Catastrophic Negative Equity In The House
The Journal Gazette reports from Indiana. “When General Motors Co. closed factories nationwide last year, 700 laid-off employees were told a shift existed for them at the Allen County truck assembly plant. But hourly worker Charlie Cook says that while retaining a job these days is good news, his story doesn’t have a happy ending yet. The father of four is stuck living alone weekdays at the Extended Stay America hotel while his family remains in Michigan.”
“An apartment isn’t practical, and rental houses are at a premium, he says. ‘I have a house (near Pontiac, Mich.), and we’re just going to try to rent it out. But in the meantime, I can’t find a house here to rent,’ said Cook.”
“Real estate agent – and fellow GM worker – Andrew Z. Menchaca called the transferred workers refugees. ‘That’s the only way to put it, really,’ he said. ‘Imagine being told to move to another part of the country, to sell your existing house – if you can in this market – and find your kids a school. I mean, that’s a lot to deal with. That’s why there’s so much frustration and anxiety out there right now.’”
“About two weeks ago, the Allen County Council debated offering incentives to entice transferred GM workers to buy homes, but the council did not make a decision. Menchaca said offering such incentives would be premature because most people aren’t likely to buy a home in an area they know nothing about. ‘A lot of them want to try to get a feel for Fort Wayne before making any decisions,’ he said. ‘What they need is help and not someone pressuring them to buy a house.’”
“Beth Wyatt, executive director of the Apartment Association of Fort Wayne, said she doesn’t believe there is a shortage of rental homes. ‘We just need to get the information out there to them, so that they know what’s available,’ she said.”
“Even so, Cook said the situation remains tough for larger families. ‘I’m still looking for a home to rent,’ he said, ‘and I have to find someone for my house back home because I just can’t rent it out to anybody.’”
Crain’s Detroit Business in Michigan. “National economist David Crowe was clear about the best news he could offer to a room full of local home builders. ‘It’s over — 2009 is over, that’s the best news,’ said Crowe, chief economist for the National Association of Home Builders. ‘It was the worst year we’ve seen since there was a world war going on, and it is now behind us.’”
“Crowe, the keynote speaker for the Building Industry Association of Southeast Michigan’s award luncheon in Sterling Heights, said there is good news in the sense that things aren’t continuing to get worse. Looking toward 2010 home sales, Crowe showed an analysis of house prices relative to household income. The national average has shown a home costing 3.2 times a person’s income. After 2001, that rose to 4.7, and is back down to 3.3.”
“In the Metro Detroit area, the average home sells for 2.11 times a person’s income. ‘That doesn’t necessarily mean it’s time to buy, but it does mean someone can afford a home,’ Crowe said.”
The Detroit News in Michigan. “With housing values down more than 34 percent in the last two years, Metro Detroit homeowners are pretty much out of options for getting any cash out of their homes. For the large and growing number of homeowners who owe more than their houses are now worth, refinancing is out and so is a sale. But there is one small sliver of hope: lowering your property taxes.”
“One client has a tax value that is more than three times the real value of her home, says Lee Morof, a Southfield attorney who handles tax appeals. ‘It’s costing her an extra $2,000 to $3,000 a year. She’s having trouble making her house payment, and she needs that money.’”
“It seems like a lot of time and hassle, but the process can pay off, especially for homeowners who bought near the peak of the market in late 2005 and early 2006. ‘About 90 percent of the people I see, if they bought five years ago and they’re not doing this, then they’re leaving money on the table,’ says Morof, the attorney. ‘And I don’t know anybody in this economy who couldn’t use the money.’”
“So many condos have sprouted along Lake Michigan that developers can’t fill them. The influx has raised tensions, especially between the blue-collar locals and well-heeled Chicagoans buying the condos. Some locals celebrated the collapse of the housing market because it’s the only thing that has slowed the deluge.”
“But it also left the overdeveloped town with dozens of homes that have never been lived in and whose high prices prevent the middle-class from moving in. Nora Duffy, a real estate agent who is chairwoman of the Zoning Board of Appeals, defended the city against criticism that it failed to control development.”
“‘Could we have gone slower? Yes,’ she said. ‘But no one saw the (housing market) bubble coming.’”
The Morning Sun in Michigan. “Final figures for 2009 for homes sold by members of the Central Michigan Association of Realtors showed a year-to-year increase in price for 2009 compared to revised figures for 2008. The average sale price of a home sold by a Realtor operating in Gratiot and Isabella counties rose 1.82 percent, from $83,019 in 2008 to $84,530.”
“The Central Michigan association was the only one of the 41 local Realtors boards represented by the Michigan Association of Realtors to show a year-to-year increase. The average sale price of a Michigan home fell by 16.27 percent during 2009, to $99,121. That’s the first time since 1994 that the average sale price of a Michigan home sold through a Realtor was less than $100,000.”
“Michigan’s most expensive homes continued to be in northwestern Michigan’s Emmet County, with an average sale price of 209,682. That’s down 22.75 percent from 2008, and down nearly 35 percent from the peak year of 2006. That year, the average sale price of an Emmet County home was $321,106.”
The La Cross Tribune in Wisconsin. “More people are falling further behind on their taxes, figures from area counties show. Taxes delinquent by at least a year rose by about 25 percent on average throughout the region from 2008 to 2009. ‘There are people that have been laid off, lost their jobs. We hear it every day now,’ said La Crosse County Treasurer Donna Hanson.”
“Monroe County’s delinquent taxes saw the biggest one-year increase in this area, jumping 56 percent. But treasurer Annette Erickson said taxes on one property - the moribund Three Bears Resort in Warrens - accounts for about half of those unpaid taxes.”
The Post Crescent in Wisconsin. “When faced with mounting bills and limited job options in a down economy, a growing number of northeastern Wisconsin residents have resorted to filing for bankruptcy to eliminate their debt. The road to bankruptcy varies among individuals, said Alan Prahl, education manager for a Menasha-based financial counseling organization.”
“‘It’s tough to generalize, because there are so many causes behind it,’ he said. ‘Job loss, accidents, illness or sometimes it’s simple overspending.’”
“Prahl said business owners sometimes fall into debt quickly, especially in a down economy. ‘If your company say was a vendor that depended on the housing industry … well, the recession has hit that industry very hard,’ he said. ‘You become accustomed to a certain amount of income and it becomes difficult to adjust to less.’”
The Journal Sentinel in Wisconsin. “Marshall & Ilsley Corp. probably won’t start paying back the U.S. Treasury’s $1.7 billion TARP investment until next year, the company’s chief financial officer said at an investors’ conference Wednesday. ‘In all likelihood, it’s more of a 2011-type discussion,” Greg Smith said.”
“Milwaukee’s M&I, the biggest banking firm based in Wisconsin, has reported losses for five consecutive quarters. The bank’s loan portfolio has been hit by losses related to the recession and the housing slump, especially in Arizona and Florida. ‘I think the first hurdle is getting back to profitability before we can start having that discussion,’ Smith said.”
The Chillicothe Gazette in Ohio. “A Ross County woman trying to save her home from foreclosure testified in front of the Ohio Senate Committee on Finance and Financial Institutions Tuesday, advocating inclusion of funding in Senate Bill 197 for housing counselors.”
“‘The process of modifying my mortgage to allow me to stay in my home has been complicated, frustrating, and confusing,’ Beth Ann Allen shared with the Senate in her written testimony. ‘My bank seems like they’re putting every obstacle in my way that they can. In December, I was so tired and frustrated that I was ready to walk away from my house and take my three children to a homeless shelter…Without housing counseling, we would be homeless right now.’”
From WKYC.com. “Northeast Ohio part of a growing national trend in which homeowners in danger of being foreclosed upon simply walk away from their houses. As attractive as ‘walking away’ may appear, Cleveland organizations who work to prevent foreclosures say it is not the right choice. ‘Don’t do it,’ says Mark Seifert, Executive Director of ESOP, which has been assisting distressed homeowners for more than 15 years. ‘If you walk away, we can’t help you. We can only help owner-occupied properties, so no matter what the bank tells you, or no matter what the stress is at night, do not walk away.’”
“People considering walking away are those who have seen the value of their home fall to less than they owe on their mortgage. Many are in bust-and-boom housing states, like Florida and California. Jeff Horton is a Florida homeowner whose house is now worth about half of the $255,000 he paid for it three years ago. ‘Why would I continue to pay all this money every month, and cut back on the things that I enjoy doing,’ Horton told NBC, ‘just to make the payment when there’s catastrophic negative equity in the house?’”
