So . . . do we need better written disclosures, or do we need lenders who are afraid to close loans for borrowers who do not appear to be reading the paperwork?
I don't know, Max.
You didn't read the paperwork...I don't know if I want to hire you as my engineer.
44. With $106,000 documented income. What are you doing that you can't manage this loan?
Maybe Max is just so trusting and easy going and is imperturbable.
Max: not my candidate as a responsible adult.
Anthony, I didn't get the impression that Max was asking for sympathy. And he didn't say that he "didn't know what he was signing." He said he didn't bother to read the paperwork at all. And that he is embarrassed.
I don't think the issue is sympathy. My view as a lender is that I do not want to make a loan to someone who isn't bothering to read the documents, because such a loan presents extremely high risk, regardless of its other features.
But if you originate online and close by mail, how would you ever have any opportunity to know whether the borrower is paying attention? This gets back to my problems with the "innovation" cheerleaders. They don't tend to account for the additional risk built into their innovative ways of originating loans.
Back in the dark ages, I had loan officers meeting personally with borrowers to take the app, and the loans closed in a conference room off the lobby of my bank, by my own closing officer. Borrowers were simply not allowed to rush in, sign a bunch of shit, and rush out with a check.
But, well, that took a lot of time and a lot of well-paid employees and did, actually, limit some people's access in some ways. Yet I remember borrowers driving into town from Podunk to get to my bigger-city bank to close their loans. I really do wonder how many of them feel well-served by the new world in which they can get a HELOC at 3:00 a.m. on the Internet.
Wait, my head is spinning, this chump makes $106,000 a year and can't pay a $1,950 mortgage?
My wife and I make roughly that much combined and pay more than that to rent a house in the San Francisco Bay Area. Sure, it's high, but we suck it up and do what we need to.
In a world where thirty thousand people line up to apply for a $10 an hour job I'm supposed to feel sorry for Max because he lost his free company car and his fat bonus?
The one and only way to prevent it is to limit the products offered.
Baring that, the borrow would have to have a sheet of figures of current and possible payments to read and a sheet of questions with fill in blanks indicating the figures that he just read, maybe while being videotaped, sign that sheet.
This is not to discount the possibility that the folks that sold he on the mortgage did a bit of bait and switch or obsecured the facts to a desperate person.
Alternatively video taping the whole thing with the participants holding a placard stating that "I May be sent to Prison if I am dishonest." might be something that could be legislated and executed with minimum costs.
That said, the rot seems to be going into the upperclasses. If I remember correctly $100k/year is in the upper 20% of wage earners in the US. We have this headline from Reuters Mortgage crisis hits million-dollar homes
Sooooo in prosperous times, folks in the whole range of incomes up to the top 20% are losing their homes. That seems to be a bit strange in the least.
Max responded by refinancing his condo twice. Though he did not realize it then, the second loan was adjustable. Over time, his monthly payments rose from $1,500 to $1,800 to $1,950
Information was posted the other day about subprime being using primarily as a refi for cash out. In 06 I noticed quite a bit of discussion about folks like Max who had fixed rate loans and were doing a refi into a ARM with low teaser rates and cash out. Maybe Max is the tip of the iceberg.
In general, what happens when a borrower walks away from the mortgage? Is it as simple as giving the keys to the lender and getting paid $500? What are the penalties, other than a black mark on the credit history?
The reason I'm asking is that upwards of 30% of recently originated mortgages are for second and investment homes. If "walking away" is easy, then it makes sense to do just that when the RE prices turn sour, or when personal circumstances change (obviously it's way more difficult to abandon your primary home). So if it gets really bad, many these homes may hit the market and may just crash whatever is left of it.
Although the details here are sketchy, "Max" is a very familiar borrower to me.
He comes in to apply for his loan. With that kind of income and that kind of P&I payment, he ought to qualify comfortably. But he has a boat-load of consumer debt. So what do we do?
Well, he's got that company car. Let's treat the car allowance as income. He's gotten some bonuses; let's assume he'll always get them. He's gotten some raises; let's assume that those will stay constant.
End of the interview with a crafty loan originator, and I can promise you you have no idea what that "$106,000" means.
Tanta that was the day when the folks making the loan had to be responsible for the loan. If your neck is on the block, you get real careful and you don't mind the expense so much.
But if you get money up front for each product and the risk is not yours, then cheaper is better, the expense does not buy you anything.
Abe, it depends on the state, the lender, your prior loan performance, the current loan balance, and the current value of the property.
It appears that Max had some equity; the lender probably would not have accepted a deed-in-lieu (which is what this is called) without it. So that's where the $500 came from. Think of it as Max selling his condo to the lender for a "firesale" price. He might well have originally had thousands of dollars in equity; there's no reason to think he didn't lose on this deal.
Prime mortgage lenders generally consider a deed-in-lieu (and a short sale) to be "foreclosure equivalents" when analyzing your credit history. Some lenders will consider them as not quite as bad as a foreclosure. But any time you settle a debt for less than the amount due, that shows on your credit report. Also, any NOD or lis pendens or other pre-foreclosure legal filing that might have occurred prior to the DIL will show on your credit report for 10 years. The only way you get to keep your credit record looking fairly decent is to offer the lender DIL before any deliquent payments or legal filings, and to get the lender to call it "paid in full" instead of "settled for less."
Every state is different in terms of how motivated a lender might be to avoid FC. So don't try this at home until you've researched your own state laws.
I don't see this point brought up very often (perhaps because it makes no sense), but perhaps bank mentality changed also in this bubble, and they decided they didn't care about borrowers understanding the loan, or about foreclosures due to job loss, because of the fact that prices were rising so fast.
Isn't is possible that some buyers didnt ever try to refi their way out of trouble, and that the bank could actually still profit from an REO sale of this sort, first making money on the loan fees, interest, etc, and then selling the home at a still inflated, albeit lower price. I guess they have a choice, refi a customer to death, then foreclose, or hope the same stupid borrower who didnt read the paperwork was in the home long enough to have seen a paper gain, and still too dumb to know that getting foreclosed on is in the banks interest and not theirs.
They in effect take advantage of the homeowners emotional attachment to their home, which they refuse to try to sell, thinking they can save it, then they realize when they finally come to their senses and do try to sell it, that they arent realistic about the price, and it doesnt sell, and after that period of time, the foreclosure comes.
