‘A Trap From Which There Is Only One Escape’
Two readers suggested exotic loans as a topic. “Many of us have talked about the creative loan issue. Some study results. (I was surprised to see this in the San Diego Union Tribune, the biggest RE shill paper in the country IMO). Some highlights: ‘Nearly 54 percent of payment-option users in the sample had FICO scores below 700.’ (Wow, I didn’t realize ’sophisticated borrower’ meant ‘below average borrower’).”
“‘Some industry experts estimate that upward of 70 percent of payment-option borrowers elect to go with the minimum payment.’ (Shocking, to anybody who hasn’t been looking at what the option arm customer is like, or the average American even). ‘One out of eight payment-option borrowers and one out of six interest-only borrowers earned less than $48,000.’ (We’ve brought the dream-soon-to-be-nightmare to so many people!).”
Another replied, “I agree. Too many had no business whats so ever being in ownership; job stability suspect, credit history exposing the inability to properly manage small amouts of debt and then we hand them enough debt that will likely sink the boat. I wonder how bad it will get??”
From the Denver Post. “In a two-block loop of Mockingbird Lane and Mockingbird Street, a neighborhood built just seven years ago, there have been 23 foreclosures among 94 homes in five years. That’s nearly one of every four front doors. One home has been foreclosed three times, two others twice.”
“The house-building boom and loose lending practices that ended disastrously for so many people here mirror a pattern stretching across Adams County, which has the worst foreclosure rate in a state with the worst foreclosure rate in the nation.”
“The problem now, experts say, is that too many working-class families take on crippling debt loads to seize their piece of the American dream. They overpay for starter homes. They take on extreme mortgage rates to avoid making a down payment with money they don’t have.”
“‘If you have a job and breath in your body, a builder will put you into a new home,’ said Jan Buckner, who invests in foreclosure properties in Colorado. They wind up in a trap from which there is only one escape: losing their home.”
“Mockingbird Lane (was) initially zoned for manufactured housing. Then a national builder, KB Home, showed up in the late 1990s. On Mockingbird Lane, many who moved into homes designed for first-time buyers put little or no money down. KB offered easy financing. So did other lenders.”
“Some homeowners refinanced quickly. Many accepted adjustable-rate loans that could run as high as 16 percent when conventional 30-year mortgages were below 6 percent. It is common practice for lenders who originate a mortgage to resell it to other investors. In almost every case, the lenders who foreclosed on the Brighton homes did not originate the mortgage.”
“Jim Spray, a Colorado mortgage broker and his wife, Linda, a Realtor, reviewed foreclosures on Mockingbird Lane and Street at the request of The Denver Post. They say they saw minimal down payments, and also refinancing loans, that left homeowners owing more than their homes were worth. At foreclosure, some buyers owed $20,000 to $30,000 more than their original purchase price. ‘That’s a killer,’ Linda Spray said.”
“Margie Ibarra was among those who started out with a newer, and riskier, 80-20 loan. Her first mortgage covering 80 percent of the purchase. Another lender supplied the remaining 20 percent in a second mortgage. That enabled her to buy a $160,500 house without a down payment in 2002.”
“Her first mortgage started at 6.5 percent interest but could climb to 12.5 percent. Her second mortgage, on the 20 percent balance, came in at 12.75 percent. Her payments started at $1,148 a month: $811 on the first mortgage and $337 on the second.”
“‘I kept trying to refinance. They would tell me you have to wait, due to the fact that all of the properties in the area had gone down in value,’ she said. ‘The foreclosure was due to my financing,’ she said. ‘I would have rather had the mortgage company be honest and say, ‘No, this is too steep.’ Why couldn’t they have made me make just one payment at a fixed rate? They make it sound so good.’”
“A car accident finally sank her hopes. She needed surgery. She borrowed more money to buy a replacement vehicle. After that, ‘I couldn’t catch up,’ she said. Her home was foreclosed in 2004, less than two years after she bought it. She filed for bankruptcy protection and let it go.”
“She said she drove through her old neighborhood the other day, passing the home she loved. It sold for $131,000, nearly $30,000 less than she paid for it. Around the neighborhood, ’so many houses are for sale,’ she said.”
Related links:
Palm Beach Post, ‘ Here’s how Glick describes so-called “option ARM” loans: ‘I will gladly pay you Tuesday for a hamburger today,’ a takeoff on Wimpy, the character in the Popeye comic series. The problem is that the hamburger’s price typically will go up on Tuesday.’
‘The biggest problem is that some originators are being trained to only sell this product,’ Daniel Poulos says. It’s not entirely clear how many option ARMS have been written in South Florida. But consumer appetite for the low rate is inexhaustible, says Poulos. That’s partly because of the ‘teaser rate’ of 1 or 1.25 percent. Those rates generally last just 30 days. It’s doubtful borrowers understand that piece of the fine print, Poulos says.’
