til they quote SNAITH again ! hahahahahaha
And to think, without this historic event we may never in our lives have seen the words “$800,000″, “house” and “ordeal” appear in the same sentence together.
A truck driver and insurance agent buy an $800k house. Beyond crazy.
800K loan and they can’t afford the “onerous” $3000 (!) mortgage payments? What on earth were these pretentious nitwits thinking would happen when the actual principal payments kicked in? Two years from now when interest rates on mortgage loans are approaching 10%, this sort of sanctioned idiocy will be over. Maybe.
I hope it would be over. But are these stories meant to elicit sympathy for these morons? Why can’t these people do simple math?
What happened to a ‘million dollar home’ actually looking like one?
They rejected a loan modification last fall because they want the bank to reduce the principal to reflect the lost value of the house. ‘We’re just trying to get them to do right,’ he said.”
Now lets get this straight..price goes down, bank reduces loam amount.
Price goes up, heck I’ll just give bank the profit. haha.
Morons
Just wait…Bankruptcy and Foreclosure will do it right .
They rejected a loan modification last fall because they want the bank to reduce the principal to reflect the lost value of the house. ‘We’re just trying to get them to do right,’ he said.”
Give me a friggin’ break. If they get a principal deduction, everyone homeowner in the country should as well.
..‘We’ve had million-dollar properties that ultimately ended up selling for $600,000,’ said Joyce Leavitt..
Is there any possibility that you actually had $350K properties that were selling for a cool million, which are still bubble-priced at $600K?
Just last week I had a Realtor tell me “that family just bought a $300k house for $250k. What a deal.” This house was on the market for six months and the $250k offer was the first of any kind. Realtor logic. Apparently it works in that parallel universe.
Comment by joeyinCalif
2010-01-15 15:24:17
..‘We’ve had million-dollar properties that ultimately ended up selling for $600,000,’ said Joyce Leavitt..
Is there any possibility that you actually had $350K properties that were selling for a cool million, which are still bubble-priced at $600K?
+1,000
Good to have you back, ahansen! We missed you.
mwah, Sammy!
Beginning to feel human again…at least my sense of umbrage has returned.
Ahansen,
Yes, I have no idea how the Felt’s felt they could make this float. Fully amortized this loan will cost $6,000.00+ per month for P&I only.
Unreal - and taking on that kind of debt at that stage in their lives.
$3000/month doesn’t cover a $800K 30 year mortgage! A quick check with a mortgage calculator….assuming a 1% interest rate and 1.5% property tax, the payment would be $3,739. And that doesn’t include PMI.
I have no idea what they’re paying, but it’s either I/O or some neg-am thing.
Or they had a large down payment and they’re trying to get some of that back by having the lender take the losses instead?
And between them they spawned seven kids. Because Lord knows, the U.S. needs more cretins.
Makes the movie “Idiocracy” seem like nonfiction.
You thought Idiocracy was fiction?
Isn’t $800K a lot of money for a house in North Carolina?
They rejected a loan modification last fall because they want the bank to reduce the principal to reflect the lost value of the house. ‘We’re just trying to get them to do right,’ he said.
Does this guy have an inflated sense of entitlement? To “do right” means to boot a jerk like you out of the BANK’S house.
Yeah, and if they’d have sold the place for 900K would the bank get to keep the profit? You know, because it’s right?
Don’t dance if you can’t pay the fiddler.
They rejected a loan modification last fall because they want the bank to reduce the principal to reflect the lost value of the house. ‘We’re just trying to get them to do right,’ he said.”
That’s only fair. I mean, had the house soared in value, they would have willingly shared their windfall profits with the lender.
They were “comfortable” with their $800K debt. And I’m comfortable with the idea of idiots like these living in a cardboard box.
What really yanked my chain was them saying they turned down a modification because they want the bank to lower the principal. Why do these yahoos expect that? Never been the case with any loans so why do they think it should start now. If that’s the case, I want my car loan lowered to reflect the depreciation of the asset.
A trucker buying an $800,000 house! This country has gone insane. Someone at his income level should have been living in a $200,000 house. But of course, every American deserves a 5,000 sq. ft. McMansion. God forbid the kids should double up or that husband and wife spit their toothpaste into the same sink.
Well, that and the Powers That Be have done what they can to make sure that $200,000 houses barely exist in many places - tear-downs start at $250,000, etc.
I still run into countless goofballs around Maryland who think that housing should be absurdly expensive and that is the core of a strong economy. They just don’t get it, sadly.
I am hitting the barf point on news articles proclaiming happiness over, or the need for, residential real estate prices that do not bear an appropriate relationship to current or future American incomes. If there is one thing I underestimated about the bubble, it is how important asset prices are to our national identity, and that asset prices therefore possess a political dimension.