The Buckeye Lake Beacon in Ohio. “A challenging real estate market throughout most of 2009 has given way to renewed optimism as Ohio’s housing sector was buoyed by strong fourth quarter sales and a clear uptick in the average sales price, according to statistics provided by the state’s MLS. ‘Despite the dire economic conditions that gripped the nation, more than 104,000 homes were sold…a clear indication that the desire to make the American Dream of homeownership a reality remains strong throughout Ohio,’ said Doug McCloud, president of the Ohio Association of REALTORS ®. ‘We remain bullish on the marketplace – as interest rates remain at historic lows, prices have stabilized and begun to trend upward, sellers are realistic in their expectations and consumers understand that long-term, owning a home is a tremendous investment.’”
From News Net 5 in Ohio. “Cleveland police and fire officials have only offered limited information about the cause of the West 83rd Street fire and explosion. Investigators announced Tuesday that the cause was intentional, but did not want to tip their hand to potential suspects or witnesses. Meanwhile, the chief investigator has been looking into the company that owns the home that exploded.”
“EZ Access Funding, LLC and its owner, Newport Beach, Cal. Attorney, Marc Tow, have been buying up foreclosed homes across Cleveland. The California group now owns 85 houses here. There are tons of active cases in Cleveland’s housing court against the firm that also owned the home on West 83rd Street that exploded. Files in housing court show big violations and big money owed.”
“Councilman Matt Zone said it’s time to crack down on EZ Access Funding and other out of state firms like it. ‘How can we strengthen local ordinances to prevent speculators, like this individual and EZ Access from preying upon innocent people?’ Zone said.”
The Chicago Tribune in Illinois. “Chicago Spire developer Garrett Kelleher’s effort to build the nation’s tallest building in Chicago is threatening the viability of one of his Ireland-based firms. Clarinabbey Ltd., a subsidiary of Kelleher’s Shelbourne Property Group, lost $197.2 million for the year ended March 31, with much of the loss tied to an intracompany transfer of funds for the Spire.”
“The company said it made a provision of $187.8 million against money due it from sister companies because it was unsure that those funds would be recovered. That sum includes advances and loans made in 2008 totaling $153.4 million to Shelbourne entities associated with the Spire. The annual financial accounting of the company…said most of the covenants tied to the company’s bank loans are ‘technically in breach’ and that Kelleher and other directors are seeking a ’standstill agreement’ with its banks.”
“If such an agreement cannot be reached, the directors’ report submitted with the financial statements said ‘there exists a fundamental uncertainty over the company’s ability to meet its obligations as and when they fall due.’”
The Daily Herald in Illinois. “Officials at the Northern Illinois Food Bank say the increase in the number of people in the region needing food assistance is ‘exploding,’ and the recession is to blame. Lake Villa Township Supervisor Dan Venturi said he can sometimes spot the first-timers by their cars.”
“‘Someone may drive in with a Lexus. These are people who have lost good jobs and their circumstances have changed,’ Venturi said. ‘They were otherwise affluent before the economy turned.’”
The Citizen in Minnesota. “Three years ago, Mayor Mary Capra envisioned ‘the biggest change to the community in the past 150 years’ as the city adopted its Master Plan and Development Guidelines for the city’s Downtown Redevelopment Plan. The largely residential area was rezoned to Mixed Use. State grants began flowing in. Architectural standards were developed and adopted. A partnership was formed between the city and Beard Group, the developer selected for the project.”
“And then the economy went belly up. Most of the grant money has had to be returned, unspent. Bond payments for the Main Street improvements will be paid out of the tax levy for the foreseeable future instead of from TIF District proceeds. For the owners of the 40 or so nonconforming residences in that area, the plans they may have had to expand their homes to meet the needs of their growing families are now prohibited under zoning rules.”
“January 11, 2007 was a red-letter day for 26-year-old Ryan Lewellen. That was the day he became the new owner of his very first home, a 12-year-old house on Heritage Street. ‘The housing bubble was already bursting,’ Lewellen said. ‘I thought I was getting in at a fairly good time.’”
“When Margaret Gainsley bought her 1-1/2-story 1946-vintage home in 2005, she was a single mother with two children. ‘I like older homes,’ the engineering document specialist said. ‘I could have purchased a split-entry house for $320,000 or I could buy this older home with a lot of land for $220,000.’”
“She met and married Olaf Lee two years later. Together, the Lees’ blended family numbered seven. The couple needed more elbow room, and they considered selling. In consulting a realtor, the news wasn’t good: the recommended sale price wouldn’t begin to pay off the mortgage, Margaret said.”
“‘How am I supposed to sell my property, when [the city] is telling the community that this area is blighted?’ she asked.”
I must call BS on Mr. Cook not being able to find a house to rent in the Ft. Wayne area. I was there visiting friends recently and checked out the area R.E.; agents were tripping over themselves to rent or sell extremely affordable houses and their common phrase was “it’s negotiable”.
“About two weeks ago, the Allen County Council debated offering incentives to entice transferred GM workers to buy homes..
The irony here is almost comical. Relentless government promotion of homeownership has led to an immobile workforce in an era where lifetime employment is history, so the Allen city govt thinks the solution is to incentivize the new transferees to buy a house so they can find themselves in the same situation again a few years down the road. When all else fails, just go buy a house already. Geez
The irony here is almost comical. Relentless government promotion of homeownership has led to an immobile workforce in an era where lifetime employment is history, so the Allen city govt thinks the solution is to incentivize the new transferees to buy a house so they can find themselves in the same situation again a few years down the road. When all else fails, just go buy a house already. Geez
The thing that really gets me going is that the government seems to be blind to the notion that it is indeed possible to earn a living without having a job. I’m doing it. So are a lot of other HBB-ers.
But all we seem to hear about is re-starting job creation, incentivizing businesses to hire employees via tax credits, and helping the unemployed find jobs.
That’s enough ranting. I’ve got a couple of mondo client projects that I need to get back on, so I’ll be typing at ya later.
“The thing that really gets me going is that the government seems to be blind to the notion that it is indeed possible to earn a living without having a job.”
I have a lot of respect for entrepreneurs, but most of us aren’t cut out for it (including me). Variable incomes, constant hustling, and no health insurance aren’t exciting opportunities to most people, they’re terrifying prospects.
“Variable incomes, constant hustling, and no health insurance aren’t exciting opportunities to most people, they’re terrifying prospects.”
As I’ve been saying, our current health care system inhibits entrepreneurship.
Dead nuts on, Alpha. I can’t believe that businesses, both large and small, haven’t gotten behind universal health insurance. I recall that several years ago Toyota (I think) decided to build a plant in Canada instead of the US because fo heath care costs. If I owned a business and could see costs falling because of lower heath care costs I would have been lobbying the hell out of my congressperson. We are the only industrialized country in the world that doesn’t provide health care for all our citizens. Let the attacks begin.
Yep, buy a house, possibly lose your job in a couple of years, rinse and repeat.
I must call BS on Mr. Cook not being able to find a house to rent in the Ft. Wayne area…………….
Perhaps he has financial incentives not to find a rental. Many companies offer special arrangements for “transferring” employees. I am certain all auto union workers have deals to assist them. Most likely, the company agreed to pay for temporary housing “until suitable housing can be obtained”, not to exceed 6 months or 12 months.
He may be getting a check to live in a hotel for awhile. You know how thorough these “investigative” journalists are.
Yep, I live in Allen county. Absolutely no shortage. Though it’s probably cheaper to buy rather than rent - as it should be.
“Looking toward 2010 home sales, Crowe showed an analysis of house prices relative to household income. The national average has shown a home costing 3.2 times a person’s income. After 2001, that rose to 4.7, and is back down to 3.3.”
Back in the early 1970s when my parents bought, the question was whether to stretch from underwriting at 2 X income to 2 1/2. So what happened to get it up to 3 X? Inflation.
Without inflation to gradually lighten the load, 3.2 times income is too much. So if you believe in the deflationary collapse scenario rather than the inflationary collapse scenario, we still need one-third off, not even accounting for excess inventory.
“In the Metro Detroit area, the average home sells for 2.11 times a person’s income.”
Perhaps not if up to date income figures are being used.
So what happened to get it up to 3 X? Inflation.
Maybe a couple reasons as well.
Interest rates now are much lower so your monthly payment can go more towards the house and less towards interests while still spending the same percentage of monthly income on housing. In theory.
And people being conditioned slowly to spend more on housing in general.
That’s part of it, for sure. People truly believe that housing must be crushingly expensive and that such high expenses are a sign of “economic health” when they really aren’t. Then again, I know educated people who count their credit limit on their credit card as “savings” so I guess we can’t really trust their opinions, even though those opinions are helping keep housing prices high.
But salaries have not kept up with inflation at all: as a nation, we’re practically where we were 10 years ago on that front, yet almost everything costs a lot more (with the exception of consumer electronics.) Housing, energy, food, medical care, education, etc. Yet I still hear the “inflation hedge” argument as a good reason to buy a house one can’t afford.