‘We get countless inquiries at our offices asking if we can beat a 1 percent interest rate. We always respond by asking ‘Did the last lender you spoke with leave you with the understanding that your rate would be 1 percent ?’ The answer is usually ‘yes.’ ‘This blatant misrepresentation is running rampant.’
‘”‘In the last six months or so, it has been like this,’ said James Lee, who has mined trustee auctions for investment property for 15 years. When home price increases were stronger, investors could buy a property and sell it a few months later for a hefty profit. ‘Now you’re getting into the market where there’s plenty to buy, but there’s nowhere to sell it,’ said Peter Winn.’
The Denver Post artice has a lot in common with Columbus Post Dispatch articles from about 6 months ago. A new subdivision, with all the mortgages taken out at the same time, many financed by the builder’s mortgage arm, with little or no equity and scary terms. It looks like there might be a lot of locallized foreclosure in the near future, with neighborhoods like this one in Denver seeing 25% foreclosure rates while others are almost untouched. It seems like, long before 25%, foreclosure has to start feeding on itself - with foreclosed properties driving down the value of neighboring properties, driving them into foreclosure.
This is a historically great time to have been born rich. Short that, financial survival requires a grasp of at least the rudiments of finance. Too bad for the lending industry that those who fall into one of the above two categories are generally watching the game from the sideline, and those who don’t are known as the current customer pool.
the left will declare them “victims” like bums,smokers and drunks
The car accident hurt this lady alot more than losing half a duplex. The financing may have pushed this thing along, but actually she just paid too much and circumstances forced the issue.
They are victims, in a way. If you pay too much for something, it’s often because you don’t know enough about the market you’re buying into. When these people bought their homes, there was no Zillow. Heck, 5 years ago there was no Realtor.com! You have to trust who you’re dealing with at some point; many of these people trusted a Realtor.
I agree that these people shouldn’t be bailed out by Uncle Sam or anybody else; the banks and MBS buyers will only tighten standards if they take the losses that are coming to them. But the blame doesn’t lie soley at the feet of these buyers.
I could be wrong, but aren’t most new home sales done without a realtor?
Mr Jones, You would be correct. Especially in a up market
I remember using Realtor.com and Homeseekers.com in 1998.
‘They overpay for starter homes.’
Which is what happens when everyone focuses on the payment instead of the price. It is still hard to believe that no downpayment became so common.
The only losers are the foreign investors who financed these mortgages. US economy gets a boost. State and local gets tax surplus. Homebuilders, bankers, realtors, contractors made a bundle. Buyers get to live in houses they can never afford for a few years. This has been great for everyone.
I can’t find the link right now, but a couple of the Harvard Joint Center researchers (hold down the catcalls) did a study of the external costs of foreclosure. They figured that the average foreclosure cost the local municipality something like $30,000 in foregone taxes, police calls to evict crackheads, fire calls to fight fires in abandoned properties, etc. The foreclosure wave will not be pretty. And those costs are born by neither the borrower nor lender, so why should they care?
Well I think the solution is obvious, $29,999.99 for every person who misses a mortgage payment. It’s the only fiscally sound option.
People need to take a look at what is in their “stable value fund” in your 401(k) plans or the holdings in their money market funds and CDs. A lot of U.S. folks are helping to finance these crazy mortgages using their “safe” money. (kinda related to the previous thread, I know). I was just shocked a bit earlier to discover I still have some mortgage-backed securities lurking in some of my existing holdings. It’s kind of insidious.
Go with short term treasuries with everything except what you might need to write a check wiht.
ATTN BEN; PLEASE SEE THE COVER OF TODAY’S ARIZONA REPUBLIC… RE STORY SAYS “PRICES TO COME OFF 10%…’CRISIS’ COULD LAST 6MONTHS” what a joke… 6 YEARS is more like it.
That was the subject of my first post today.
wow, they admit to 10% down
whoa many can’t happen fere articles by local papers will need to be printed
If they are saying “prices to drop by 10% in six months”, then the odds are better than 50/50 that prices have already dropped by 10%, but we don’t see them, as they are hidden in that slowly growing PHX inventory volcano (50K deep and growing).
The article said that prices may have come down 20% from the peak already.
She borrowed more money to buy a replacement vehicle.
I guess with all those 1st and 2nd mortgages, you can’t afford collision insurance.
The adjustable rate mortgages and option ARM programs are the scariest variable in this housing bubble mess. I am in a position to benefit from the housing market collapsing, but when it unravels it is going to be scary.
It may seem bad at the time, but many will do what this lady did; walk away.
These people will all feel like they’ve lost something. But in reality, their house was never theirs in the first place. They started out with nothing (no downpayment), and after giving up the home without having built up any equity they end up with nothing. In between, they are under the delusion that they “own” a home.