If there is one thing I underestimated about the bubble, it is how important asset prices are to our national identity, and that asset prices therefore possess a political dimension.
Let’s hear it for the HBB-er who’s playing some great classic jazz tunes for that cobra!
Even where we live, in the middle of nowhere (Pullman, WA), we are just now seeing home prices drop to the $200k range for 40 year old ranches that haven’t been updated. Median household income is $55k or so, but the median house price is 5x that.
I have 4 sets of nieces and nephews just across the Idaho border from Pullman and 3 live on acreage with planted trailers. The 4th lives in the family farm house (minus the lost farm). “Housing is insane.”
You can get a pretty decent house for 200K here in Loveland, and the median household income is also about 55K. The 40 year old fixer uppers run in the mid 100’s.
There were plenty of $200,000 houses in North Carolina in 2004. When we were looking in 2003 I remember there was a house that I really liked. I thought it was the type of place I would fit in. It was about 1,700 square feet and $160,000. I always regretted not looking into that house.
I let my ego make the final decision. I decided on the McMansion route. We did the brand new 3,400 square foot house. The lot was small but it was a good major builder McMansion. The price was $265,000.
The second greatest day of my life was the day I closed on our new house. The greatest day was the day we sold it. Oh yeah, my wedding day is right up there, too.
My brother bought a new 3000 sq ft house in Fuquay-Varina, NC for 200K just two years ago.
True, but maybe they had a ranch they bought for $100K that had increased to $500K, so they sold that then bought the $800K house, making the loan a lot less.
In theory that’s true, but ranches don’t go for $500k in Kannapolis, NC.
Who is to say the house they paid $800,000 for wasn’t a $200,000 house?
It’s hard to know what that house was worth then, now, or ever.
“Their ordeal began in December 2004 when they contracted with a builder for a custom house costing about $800,000.”
“The house was completed in 2006, by which time he was out of work because of a back injury. Then problems began with the house - leaks, mold, cracking columns and crumbling brick. The Charlotte-area housing market was still fairly strong then, but the problems meant they couldn’t sell the house.”
“This spring, they won a judgment against the builder in Cabarrus County Superior Court. They were awarded more than $427,000 for damage caused by poor workmanship and $50,000 more for overcharges, according to court documents. Jeff Felts says the builder has paid nothing and had filed for bankruptcy, so they have little hope of collecting.”
“Cabarrus County has twice lowered the property tax value, which had been set at $941,000 in 2008 and last month was reduced to $518,560.”
Were values really still going up there in 2008 or was it even higher than $941k prior to 2008? Based on the description of the property, could they even get $518k for the property now as currently assessed by the county?
So to top off buying an $800k house, they bought an $800k house with incredibly defective workmanship. The house was literally falling apart in the first year. Is this a bubble story or what?!
Cabarrus County - Ben, could you please cue the banjo music?
The most famous landmark in Cabarrus County is Lowe’s Motor Speedway.
Well, sure it is. You can see the Speedway from outer space. It’s huge.
Good grief, I’ve earned in the 90+th percentile of income earners for the past 15 years and my wife has a reasonably nice income in addtion. I live in a $250K house ($100K in 1988) and wouldn’t dream of buying up. Of course, I pay a boat load of FIT because I don’t have the mortgage interest deduction that comes with an $800K house.
But, I’m old school.
If you owed on the house, every dollar of FIT deduction comes with four or five dollars of mortgage interest attached.
Pay the Feds and smile as you shove the rest into your pockets.
A truck driver and an insurance agent (sales clerk) get together and form a “blended family” of 9… So they think it would be cool to live in a bigger house (a latter day meadow mansion from the picture) and go $800k?
Is that crazy or what? In times past they would have lived in a ranch and the kids would have doubled up in rooms and maybe learned some social skills in the process…
I once shared a room with two of my sisters and lived to tell the tale. I guess kids today are too ’speshul’ to share a bedroom.
I’ll admit to being an only child and never having to share a bedroom.
Then there was college. Rooms with roommates! Yessss!
Some of the roomies were, shall we say, not compatible with Yours Truly.
Others? Well, there was Crazy Diane, who I hope is still alive and well. She was a great gal — and a lot of fun — and I sincerely wish that life has treated her well.
And Terri, the nonstop studying machine from Korea. She was in nursing school, and, knowing her, she’s probably a nursing supervisor somewhere. Hard worker, that Terri.
Thanks for bringing back these memories, JoJo.
That is the other thing that is changing. I had too roommates as a freshman to save money, then “moved up” into a double room as a soph. Later shared rooms in broken down student rental houses. Saved as a junior to buy an old VW for a $200. Annual insurance was more than the cost of the car.