The other part of this is the “salaries only go up!” nonsense I see a lot at work. Now, I work in defense with a lot of other technical people, so admittedly we’re more insulated from the Great Recession than many folks, but the concept of a downturn, years without pay increases (or ones that fall far short of inflation), or even layoffs doesn’t enter the mind of anyone of my generation. They all truly believe that they can create some “career plan” that gets them into a VP position in 10 years, and everything will magically work out, so there’s not reason NOT to buy a house that can only be afforded on a much higher salary because “obviously” they’ll have that salary exactly when they need it.
The ability to plan ahead for less than perfect outcomes is practically missing from my generation, and if you bring up anything other than the rosiest outlook, you’re labeled a “pessimist” and a “doomsayer.” I just gave up talking about it at work because nobody gets it and anything other than insane optimism is unwelcome there.
People truly believe that housing must be crushingly expensive and that such high expenses are a sign of “economic health” when they really aren’t … But salaries have not kept up with inflation at all: as a nation, we’re practically where we were 10 years ago on that front, yet almost everything costs a lot more (with the exception of consumer electronics.)
Yes. The only way to keep housing prices up (for a time) are wage inflation, the re-easing of credit, or some kind of mortgage relief (gov’t. or otherwise).
Of those options, wage inflation is the least likely, IMO. Not only is wage inflation the least likely scenario, odds are good that end costs will continue to rise on healthcare, gas, education, and taxes, meaning that any meaningful wage inflation could be wiped out by non-housing factors.
“any meaningful wage inflation could be wiped out by non-housing factors”
Yahtzee! It’s what so many of us here couldn’t seem tp fathom? You’d look around and watch your co-pay go up each and every year, utilities ( ever higher ) gas, groceries, you name it!
I just couldn’t figure out how so many people were so flush w/ cash-ola for housing? It wasn’t kosher to simply have your shocks replaced, you needed a total suspension “makeover” or upgrade! Or live w/ the shame?
You have hit on another reason that housing is still ‘overpriced’, aside from the Income/Property price………interest rates.
We are at historical LOW’s. If the idiots buy now at the LOW rate, they won’t be able to refinance when rates rise.
What does that mean for prices going forward? Inevitably the house won’t sell at the same of higher price, unless they come up with some “creative financing”, or using Wallstreet jargon, “financial innovation”.
This, a stable housing market, does not make.
Diogenes…Nice post yesterday on “Recourse”…
It isn’t just inflation. If you stretch to 3X on a house, but you expect your income to go up as you get older and advance in your career AND you expect to stay in the same house (not upgrade to a “dream house”), then the same house becomes more affordable as time goes on.
If globalization (or baby boomers not retiring or whatever else may contribute to the issue) has stolen your hope of a rising salary, you are hard pressed to go that high, because the squeeze of the first few years is going to be permanent.
And Rio has a point with the lower interest rates, but that low interest rate traps you in the house, at least it does in recourse states. Since a higher rate lowers the value (as does increasing downpayment requirements, etc.), if you buy with a low interest rate, you better be able to stay there or be willing to buy yourself out with cash brought to the closing. Other than that, your only hope is asset inflation.
Honestly, I suspect that the “owners are wealthier than renters” meme has some basic reality, but it is based on old numbers. If you set your housing expenses in stone and then got older, advanced in your career (and got through a few years with outrageous inflation and many more of low and moderate inflation), your housing expenses are going to be trivial compared to your income. For example, my parents’ mortgage was 3 times their (his) income when they bought the house when I was 3. By the time I started college (and one refi later to fix the roof and the septic system), the mortgage was less than his base salary and he was at a company that gave stock options to low and mid level executives as well as the mucky mucks. So they could afford to send me to college, barely. I worked, had scholarships and took out loans, but together we managed it.
Doesn’t work if you keep MEWing or moving. Can’t work. Not without a bubble.
Polly, the entire housing bubble was based on old numbers, at least on the banking/NAR side of it. Banks based ALL their models on historically low percent of defaults, while removing the very safeguards which kept those defaults low. Everyone from Bush to the NAR pushed home ownership as if Ike were still President, as if we would all burn the mortgage someday. As if there were houses available to everybody at 2.5x income, even if 2.5x income meant you lived in a single-wide and drove a clunker.
In fact, we are pretending that a lot of things are the way they no longer are.
We develop strategies for coping and then the world changes and the strategies no longer work. Unless we change, we can’t cope.
It used to be normal for companies to pay to have you travel for an interview and to move you and they would sometimes buy your house. Now many of the jobs say “Local candidates only”. If your locale goes in the tank, you have to move first and hope you can find work in a new location.
“The largely residential area was rezoned to Mixed Use”
Was this trend the final gasps to keep the game alive? By ‘07 it became obvious SFH’s were pretty much played out. Hey..? “I” know..!
Indeed it was. If you need to attract an infusion of fresh cash, what better(?) way to do it than to zone something as mixed-use, and wait for a developer to slap up one of those yuppified condo complexes with the street-level $$ walk-in shops (Sbux! Panera Bread! Verizon Wireless! Ann Taylor Loft! Tsunami Thai! Eastern Mountain Sports!) surrounding a pedestrian plaza with a fountain/skate rink. All the pretty young things in town will camp out overnight for the opportunity to live in such a hip district.
oxide,
You sure… you’ve never been to Portland!? It just became so exhausting b/c as they banks wised up you’d get innundated w/ calls from people as young as 25 pitching their goofwad M.U proposal!
They all looked the same ( although most ‘I’ saw had a green space vice skate rink ) but you get the idea. All based on 100% Occupancy of course!
All based on 100% Occupancy of course!
The potential viability of such projects seems much different when one-half of the condos and two-thirds of the retail space is uninhabited, doesn’t it?
In my neighborhood, there are several newer condos with 1st floor retail that the developers have never managed to fill — while some unused light-industrial space (mostly old print shops) in the same business corridor has been turned into hair salons, bars, and restaurants.
The difference is the owners of the old print shops are often getting more revenue out of their square footage than they could before, but they can still handily undercut the pricing in the new condos’ retail spaces.
It’s the same in the DC area. Fountain in the summer, skate rink in the winter. They tried the same thing with every small town and college enclave — many of which suddenly discovered that they were “historic.” Who knew that Historic New Albany, Ohio was a community for ar-teests, and therefore must have condoze for same? Or that “Historic” PG Country (just outside DC, now almost a slum) had so many ar-teests that they offered condo-shops, where you sell your candles/pottery/pirate swords in a tiny street-level shop and live in the proverbial “room above”? God only knows what “Historic” Carrboro North Carolina (next to Chapel Hill) looks like now — they were Granola Central since before the early 90’s.
I for one am tired of it. What’s pretty sad it that I wouldn’t mind a return to the mixed-use and room-above-the-shop neighborhood…if only the developers hadn’t homogenized it and yuppied it up to make a quick buck. You don’t “create” priceless neighborhoods out of a slapped up PUD; they happen on their own.
oxide,
+100
Right, it was all fabricated, even their “suddenly discovered” history. Sometimes ya’ just got to let things happen!
Here is the collateral damage of these ill-conceived plans:
“Where we want to spend our money, we can’t. Is it the role of government to control your standard of living?”
But Mayor Mary Capra doesn’t see it that way. She said allowing nonconforming uses to expand would cost taxpayers money in the long run. “We also need to look out for the rest of the community, and that’s my role,” she said.
What a smacked ass. Capra means goat in Italian and this lady certainly does sound smelly. Who the frick died and left her nanny of the community? She sees future tax revenues and kickbacks from developers, that’s what SHE’S talkin about.
these local yokel politicos are destroying our communities I’m seeing it happen all around me. They are mostly corrupt, I do not care which party affiliation they claim. I have seen equal ineptitude and love of graft on the part of Reps and Dems alike.
“Why would I continue to pay all this money every month, and cut back on the things that I enjoy doing.”
I appreciate his honesty. At least he admits he is walking away from his mortgage to blow his cash on pleasure rather than necessities, as my taxes go up and others lose their jobs as money disappears from the system because of the bad decisions of people like this leech.
In a non-recourse state, the person doesn’t agree to pay the debt. He agrees to pay the debt or turn over the collateral, as he prefers.
In a recourse state, people who walk away should get their asses sued off, because they did agree to pay the debt - no matter what.
Yeah, that pretty much puts paid to this whole “responsibility” debate. In non-recourse states, walking away and giving back the house is legal and fulfillment of the contract. The lenders should have based the terms appropriately. If they failed to do so, well too bad so sad.
It’s my understanding that the non-recourse is only
applicable to the first, if refinanced with any form
of a second, then it changes to a recourse??
In California I believe that is correct Rancher….Thats also why there is a 3 day cool off for it along with 2nds…
Yes, and that’s all appropriate. People with seconds, serial re-fi’ers, flippers and speculators should all be treated differently than someone with a single mortgage on an owner-occupied property.
with a single mortgage on an owner-occupied property ??