They get the benefit of enjoying the “service flow” of living in a nice home in a nice neighborhood, while wealthier, more prudent individuals watch and rent.
They have lost something…their self-respect and confidence and probably a decent FICO score…now, they don’t even have that…thus the death spiral starts…
“…a decent FICO score…”
In related articles, it was stated that many of these people were less than 700, so it seems they didn’t lose that one. As for the self-respect and confidence, those probably didn’t actually exist in the first place, as they can be confused with plain old “I’m a real estate mogul” arrogance.
‘The foreclosure was due to my financing,’ she said. ‘I would have rather had the mortgage company be honest and say, ‘No, this is too steep.’ Why couldn’t they have made me make just one payment at a fixed rate? They make it sound so good.’
This illustrates the fundamental disconnect that finanicially unsophisticated buyers have faced during the bubble. Traditionally, they were conditioned to think of lenders as being prudent, conservative, cautious, even stingy about making loans — it is part of our national folklore. Only those fortunate enough to possess both financial acumen and a good crap detector noticed the turning of the rules of the underwriting game upside down over the past few years…
Old saying,’How do you tell when the mortgage broker (real estate salesman) is lying ? When his mouth is moving’!Buyers believed Appleton_Young and Learah, Gary Watts.’There is no bubble. and prices will go up 10%, and they aren’t making any more (land). Fill in the rest of the blanks. Pismo Beach has a 12 month supply of residental listings but sellers are still in denial/anger.
“they aren’t making any more land” But in south florida they are building handfulls of 200 unit highrises that take up as much space as 3 homes per highrise. All of these units are owned by speculators who own three each, and never plan to live in them. But the thing to remember is that they aren’t making any more land….
My dear departed uncle used to say, that in the “old days”, one had a “partner” when one bought property, it was the lender (the local banker), now, because so many mortgages are sold in the secondary market, rather than being held in your local bank’s portfolio, one’s “partner” is one and therefore has no self interest in making sure that one can truly afford the purchase. Imagine if the local banker was on the “hook”, like they used to be…no money down, soft second, cash out refi, etc…I think not.
one’s “partner” is one should have read, “one’s partner is gone”
These people believed what they wanted to believe because it felt good to believe that. They thought they were going to become wealthy; most were motivated by greed.
Not that I’m glad about it or anything, but, imho, these folks deserve to bear the negative consequences of their actions. We supposedly require that in most other areas of life, so why not this one?
Lenders in subprime and lower worry about one thing how many points will they get and who are they going to sell the loan to. Fannie Mae and Freddie Mac will get theirs and then subprime will not be able to lend money, HARD money will become the only answer, but they will be overstreteched with all the foreclosures. It will be just plain UGLY.
The idea that people can afford and understand these Option ARMs would be LAUGHABLE if it weren’t so darn depressing.
70% of people pay the MINIMUM payment… and I’ll bet you everything I have that the majority are not doing this because they are investing the rest of the money wisely, coming out ahead in the spread.
I don’t know what pisses me off more: that we’re gonna bail out these idiot homedebtors… or that we’re gonna bail out the lenders. The lenders have NO excuse, they can’t even plead ignorance. And if they can, they have no business being lenders.
As for the left bailing them out: dream again. The bailout will be party wide. I’ve noticed the right doing an AWFUL lot of spending and bailing these last 6 years. The left and right will be falling all over themselves to bail out people, in the name of getting votes.
pathetic
clouseau
“The lenders have NO excuse, they can’t even plead ignorance. And if they can, they have no business being lenders.”
Yes, this one upsets me as well and is the reason why I had argued with Mr Income Stream about buyers being completely responsible for this mess with option arms. The general public does not have an intuitive understanding of Time Value of Money concepts which encompasses how mortgages and all major loans are calculated and evaluated for investment purposes. I’m lucky since I was formally trained on this subject in my accounting studies and used it my cost analysis roles. It was a major revelation when I realized that this is how the median income became so disconnected from the Median home price in SoCal. There was no other way explain it.
These loans were pushed on to a lot of FB’s who probably had no chance of understanding their sensitivity to variables such as interest rate and house price appreciation rates. They probably only understood the follwing: The house costs this much, my monthly payment is much, and prices will probably go xxx to cover me before the payment reset hits. No downside risk consideration period. That’s where the lenders are remiss.
how the gov. is goint to bail these dead beats. Gov. istself is into debt up to its eyeballs. You think in this environment of tight money (internationally) our gov. can get into higher more debt than it is aleady in?
Some people on this blog suggested that we have a recession. I believe that recession is a very real possibility for U.S. enconomy.
IMHO there is no question we will have a recession. I believe it is right around the corner and there is a real possibility we could have a depression.
Anyone that bought property after 2002 and walks away from their loan commitment, should have bad credit for the rest of their life, and pay higher rates than others until their last purchase…That is the only fair way. Otherwise America doesn’t believe in capitalism.