Now, students buy condos, everyone gets their own room, everyone has to have a nice new car. The campus gyms and student unions look like something out of club med. The college scene has really changed over the past 20-30 years.
I’m with ya on the goodies these youngsters seem to need. Student Union at my alma mater was called “the bus station” when I was there. The name reflected what most of us Wolverines used the place for. It was a place to catch the campus or city buses. Or you could hop one to the airport.
Fast forward to now, and I hardly recognize the place. I mean, heck, it even looks like it gets cleaned regularly.
Now, students buy condos, everyone gets their own room, everyone has to have a nice new car.
Not so much where my daughter goes. She has a roommate in the residence hall.
The campus gyms and student unions look like something out of club med. The college scene has really changed over the past 20-30 years.
Yup, even at podunky University of Northern Colorado its like that. Not that the kids have time to use the fancy facilities as they’re all working to help foot the tuition bill.
and the trips, oh my. Russia, Spain, UK, Italy. When I was at Uof A, Tucson, our big trip was to Nogalas for the day.
I shared a room with three of my sisters. Bunk beds worked great.
I shared a small bedroom with two brothers. Just enough room to walk between the beds. My two sisters were in the next room, but you couldn’t open the door all the way because it hit the bed. One dresser for the boys. One dresser for the girls. We did homework on the dining room table. Older home that we remodeled piece by piece over 15 years.
Guess what, it all seemed quite normal at the time. We never FELT deprived.
My older brother and I had bunkbeds that were sometimes seperated and used as twins sometimes depending were we lived. I terrified him because he was allowed to beat me up a little but but my folks said it was deinitely against the Law to kill me.
He says he still has nightmares and flashbacks about my bed bouncing airborne sneak attacks when I was small and I wanted us to get up and do something on Saturday mornings. He threatened to run away from home to get peace more than once.
Later, he didn’t fare any better when he was a PFC in the 82nd Airborne barracks. I came back from Nam, lived up the street, had my own room and I was a freakin’ SGT. When his turn came, he told mom he was going to Nam just to get away from me…again!
I can remember doing “bust the bunkbed” bounce-a-ramas with my college roommate, Crazy Diane.
We used to put that Boston song “Long Time” on the stereo and crank it way up. When the long synth solo ended and the drumming started, we’d bounce up and down, her on the top bunk and me on the bottom.
The whole hall was waiting for the shrieks to emerge from our room when we finally broke the bed, but we never did.
Ahhhh, those were the days.
Does anybody have the Joshua Tree extension handy?
How about “Time out” by the Chamber brothers.
The time has come…correction.
“Look at that every house on every street, practically, is in foreclosure. What are we going to do about this?’ said LeMieux.”
The answer should be… Not a damn thing, let nature take it’s course. Instead ‘they’ will keep trying to reverse gravity.
“Look at that every house on every street, practically, is in foreclosure. What are we going to do about this?’ said LeMieux.”
Maybe lower prices until you have people that can afford to buy and maintain the properties?
The answer should be… Not a damn thing, let nature take it’s course.
Amen! Except the gub’mint thinks it has to do SOMETHING or will be seen as non-essential. So it defers the problem, and makes it much worse in the process.
That stupid comment caught my eye, too. What are you going to do.
NOTHING. Let these things be sold on the Courthouse steps to people with CASH. I will guarantee you, when someone has their own money in the property, it will be maintained.
This also creates buying opportunities for many of us who were looking for another house when this madness started. 1998 prices?
Great, I’m about ready to buy then. Let the foreclosures continue, but pick up the pace! That’s what you need to do. Tell the lender they MUST foreclose if no payments have been received for 90 days.
Make it a buyer’s market. Thanks.
“The senator says he plans to help get federal dollars. And after this trip, he’s anxious to hold meetings with bank executives. ‘I can say, ‘Look. I was right here in Cape Coral. Look at the map. Look at that every house on every street, practically, is in foreclosure. What are we going to do about this?’ said LeMieux.”
Any HBBer’s in his district? Is so, they should tell him to tell the bank execs what you said, move the foreclosures along. Foreclose and get them sold.
Amen, Diogenes!
As Charlie Crist’s appointed lame duck filling out the last year of Mel Martinez’ term, George LeMieux may be the least influential member of the entire U.S. Senate. I would be surprised if his name recoginition in the state exceeds 5%.
When Martinez resigned early, Crist, who had already announced his own plan to run for the seat, needed to appoint a supporter to fill out the term. Enter LeMieux.
“About March last year, they began negotiating with their lender, Wachovia, part of Wells Fargo. They rejected a loan modification last fall because they want the bank to reduce the principal to reflect the lost value of the house. ‘We’re just trying to get them to do right,’ he said.