Not just a single mortgage…It could be a refied mortgage…
Let me say it another way…If its a purchase money 1st in Ca., there is no recourse…That is my understanding…
“It’s my understanding that the non-recourse is only
applicable to the first, if refinanced with any form
of a second, then it changes to a recourse??”
It is more complicated than that, and varies from state to state. The Arizona deed of trust anti-deficiency statute applies to all residential deeds of trust, not just to purchase money deeds of trust. There are other options for lenders in AZ (judicial foreclosure and suing directly on the note), but they are not being widely pursued because of the additional costs involved with little chance of getting additional money. Most just do the Trustee Sale, get the house, and move on.
Even in situations where “purchase money” origin would be relevant, refinancing does not change the character of purchase money loans in AZ. Additional draws of money are different, but only those draws.
Understood, thank you.
Well, its mandated isn’t it? ‘Pursuit of happiness’ and all.
The pursuit of happiness doesn’t mean that you’ll actually catch it. After all, happiness could be wearing its lucky socks and outrun you by 10 paces.
I’m fine with this, so long as risk is priced accordingly - which it wasn’t (and isn’t) - so I’m not that fine with it after all.
‘But no one saw the (housing market) bubble coming.’
Knifecatcher’s motto.
I got in trouble at our office meeting when management said something to that affect. I raised my hand and said don’t you remember we discussed it whenever I was asked if I had bought a home yet (I moved here in 2005), and you guys always told me I was wrong for waiting because the prices seemed unsustainable and didn’t feel like funding a seller’s retirement rather than my own.
“and said don’t you remember”
Been running into that a ‘bit’ myself lately? Especially given most folks now want to “keep their options open” the entire US Population has become amnesia prone?
“didn’t feel like funding a seller’s retirement rather than my own”
Athena..? Dearest? Right, and for me, this is what The Boom was all about! People in their 40’s w/ $25k in their 401 but $300k in vapor equity waiting for us to bid on it? I suppose I would have but the greater fool in line behind me didn’t look like he was good for it. Excuse me ( I think I’m in the wrong line here )
People in their 40’s w/ $25k in their 401…
You have a great point about this sort of person. I think that everyone in America is conditioned from childhood through TV and the movies to believe that they can be rich and live like Paris Hilton or Donald Trump when they grow up.
Of course, the nature of wealth is that very few people end up rich. (If lots of people could live like Donald Trump, there wouldn’t be anything special about being The Donald.)
So, you have the 40-something person with $25k in his 401k. As he has passed the age of 35 and progressed through his late 30’s and early 40’s he has been getting increasingly bitter and/or angry and/or sad that he has not achieved the wealth that he thought he should be able to have. He’s only got the $25k in his 401k because he spends too much on crap that he doesn’t need, and anyway, only started saving at the age of 37.
Then, all of a sudden, out of nowhere, in 2002 or 2003, his explodes in value. He says to the wife, “Look, honey, we’re getting rewarded for being so smart and buying this house. All those renters are losers and fools. We’ve now got a net worth of a few hundred thousand and we’re getting richer every day as our house appreciates.”
So they call their friendly neighborhood mortgage broker, arrange for “cash out” re-financing, buy a Hummer for the husband, jewelry for the wife and a remodeled kitchen for the whole family to enjoy.
Of course, there’s never a thought that retirement is actually not that far away if you’re 45. They don’t consider for a minute that the new, 30-year mortgage means that they won’t have the house paid off until they’re in their 70s.
Now, in 2010, it all ends in tears as they head toward foreclosure. Some of these people actually tap into that little 401k to try to pay the mortgage after the interest rate resets. This, of course, involve paying penalties to the IRS. They end up worse than they were in the first place.
“Look, honey, we’re getting rewarded for being so smart and buying this house” LOL.
MightyMike, you’ve absolutely nailed it! A perfect 10. What’s even more sad is that, it needn’t all end in foreclosure for it to manifest itself as a total disaster?
The old ROT was that, if you had 40k by the time you’d reached 40 y.o, you were in o.k shape. In truth, most couples really don’t start ramping up their savings in a big way until after the kids are on their own.
But a funny thing happened, people bought into the MB’s lines that they’d be better off if they just -quit- doing that stoopid ret. plan at their employer and ‘really’ put it into something they can “control” ( namely the biggest loan I can get you for a home you can’t afford? )
And… they’re off! What’s depressing to me is if you ever look at some of the homes ( homes, hell, Castles! ) rockstars bought back in the 70’s or even 80’s and paid like $50k for!? Bill Wyman of the Stones bought one w/ a freakin’ MOAT around it for $55k?
“don’t you remember we discussed it…”
And did anyone remember?
Hellz no, they all had visions of their mushrooming equity dancing in their heads…and all the toys they were going to buy like Harleys, and waverunners, and Gucci bags, and, and…
UGGS for everyone!
Listen to you - a minor league bitter renter? Fork that. They were infestors and bigtime real estate poobahs. Why the heck would they listen to you?
X-philly,
Minor league all the way! Notice the disparity between ( GAO estimates for 401k nat’l avg. balances ) and this blossoming home equity?
That’s what really smacked me. Anyone that’s ever helped a bank customer or brokerage client open an account knows there ’should’ be a relationship between…
Annual Income
Liquid Net Worth and;
Total Net Worth!?
Uh.., let’s see, you and the wife -combined- ( Joint acct. ) make a total of $65k, you have 10k liquid between your IRA’s, savings etc. ( a -mountain- of debt ) and your total NW is ‘what’ again exactly? $300k? 500? Well, at least for a time, that may have been true.
“‘Someone may drive in with a Lexus. These are people who have lost good jobs and their circumstances have changed,’ Venturi said. ‘They were otherwise affluent before the economy turned.’”
Correction :
They just thought that they were affluent and in such insanity as yesteryear, wanted folks like you to think the same.
Hence the Lexis parked at your food bank doorstep instead of a slightly ragged 1994 Nissan Sentra work-car.
For some, The Days of Image is Everything …will have a slow and painful Death in this New America.
I recall that some poor souls are so bad off they have to drive a 4 year old Lexus and defer their purchase of a brand new Mercedes.
Oh the humanity!
A little part of me dies every time I hear of a grown up adult person equating affluence to material possessions (especially cars).
not just that but cars that were recalled due to gas pedals that stick.
Those that are know that are really wealthy don’t usually drive the nicest cars.
‘But no one saw the (housing market) bubble coming.’ ??
Ben did…..
The housing bubble was the train coming on the tracks with all the horns and lights on. Those who paid attention could see it coming from a long distance. Those who failed to pay attention got smacked, hard.
SMF,
LOL! You mean the one that was shaking the very ground you stood on?! Jeez, even if you were deaf AND blind…
I would like to thank Ben for going back to his old format that I missed so much.
“‘How am I supposed to sell my property, when [the city] is telling the community that this area is blighted?’ she asked.”
Sounds like a short sale might work…
I think most people would be more concerned about the crime rate, as opposed to government efforts to obtain subsidies for neighborhood reinvestment, but that’s just me.
PB,
Only clutching at straws here but my estimation is that when mainstream observers began to share their doubts as to the utility of a home beyond basic shelter, Mixed Use was quickly ushered into the operating room to provide some much needed economic legitimacy!
See..? It’s not ‘all’ about pergraniteel! Retail ( more?! ) on the 1st floor, offices on the 2nd, lugjury lofts on the 3rd! Artist’s conception ( see attached )
I thought it was nostalgia for old-timey ma and pa living over the store. They try but they can’t make that happen here. Lots of space for lease in the condo zone.
oh wait, it was Jane Jacobs’ book. And even she said it wouldn’t work everywhere.
That isn’t what Jane Jacobs said at all. She wrote five books that I know of, but it is The Death and Life of Great American Cities that gets the most notice and is probably the one you mean. In that book she talks about how the key to urban success is diversity and how diversity is fostered by letting people do their own thing. That might be families living atop stores or it might be artists in lofts or it might be something else. The key is to let people do what they want and avoid wrecking communities to make way for freeways. Reasonable approaches to planning do pretty much work in all cities, but what that work involves is always different in every place at every time.
The key is to let people do what they want and avoid wrecking communities to make way for freeways.
Yes, it was written very much in response to the trend of the times, when cities were cutting wide swaths through urban areas to make way for highways to transport suburbanites to and from work. Her ethos was also built around the idea that communities should be more organic, not “build mixed use retail and they will come.” That sort of idea is a misunderstanding of her writing.
So much has changed in American cities since she wrote that book. We tend to think of big cities like New York as being populated by the poor, the very rich, minorities and immigrants. Not many working-class and middle-class white Americans have much of an interest in living in big cities these days.