Recession probably started March 2006. Will only be able to tell for real some time next year.
Agreed… Just look at all the layoffs in the past couple of months and the cost of oil, etc. The stupid “sheeple” are just going on their merry way - I heard that consumer confidence was up for the month of May?? Don’t these idiots realize what is happening?? Or are they too busy watching American Idiot or Surivor (I have NEVER watched any of these stupid shows)?? It is truly a dumbing down of our society! People just don’t care and don’t have a clue!
could it that the data *they* provide is the problem?
OT A forest fire just started a few miles away. It’s a possibility that I’ll have to evacuate. If this blog isn’t updated for a few days, you’ll know why.
I’ve been through that. Get out while you can and take care of yourself.
Good luck Ben! We all hope it’s not too serious a fire. Stay safe!
Hey, can I have the keys to the blog while you are gone? I won’t drive it very fast, promise!
Save your ‘puter!
Everything is ready to go if I have to. There is a helicopter right over-head that is coming back from dropping water.
Make sure you’re in a safe place for now. Seems you’ve already left.
Good luck Ben, be careful–
Many appreciative fans of the blog will be thinking of you!
No, just watching the water bomb planes do their runs. I’ve never seen that before. The fire is in Boynton Canyon, near the Vultee Arch for those familiar with the area. I did see some black puffs, which the locals tell me means a structure went up. Nothing to do but wait.
Please remember it’s not the fire that you have to worry about getting you, it’s the smoke and the other fools who waited to long clogging up the roads. Many “fire” deaths occur as a result of two cars lumbering through the smoke colliding. Leave before being asked, and consider the night in the hotel room a mini-vacation.
Are you sure the helicopter isn’t evacuating realtors and mortage brokers from the rooftop of their office, which is beseiged by angry FBs with torches and pitchforks?
Are you sure its not Ben Bernanke up there in that Helicopter with a load of $ to drop?
Hey Ben,
Have you ever considered designating an alternate or heir apparent, in case, God forbid, you are ever unable to perform the day-to-day leadership and management of this site? Not to sound like I’m blowing smoke into the nether regions, but this blog is a national treasure that has educated and enlightened countless people, and no doubt prevented countless more from making ruinous, ill-informed financial decisions based on flawed “conventional wisdom” (or the omnicient Suzanne). I think it has become THE focal point for sanity, and a calm eye of the storm in the center of the Tsunami bearing down on the hapless, clueless FBs and speculative bubble. It would be comforting to know that there is some built-in continuity that would allow the site to carry on even if you decide to go off to Tibet for a year and become a monk.
I know some realtors and mortgage lenders who will gladly take over running the blog for you in the event of an emergency.
It’ll save them $ from having to hire geeks to destroy it in other ways.
On a serious note, you may want to be cautious about letting anyone in the mortgage industry know too much about you. I can just see 7 years from now, housing down 50% and the US is a very bad place financially - “it’s all Ben Jones’ fault! Get the pitchforks and torches….we know where he lives.
On the same front page of the Denver Post this morning was a story about the City of Aurora (’burb of Denver) working on a plan to tax new home owners $25 per month for the first ten years to help the city pay for basic services. Owners of new homes, condos, and apartments built after January 1 would pay the tax. The plan will be discussed at Monday’s council meeting. While some groups favor the tax, Beth Skinner, state director of Freedom-Works, a national grassroots organization headed by former US rep Dick Armey of Texas, called the measure “Ridiculous. The Aurora city government could do numerous things to operate more efficiently than tax the crap out of people. This will totally discourage new development in Aurora”, she said.
This is just the tip of the iceberg. As property values stall out or decrease, local governments are going to have to look at more ways to “tax the crap out of people”. Interesting that they are targeting new housing since the older housing takes an equal toll on government but pretty much got away without paying its fair share in the past. Sort of takes more fun out of being a homeowner.
Older housing takes less of a toll than new developments. Infastructure has to be built–roads, schools, fire. police, etc. to service new areas.
I used to live in an area that was being overdeveloped and new schools and other services were being built like no tomorrow.
Will be interesting to see what happens to all these cities and towns that have build new schools to service developments that were bought up by flippers.
Somebody has to pay for it.
The oldest story in politics. The people who move in ,in the future, are not voters NOW. Did anyone catch Countrywide bitching about a suggestion that they manipulated their stock price in today’s LA Times? BooHoo
Well, maybe if she’d rented an apartment for one thousand and put the rest toward medical insurance, she wouldn’t have had to resort to bankruptcy.
“I was surprised to see this in the San Diego Union Tribune, the biggest RE shill paper in the country IMO”
The San Francisco Chronicle cannot be far behind. No mention at all of troubled housing markets elsewhere, ballyhooing the recovery that the tech industry is about to make, blaming the high cost of housing on zoning regulations (that made me LOL), and just this week reporting on the start of some new condo development that will become “an instant San Francisco landmark.” A listing of related “articles” read like some NAR rag.