If they taught personal finance 101 in high school, then this person might have a clue about the difference between debt and equity. The equity position accrues 100% of the benefit of gains and takes the first loss position when things go negative. Oops, silly me: there never was any equity.
I’m afraid that the majority of the U.S. population is financially illiterate.
They rejected a loan modification last fall because they want the bank to reduce the principal to reflect the lost value of the house.
I don’t know which is more arrogant, stomping your little foot and demanding a cram-down, or building the $800K house in the first place.
Bingo!!!
If they want to talk about “making it right”, they ought to make their payments or fork over the house.
Apparently, they built a $500k house that the builder CHARGED $800k for. I think we have a winner.
Someone should ask the fool from the article if he’s OK if his lender tacks on another 10 years of payments to his loan if the value of his house goes up. It’s only fair, by his “logic”.
“‘We’re just trying to get them to do right,’ he said…..I’m afraid that the majority of the U.S. population is financially illiterate.”
Not only financially illiterate, but what a sense of entitlement! My house dropped in value. It is your responsibility to make it right.
But, but Real Estate only goes UP. Doesn’t it ? Huh huh?
I think you may be a little restrictive when you say “financially” illiterate. Common sense, and a little discretion, would have said a truck driver and an insurance agent cannot afford an $800K home, regardless of what the realtor and mortgage broker told them.
You just know the various “professionals” around the closing table breathlessly watching that ink flow on to those agreements. Reminds me of the music star signing George Burn’s contract in, “Oh god, you devil.”
I moved my brokerage account out of Wachovia about two years ago. It felt good to tell them I didn’t want to leave my money with any financial institution that lent and speculated so recklessly.
“About March last year, they began negotiating with their lender, Wachovia, part of Wells Fargo. They rejected a loan modification last fall because they want the bank to reduce the principal to reflect the lost value of the house. ‘We’re just trying to get them to do right,’ he said.”
By this logic… I want a reduction on my car loan. That frickin’ car is not worth what I paid for it.
“…frickin’…”
You misspelled ‘fracking.’
Urban dictionary definition of frack…
Battlestar Galactica baby
The younger generation
doesn’t even know it is felGercarb.
‘We’re just trying to get them to do right,’ he said.”
Hey, would you be willing to have the government subsidize all the renters to the same tune? I think not.
“She said years ago, she didn’t have any money problems. ‘I had plenty of money in the bank,’ Morgan said.”
With the Fed holding interest rates on savings at approximately zero percent, why would anyone be dumb enough to save money in the bank?
Me. Because I can’t think of anyplace better to put it right now. Methinks the stock market is cruising for a springtime bruising. Don’t get me started on bonds.
Glad you don’t have any better ideas than I do.
Except I shifted to Treasury Direct for amounts over $80K.
As long as you’re not getting any interest anyway, there’s always “The Precious”. (How do you make the TM symbol?)
If you can’t find anything to go long, then go short. You could short T-bills (ETF: TBT, PST) and REITs (ETF: SRS) for example. May as well profit from the madness.
Not yet (IMHO). Still too much juice out there. I agree that shorting is the next best move, but timing is everything…
PB,
I’m afraid there were quite… a number of Debt=Wealth ‘converts’ in this process. To be truthful, that was kind of my wife and I in the 90’s.
We had done (2) seperate MEW-extractions when I finally said, that’s it, we’ve done all we can for this house, it’s already -way- nicer than anything around here and I’m getting UNcomfortable w/ the level of debt.
Thankfully at the time GF’s were a dime-a-dozen and we were allowed to exit in 2004. Of course we were fools then as things continued to spiral until 2007! So I missed the peak by 36 mos! Get off my @$$!
I got rich by selling too soon. — JP Morgan (?)
Barnard Baruch got rich by selling too soon.
I’m that dumb. I can’t wait for my 1099-INTs to arrive. I think I could have earned more money spending a week at the beach looking for coins with a metal detector.
I was being flippant; didn’t really mean to suggest savers with bank accounts are dumb. Rather, I meant to highlight how unfortunate it is that the Fed’s policies inadvertently discourage prudent household financial management.
Professor Bear,
It’s that intersection that really got the whole HB conversation going. Going back to the patrick.net days, a great many in the BA were dismayed that not only were home prices rapidly getting out-of-control ( but that the current environment didn’t make much sense out of saving either? )
I think BA residents had come to gripes w/ the fact that living in a hoom you liked in a clean safe neighborhood there was never really going to be ‘cheap’, but getting those kinds of rates of return was what really hacked them off.
In 2004 borrowing money at less than inflation was like “free money” many housing bulls vigorously argued! Well, how’s that free money workin’ out for you guys? It really wasn’t until we were over run by Trolls that we began examining home prices more closely.