I dont know, just speculating here, and perhaps have some facts wrong, but it was just an idea.
Geoff, lenders aren't allowed to profit unjustly from a foreclosure. That's why the sale is always a public auction. The sale proceeds after satisfying any lienholders (including past due interest and expenese) belong to the borrower.
ok, so in a rising market, they could at least break even than most of the time, right? Isnt that worth the risk to them? Im just trying to better understand their incentives to lend anything they could to anyone who would take the money.
Yep. The idea is that a "rising market" is the ultimate Papal Indulgence (Remission of Sins) to the lender. Worst case in the "permanently rising market," you get your principal and expenses back.
Id wager a big ole plasma TVs involved. No doubt a spiffy gas guzzler of some sort, a cornucopia of CD and DVD content, plenty of premium alcohol and exotic cuisine on his nights out, and a pair or three of those extra long pilgrim-toed kickers the fashion-forward dandies have been sporting lately (or a covey of 'official' sports jerseys.)
Millions of morons making six figure incomes must be pleasing to the underlords of direct marketing finance.
VennData, I'm pretty sure that if he had been supporting three elderly relatives plus all the orphans' educations he'd sponsored, while paying for open-heart surgery, we'd have heard about it.
But this is precisely where "MEW for consumption" meets "MEW as income substitute." Regardless of the actual stuff consumed (knickers?), our Max is using MEW to smooth out his income. You have to think Max believed that the income would return or the home price would continue to appreciate. Or he could put his HELOC note under his pillow and the Debt Fairy would take it away while he slept and leave him a quarter.
Seems to me I was just reading some economist the other day who thought this was a dandy idea.
Back in the days when my employer gave me the authority to commit millions and millions of its dollars on any given day, I was bloody well too expected to account for idiocy. Not only is that what underwriting is about, that's what all kinds of risk management is about: counterparty due diligence, behavior modeling, transaction activity monitoring . . .
Banker, my whole point is that a "risk management" strategy that assumes that running into the odd bozo is impossible to forsee is not a risk management strategy. It is nothing better than running naked.
I don't know what kind of trader some other people are, but I can remember putting out a package of seasoned whole loans and getting bids of 98.06, 98.07, 98.07+, and 102. Do you think for one moment I picked up line four and said "done"?
Both a friend of mine and I spend some of our limited free time counseling people with credit problems. (actually, I dont do it anymore). So, people who would otherwise have no access to unbiased advice are able to get it for free. More often than not, we get arguments instead of thank yous. There is a large percentage of people who can never order their finances. Many purchased a home in the last 3 years.
Ill just say it; there are plenty of people who are not capable of owning a home. There are lots of people who cannot save enough money to pay for a new furnace or a new roof, no matter if they make over $100k a year like Max in the article. Theres always a bigger TV, latest IPOD, $100 haircuts for the teenager that is somehow necessary to sustain life.
If someone is willing to lend them the money to buy their own rope, how can we legislate that away? Wont the finance community just repackage another method of financial suicide?
here is a new way to reduce the housing inventory:
Shorewest real estate broker Ian Francis said he just turned down a listing from a homeowner who had a $147,000 refinance loan on a house that is likely worth $110,000. There was no point to taking the listing, he said. Its not unusual to see homes worth up to $600,000 in similar straits, said Francis.
I just looked at several Ca. homes on zilow - going back 10 years.
It seems that prices have to come down about 50% for the curve to become normal again.
In silicon valley there was a hugh jump in 2004 homes went from 400K-500K to 1M 1.25M. In Fort Brag homes that for years have been 130K-150K are now 450K and 500K.
I can see fortbragg going down by 50% as for silicon valley 50% maybe too much but 30% is not unrealistic.
If someone is willing to lend them the money to buy their own rope, how can we legislate that away? Wont the finance community just repackage another method of financial suicide?
It's really to me a question of who that "willing to lend" party is and what they know and what options they have if it turns out to be stupid.
Part of me thinks the best way to deal with it is just to eliminate repurchase warranties in loan sale contracts used for publicly traded securities. In other words, you can buy any damned loan you want to and stick it in a security. But if it breaks, you bought it.
The ability to put back defects is supposed to protect bondholders from unscrupulous originators who make false representations. But it is becoming a way for bondholders to keep funnelling money into the origination machine because they think they don't have to hold the bag.
Evolution has taken millions of years to make human hunters and gathers. Markets (the mall kind) are just the modern age version of the forest.
Now we are program to max out our gathering because failure to do so in the real old days mean starving and elimination from the gene pool.
Now compare that to money which has been in existence only a few thousand years max and you discover that money comes off second best to the genetic imperative to maximize gathering.
Money and money planning are intangible things that just cannot understood at a gut level by a significant portion of the population.
Compare that to the genetic drive to obtain fats and sugars which in nature are rare, and you discover why folks get fat. Not to maximize fats and sugars require ignoring millions years of genetic programming.
He should be embarrassed. I don't blame him for not reading it immediately, the amount of paper involved is large, but he still should have read it over the following day. Even easier is to simply ask questions. He should easily be able to afford it. He is either up to his eyeballs in other debt, is anticipating further increases, or has panicked.
We've all heard talk about the house as the modern-day ATM. Where do HELOCs fit into the sub-prime Alt-A discussion?
What are underwriting guidelines like for HELOCs? Aren't HELOCs solely based on FICO scores? If you can be approved @ 3am over the interet, there cant be too much income verification. Is seems like HELOCs are the 'easiest' money available to cash strapped homeowners.
Isn't reliance on FICO and lack of income verification part of the sub-prime Alt-A 'problem'?
How much HELOC exposure is their in the marketplace? Or has everyone with a HELOC already refinanced themselves into a 'problem' loan.
I know the getting arguments strategy. Having told relatives they are living beyond their means and suggested cutbacks, they are quite adamant in denial or finding something out of their control to blame.
100K+ salary and the guy can't make a 2K mortgage in Michigan? What the hell is is spending his money on? 2K * 12 = 24K. Call the taxes, costs and tax breaks a wash. That leaves 40+K after taxes to live on.