Oh, Rincon Hill will be a landmark alright. Everyone commuting into SF will see that “half finished condo tower right by the freeway just as you come off the bridge” for the next 20 years.
I’m wondering, in a declining market, might the banks chose not to foreclose on a house for a FB who cannot afford the mortgage, but instead adjust the rates to what the FB can barely squeak by with.
Say a borrower has a 2% interest-only ARM, that is scheduled to go up to 7% sometime in late 2007. Now if the borrower could not afford the new mortgage payment, but might the bank make a deal to adjust it to only 4%, which the buyer can barely afford, but can make the payments barely–instead of foreclosing the property. 4% interest on a $600,000 house in Modesto is still a lot of money, especially if at that time it is selling for a lot less.
That is essentially what created the S&L crisis last time.
Borrow short at very high rates and Lend long at very low rates.
We all know how well that worked out last time.
Although some are licking their chops for 10-20 cents on the dollar liquidations.
The S&L crisis was started by the ‘86 tax reform act. The rules were changed in that you couldn’t ‘write off’ losses in real estate against ordinary income. The doctors, lawyers, and high incomers bailed and the banks and S&Ls ended up with assets that decreased their capital. An agressive Fed forced them into BK and receivership. A case in point was Glendale Fed’s shareholders who were harmed by several billion (at trial).
Yes but one of the reasons S&Ls were betting the farm on building pre 86 was that they needed to build assets at higher interest rates (so underwriting standards dropped). The properties were abandoned because they weren’t built for tennants they were built for tax deductions, when the deducitons went away the property wasn’t worth much.
Also, S&L captial was pretty low due to the massive increase in st rates that had occured (and was only slowly unwinding) for what had been 6 years at the time.
If the bank hasn’t sold the loan, then this scenrio is likely. Rather than reducing the rate, the bank would probably reduce the payment, and let the arrears accumulate (hey, maybe apreciation will come back???) But if the bank has sold the loan, it has neither the ability nor the incentive to make this kind of workout arrangement.
Maybe, they just won’t be allowed to build any equity in it. At least it keeps cashing coming into the bank. In fact, it’ll probably work out to a neg am mortgage.
That was basically my thought. But true… if the load has been sold it would complicate things, though not beyond impossibility, and perhaps better than the alternative of foreclosure.
In essence, instead of foreclosing a bank could transfer the loan to a neg am one.
-
what ever happened to personal responsibility?
damn ocean view FL condo 169k. What about FL realtors “everyone wants to live here”. EAT IT. http://www.oceanfrontcondo.freewebspace.com/index.html
I feel sorry for noone! Whenevr I suggested that people shouldn’t buy or wait I was laughed at and told I didn’t know what I was talking about. These were people making $24,000 to $70,000. All had no understanding of buying property and no business owning a house at this stage in their lives. Even my sister after a divorce went right out and bought in a new development. The agent told her that a buyer backed out but if she overbid the current asking cost by $7,000 that he was sure he could get her the house. I said, no,no,no and she said yes! The builder wouldn’t even let her on the property until the date of the walk through….that was last September. Since that time she has had leaks, cracks and other problems to which the builder has done little to fix….welcome to the new Bakersfield…..
SF Mechanist great point. I hope not. I hope they stick it to em bad, but they may try that with a bunch of people. Do you think a lot of ARM’s were bought at 2% and could ajust to 7% next year? Thats double the payment almost. Damn thats bad news if there are that many idiots.
The way I see it, FBs would still be FBs under this scenario, in fact I think they would be in worse shape because they can’t just file bankruptsy and move on–they would truly be the new class of serfs. Nearly all of their disposable income consumed by banks, but just enough to keep them going, and there might even be an expansion of negative equity into an ever-growing hole. Generally I think the rest of the economy would be better off and more stable with this approach, and I think housing prices are going to collapse with or without the foreclosures, once the last of the funny-money buyers (in SF anyway) and those who are trading up, are mopped up and no new buyers are left. And there will be still foreclosures anyway from the second home flippers.
If the worst happens and all of these people are foreclosed and bankrupt, what will happen to our communnities. It’s interesting to speak about devastation in the abstract but I don’t think we can really imagine what the negative impact could be on our society. We’re not talking a few thousand here, we’re talking about millions of people.
Simmssays…funny father’s day gifts
http://www.americaninventorspot.com
Check out Moreno Valley CA befor 1990 and after 1995. That could happen
Moreno Valley is the thing that my nightmares are made of. I had a friend living there when it went to pot. He had a beautiful home he’d improved himself. He and another neighbor ended up being the only people living on his street, all the rest of the houses boarded up. When he finally got an offer, after a good down payment and 12 years of mortgage payments, he still had to walk into the sale with a check for $10,000 to clear the mortgage. I’m in the Vegas area, and I can see it happening here in spades one of these days. I was just talking to a neighbor about that and cited Moreno Valley.