I don’t think there’s anything “inadvertent” about it, considering that risky investments and living off credit cards is the foundation of our economy. Discouraging savings is a feature not a bug.
Or, how about the real reason. We are subsidizing the rebuilding of the banks capital, on the backs of savers and prudent borrowers.
No offense taken. I agree that it is the Fed that has made my choices dumb ones. I’m not so sure it’s inadvertent, though: without Americans spending to the limits of their ability buying things they don’t need, our economy, and the global economy, would be forced into a painful readjustment that would make losers out of people and countries who thought they were winners.
Very true, snake charmer.
Right on, Bear!
And now the cobra’s swaying to some classic Motown. (That snake charmer can really play!)
Many years ago, Will Rogers said: “I’m not so much concerned about the return on my money as I am about the return of my money.”
The more things change, the more they stay the same.
Bwahahaa. We have $100 in Chase bank. We wanted to spread out a couple of years ago… just in case. We get 0.00000000% interest, which explains our never making a second deposit.
They just sent me a letter offering:
“Earn TRIPLE our current rate!” for 90 days (Emphasis theirs.)
Gosh I’m so impressed.
“When I saw the news about Smurfit a few weeks ago, I knew it was going to be ugly, painful and in the long run, maybe a good thing.
At first I wondered what is a Smurfit? An exercise for smurfs?
But it really means alot of linerboard won’t be made in 2010.
Smurfit-Stone closing Missoula mill permanently
December 14, 2009
BILLINGS, Mont. (AP) - Smurfit-Stone Container Corp. announced Monday it will permanently shutter its paper mill near Frenchtown at the end of the year_ a move that will cut 417 manufacturing jobs in western Montana and threaten perhaps 1,000 more in related industries.
A second Smurfit mill will close in Ontonagon, Mich., as the $7 billion company attempts to drastically cut costs and emerge from federal bankruptcy protection by next spring.
The Frenchtown mill, which produced 620,000 tons of linerboard annually northwest of Missoula, will shut down Dec. 31. The Ontonagon mill ceased operations in September. It had 182 employees.
Frenchtown, MT - RIP. It was nice knowing you as long as I have.
Let the blood bath start already. Raise the interests rates!
+20 billion!!!!!
“If they flooded the market, it would really hurt value,’ Spriggs said.”
I’m speechless at this.
Just speechless.
Helium-breath government will run out of artificial supports soon.
Then value, or price discovery, will emerge.
Then value, or price discovery, will emerge.
You mean they haven’t been incarcerated at the Supermax in Colorado? (Last I heard, they were living down the hall from the Unabomber. But, then again, I don’t always hear well.)
Well, flooding the market hasn’t really hurt the value of the dollar… yet. I’m sure Timmy the G. has a strongly worded speech prepared for China, just in case.
“Helium-breath government will run out of artificial supports soon.”
Are you just hoping this is the case, or do you have a reason to believe this?
Ventry writes that the deduction, which permits homeowners to reduce their taxable income by the amount of interest paid on a home mortgage, was never intended to promote homeownership. Rather, Congress enacted the subsidy in 1913 as a general deduction for consumer interest. ‘Over the course of 50 years, however, politicians and the housing industry transformed the subsidy into a sacred cow,’ Ventry explains…
I researched this myself a couple of years ago for patrick.net. I think Ventry is just a little bit off - there was no “consumer interest” back then. People saved up and generally paid cash for real estate. Certainly there were no credit cards or auto loans.
Instead the MID started out as a general BUSINESS COST deduction. Back then most interest was paid on BUSINESS loans, and the interest on loans of all kinds became tax deductable as a legitimate business expense. The MID just got sucked in there as an afterthought.
Years later congress did away with the deductability of most consumer credit (e.g. auto loans and credit cards). Only the MID remained.
Which has resulted in a true perversion. Now it’s much better to HELOC your house to buy things than to buy them on consumer credit. I’m not sure that’s exactly what the MID is supposed to reward; why on earth do we want people to HELOC for toys (and pay for them on a 30 year term) rather than get a normal loan and pay for it much faster?
Interest should either be, or NOT be, deductible.. Period. The “dual nature” of interest expenses today causes the worst possible behaviors, it encourages borrowing long to buy short. That behavior is not in this nation’s best interest!
Or at least eliminate the MID on investment houses. I know all the “investors” out there would scoff at the idea, but housing is supposed to provide shelter for families. It should not be considered an investment, because the very wealthy will too easily corner the market by buying up all the good real estate and renting it out to all the plebs.
I really do support an “ownership” society, and think most people are better served if they buy and PAY OFF a house before they retire. This should be our goal, not to enrich one generation or particular group at the expense of another.