Tanta,
That's what I think. "Professional buyer beware." Sen. Dodd and Hillary want to bail out subprime? This is just an attempt to funnel the money to banks to cover their mistakes for them without being obvious. Fraud has always been there and always will. I've seen, er that is, I'm told that many fraudsters have it built into their value system. They might even know they are doing something illegal, but figure:
1. Every one else is doing it.
2. Someone screwed me, so I'll pass it along.
3. (insert rationalization here)
Can I mount an apology for Max? Not really. Was that $106,000 salary the one he posted with the first loan before his salary reductions? His reduced hours? His unstated long term disabilities? His innumerable but also unmentioned consults with credit advisors?
But this starts out as a conventional fixed rate mortgage and goes to something less and then to a burden...for investors (so far but not if Dodds gets his way) who thought 'something less' was going to be 'high yield'.
I think Brookly is right about a significant number of FRMs went to ARMs with the blessing of Greenspan.
This is a thing I have
Never known before
Its called easy livin
This is a place I've
Never seen before
And I've been forgiven
-- Uriah Heep
I'm a moron 'n' this is my wife
She's frosting a cake
With a paper knife
All what we got here's
American made
It's a little bit cheesey,
But it's nicely displayed
Well we don't get excited when it
Crumbles 'n' breaks
We just get on the phone
And call up some Flakes
They rush on over
'N' wreck it some more
'N' we are so dumb
They're linin' up at our door
It seems that prices have to come down about 50% for the curve to become normal again
Ya: that's correct. Very big drop necessary or a very long slow flat period of RE price appreciation with raising CPI and wage inflation at some point to level the playing field. Take your pick!
Max illustrates perfectly the condition of stagnant wage growth over the last 5 years and what
enabled it. Basically, serial refi activity was hidden wage(obviously cash flow since no borrower earned any of it) inflation.
I've heard it aptly described...
Households used to have 1 wage earner, then 2 as the wife entered the work force out of necessity. Then in 2002 a third wage earner
magically appeared when it was HHI was falling behind - THE HOUSE. It silently offset business need to pay higher wages as workers had access to cash to meet their rising living expenses as under-reported by government inflation studies.
The HOUSE is no longer
contributing to HHI and is now a serious income drain. The HOUSE went on strike in 2006...
Yal on the Zillow data - I found that their strings of data showing appreciation were full of errors - in my region, several zip codes showing 50-100% appreciation over a year - just junk data. So I wouldn't use their stuff for history or for predictions.
slightly OT, but, acc to barrons, ned davis research says that americans have total debt of 44.5 trillion or 331% of gdp which is twice the level of 30 yrs ago and vs the 250% level during the great depression.
The scary thing for me is that Max is an egineer with presumably a very high level of numerical literacy. I know that that does not mean "financial literacy" but still, someone with a few years of calculus should be able to figure these things out a lot better than your average citizen.
Thanks sippn for that heads up.
If I can chew over 'barely's remark:
Basically, serial refi activity was hidden wage(obviously cash flow since no borrower earned any of it) inflation.
It need not even be serial. But that parenthetical remark digs in.
It's the "earned" bit.
Tis.
The residential contractors/builders "earned" tremendous profits up to 2006...on the backs of illegal aliens who "earned" (I think we don't say this. We allow only "were paid".) less than $10/hr.
Similarly on the income tax form "earned" is applied to employment, investments, possibly even to allowable tax exemptions if you qualify. Now I don't expect a special entry for say "heists", but there is this respectable connotation in "earned" that accounts for it's widespread and in some cases, indiscriminate application. Investment bankers earning $60M/yr come to mind immediately.
Greetings from Ground Zero! Should I expect George Bush to show up soon and make a speech in front of a fake "Sold" sign? Or will he again be the last person aware of the scale of the damage?
Nice point, calmo. I have this problem myself with "capital gains." There is this heroic Randian titan of capitalism, taking those risks that drive the economy behind door number one. And then there's some dude behind door number two who "honorably" evaded foreclosure by finding a "willing buyer" to pay more for his house than any sane person would say it's worth. If memory serves me correctly we tax these two things in the same way.
That's amusing to me Bill, because my son is an engineering student (a whiz at calculus,self-disiplined and responsible in matters other than finances)and does not see anything wrong with the economy? Being a high school dropout myself, he dismisses my concerns quickly and proceeds to buy things that he cannot afford and plummet further into debt. At least he is still young, and there is a chance for him to get his affairs in order so that he can afford to retire someday.
I realize it would be pure speculation, but I would be interested in your opinions on the CFC board members surryiing off like rats from a sinking ship, without explanation. The timing is curious too - last day of Q1 and after maket close on a Friday. Looks suspicious to me given that it coiincides with the last throes of the finance bubble and cfc is smack in the middle of it, maybe ground ZERO. They are the KBH finance arm and BZR got all kinds of attention from various enforcement agencies this week.
I worked as a bank officer for a lot of years, but I never worked in loan servicing, so I never had anything to do with bankruptcies or foreclosures on any routine basis. There was only one situation in which someone like me would get sucked into one of those.
When the BK/FC borrower happened to be one of our own employees.
VennData and lama are right on about people swimming in debt to support a lifestyle.
Im an independent RIA and most of my clients are in MI, so I get to see this first hand. Things are bad there and its true people working at tier 2 auto suppliers and below are really feeling the pain because these workers had their wages reduced, some by as much as 50% and most do not have defined pensions. As mentioned by others above people were tapping their rising equity treating it as supplemental income. Whats sad and scary is there are a lot of people many more than most people think who are just like Max. They are nearing retirement and the only things they got are a bunch of toys and a negative net worth. Theyll ask if I can help and I tell them to give me a call once they are debt free. I leave thinking how in the hell are these people going to support themselves in the not to distant future then it suddenly dawns on me my tax dollars will be going to support our Governments Socialistic agendas. Sorry getting of topic.
Geoff, lenders aren't allowed to profit unjustly from a foreclosure. That's why the sale is always a public auction. The sale proceeds after satisfying any lienholders (including past due interest and expenese) belong to the borrower.
Tanta | 03.31.07 - 12:08 pm |
In my experience the receiver fees and default interest take out any "equity" the borrower may have in the house. If the house is worth significantly more than the existing debt than the borrower would just sell.