The reghettofication of Moreno Valley was almost directly a result of military cutbacks. It is situated smack in the middle two former Air Force Bases, one closed completely, the other downsized into an Air Reserve Base. It’s unlikely this could happen again, but certainly not impossible.
First post..Like many of you have said the Central Valley is gonna suffer in the coming months/years. There is so much building going on and at way overvalued prices. The local KB Home development just lowered its prices by about $20,000. One community has close to 50 lots unsold and are starting another phase across the street of 90 more lots…Why? They just opened another community across town. No one can afford their prices at least not for long. Plus the over 3,000 resale homes on the market and forclusores are way up too….People are crazy around here.
Take away the speculative demand and you have got real issues long term. There is only one way to go from here, down with prices.
That’s what I’m waiting for. Looking to buy in a couple of years when my wife is done with school. Im hoping for at least a 30% drop in prices.
‘The foreclosure was due to my financing,’ she said. ‘I would have rather had the mortgage company be honest and say, ‘No, this is too steep.’
This pathetic, bleating herd creature is the embodiment of the pathological victimization that has become the dominant feature of American life and culture since the advent of the catastrophically-misnamed “Great Society.” Everyone is a victim; no one is responsible for the outcomes of their bad choices.
The coming implosion of the RE bubble, which will be only one feature of a severe, sustained economic depression, will be the hard lessons learned that will ultimately translate into a revival of the long-dormant sense of PERSONAL RESPONSIBILITY AND ACCOUNTIBILITY made all but extinct by the Nanny State and our legal system over the last four decades.
Why was this run up ever allowed to happen? It screwed everyone. When prices come down to normal there will be a depression. Everyone gets screwed. Even those that bought 15 years ago and enjoyed the gains, already spent them on suv’s and flat screen tvs and to supplement non increasing wages. So when they loose on the price of a home, they will stop spending also. Maybe the housing market will lose 50%, and it probably should, I am waiting to buy at the bottom, but what good will it be if I don’t have a job for 6 years while the depression works its way out of the cycle? Who wins? Does everyone lose?
No, it didn’t screw everyone. The temporary false prosperity got Bush re-elected. (That’s why it was allowed to happen.)
“The coming implosion of the RE bubble, which will be only one feature of a severe, sustained economic depression, will be the hard lessons learned that will ultimately translate into a revival of the long-dormant sense of PERSONAL RESPONSIBILITY AND ACCOUNTIBILITY made all but extinct by the Nanny State and our legal system over the last four decades.”
I guess I have the pessimistic view then. The savers and investors in safer investments will be hit to pay for the irresponsible. Face it. The large voting blocs in many states are tax recipients of some form. We are headed for social democracy, which is a permanent irreversible path to the road to serfdom (Hayek’s terminology). If we perhaps do get back to personal responsibility, it won’t be done without bloodshed (more crime) before we actually have a prison system that punishes criminals (what a concept). We need a Joe Arpaio sherrif in every city and hamlet in the United States.
Long term, I take an optimistic view. Agree that gov’t (read: the Republicrats — there’s not a dime’s bit of difference between the two parties) will continue to strive to perpetuate and expand its powers by expanding the millions-strong armies of social parasites, er, entitlement classes, who have discovered that they can vote themselves ever-increasing benefits that someone else (the beleagured productive classes) have to pay for. The Republicrats, er, GOP, are trying to outdo the Dems in winning the loyalty of the DOAs (Democrat on Arrival) immigrant hordes pouring in, because in the era of bloc votes, the RNC (and especially the dwindling conservative wing) doesn’t have a hope in hell of controlling the House or Senate after 2008.
So, why am I optimistic? I think eventually the productive classes will finally say enough is enough and start demanding and forcing long-overdue reforms. Personally, I can see us moving to a “Limited Participatory Democracy” system, whereby the only people who get to vote, are those who put more into the system in taxes than they take out in benefits. Otherwise “Tyranny of the Majority” is assured, down the road.
I’ve thought an interesting idea might be to have one house of congress elected under one person/one vote and the other elected under one tax dollar/one vote. That might be able to put a brake on the tendency for the people to vote themselves goodies.
In that second house I think I’ll be the most powerful voter in the country.
Wow. You guys are hard core.
I think we ought to do away with PACs and “campaign contribution” problems and just publish a book each election year. This book would be published by a neutral institution. Each candidate would have a resume (don’t know how to create the accent), and the publisher would have a form which outlines all the candidates’ accomplishments, job histories, political priorities and beliefs, etc. No TV, radio or print advertising. Just this book and some publicly-sponsored debates.