“To the extent the market incorporates these subsidies into the value of homes, it raises their cost. Indeed, many economists believe they artificially raise housing prices by as much as 25 percent.”
I would be thrilled if this “sacred cow” got slaughtered.
This is the first year of 9 years of home ownership that we will use the standard deduction. So, following American Logic,
it is indeed time now for the mortgage deduction to end.
I used the MID for 25 years. Now that I own a house outright - screw them!
“Ventry concludes that the deduction does a lousy job of increasing the number of homeowners. ‘It might sound counterintuitive, but rather than raise rates of homeownership, the subsidy merely promotes overinvestment in residential real estate and encourages Americans to buy bigger and more expensive homes — sometimes more expensive than they can afford.’”
I certainly hope his analysis was not myopically focused on the mortgage interest deduction, as there are so, so many other government subsidies at many different levels whose combined effect pushes U.S. home prices into the unaffordable stratosphere.
To name a few:
1) $500,000 capital gains tax exclusion
Foreclosure moratoriums
2) GSE securitization (an implicit, govt-sponsored risk subsidy)
3) Federally guaranteed loans
4) Low-downpayment FHA loans
5) Low-downpayment agricultural loans
6) Fed purchases of MBS to artificially suppress mortgage interest rates (another form of purchase subsidy)
7) $8,000 home buyer tax credit
9) Making Home Affordable foreclosure relief
That’s all I can recall off the top of my head in a sixty-second brain dump; I am certain I am forgetting a number of other subsidies. I would love to see an analysis which showed how much equilibrium U.S. home prices would drop if all these subsidies were eliminated. I am guessing at least 50 percent, but that is admittedly only a guess.
Cool — my number 8 sprouted shades!
10) Unaffordably-pegged GSE conforming loan limit = cutoff on the amount that can be financed at too-big-to-fail subsidized GSE loan rates…
Nah, that would unfairly discriminate against states with large concentrations of the (hopefully) temporarily insane
You forgot tax deductible interest on the loan.
Don’t forget the “shadow inventory” that’s being kept off the market. This is separate (but similar to) the moratoriums, but I think the nubers are even bigger.
“Numbers,” not “nubers.”
“nubers”
Trying hard not to let my imagination go wild with that one
Maybe nubile tubers - sexy potatoes? LOL
I didn’t forget the shadow inventory, but I was trying to exercise precaution in describing government-sponsored housing subsidies. Do you have any convincing evidence there is a government-coordinated effort to collude with banks to withhold inventories from the market? So far I see the motive and the potential, but not the smoking gun with fingerprints all over the handle.
Could it be that keeping the time value of money near zero (30 year T-Bills) gives little or no incentive to take the losses?
It is also worth exploring (but “too-big-to-explore” for my personal taste) to what extent the TARP and other government bailouts are extending tendrils below the MSM radar into residential real estate markets in an attempt to reflate the bubble and save Wall Street banks. I don’t see why the government-owned Toxic Asset Superfund Site cannot quitely be grown indefinitely. By holding those assets, the Treasury is artificially supporting their prices, to the benefit of the asset owners and at the expense of all other Americans. Seems rather un-American, no?
Watchdog Wonders When Bailout Will Really End
TARP Will Not End October 2010, New Congressional Report Says
By MATTHEW JAFFE
WASHINGTON, Jan. 14, 2010
On the same day executives from four of Wall Street’s biggest banks testified on Capitol Hill about the financial meltdown, a watchdog group warned that the government’s controversial $700 billion bailout program may not end for years.
While the Treasury Department’s authority to make new commitments under the Troubled Asset Relief Program expires in October, the bailout will not truly be over at that time, the Congressional Oversight Panel cautioned in a new report.
“The end of this authority will not…however, constitute the end of the TARP,” the panel said. “Treasury will be authorized to continue making purchases using funds that were committed in advance of the Oct. 3, 2010, deadline. Finally, after Treasury completes all of its TARP purchases, it will hold a massive pool of financial assets likely worth hundreds of billions of dollars, and the process of unwinding some of these holdings may continue for a number of years.”
…
Maybe they should phase them all out over the next 20 years.
But wait, that would cause heads to explode all over RE-land as the realization sunk in that prices were likely going to be dropping for a 20 year period.
Professor Piggington has recently shed light on this question. In particular, he mentions Ramsey Su’s plausible conjecture that the primary purpose of the government’s Xmas-Eve move to lift the $400 bn GSE funding cap may have been to open the floodgates to a huge amount of liquidity for principle write downs on underwater households’ mortgage debt.