Years ago someone told me that to qualify for mortgage the wife's income was not considered by lenders - so eventually women income was considered but according to the fable this drove home prices up so no affordability improvements.
It seems that in recent years the addition of the 3rd wage earner (THE HOUSE) also did the same thing.
as for zillow I looked at places in which I know the current prices but used zillow to look for historical prices (which are fairly accurate based on sales) so the way that show the trend is accurate. Prices need to come down 50% to fit any normal curve.
Bet it happens a lot, Tanta. It's hard to tell people 'no' when they want to borrow money! My philosophy is to not loan money that I cannot afford to give away, and for the life of me I cannot understand why someone with no down payment could qualify for a mortgage without buying mortgage insurance? In fact, with less than stellar credit, I cannot imagine an bank allowing mortgage insurance to lapse prior to the 15 years that the law allows.
Part of the issue of Max's income is that since 2001 the value of the dollar has declined around 25%.
I purchased some property in Feb 2001 for 800K and sold in June of 2005 for 1.1M. On paper it doesn't look bad but in real dollars my profit was not that significant when one takes into consideration the drop in the dollars value during that time.
I suspect there are a lot more Max's out there - probably more than we want to imagine. Appropriate pseudonym, Max, as in maxed out. When I'm driving around in my 20 year old car I'm always amazed at the number of newish cars on the road. Where'd they get the money for those things? (and why do they keep buying the gas guzzlers instead of the sippers knowing that gas is only going up from here... but I digress) 20K to 30K is not a trivial amount of money to come up with. The most obvious answer is troubling: they've raided the house to pay for these new SUVs. And these vehicles are losing value in proportion to the rise in gas prices.
( And no, I don't believe that knowledge of calculus confers financial responsibility. )
There is obviously something missing from the picture in this media story. As we know, on a $100K+ salary, a $2K pmt. is not earth shattering, even if it did go up from - gasp - $1500. If there is a deeper debt burden, a maxed out card situation, consumer debt to the eyeballs, then the writer of this story owes it to his readers to tell the WHOLE story and not just the part that fits his heartwrenching foreclosure story needs. Okay, got that off my chest. Now - this is Detroit. Haven't real estate values plummeted in Detroit lately? I'm just a tad suspicious that Max's condo may not be worth near what he paid for it, and maybe he half wanted to just dump the thing? Just a sneaking suspicion. We need a Paul Harvey and then we'll know "the rest of the story." Until then, we can only speculate. (And how do you not know your loan is adjustable? Was he under the assumption it was another fixed rate loan? 2 + 2 just is not adding up here.)
Another thing is, no matter what the income level, no matter what the economy is doing, there are always going to people who end up in foreclosure. It just happens. That's part of the lending/borrowing risk. It's not always the lender's fault, or subprime fault, or even the fact that he's in a sagging industry. If-you-spend-more-than-you-make-you-are-headed-for-financial-disaster. That's all there is to it. We have become a debtor nation, and debt can be very destructive to people who can't handle it. And that's the really sad part of what is going on today.
I was working out in front of a TV this morning (fortunately, no sound) that was showing an infomercial on buying yourself a home with no money down. A shot of some exercise equipment and a graphic came up, that I assume was telling us what a great guy the person selling his book and program was, because he "donated over 200 bicycles to underpriviledged kids." All I could think that, whatever goodwill he bought in my eyes by telling me that, he lost as an analyst by misspelling "underprivileged."
There is clearly some backstory not being told in Max's case. Having grown up in southwest Michigan, I know that a 100k salary goes a long, long ways. This guy either owns multiple properties, has 7 kids at a private college all at the same time, or his hooked on drugs.
Why would they knowingly sign the papers, fully aware that they were being deceived? Then they finally wake up out of their coma in 2005 and file a lawsuit?
I work for a small, boutique investment firm. Over the past few months we've had potential clients interview with our investment shop. Frankly, there are some folks we just don't want as clients...those that we think will be high maintenace or are unrealistic about returns, etc. Anyway, a large number of these prospects have real estate for investment. A particular individual owned 5 properties and wasn't even breaking even. Our recommendation, given the deflating bubble as well as his situation, was that he sell some of his property. Of course, he didn't like our advice, since it implied his real estate investment wasn't working.
But it has become apparent that many of these folks, wealthy people, bought property for investment only within the last 3 years...at peak prices, and are extremely leveraged...with IOs and other creative loans. I guess the point is, that it won't be just the average joe stretching to make ends meet, but some of the well off as well, who may have to sell at distressed prices, and contributing further to the inventory.
Mannn, those were the days - smoking weed during school lunch hours looking out over the marshes from a Norman castle in the Cinque Port of Rye, England
I could have been Max. Our family income has decreased over 50 percent since '02 as my wife and I lost good-paying jobs in high tech and got low-paying university jobs -- the only jobs we could find that gave us the good medical benefits we both must have. Together, we earn substantially less than Max does.
But back when we were flying high, we decided to throw a couple of extra K a month at the mortgage. We paid it off the month after I was laid off. It's been a struggle to keep putting money away, but if we still had the mortgage, life would have been tough. As it is becoming tough for many others.
Maybe this wasn't so much a case of Max not being able to afford his mortgage payment but, rather, of him coming to the realization, Why the hell am I paying so much money every month for the privelege of owning a depreciating asset?
What is really happening in Michigan is that light and medium manfuacturing have been declining since NAFTA arrived, the parts makers are being butchered by the Big 3, and the Big 3 and the UAW are committing slwo motion suicide.
Ohio and Indiana have lost much of their light and medium manufacturing, and have had lesser but still painful auto losses.
Recent report in Michigan suggests 10 - 25 years until recovery - I;m betting on 25 years.
Whether we scold Max or sympathize and whether we form moral appraisals of Max is not important: the question is: how many more are like him and how much of a threat does this pose to financial institutions? A good scolding will not fix things.
My own opinion is that Max is not very typical, but what if he is?
But Frank he says he's embarrassed (not proud) and the clown moves out of a fixed into probably 2 successively worse adjustables.
He wasn't the brightest bulb in the class...and I suppose that's part of the message: just because you have an engineer's ticket doesn't mean you are safe with this housing racket.
Already I'm losing the real message: the Bond buyers of these so called safe Prime loans packages that have a certain number of respectable looking Max type defaulters in them.