Before the changes occurred that she was protesting, plenty of non-poor, non-rich white Americans enjoyed their lives in big cities. However, we have such short memories in this country and that fact has largely been forgotten.
In Montana,
Or rather.., it ‘could’ have worked! ( Had it not been for the upscale out the ying yang and fancy prices to go with it! )
I’ve cold-called from coast to coast. Those old-timers were my idols! Guys running a camera shop ( that had been there “since after the War” ) that always made time for everybody. In ways, it’s the way I’ve continued to run my business.
“No…, I uh, wasn’t leaving at all! What can I DO for ya’!” But that biz model doesn’t/won’t/can’t work at $400 a s/f.
It also doesn’t work when people come into the shop, get all the info in the owner’s head to help them make a decision about what is the best camera for them to buy, then go home and get it for 30% off from Amazon.
We shop locally for everything; it’s a form
of paying forward. We have an excellent
camera shop, pricey but good. When we
need help with something, they know who
we are and do everything they can to help us.
For us, it’s well worth the extra dollars.
Rancher,
In the end, it may not be all that much in terms of “extra dollars” either? Most Internet access ( worth a hoot ) is going to run you at least $30 to $50 a month. No matter what they tell you!
Many consumers ( yeah ) don’t factor that into the savings they’d need at a minimum to offset that. Just as online daytraders normally don’t calculate the cost of research/info services into the cost of their trading etc. etc.
For those that do ‘all’ their purchases via the net, then it’s a no-brainer, but for a vast majority it’s not the savings they often boast?
‘Why would I continue to pay all this money every month, and cut back on the things that I enjoy doing,’ Horton told NBC, ‘just to make the payment when there’s catastrophic negative equity in the house?’
Cue in JoeyinCA for yet another excoriating diatribe regarding the immorality of walking away from one’s debt.
The banks and financial interests that want to destroy our country don’t care about morality. What about Goldman-Sachs selling securities to customers then shorting said securities? WTF, that must be an excellent business tactic. Well, walking away, if you can, I would suggest, is just the little guy mimicking the wall street hucksters.
Here’s another question, if the bank made an “investment” and took a “risk,” why should they not share in the loss? Why should it ONLY fall on the homeowner?
Absolutely. When the purchase occurred, there were TWO parties involved, both of whom examined (or should have) the property and the price and both of whom decided to participate. Now that it’s in the toilet, the banks are saying “oh, that’s all you” to the purchaser.
‘We remain bullish on the marketplace – as interest rates remain at historic lows, prices have stabilized and begun to trend upward, sellers are realistic in their expectations and consumers understand that long-term, owning a home is a tremendous investment.’
One thing never changed as this housing bust played out: UHS continued chanting one version or another of ‘real estate always goes up’ regardless of how fast it went down.
P.S. Note that in stark contrast to what this maroon is saying, the natural consequence of government intervention to artificially prop up home prices at the height of a recession will be ‘lower-than-expected’ appreciation going forward. Note that I am talking about real (inflation adjusted) appreciation; whether nominal appreciation skyrockets depends on the success of the Fed’s reflation efforts.
Did any of you see that new remax commercial pimping real estate?Same old song and dance.
remax commercial ??
Every time I see one I think of the long haired cheerleader that use to be on FOX (I think Bulls & Bears) laughing at everyone who even suggested that values would fall…
Is that they one where the skinny chick talks about how some people were recently priced out of the market then goes on to pimp the extended buyers credits?
I hate that one. I wonder if they will run it during the Superbowl?
“Every market is different!”
True statement. Some suck, some REALLY suck.
We sold a home in FW last year and cleared a grand.
We were thrilled.
We remain THRILLED.
It’s all in your perspective.
If I were the guy from Mi, I’d be thrilled to have a job.
FW is bad and South Bend is just as bad, perhaps worse. A blog that covers the SB real estate market just released the January sales figures. The highest sale in St. Joseph County last month was $400,000. The same house sold for $375,000 in 2001. In other words, less than the inflation adjusted 2001 price.
Hmmm, maybe depreciation is a real expense…
Marshall & Ilsley Corp. probably won’t start paying back the U.S. Treasury’s $1.7 billion TARP investment until next year, the company’s chief financial officer said at an investors’ conference Wednesday. ‘In all likelihood, it’s more of a 2011-type discussion,” Greg Smith said.”
“Milwaukee’s M&I, the biggest banking firm based in Wisconsin, has reported losses for five consecutive quarters. The bank’s loan portfolio has been hit by losses related to the recession and the housing slump, especially in Arizona and Florida. ‘I think the first hurdle is getting back to profitability before we can start having that discussion,’ Smith said.”
I posted a story a couple days ago about my old land lord loosing his house. The title is now held by Willow park LLC or something like that, but his original mortgage was with M and I. I’m not sure if they sold it. He paid close to 800k, then put in 80k, and was loosing close to 2k/mo when fully rented. It’s one of the reasons I left. The funny thing is the house is not on the market and he is still living there 8 months after the title changed hands. It strongly suggests the banks are keeping houses off the market even when they are stressed.
I like to follow the alleged health of regional and community WI banks as one indicator of the overal financial economy.
Ben knows that M & I is one of my favorate patients in in our Intensive care Unit.
mikey,
You may already be aware..,
www dot bauerfinancial dot com
They track vigorously. Local banks are assigned a Star Rating and you can access a fair amount of info for free. Detailed reports on say a specific bank’s finances are pretty affordable if you need investigate further.
Also you may be able to find a link for the Texas Ratio ( Troubled Asset Ratio ) ‘Our’ local bank ‘was’ 4th Highest in the Nation! Was.
Also take a look at:
http://banktracker.investigativereportingworkshop.org/banks/
Yes DinOR
Their are a couple of freebee Safe and Sound type bank tracking sites to include BankRate Com but like Moody’s, S & P and Fitch rating, I take them with a grain of salt and some boots-on-the ground and other input. They and their holding companies are also skilled at hiding the truth of their CRE and business ventures. What lawyers refer to as “hiding the ball”.
They may have passed the paper gov’t Stress Tests but the don’t pass mikey’s Sniff Test when they were making all kinds of shady out of state loans and grabbing TARP Funds.
Three out of 4 of Wisconsin’s largest banks would be on double public probation if I were Dean Vernon Wormer.
The clowns running this 4 star circus might think that they are too big to fail but I think that large regional banks and community banks playing the Wall Street interstate Lenders/Speculators better straighten up, fly right or face the freakin’ axe.
“The funny thing is the house is not on the market and he is still living there 8 months after the title changed hands. It strongly suggests the banks are keeping houses off the market even when they are stressed.”
That is absolutely happening here in Florida. Banks don’t want “discovery” of market value with their bad loans. As long as they are kept off the market, the banks are holding them as assets on their books at the original loan value. If they sell them, they are forced to write them down. That would make the Banks insolvent, which most are.
This is the GAME that Bernanke has allowed the big banks to play. He has taken ALl the bad MBS debt, at full value, onto the Fed’s balance sheet and transferred cash to the banks, who will supposedly repay the debt when the markets “improve”. That is why they need to get the market re-inflated. In the meantime, they have allowed banks to mark the valuations to the properties, not at current market value, as was required under the Financial Standards Board, previously, but they wrote “new” rules to let banks make pretend about their collateral and asset values.
We have people staying in “luxury beachfront” condos for 2 years without making payments.
I recently removed my sailboat from a dock of a SFH on the Intercoastal (short sale). The owner vacated and the date was set, but canceled, then canceled again. I haven’t checked to see if the place actually got transferred and occupied in the past month.
“Jeff Horton is a Florida homeowner whose house is now worth about half of the $255,000 he paid for it three years ago. ‘Why would I continue to pay all this money every month, and cut back on the things that I enjoy doing,’ Horton told NBC”
Continuing from yesterday’s commentary, ANSWER:
Because when you borrowed all that money to buy the house that you wanted, you signed a promissory note that you would repay the bank’s money. Florida is a deficiency judgment State.
You decided the “value” of the house and what you were willing to pay.
The Bank agreed and was willing to take the house as collateral in partial payment for any shortfalls in the loan, in event of default.
However, if you “walk away” and leave the bank to go through foreclosure to liquidate the asset, any balance owning is your responsibility.
That’s why you should make the payments. You owe the bank this money. You should be forced to cut back on everything but bread and water until you pay the bank back the money you took from them.
Sorry about your bad luck with the “equity” situation, but you made an assessment of what the house was worth to you and took it off the market from many others who thought the house was worth less.
You were the “high bidder”. You played your hand in a high-stakes poker game with borrowed money, and now you want a “do-over”, typical American whiner. Try that in Vegas or any casino anywhere.
My sincere wishes are that you force the bank to foreclose and that they pursue you for every dime you get for the next 20 years.