That way, only those who are motivated and inclined to do some research would likely vote. IMO, the MSM gets too many idiots to vote with “Rock the Vote” - style campaigns.
The state of washington’s voter guide is an excellent resource. Candidates are allocated a section of the page based on how important the office is gubanatorial candidates each get a full page)-minor parties (less than 5% of the vote in prior elections get a half page). And it works down to County commissioners getting 1/6 ot 1/8 of a page.
They get their pic, name as written on voting devices, description of prior offices held, and a couple of paragraphs to describe why they should recieve your vote.
They are mailed to all registered voters and widely distributed at post offices libraries and of course polling places. I was very surprised when they were absent after I’d moved.
There is no doubt we live in a culture of entitlement, which needs to shift to a culture of accountability.
gee, i don’t get what kind of society you want. where there are the few elites (economically, intellectually, politically, etc) who runs everything and all the other masses. what made you think these elites will be free of the corruption and stupidity you see all around today. it will be worse. power will now be concentrated to these few elites. sounds like feudalism to me. who do you think decided that slavery is as legal as owning a property?
Interesting thread right here. It is similar to Ayn Rand’s position in Atlas Shrugged. The presumption that those who create, and are thus taxed on their ability to create, are intrinsically more “entitled” to a louder voice in their government is always countered by the “Elitism” outcry. One the other hand there is some merit to the argument that productive, creative, involved people have a better comprehension of the reality within which they live as opposed to anyone who demands that they be taken care of simply because they are breathing, but make little or no active effort to produce, create, or generate the means to care for themselves.
I believe that the disconnect comes into play when we try to use a specific measuring stick to gauge who is assigned how much voice and specifically when that measurment is based on money. I say this only because of the wild disconnect between effort and compensation in this society as is evidenced by the huge disparity in earnings between an expert bricklayer and a used car salesman. I have nothing against either profession, but my guess is that a journeyman bricklayer has not only invested more time and energy into learning his/her craft than the salesman, but also exerts more physical and mental energy and yet it is my assumption that the pay scales are reversed. Why is that? My theory is that we are a society that rewards the merchants more than the magicians. Both are needed, but I believe that the merchants are much better at negotiating/bamboozling better pay while the magicians are focused on making that next cool thing.
And now we have two more classes of citizens who have learned the skills of the merchant. The politician and the victim. And the politician has found that the victims are a large and swayable mass who will bring votes and fortune to those in office who rain benefits upon them.
This would actually work fine if the merchants, victims and politicians actually understood what the best course of government was to sustain a nation of all classes. But I regret to report that my observations to not support this and in fact it seems that those with the loudest voice right now have the least insight into how to make it all work in a way that is fair for all of us. This, of course, results in the “Tyranny of the masses” who demand that productive members of society produce even more capital/goods/tax revenue for the care and feeding of the unproductive classes. And to that I have only one thing to say.
Who is John Galt?
Hmmm, so what do we do? How do we measure? If at all? Is the problem the represetative part of our government? I like what CA Renter and Bluto said. Let’s get rid of the incentive for corruption entirely. What purpose does any lobbying really serve but to line someone’s pockets? Let those of us who want to serve the public be elected on their merits rather than their ability to sell themselves. And let’s make their job a lot easier by taking back our right to make new laws and change outdated lagislation.
How about a dynamic, web based, on-line legislature where we all have a say online 24 hrs a day. New legislation can be proposed by any voter using a specific format that promotes readability and comprehension of the intent and consequences. The posting is reviewed and voted on locally and if it pases muster there it goes up to the county level and so on. The entire process is reviewed by citizens, governed by citizens, constantly. Everything is open for review. And periodically the system itself is reviewed to assure it is not being abused by juries of citizens who as a team walk through the proceses and procedures, software and hardware to varify no trickery or foul play. One man/woman, one vote. And yes free access is available at all public libraries. Heck, expand that and put kiosks everywhere. Have a minute check your RSS feed while you wait for the ethanol powered mass transit. Stuck in traffic and figured out how to lower health care costs - fill in an idea form and send it off in two shakes of a lamb’s tail.
Man the future looks bright if we pitch in and work together.
We’re all in the same boat, just that only some of us are doing the rowing these days.
If I make money when my house appreciates a lot, then I am a RE Genius.
If I lose money when my house depreciates, can’t pay the ARM reset, tax increase, insurance increase, etc, then I am going to blame everyone else for the loss. But in no way was it my fault. So I deserve a bailout.
Sounds like fund managers. When the market is bullish and everyone does well, they are geniuses for getting good returns (and deserve huge bonuses). But when things turn bearish, well, they can’t really be blamed, because general conditions are so stacked against them. The principle is the same: individualize the gains and socialize the losses!