Wait, my head is spinning, this chump makes $106,000 a year and can't pay a $1,950 mortgage?
Binko, my thought exactly. His prop-tax is probably around $400./month, insurance around $75./month, so he's still forking out less than $2600/month for housing.
If he's netting 70% after-tax, I don't know how he can possibly...
That is an interesting numbers don't add up story. What is it that stinks?
I'd guess the guy locked in his paper gains by cashing out. With values crashing he is walking away.
That or gambling/drug problems.
Also the guy claims to be an engineer. That is like a status symbol for a lot of workers that do not have a degree/experience exc. that would make them an engineer.
It sounds like this guy just walked, instead of taking the loss on the property... He probably stopped making payments and used his kids, girlfriend, or brother, etc. to hide his assets.
Just another example of modern American philosophy.. privatize gains, socialize losses.
So . . . do we need better written disclosures, or do we need lenders who are afraid to close loans for borrowers who do not appear to be reading the paperwork?
It is hard to be sympathetic for someone who claims they do not know what they are signing.
I don't know, Max.
You didn't read the paperwork...I don't know if I want to hire you as my engineer.
44. With $106,000 documented income. What are you doing that you can't manage this loan?
Maybe Max is just so trusting and easy going and is imperturbable.
Max: not my candidate as a responsible adult.
Anthony, I didn't get the impression that Max was asking for sympathy. And he didn't say that he "didn't know what he was signing." He said he didn't bother to read the paperwork at all. And that he is embarrassed.
I don't think the issue is sympathy. My view as a lender is that I do not want to make a loan to someone who isn't bothering to read the documents, because such a loan presents extremely high risk, regardless of its other features.
But if you originate online and close by mail, how would you ever have any opportunity to know whether the borrower is paying attention? This gets back to my problems with the "innovation" cheerleaders. They don't tend to account for the additional risk built into their innovative ways of originating loans.
Back in the dark ages, I had loan officers meeting personally with borrowers to take the app, and the loans closed in a conference room off the lobby of my bank, by my own closing officer. Borrowers were simply not allowed to rush in, sign a bunch of shit, and rush out with a check.
But, well, that took a lot of time and a lot of well-paid employees and did, actually, limit some people's access in some ways. Yet I remember borrowers driving into town from Podunk to get to my bigger-city bank to close their loans. I really do wonder how many of them feel well-served by the new world in which they can get a HELOC at 3:00 a.m. on the Internet.
Wait, my head is spinning, this chump makes $106,000 a year and can't pay a $1,950 mortgage?
My wife and I make roughly that much combined and pay more than that to rent a house in the San Francisco Bay Area. Sure, it's high, but we suck it up and do what we need to.
In a world where thirty thousand people line up to apply for a $10 an hour job I'm supposed to feel sorry for Max because he lost his free company car and his fat bonus?
The one and only way to prevent it is to limit the products offered.
Baring that, the borrow would have to have a sheet of figures of current and possible payments to read and a sheet of questions with fill in blanks indicating the figures that he just read, maybe while being videotaped, sign that sheet.
This is not to discount the possibility that the folks that sold he on the mortgage did a bit of bait and switch or obsecured the facts to a desperate person.
Alternatively video taping the whole thing with the participants holding a placard stating that "I May be sent to Prison if I am dishonest." might be something that could be legislated and executed with minimum costs.
That said, the rot seems to be going into the upperclasses. If I remember correctly $100k/year is in the upper 20% of wage earners in the US. We have this headline from Reuters Mortgage crisis hits million-dollar homes
Sooooo in prosperous times, folks in the whole range of incomes up to the top 20% are losing their homes. That seems to be a bit strange in the least.
Max responded by refinancing his condo twice. Though he did not realize it then, the second loan was adjustable. Over time, his monthly payments rose from $1,500 to $1,800 to $1,950
Information was posted the other day about subprime being using primarily as a refi for cash out. In 06 I noticed quite a bit of discussion about folks like Max who had fixed rate loans and were doing a refi into a ARM with low teaser rates and cash out. Maybe Max is the tip of the iceberg.
Tanta:
In general, what happens when a borrower walks away from the mortgage? Is it as simple as giving the keys to the lender and getting paid $500? What are the penalties, other than a black mark on the credit history?
The reason I'm asking is that upwards of 30% of recently originated mortgages are for second and investment homes. If "walking away" is easy, then it makes sense to do just that when the RE prices turn sour, or when personal circumstances change (obviously it's way more difficult to abandon your primary home). So if it gets really bad, many these homes may hit the market and may just crash whatever is left of it.
Although the details here are sketchy, "Max" is a very familiar borrower to me.
He comes in to apply for his loan. With that kind of income and that kind of P&I payment, he ought to qualify comfortably. But he has a boat-load of consumer debt. So what do we do?
Well, he's got that company car. Let's treat the car allowance as income. He's gotten some bonuses; let's assume he'll always get them. He's gotten some raises; let's assume that those will stay constant.
End of the interview with a crafty loan originator, and I can promise you you have no idea what that "$106,000" means.
Tanta that was the day when the folks making the loan had to be responsible for the loan. If your neck is on the block, you get real careful and you don't mind the expense so much.
But if you get money up front for each product and the risk is not yours, then cheaper is better, the expense does not buy you anything.
Abe, it depends on the state, the lender, your prior loan performance, the current loan balance, and the current value of the property.
It appears that Max had some equity; the lender probably would not have accepted a deed-in-lieu (which is what this is called) without it. So that's where the $500 came from. Think of it as Max selling his condo to the lender for a "firesale" price. He might well have originally had thousands of dollars in equity; there's no reason to think he didn't lose on this deal.
Prime mortgage lenders generally consider a deed-in-lieu (and a short sale) to be "foreclosure equivalents" when analyzing your credit history. Some lenders will consider them as not quite as bad as a foreclosure. But any time you settle a debt for less than the amount due, that shows on your credit report. Also, any NOD or lis pendens or other pre-foreclosure legal filing that might have occurred prior to the DIL will show on your credit report for 10 years. The only way you get to keep your credit record looking fairly decent is to offer the lender DIL before any deliquent payments or legal filings, and to get the lender to call it "paid in full" instead of "settled for less."
Every state is different in terms of how motivated a lender might be to avoid FC. So don't try this at home until you've researched your own state laws.