This would be a great way to summarily transfer a large fortune in unearned wealth to Megabank, Inc and to underwater (but otherwise wealthy) households in a program that could be rolled out with great fanfare as yet another round of ‘foreclosure relief.’ No low-income welfare program Johnson’s Great Society ever cooked up could possibly compare in terms of the likely amount of government handouts this Welfare for Rich People program will generate (which I am thinking will be at least $400 bn).
Shadow Inventory Is For Real
Posted: Saturday, January 2, 2010 2:05 pm | Updated: 5:55 pm, Sun Jan 3, 2010.
It feels like I’ve been writing about “shadow inventory” — homes that are in foreclosure but haven’t hit the market yet — forever. Yet no flood of foreclosures has yet inundated the market, and as a matter of fact, inventory has been quite scarce lately. Is there anything to this shadow inventory concept?
…
Shadow inventory is very real, then, in the sense that there are foreclosed (but not yet for sale) homes out there in numbers that would have a substantial impact on the county’s housing supply if they were to come onto the market.
Whether that will actually happen is another question entirely. So far, foreclosed homes are only making it to the market in a trickle. The rationale that banks are too swamped to process foreclosures seemed plausible at first, but this has gone on so long that I am increasingly skeptical of it. So I can only assume that the foreclosures are being held back by some combination of moratoria and other bailout programs (or hope for more of the same), “extend and pretend” (in which lenders put off foreclosure in an attempt to prop up the paper value of their mortgage assets), and political pressure from the folks who run the bailout printing press.
As with other aspects of the housing market, this has become a largely political issue and is accordingly difficult to forecast. But I think it’s a fairly safe bet that the politicians will find new and exciting ways to throw money at the situation. (To this point, local housing analyst Ramsey Su has conjectured that the Christmas Eve lifting of the limits on how much money the government will provide to Fannie Mae and Freddie Mac is a prelude to widespread mortgage principal reduction by the two mortgage giants).
It’s tough to know, then, how many of those 19,453 homes will complete the foreclosure process and make it onto the market. And for the ones that do, we don’t know over what timeframe it will happen. It’s certainly within the realm of possibility that the government could borrow, print, and spend enough money to substantially lessen the shadow inventory’s potential impact.
It’s within the realm of possibility, but not a sure thing. And there is no doubt that the shadow inventory is out there in great numbers. Until the path forward is more clear (and regardless of whether prices are rising right now) shadow inventory is a factor that should not be dismissed or ignored.
– RICH TOSCANO
I thought that was a high number and that the moral obligations to repay would win out,’ Higginbotham said.
HMMM, no comments on this jewel? Are you guys all done with commenting on the moral obligation to pay one’s mortgage?
Personally I find discussions of morals by the banking sector one of the most amusing aspects to come out of the bust. Last time I read a mortgage document it said nothing about morals or the shame of not paying. I musta missed it.
It’s not about a moral obligation. And who cares what banks say?
It’s about us paying for the FB’s mistakes. We will suffer. We pay that bill.
It’s about how business losses are certainly, eventually transferred to the rest of us, through higher product or service prices, job losses, a slower economy or in any number of ways.
It’s about encouraging them to walk away, believing the banks will suffer. That’s misguided thinking. The banks won’t suffer. Business will pass the losses on to us.
We will pay for their (FB’s) mistakes.
If there’s any moral component to this, it’s our lack of morals if we encourage this walk-away behavior. We are encouraging bad behavior… Bad because it’s bad for us monetarily, and bad because, by supporting walk-aways, we are enabling people who want to lay the cost of their mistakes on anyone except themselves.
Those who work for or invest in the lending industry will pay a disproportionately high price for walkaways, and that is as it should be, as they are the ones who abdicated sensible lending standards in favor of making loans that were unlikely to ever be repaid.
In reality, Joey, morals don’t enter into it.
Banks are corporations and are amoral. Self-serving, but amoral. When you deal with them be amoral and self-serving.
In case you missed the past 18 months, we are paying for it whether there are ’strategic defaults’ or not.
However, your best line is: we are enabling people who want to lay the cost of their mistakes on anyone except themselves.
Try rewording the statement: we are enabling banks who want to lay the cost of their mistakes on anyone except themselves and still live the high-life.
What’s funnier is that they only care about THIS phenomenon because they animated the monster by not requiring down payments.
Given the Enronesque nature of accounting these days, I take any Megabank, Inc financial reports with a very large grain of salt.
* The Wall Street Journal
* HEARD ON THE STREET
* JANUARY 16, 2010
J.P. Morgan Still Taking a Mauling
By PETER EAVIS
Wasn’t the credit crunch supposed to be over for J.P. Morgan Chase?
Wall Street’s bank bulls have been foaming at the mouth over the possibility the lender’s earnings will soon soar as bad-loan costs plunge. Indeed, management indicated on Friday, when reporting uninspiring fourth-quarter results, that it could start to see that boost this year.