(I was just shocked a bit earlier to discover I still have some mortgage-backed securities lurking in some of my existing holdings. It’s kind of insidious. )
Me too. My wife explained to me how you end up with the crap in an investment-grade only portfolio. Mortgage loans are aggregated and divided into “tranches.” The tranches are rated on the expected rate of foreclosure, and the expected rate of recovery in the event of default. If the former is too low and the latter too high, the underwriter adds some cash the portfolio to cover the expected level of defaults. Voila! Investment grade.
Well, what if it’s more than expected?
Structured securities are fairly new and haven’t have the test of a major recession. Typically defaults would be spread through the groups in reverse order (the highest credit traunche might require 65% defualts before it was impacted).
They were originated for mortgage securities to better allocate interest rate risk which is what far more investors are concened with most of the time.
“The problem now, experts say, is that too many working-class families take on crippling debt loads to seize their piece of the American dream. They overpay for starter homes. They take on extreme mortgage rates to avoid making a down payment with money they don’t have.”
I like how the “experts” place the blame on the borrower rather than the lending industry. Reminds me of the credit card lobbying for “the universal default clause” while getting all of the predatory lending rules tossed out. Then they blame the card holders when the payments stop.
She was just across & down the street from 1313 Mockingbird Lane.
No shock that people’s political agendas make their way into this discussion, unfortunately it doesn’t mean/change anything. Republicans can’t seem to admit that their guys have been in charge for most of this mess, though it stretches back far enough for the Dems to get some blame too.
Give it up partisan hacks.
This isn’t anywhere near its end yet and I fear that something one real estate lawyer I know said will come true. He acknowledges that his business is slow right now, but expects things to pick up in the latter part of the year when all the FBs with ARMs have to come in to refi to 40 and 50-year mortgages.
Those people would be truly screwed.
most of the republicans who are ‘in power’ are RINOS. republican in name only. they are basically liberal democrats who moved to a republican district/town/county/state, and ran as a republican. once in power, they return to their liberal socialist roots and vote with the ted kennedy’s and nancy pelosis. RINOS have basically taken over the GOP. we need a third party that is honest, of the people and will save the nation and environment.
Amen. The Republicans used to be the party of Main Street. Now they’re a wholly owned subsidary of Wall Street and the multinational corporations.
30 years ago i heard this: “In real estate, and any other investment, excessive profits will breed ruinous competition.” Let the games begin!
I dont understand the part about the car. If it is going to ruin you get a ride or a cheaper car. Did this woman ever do any math?
Regarding Option ARMs:
I would say in SoCalif here, more than 80% of the people make just the minimum payment. I was talking to a loan manager with another large bank locally who said that over 80% of their loans were Option ARMS. The bank where I work does not do Option ARMs, and I have never done one.
I have many stories, and lately I have been talking to more people about their Option loans because they are unhappy with them. Mostly they really do not know what they have. Here is a good example:
Married couple have a $440,000 Option ARM that they got in Dec05. Current fully indexed rate, adjusting monthly is 7.875%. Monthly payment is $1,525. At this rate, the interest due is $2,887.50 per month. So they are negative $1,362 per month, or $16,350 annually (their balance will increase by this about this amount, depending how their rate changes.) I quoted them 6.5% on a 10/1 loan, fixed rate and payment for the first 10 years. The payment on this loan: $2,384 for interest-only, $2,782 for fully amortizing. Also, since this rate is 1.375% lower than their current loan, they would save $6,050 per year in interest compared to their Option ARM.
They absolutely cannot afford even the interest-only payment. They understand the extra interest they are now paying and their increasing balance, but have to live with it. BTW, they paid $165,000 for the house 13 years ago……………..are you frightened yet?
…are you frightened yet?
____________________
Yes, I am! I hope they are selling it!
What’s their LTV (approximately)?
Never fear, I’m sure they are “investing” the money they would be normally paying P & I on and earning a higher rate of return. After all, why give that money the the mortgage company, when you can “invest” the money yourself or pay down those high interest credit cards or maybe now that can get that dream vacation they always wanted to take or maybe buy a new car to replace the one they bought last year or anything else but pay back the money. Wait until they use up their 10-15% neg am cushion, then see what happens to the payment.
There is absolutely no excuse for that couple having a $440K loan when they bought the house for $165K. The foreclosure should be done now, and the SUV/boat/etc that they spent the $250K or so HELOC on be seized. That is just criminal. They will deserve what they get. Break out the vasoline. Bend over. It is coming, and coming hard.
Vaseline? That’s too nice.
There is absolutely no excuse for that couple having a $440K loan when they bought the house for $165K. The foreclosure should be done now, and the SUV/boat/etc that they spent the $250K or so HELOC on be seized. That is just criminal. They will deserve what they get. Break out the vasoline. Bend over. It is coming, and coming hard.
Another article on resets …
http://biz.yahoo.com/ap/060619/foreclosure.html?.v=10