Basically the question is did you keep your promise to pay or not. Breaking a promise, no matter what you call it, is still breaking the promise.
Tanta that was the day when the folks making the loan had to be responsible for the loan.
Right. I'm just trying to wake up the bond buyers a little here.
I don't see this point brought up very often (perhaps because it makes no sense), but perhaps bank mentality changed also in this bubble, and they decided they didn't care about borrowers understanding the loan, or about foreclosures due to job loss, because of the fact that prices were rising so fast.
Isn't is possible that some buyers didnt ever try to refi their way out of trouble, and that the bank could actually still profit from an REO sale of this sort, first making money on the loan fees, interest, etc, and then selling the home at a still inflated, albeit lower price. I guess they have a choice, refi a customer to death, then foreclose, or hope the same stupid borrower who didnt read the paperwork was in the home long enough to have seen a paper gain, and still too dumb to know that getting foreclosed on is in the banks interest and not theirs.
They in effect take advantage of the homeowners emotional attachment to their home, which they refuse to try to sell, thinking they can save it, then they realize when they finally come to their senses and do try to sell it, that they arent realistic about the price, and it doesnt sell, and after that period of time, the foreclosure comes.
I dont know, just speculating here, and perhaps have some facts wrong, but it was just an idea.
Geoff, lenders aren't allowed to profit unjustly from a foreclosure. That's why the sale is always a public auction. The sale proceeds after satisfying any lienholders (including past due interest and expenese) belong to the borrower.
ok, so in a rising market, they could at least break even than most of the time, right? Isnt that worth the risk to them? Im just trying to better understand their incentives to lend anything they could to anyone who would take the money.
Same here Geoff, greed and a total lack of anything resembling reality?
Yep. The idea is that a "rising market" is the ultimate Papal Indulgence (Remission of Sins) to the lender. Worst case in the "permanently rising market," you get your principal and expenses back.
Id wager a big ole plasma TVs involved. No doubt a spiffy gas guzzler of some sort, a cornucopia of CD and DVD content, plenty of premium alcohol and exotic cuisine on his nights out, and a pair or three of those extra long pilgrim-toed kickers the fashion-forward dandies have been sporting lately (or a covey of 'official' sports jerseys.)
Millions of morons making six figure incomes must be pleasing to the underlords of direct marketing finance.
VennData, I'm pretty sure that if he had been supporting three elderly relatives plus all the orphans' educations he'd sponsored, while paying for open-heart surgery, we'd have heard about it.
But this is precisely where "MEW for consumption" meets "MEW as income substitute." Regardless of the actual stuff consumed (knickers?), our Max is using MEW to smooth out his income. You have to think Max believed that the income would return or the home price would continue to appreciate. Or he could put his HELOC note under his pillow and the Debt Fairy would take it away while he slept and leave him a quarter.
Seems to me I was just reading some economist the other day who thought this was a dandy idea.
You can't account for idiocy. You just can't.
Banker "You can't account for idiocy. You just can't."
Sure you can. It's FIN 46.
On what other blog could you make a crack with FIN 46 as the punchline?
You can't account for idiocy. You just can't.
Why not?
Back in the days when my employer gave me the authority to commit millions and millions of its dollars on any given day, I was bloody well too expected to account for idiocy. Not only is that what underwriting is about, that's what all kinds of risk management is about: counterparty due diligence, behavior modeling, transaction activity monitoring . . .
Banker, my whole point is that a "risk management" strategy that assumes that running into the odd bozo is impossible to forsee is not a risk management strategy. It is nothing better than running naked.
I don't know what kind of trader some other people are, but I can remember putting out a package of seasoned whole loans and getting bids of 98.06, 98.07, 98.07+, and 102. Do you think for one moment I picked up line four and said "done"?
Both a friend of mine and I spend some of our limited free time counseling people with credit problems. (actually, I dont do it anymore). So, people who would otherwise have no access to unbiased advice are able to get it for free. More often than not, we get arguments instead of thank yous. There is a large percentage of people who can never order their finances. Many purchased a home in the last 3 years.
Ill just say it; there are plenty of people who are not capable of owning a home. There are lots of people who cannot save enough money to pay for a new furnace or a new roof, no matter if they make over $100k a year like Max in the article. Theres always a bigger TV, latest IPOD, $100 haircuts for the teenager that is somehow necessary to sustain life.
If someone is willing to lend them the money to buy their own rope, how can we legislate that away? Wont the finance community just repackage another method of financial suicide?
In the IT dodge you assume the folks at the other end of the keyboard are idiots and program to protect the system from it.
We have a saying that nothing is foolproof because fools are too smart.
here is a new way to reduce the housing inventory:
Shorewest real estate broker Ian Francis said he just turned down a listing from a homeowner who had a $147,000 refinance loan on a house that is likely worth $110,000. There was no point to taking the listing, he said. Its not unusual to see homes worth up to $600,000 in similar straits, said Francis.
I just looked at several Ca. homes on zilow - going back 10 years.
It seems that prices have to come down about 50% for the curve to become normal again.
In silicon valley there was a hugh jump in 2004 homes went from 400K-500K to 1M 1.25M. In Fort Brag homes that for years have been 130K-150K are now 450K and 500K.
I can see fortbragg going down by 50% as for silicon valley 50% maybe too much but 30% is not unrealistic.
how long it would take ? 2 years or 10 years ?
If someone is willing to lend them the money to buy their own rope, how can we legislate that away? Wont the finance community just repackage another method of financial suicide?
It's really to me a question of who that "willing to lend" party is and what they know and what options they have if it turns out to be stupid.
Part of me thinks the best way to deal with it is just to eliminate repurchase warranties in loan sale contracts used for publicly traded securities. In other words, you can buy any damned loan you want to and stick it in a security. But if it breaks, you bought it.
The ability to put back defects is supposed to protect bondholders from unscrupulous originators who make false representations. But it is becoming a way for bondholders to keep funnelling money into the origination machine because they think they don't have to hold the bag.
Evolution has taken millions of years to make human hunters and gathers. Markets (the mall kind) are just the modern age version of the forest.
Now we are program to max out our gathering because failure to do so in the real old days mean starving and elimination from the gene pool.