“My sincere wishes are that you force the bank to foreclose and that they pursue you for every dime you get for the next 20 years.”
-Great. Meanwhile you and I pay the bank the money they were out for making the unwise choice of exposing themselves to this guy. We pay the bank whatever they ask us for because we are afraid if we don’t the system will fail and we could be eaten by marauding savages.
Diogenes,
Your comment yesterday about loanowner accountability was long overdue. In our rush to suddenly become the FB’s new best friend we’ve swept some pretty common sense issues under the carpet.
On the other hand it’s TOTALLY acceptable for a corporation to do it, after all it is just a BUSINESS decision. Anyone saying he should eat bread and water until it is paid off is a stooge of the banks.
I am not a stooge! ( in my best imitation of Richard Nixon’s famous speech).
I hate banks. (mouthing FDR) Think the whole arrangement with banks and the FED and Wallstreet/bank holding companies is corrupt to the core.
The fractional reserve lending system is fatally flawed and needs to be ended (hat-tip to Ron Paul).
However, I hate gamblers who welch on their bets even more so.
The Fed’s should have put a stop to the irresponsible lending that lead to this current “crisis”, but NO ONE put a gun to these people’s heads and made them BUY a house. I know the Realtwhore propaganda because i was listening to it, also. I was trying to buy in 2002=2003 to simply relocate locally. Every house i looked at for 5-6 months was purchased, almost immediately, often for 20-30k MORE than the asking price.
I thought, with no changes in income and salaries, that the prices were unsustainable and unsupportable, so i backed out of the market and started searching for reasons for the mania.
It was not long after i discovered Ben’s blog and began to read and post here.
I had to sit where I am, in an uncomfortable situation, waiting for sanity to prevail. I REFUSED to pay more than historical norms for housing. I did not buy the “it’s economic fundamentals, rich foreigners, rich boomers retiring, blah, blah, stories. I was ridiculed for my views and out right laughed at for not believing that this mania would continue in perpetuity to greater riches for housing investors.
I am having the last laugh, and have just started looking to buy again, even though my current residence will be sold at a greater reduced price. But, it was those BUYERS who made the bubble what it was. Remember all the REAL ESTATE NO MONEY DOWN, RETIRE at 30, OWN 15 HOUSES, QUIT YOU JOB, ….courses at the early stages. People bought into this and ACTED, thinking it was a NO LOSE situation. Sorry. There needs to be financial accountability, and there really is no such thing as a free lunch.
Yes, I too, could have gone out and gotten a mortgage to PAY $250,000 for a house that just 2 years earlier was $85,000. That was typical here in the Bay Area as fraud was rampant and speculation was driving the markets. But I refused. To SAVE $250,000, at $15k/year would take me 17 years. To even justify such a stupid purchase, I would need to buy into the 20-30% housing inflation for the next 10 years, like many “professionals” had forecast. I knew it was impossible.
So, here we are today, with all the people who were camped out, lining up to buy condos, rushing to the Broker before the sign is even in the yard with offers OVER the asking price, buying multiple properties they could never pay for, “investing” with No Money, and the whole ponzi-scheme collapsing and the Buyer’s “didn’t know”, and can’t be held responsible for the debts that they incurred?
I didn’t push the prices up. I refused.
That is what a FREE MARKET is. The buyer is technically the high bidder…..setting the market price. When people refuse to pay, the price falls. There needed to be more people like me, but then, that wouldn’t stimulate the economy.
AS for Corporations, NO, i think they should be held liable for their debts. However, this is all based on CONTRACT LAW. Under Florida Law, a mortgage company can go after a homeowner for losses on the mortgage. That protects the lenders. I am not familiar with corporate law. These are typically commercial properties and the rules are somewhat different. I think the Banks are accepting the property as collateral without any other means to recover any losses. If the banks loose, then they should be allowed to go bust. I don’t agree with the BAILOUT Programs and as i have posted in the past, think that GOLDMAN, JP Morgan, CITI, AIG, and all the others should have been allowed to fail.
The temporary programs should have been just that, temporary, until the Justice Dept. could LIQUIDATE their assets, throw the EXEC’s on the STREET, and recover everything they could for their shareholders, the start NEW banks with the FED’s printed money. I don’t believe in rewarding crooks on Wallstreet for making BAD business decisions. They played, lost and deserve the consequence of poor business decisions. However, Hank Paulson had huge investments in Goldman, along with all their buddies and so we got the political solution that raped the taxpayers.
The New Administration is dancing with the same crooks, all the while proclaiming to be a defender of the little man. B.S.
In summary, LOSERS who gamble with other people’s money should PAY for their losses, both BIG boyz and speculators.
Instead, I get to pay, with depreciated dollars and higher taxes.
And naturally, I resent it. I didn’t enter the Casino. If i did, I know what the stakes are. You Play and Lose, you PAY.
End of story…….D.
Diogenes,
Very balanced summary, thank you. After a steady 6-12 mo. diet of EMB ( EvilMegaBank ) it’s refreshing.
Some of us may have begun to notice the assignment of blame ex-post-facto has become something an entirely new breed of armchair QB’s? With super-human qualities to determine guilt & unintended consequences, dancing to and fro’ on the timeline as suits their agenda.
Jihadists hate us for things we haven’t even done yet? Check! Pro-choice crowd telling you most of those kids will turn out f’d up ‘anyway’? Check! What facet of life -can’t- these people project ( project ‘on’ to!? ) Talk about pushing on a string.
I posted it earlier, but why would the burden fall only on the home buyer. He/she to a gamble that the value would fall in the same way the bank did. The bank is paid interest for their gamble. Why should they not share in the loss?
Because the business of a Bank is lending money. They are not looking to the property to recover the money, they are looking to the borrower. That is why banks pull up CREDIT REPORTS.
The are investing in the “borrower”.
There is a perverted view that the bank is buying the house for the buyer, so if the buyer makes a bad deal, the banks should share the loss. It just isn’t so. The banks are holding the foreclosure process as collateral for the loan. This is called and insurance policy. It is not a guarantee that the loan will be repaid. Their guarantee is the MORTGAGE NOTE, a promissory note the the Borrower is stating the he PROMISES to PAY the FULL amount due, with interest on the loan. Period.
The “securitization” process and the Automated Loan process, that was supposed to eliminate any “bias” in loan originations were certainly flawed levels of security in the lending game. It should have been forseen that passing off the responsibilites for debt collection and eliminating detailed investigation of the borrower by means other than the “credit score”, would lead to bad results. It was a lax and lazy approach to lending. I don’t excuse the promoters of these loose lending regimes. But the responsibilty of the loan, in my book, lies with the borrower. You shouldn’t bite off more than you can chew.
Consequently, i am in favor of debt collectors chasing down people who walk-away from their obligations. This is another way to FIX the system and make sure this doesn’t happen again. When you see someone having their paycheck confiscated by the government for payment of debts, and hear the stories about how they were cheated by a Realtwhore, and that they were told that “housing prices never go down”, then when it’s your turn to play, you might just think twice about what that stupid little 800 s.f. house is “worth”, knowing you WILL have to pay back the loan you took from the bank. I believe that thinking was beginning to take hold, but now the FED’s are trying to push cheap Fannie/Freddie money onto the market to support housing prices. I see “flippers” trying to re-enter the market for easy profits.
It is truly disappointing to see some evidences of a counter-trend rally to the downturn in the housing market, but i guess that was inevitable. There are always ‘bottom feeders’ in any market, so it may be later in the year before we flush them out and send them back from whence they came.
In the meantime, if they BORROW money for their “fixup” ventures, I am hopeful they will be pursued by credit agencies if the FLIP, flops and they can’t turn the house over.
Bad Andy,
As Diogenes openly admitted ( he nor ‘I’ for that matter ) are what you’d call big fans of EMB. You’re right, and 30 years… worth of interest while we’re at it!
You, certainly are in a different situation. Unlike most, you brought more to the closing table than the typical first, last & sec. deposit sized “down payments” most did?
That DP cushioned ( to whatever degree ) the lender’s exposure. It’s just that it’s become a very prevailing attitude ( not just here but from coast-to-coast ) that as long as the Loanowner didn’t make a fuss about surrendering the property ( i.e standoff w/ the po-po ) that “it’s all good!” Go forth and sin no more my son.
There’s a growing rift in what was once the perceived responsibilities of home ownership, and some seem determined they never rejoin?
The reasons why I place much more blame on the banks and government than the FB’s is based on reasoning considering human behavior, trust, contracts, criminality and the history of our government’s behavior and role when dealing with its people and housing.
When considering all of the above, an unassailable case can be made that most of these home contracts, at the end of the bubble, were not entered into in “good faith” by both parties.
It was not a tulip mania. Housing is a basic need that was manipulated by criminal collusion between Wall Street and the government. This had never happened before. Never.