But with its large investment bank and substantial mortgage exposure, J.P. Morgan is going to be living with the consequences of the credit crunch for longer than some believe.
That was clearly evident in Friday’s report. Take J.P. Morgan’s big mortgage book. More prime loans are defaulting. Second, the bank’s earnings are now being hit by mortgages it assumed in its emergency acquisition of Washington Mutual. Third, the cost of taking back badly written mortgages also caused a surprise dent to income.
Perhaps the biggest threat for J.P. Morgan, though, is the financial overhaul being formulated by politicians and regulators. Its large investment bank, with big trading operations and derivatives exposure, puts it squarely in the cross hairs. For instance, as a big user of market funding, it looks set to be hit harder by the Obama administration’s proposed tax on bank liabilities. Indeed, on Friday’s call, Chief Executive James Dimon inferred the tax could make it less attractive for the bank to use so-called “repo” funding. This totaled $294 billion at the end of the third quarter, or a sizable 16% of J.P. Morgan’s liabilities.
…
Does Las Vegas give odds on how long those in top cabinet posts will remain in office?
Bloomberg
Geithner’s E-Mails, Phone Logs Subpoenaed by House (Update3)
January 13, 2010, 06:14 PM EST
By Hugh Son and Andrew Frye
Jan. 13 (Bloomberg) — The Federal Reserve Bank of New York was ordered by a House committee to provide Timothy Geithner’s e-mails, phone logs and meeting notes tied to the bailout of American International Group Inc.
The subpoena from House Oversight and Government Reform Committee Chairman Edolphus Towns demands by Jan. 19 all documents related to the New York Fed decision to fully reimburse banks that bought protection from AIG and efforts to persuade AIG to keep information about the payments from the public, Towns said in a statement today.
“We need to understand why and how taxpayer dollars were used to bail out the same people who helped cause the financial crisis in the first place,” Towns said in a statement. Geithner, who was president of the New York Fed when AIG was rescued, is now President Barack Obama’s Treasury secretary.
…
Yep, Geithner’s days are numbered. Still, is his replacement going to be any better for the taxpayers? I’m guessing it could get worse.
A bear has to love any proposal that involves the use of claws to recover ill-gotten gains from the banksters. Aim for their throats, OBWan!!!
* The Wall Street Journal
* JANUARY 16, 2010, 10:06 A.M. ET
Obama Vows to Claw Back Tarp Cash
By HENRY J. PULIZZI
WASHINGTON — Showing little sympathy for critics of his proposed fee on big financial institutions, President Barack Obama vowed to recover all the cash taxpayers spent on the Troubled Asset Relief Program, saying he won’t let Wall Street “take the money and run.”
In his weekly radio address Saturday, Mr. Obama said the large banks that are gearing up to dole out billions in bonuses can afford to pay his planned “financial crisis responsibility fee,” which is designed to generate $90 billion over 10 years.
“Like clockwork, the banks and politicians who curry their favor are already trying to stop this fee from going into effect,” Mr. Obama said. “The very same firms reaping billions of dollars in profits, and reportedly handing out more money in bonuses and compensation than ever before in history, are now pleading poverty.”
“It’s a sight to see.”
The proposed tax, which must be okayed by Congress, has triggered stiff opposition from the banking sector. Opponents say it will hinder banks’ ability to lend and unfairly saddle Wall Street with the cost of the auto-sector bailout. Many banks would be hit by the fee, even though they have already repaid their TARP funds.
…
Has anyone besides me reflected on how the current “anti-free market” sentiment that is flooding the MSM plays into the hands of banksters who would otherwise be losing their shirts at the moment, thanks to their failed financial gambles? Repudiating the free market during a real estate bust provides good political cover for programs like the TARP, whose real purpose is to shield Megabank, Inc from losses which would otherwise accrue to the advantage of American households (e.g., more affordable housing). I expect once the Wall Street money machine is fixed and revved up into overdrive once again, “free markets” will quickly come back into vogue.
Yes, I’ve reflected on that as well. As a matter of fact, during the real crisis — when lending was exceptionally loose, and prices were rising far beyond any rational levels — the financial industry was the frontman for the “free market” propoganda machine. Now, all of a sudden, they want taxpayers to back their losses — “or the world will come to an end!”
I wish there was something we could do about it. Any ideas?
Maybe, since we have our written record on file here at the HBB, we can start a massive letter-writing effort, warning them about the new bubble that are forming, and how the consequences will be even more catastrophic than if we just let the market sort things out sooner. If anything, the govt should be pushing foreclosures out faster than usual, because that is the only way to eventually stabilize the housing and lending markets, IMHO.