Now compare that to money which has been in existence only a few thousand years max and you discover that money comes off second best to the genetic imperative to maximize gathering.
Money and money planning are intangible things that just cannot understood at a gut level by a significant portion of the population.
Compare that to the genetic drive to obtain fats and sugars which in nature are rare, and you discover why folks get fat. Not to maximize fats and sugars require ignoring millions years of genetic programming.
He should be embarrassed. I don't blame him for not reading it immediately, the amount of paper involved is large, but he still should have read it over the following day. Even easier is to simply ask questions. He should easily be able to afford it. He is either up to his eyeballs in other debt, is anticipating further increases, or has panicked.
We've all heard talk about the house as the modern-day ATM. Where do HELOCs fit into the sub-prime Alt-A discussion?
What are underwriting guidelines like for HELOCs? Aren't HELOCs solely based on FICO scores? If you can be approved @ 3am over the interet, there cant be too much income verification. Is seems like HELOCs are the 'easiest' money available to cash strapped homeowners.
Isn't reliance on FICO and lack of income verification part of the sub-prime Alt-A 'problem'?
How much HELOC exposure is their in the marketplace? Or has everyone with a HELOC already refinanced themselves into a 'problem' loan.
I know the getting arguments strategy. Having told relatives they are living beyond their means and suggested cutbacks, they are quite adamant in denial or finding something out of their control to blame.
100K+ salary and the guy can't make a 2K mortgage in Michigan? What the hell is is spending his money on? 2K * 12 = 24K. Call the taxes, costs and tax breaks a wash. That leaves 40+K after taxes to live on.
That's a lot of cheeseburgers.
shrug
Cheers,
prat
Tanta,
That's what I think. "Professional buyer beware." Sen. Dodd and Hillary want to bail out subprime? This is just an attempt to funnel the money to banks to cover their mistakes for them without being obvious. Fraud has always been there and always will. I've seen, er that is, I'm told that many fraudsters have it built into their value system. They might even know they are doing something illegal, but figure:
1. Every one else is doing it.
2. Someone screwed me, so I'll pass it along.
3. (insert rationalization here)
Can I mount an apology for Max? Not really. Was that $106,000 salary the one he posted with the first loan before his salary reductions? His reduced hours? His unstated long term disabilities? His innumerable but also unmentioned consults with credit advisors?
But this starts out as a conventional fixed rate mortgage and goes to something less and then to a burden...for investors (so far but not if Dodds gets his way) who thought 'something less' was going to be 'high yield'.
I think Brookly is right about a significant number of FRMs went to ARMs with the blessing of Greenspan.
This is a thing I have
Never known before
Its called easy livin
This is a place I've
Never seen before
And I've been forgiven
-- Uriah Heep
I'm a moron 'n' this is my wife
She's frosting a cake
With a paper knife
All what we got here's
American made
It's a little bit cheesey,
But it's nicely displayed
Well we don't get excited when it
Crumbles 'n' breaks
We just get on the phone
And call up some Flakes
They rush on over
'N' wreck it some more
'N' we are so dumb
They're linin' up at our door
-- Frank Zappa
New subject about HELOC:
I have argued that HELOC are replacment for paying fair wages.
Do you think the market will be tolarating the 70$ a barrel if there were no HELOC ?
cut the HELOC and the market in 3 years will improve fuel efficinacy !
I suggest you look at this:
Yahoo! Message Boards -
It seems that prices have to come down about 50% for the curve to become normal again
Ya: that's correct. Very big drop necessary or a very long slow flat period of RE price appreciation with raising CPI and wage inflation at some point to level the playing field. Take your pick!
Max illustrates perfectly the condition of stagnant wage growth over the last 5 years and what
enabled it. Basically, serial refi activity was hidden wage(obviously cash flow since no borrower earned any of it) inflation.
I've heard it aptly described...
Households used to have 1 wage earner, then 2 as the wife entered the work force out of necessity. Then in 2002 a third wage earner
magically appeared when it was HHI was falling behind - THE HOUSE. It silently offset business need to pay higher wages as workers had access to cash to meet their rising living expenses as under-reported by government inflation studies.
The HOUSE is no longer
contributing to HHI and is now a serious income drain. The HOUSE went on strike in 2006...
Yal on the Zillow data - I found that their strings of data showing appreciation were full of errors - in my region, several zip codes showing 50-100% appreciation over a year - just junk data. So I wouldn't use their stuff for history or for predictions.
slightly OT, but, acc to barrons, ned davis research says that americans have total debt of 44.5 trillion or 331% of gdp which is twice the level of 30 yrs ago and vs the 250% level during the great depression.
Looks like China is not happy with the trade tarrifs on coated paper.
Blogger: Page not found
If this stands, we can expect more industries to follow and US import prices to go up.
2 board members resigning from countrywide, one immediately!
Countrywide Financial to lose 2 board members - MarketWatch
The scary thing for me is that Max is an egineer with presumably a very high level of numerical literacy. I know that that does not mean "financial literacy" but still, someone with a few years of calculus should be able to figure these things out a lot better than your average citizen.
Thanks sippn for that heads up.
If I can chew over 'barely's remark:
Basically, serial refi activity was hidden wage(obviously cash flow since no borrower earned any of it) inflation.
It need not even be serial. But that parenthetical remark digs in.
It's the "earned" bit.
Tis.
The residential contractors/builders "earned" tremendous profits up to 2006...on the backs of illegal aliens who "earned" (I think we don't say this. We allow only "were paid".) less than $10/hr.
Similarly on the income tax form "earned" is applied to employment, investments, possibly even to allowable tax exemptions if you qualify. Now I don't expect a special entry for say "heists", but there is this respectable connotation in "earned" that accounts for it's widespread and in some cases, indiscriminate application. Investment bankers earning $60M/yr come to mind immediately.
Greetings from Ground Zero! Should I expect George Bush to show up soon and make a speech in front of a fake "Sold" sign? Or will he again be the last person aware of the scale of the damage?
Tanta,
Having analyzed banks and thrifts for over 12 years and serving on several boards I've come to the following conclusion:
More often than not, "Innovative Loan Products" = Substantial Future Charge-offs.