So why should have Americans expected it? Why should Americans have expected their heretofore-conservative banks and their own government to rip them off? There was no history of this in the United States. Ever.
Government policies steered Americans into great debt to purchase an asset whose price was manipulated by Banks and the government itself. This does not constitute an honest transaction done in good faith. How could it?
You have to live somewhere and if about 65% of Americans historically have owned then what is so odd about 65% of Americans wanting to own even during a fake boom? It is a natural human behavior and very American. The even call it the American Dream.
Much of the well known greed was greed based on FEAR. What is so odd about the fear of getting priced out forever when it looks like one IS going to get priced out forever? What is so odd about the feeling of getting left behind when one IS getting left in the dust, year after year?
I guess we can scoff now at the FB’s for being so stupid but we could also scoff at a person who becomes terrified of a mugger with a fake gun. Sure it might be funny but it is very understandable as well. This is how humans behave and we can’t change it easily if at all, and our human behavior was exploited.
Fraud aside, these were not normal contracts entered into under good faith conditions therefore they should not be treated as such.
And this is partly why the government bails out banks and not the borrowers, for to bail out the borrowers would be a tacit admission of a rigged system of which they were guilty of rigging.
Never before had Americans been put in such a position by their own government and the banks. Human behavior and basic human fears were manipulated to line Wall Street’s pockets. These truths have to be recognized and appreciated when assigning blame or punishment.
“flush them out and send them back”
Fer’ sure. I think I’m finally getting it? If Warren Buffet ran around Omaha, NE and bought every house he happened to like as he rolled passed, put HALF down ( and then never made another payment.., )
His Credit should still SUCK!
Even though the lender ( like he ‘needs’ one? ) would be made whole, it would still take months to recover their liquidity! Besides, even though he has money to burn and could well make the payments, it ain’t how it’s supposed to ‘work’!?
“I didn’t enter the casino. If i did, I know what the stakes are. You Play and Lose, you Pay.” That’s fair, ASSUMING the deck isn’t stacked, the cards haven’t been marked, the game hasn’t been rigged.
Who created the financial products catering to people who had no business borrowing that kind of money - lier loans, no money down purchasers, helocs? Why did they create them and who were they marketing them to?
If I loan money to a drug addict, I can pretty well bet that my money is going up his arm or into his vein. So when I can’t collect my money do I blame the addict or do I blame myself.
If we can demonize the addict we deflect the focus of outrage from the aristocracy who truly profited from this rigged game and assure continued serfdom for us all.
slb,
Good points. We need though to make the distinction between “Stanley Johnson” ( serial re-fi’er ) and plate juggling, condo-flipping, 2nd and even 3rd Loanowners.
I’ve never maintained folks in say the Upper MW that got con’d into a Quicken Pick-a-Payment loan weren’t snookered. They were.
What did they use the $’s for once liberated? Only they can answer that. But you have to wonder ( given an Infinity and Beyond..! RE mkt. ) if it wasn’t their assumption that someone ‘else’ would be supporting their ‘habit’ once they ultimately decided when, where and at what -price- they’d be cashing in?
Rio,
I’ll give you definite credit for being original and bringing up issues other than the Standard FB’s are People TOO! talking points.
No doubt there was criminal collusion between WS and CH, but I hope no one is implying that didn’t originate anywhere other than between a local MB and a lyin’ through his teeth applicant.
Yes, ownership rates in the US have hovered historically between 65 & 70% ( but show me a time when SECOND home ownership was as high as it ‘was’ even during the non-fake boom? ) Ever!
Again, no one here can recall an over-leveraged FB bemoaning being taken advantage of by the bank in ‘05 & ‘06 ( now all of a sudden we can’t find one that ‘wasn’t'! ) As a group and certainly as individuals, it’s so incredibly inconsistent we might as well have morphed into an FB Support Group.
collusion between WS and CH, but I hope no one is implying that didn’t originate anywhere other than between a local MB and a lyin’ through his teeth applicant.
Thank you Din for listening to both sides of issues.
Yes there were lying applicants. Too many I know. However there is a legal reason why entrapment is illegal in America. It is an abuse of process and takes unfair advantage of human tendencies. Greed is related to survival and anyone put in such “entrapment” situations” in an “all for oneself” economic system where their own government is ENCOURAGING such behavior might succumb to such pressure. That is the way humans react in such situations.
Put a married man in a Rio bar in certain locations, give him drinks and he might violate vows that he never would have ever violated. It is not right, however it is more understandable than a man who would cheat under any situation.
This is the type of situation regular Americans were put in. Now they have NO support groups because the PTB are fighting desperately to make sure that they will not.
Many American’s were put in an entrapment type situation. Now they are again left in the dust.
The first thing that Wall Street did after getting de-regulation
is they came up with a bogus money lending scheme .WS took the opportunity to cash in on the long term good reputation of the secondary lending market ,while they changed the risk models wrongfully . The Money Changers came up with new business models and rated MBS’’s incorrectly ,while they came up with faulty loan products that they leveraged beyond any sanity .You could say that they would never of been able to obtain these lending funds without their bogus risk models
and misrepresentation on the ratings on
these CDO’’s. On top of everything else they breached their duty to underwrite the loans and prevent fraud .
The Wall Street Market Makers and their agents the Lenders
turned real estate into a bogus fraudulent high risk leverage bubble .
A normal borrower should of had a reasonable expectation that the surrounding borrowers that they were in competition with were not given bogus and fraudulent loans they couldn’t afford .
So, the faulty fraudulent ratings and faulty risk models in itself got WS money they would not of had to begin with for lending.
All the borrowers that were more than willing to commit loan fraud and borrowers that got in over their heads were also part of the problem and contributed to the fraudulent aspects of the original sins of Wall Street . The REIC went along with the Wall Street easy money /breach of fiduciary duty situation and encouraged more fraud .
Because of the money being made , the entire information systems to the public continued to endorse the myths that real estate always goes up . The entire culture was brainwashed into thinking that you get property by any means you can or you will be left behind . The loan industry promised refinances out of toxic loan products ,knowing that
the toxic products were easier to be fraudulent on and netted them the highest commissions .
So, you had a entire industry from Wall Street down pushing and conspiring in this faulty market . You had appraisers and
loan officers threatened if they didn’t play ball .
I can’t stand the greedy borrowers that bought into this Ponzi scheme ,but the professionals were suppose to protect the deposits of the Nation ,not use others people money to get rich quick and convince the masses that they should get in on the scheme also and sell to a greater fool .
The fraudulent borrowers and the fraudulent lenders should of been allowed to fall . The borrowers that didn’t lie were cheated by the corrupt system and their only crime is that
they didn’t know that it was all bogus or they didn’t know that they wouldn’t be priced out forever . Lets not get into how much people were cheated on a rise in property taxes and insurance costs .
The bail outs have taken all the heat and blame and twisted it into greedy liar lenders and greedy liar borrowers wanting
someone else to pay for their gambling . I think the whole ordeal is testimony to how powerful Wall Street really is these days and how weak people are and easy to brainwash . The media wasn’t even there sounding warnings against this absurd real estate Ponzi Scheme .
“‘Could we have gone slower? Yes,’ she said. ‘But no one saw the (housing market) bubble coming.’”
Huh? What? Didn’t see it coming??
You should have looked around a little more. How long have we been discussing this thing? I know it started at least a couple of years before the collapse. Moron! NO ONE saw it coming? No one?
No one?
Like I said above…Ben did…
Several years ago, I was on Broker Outpost Mortgage Forum. I didn’t understand everything that was going on there but….
Some broker was presenting a real crappy senario on a CRE loan with a disaster for a borrower and was darned near begging someone for help with selling this suicide type trash loan even with a big money spread.
No other loan rep would touch it, take it or even refer him to some lender who would….and these guys loved writing crap for cash.
Finally, an Account Executive for some loan outfit took pity and told him about a Loan Officer in a Wisconsin bank that would write a loans on just about anything, anywhere.
That idiot loan officer was in one of MY big Wisconsin banks !!
mikey may not have known the full picture but I sure back up fast and make way when I see and hear something with a bright light that could be big, noisy and possibly dangerous coming from the far end of the tunnel.
I may of sensed danger but Ben Jones and the HBB gang really helped me identify it and they also gave me the big overall picture.
Thanks again Ben and the HBB gang
mikey,
( I hope you moved your acct? )
Yep, dime-a-dozen. These guys are all around us t-r-y-i-n-g to find a GF to take their place on the chopping block, all in the hopes of living another day?
This is the very reason I lay so much of this B.S at the feet of yer’ friendly local “banker”. Just get it off the books any which way you can. Usually a lot-loan to some now defunct builder.
( I hope you moved your acct? )
Oh Yeah…
With a large cashier’s check and enough 100 dollar bills to make me a person of interest in a Nevada whorehouse.
Some one should have just reached out and slapped the crap out of Ol Nora!
Looking at the section on Michigan… can’t think of any better reference point for widescale government intervention and socialist government.
2.1x income. Maybe the place is bottoming. Course they need to write off a bunch of debt and change some laws to bring business back to the area.
Eventually the entire city will be farms again. The marginal return on all the small scale farming is also extreemly poor. Hence, sustainable poverty!
The marginal return on all the small scale farming is also extremely poor. Hence, sustainable poverty!
That’s the way my parents grew up and they moved to the United States for a better life.
Go figure.
Where’d they come from and when?
Italy.
Dad came in 1948. When he was on leave in Europe he met my mom and then she emigrated in the late ’50s..
The marginal return on all the small scale farming is also extreemly poor. Hence, sustainable poverty!
Depends what you’re farming.
Lots of small-scale farmers make a handsome living on cows, pigs, goats, poultry, mushrooms, heirloom produce, exotic greens, eggs, etc. Grow organic or otherwise differentiate oneself by the quality of product, and the small-scale farmer can do quite well.
Or you could just grow ganja.
Heck…Wisconsin grows and sells all that stuff and does one better.
We have rock farms all over. A little 23 yr old gal up the streets Granny died and left her a rock, a barn and a tree. She’s driving a big black Mercedes Benz and going to nursing school now because of that rock.
We sell rocks. Yep Rocks! Well, big rocks, not tiny little Pet Rocks. We don’t mess around and farm off any tiny little cheap movable rocks on anybody. We are after…Big Game!
Rocks, cliffs, bluffs, out-croppings and large rocks is where the big money is. Call um what you want….they’re rocks.
Everyone is selling them. Silly tourists pay big money to move up here from California and NYC and buy some waste land and just sit n’ watch their rock grow.
We get even MORE money if there’s a dilapidated, useless, dangerous old barn living next to the expensive rock. A scrawny tree shading the nice rock helps increase the price too. Thar’s Gold in those Rocks.
http://milwaukee.craigslist.org/reo/1586106870.html
That place is near where I grew up - it is 12 acres, but with the bluff, you can’t actually farm anything. And 200K can’t be supported by local incomes.
Near bike trail, so have bikers going past 3 months a year. Snowmobiles three months.
Given it’s in the village of Camp Douglas, you are going to be hearing the interstate or Hwy 12&16 all the time.
No thanks.
Hey Mad Boy,
I hope things have been going okay.
They’re looking for a FIB to buy it.
Yup.
Jeff Horton is a Florida homeowner whose house is now worth about half of the $255,000 he paid for it three years ago.
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He bought in 2007. Wasn’t that “Time2Buy” here in Florida?
If you were listening to the Realtwhores, who are, of course, experts in the real estate business and giving everyone advice that there’s no better time to buy. At one time it was “no better time to buy or sell”, but that was a rarity.
You are correct, but i think it was Best Time 2 Buy. After all, prices were down 30%. Having read about the 1920’s boom, I knew that was small change. But not to the “professionals”. Trust your own intuition.
These people have motives that are not in your best interest.
Diogenes,
I agree with you up to a point.
I bought my house 5 years ago. Paid 800k, put down 20% and was intent on paying down the balance by 2011. At that time I was a firm believer in honoring my contract
But then…well you know the rest. I couldn’t believe it when their was even a mention of bailing out underwater homeowners. And from then on it just went downhill. Bailouts for AIG, Citibank et al. Tishman Speyer reneging on a 5.4 billion real estate investment. As you know the list is endless.
I quickly concluded that the Federal govt. was only intent on saving Wall Street. They didn’t give a rat’s posterior for the average person on Main Street. So I adjusted my thinking accordingly. I refinanced to an interest only mortgage, and have absolutely NO intention of paying down my principal. This is the only bargaining chip I have when it comes to dealing with the boyz on Wall Street. Furthermore, if this reckless behaviour by the feds and Wall Street continues, I will walk away from my house at a time of my own choosing. They have been warned!
Meanwhile I keep socking my savings into an almost zero interest CD.
Due to some good fortune I now am in a situation where I can pay off the entire house. It’s not going to happen though, until I see a marked improvement in the behaviour of Wall Street.
The best thing of all is how soundly I sleep at night now. It’s really the best of both world’s as I have the advantages of being both a houseowner as well as a renter.
The Federal Reserve System was set-up after the 1907 Panic to protect the soundness of the banking system. At least, that was the rationale.
I think it’s a crock, as it is basically a rigged system for priviledged few who have access to the money making machine.
Making Goldman Sachs a “bank holding company” so they could siphon money off the tax-payer was an underhanded deal, but Paulson had his money in Goldman. Remember is first proposal. Here’s a 3 page agreement that says you will give me 700 Billion dollars to dispose of as I see fit, with no recourse. It was outrageous. There should have been a revolution.
I agree with your disapproval, and I don’t really have a problem with your plan. Everyone needs to do what is in their best interests.
My point to my whole blurb today is that most people signed notes agreeing to PAY AS AGREED, assuming the banks had no recourse other than to take back the house. In some states, like California, that is true. I suspect that is why Clownifornia got the biggest jumps in “valuations’. I think the same is true with ARizona and perhaps Texas. But in many states, like FLorida, the banks have recourse to go after you personal assets if you fall short on making your loan obligations.
People can avoid this if they get the bank to agree to the “short sale” as final and binding on both parties for settlement of all debts. Oftentimes, they don’t make such convenants and the banks are left with the ability to go after the borrower for additional funds.
I think this is quite fair.
You situation sounds different than a lot of folks. Down here it was HELOC City. Well, the borrower’s had a great time taking luxury vacations and buying luxury automobiles, now they don’t want to pay back the loans, because the house isn’t going to pay if for them.
Well, give back the car, the jewelry, the bling, the fancy furnishings and maybe they can “Settle” the debt.
Good luck to you with your plans. You may beat the bank if you in the right State and have the right loan agreements. If you do, it’s no sweat to me. I’ll say congratulations.
The people that bought all that junk on HELOC money don’t want to pay for their fun. These people believed that real estate going up would cover their folly . I don’t like to pay for other people
gambling on market appreciation to pay for their junk . This is absurd that these people lived high on the hog and want everybody else to pay for it . Responsible people are to have their lifestyle compromised so these equity zappers can party ….it’s a crime .
Sweet! A Chillicothe mention!!
That’s where the Mead factory is, if you recall my date story from that town. By the way, I asked that girl out by walking up to the drive through at Wendy’s where she worked.
My family originates from Pike County, just to the south (home of Pee Pee Creek!). We have a saying in my family: there are those that left, and those that stayed.
Sigh. Saying “Pee Pee Creek” made me think of Oly. She would have riffed that up good.
Yeah Muggy,
It’s gonna get a little lonesome around here without that mischievous girl popping in and out.
“In December, I was so tired and frustrated that I was ready to walk away from my house and take my three children to a homeless shelter…Without housing counseling, we would be homeless right now.’”
What a FREAKIN IDIOT! Go voluntarily to a homeless shelter, when you have a perfectly-serviceable not-yet-foreclosed home to sleep in???
People are crazy.
“‘Could we have gone slower? Yes,’ she said. ‘But no one saw the (housing market) bubble coming.’”
Haha. Yeah, sure. I saw it. A lot of people with common-sense saw it.
I sold my house at the top of the local market in Arlington, Va., in April 2005. I’m still waiting for the market to drop another huge amount. I told my real estate agent at the time that I will go back and buy my old house for half of what I got for selling it. And from the same guy that bought it from me. He tried to flip it for another quarter million dollars. Sheez, I mean, c’mon!
The larger story here is that the middle class is being destroyed in America. Thanks Republiskum!
“The median sale price of existing single family homes in the Bakersfield area last month was $127,200, down 5.8 percent from $135,000 in December.”
Here in Coeur d’Alene, the average home price is about $200,000, in spite of the fact that; the mean income is WAAAAY less than BK’s, the mines are now closed, the lumber mills have been demolished and the epa has targeted the Lake for mine waste.
The local realestati have snorted up the “it’s different here/ we’re unique” lines and are staring into the coming fiscal-apocolypse with seriously dilated eyes.
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“Fifty-three million dollars (is) how much money, in total, the nine remaining, Kern-based credit unions reported losing last year.”
The redheaded stepchild of the banking system is about to become latest domino to go horizontal.
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I feel deeply sorry for all those folks whose dreams of flipping homes they couldn’t actually afford fell thru and now, instead of arrogantly announcing without discrimination their impending excessive wealth at any opportunity, have to humbly whine to sloppy journalists their intentions of making ‘a business decision” to just “hand in the keys.”
Really… yep…..from the heart…uh, huh….
Straight UP!