Nice point, calmo. I have this problem myself with "capital gains." There is this heroic Randian titan of capitalism, taking those risks that drive the economy behind door number one. And then there's some dude behind door number two who "honorably" evaded foreclosure by finding a "willing buyer" to pay more for his house than any sane person would say it's worth. If memory serves me correctly we tax these two things in the same way.
That's amusing to me Bill, because my son is an engineering student (a whiz at calculus,self-disiplined and responsible in matters other than finances)and does not see anything wrong with the economy? Being a high school dropout myself, he dismisses my concerns quickly and proceeds to buy things that he cannot afford and plummet further into debt. At least he is still young, and there is a chance for him to get his affairs in order so that he can afford to retire someday.
I realize it would be pure speculation, but I would be interested in your opinions on the CFC board members surryiing off like rats from a sinking ship, without explanation. The timing is curious too - last day of Q1 and after maket close on a Friday. Looks suspicious to me given that it coiincides with the last throes of the finance bubble and cfc is smack in the middle of it, maybe ground ZERO. They are the KBH finance arm and BZR got all kinds of attention from various enforcement agencies this week.
Could this be the Enron unraveling part deux?
Bill & Average Citizen:
I worked as a bank officer for a lot of years, but I never worked in loan servicing, so I never had anything to do with bankruptcies or foreclosures on any routine basis. There was only one situation in which someone like me would get sucked into one of those.
When the BK/FC borrower happened to be one of our own employees.
You think that doesn't happen?
VennData and lama are right on about people swimming in debt to support a lifestyle.
Im an independent RIA and most of my clients are in MI, so I get to see this first hand. Things are bad there and its true people working at tier 2 auto suppliers and below are really feeling the pain because these workers had their wages reduced, some by as much as 50% and most do not have defined pensions. As mentioned by others above people were tapping their rising equity treating it as supplemental income. Whats sad and scary is there are a lot of people many more than most people think who are just like Max. They are nearing retirement and the only things they got are a bunch of toys and a negative net worth. Theyll ask if I can help and I tell them to give me a call once they are debt free. I leave thinking how in the hell are these people going to support themselves in the not to distant future then it suddenly dawns on me my tax dollars will be going to support our Governments Socialistic agendas. Sorry getting of topic.
Vader,
I liked your evolution theory.
Geoff, lenders aren't allowed to profit unjustly from a foreclosure. That's why the sale is always a public auction. The sale proceeds after satisfying any lienholders (including past due interest and expenese) belong to the borrower.
Tanta | 03.31.07 - 12:08 pm |
In my experience the receiver fees and default interest take out any "equity" the borrower may have in the house. If the house is worth significantly more than the existing debt than the borrower would just sell.
Vert
Barely:
something IN CFC does not smell good.
CEO on TV telling everyone how the probelm is not "the product" but the people who use the product (those sub-prime people)
CEO claim he CFC will be a surviver while all sub-prime go down he will pick the biz from them but he does not do any sub-prime
all this before the real mass is taking place - he is already saying he is the big gorila that will survive.
meanwhile he is selling all his stock options.
meanwhile CFC buying their own stock using a borrowed money...
Funny story about 3rd wage earner.
Years ago someone told me that to qualify for mortgage the wife's income was not considered by lenders - so eventually women income was considered but according to the fable this drove home prices up so no affordability improvements.
It seems that in recent years the addition of the 3rd wage earner (THE HOUSE) also did the same thing.
as for zillow I looked at places in which I know the current prices but used zillow to look for historical prices (which are fairly accurate based on sales) so the way that show the trend is accurate. Prices need to come down 50% to fit any normal curve.
Bet it happens a lot, Tanta. It's hard to tell people 'no' when they want to borrow money! My philosophy is to not loan money that I cannot afford to give away, and for the life of me I cannot understand why someone with no down payment could qualify for a mortgage without buying mortgage insurance? In fact, with less than stellar credit, I cannot imagine an bank allowing mortgage insurance to lapse prior to the 15 years that the law allows.
Part of the issue of Max's income is that since 2001 the value of the dollar has declined around 25%.
I purchased some property in Feb 2001 for 800K and sold in June of 2005 for 1.1M. On paper it doesn't look bad but in real dollars my profit was not that significant when one takes into consideration the drop in the dollars value during that time.
I suspect there are a lot more Max's out there - probably more than we want to imagine. Appropriate pseudonym, Max, as in maxed out. When I'm driving around in my 20 year old car I'm always amazed at the number of newish cars on the road. Where'd they get the money for those things? (and why do they keep buying the gas guzzlers instead of the sippers knowing that gas is only going up from here... but I digress) 20K to 30K is not a trivial amount of money to come up with. The most obvious answer is troubling: they've raided the house to pay for these new SUVs. And these vehicles are losing value in proportion to the rise in gas prices.
( And no, I don't believe that knowledge of calculus confers financial responsibility. )
tanta ,love reading you're stuff. you know what is what . thanks.
There is obviously something missing from the picture in this media story. As we know, on a $100K+ salary, a $2K pmt. is not earth shattering, even if it did go up from - gasp - $1500. If there is a deeper debt burden, a maxed out card situation, consumer debt to the eyeballs, then the writer of this story owes it to his readers to tell the WHOLE story and not just the part that fits his heartwrenching foreclosure story needs. Okay, got that off my chest. Now - this is Detroit. Haven't real estate values plummeted in Detroit lately? I'm just a tad suspicious that Max's condo may not be worth near what he paid for it, and maybe he half wanted to just dump the thing? Just a sneaking suspicion. We need a Paul Harvey and then we'll know "the rest of the story." Until then, we can only speculate. (And how do you not know your loan is adjustable? Was he under the assumption it was another fixed rate loan? 2 + 2 just is not adding up here.)
Another thing is, no matter what the income level, no matter what the economy is doing, there are always going to people who end up in foreclosure. It just happens. That's part of the lending/borrowing risk. It's not always the lender's fault, or subprime fault, or even the fact that he's in a sagging industry. If-you-spend-more-than-you-make-you-are-headed-for-financial-disaster. That's all there is to it. We have become a debtor nation, and debt can be very destructive to people who can't handle it. And that's the really sad part of what is going on today.
If Max is an engineer in Detroit that may help explain why so many people buy Japanese cars these days.
I was working out in front of a TV this morning (fortunately, no sound) that was showing an infomercial on buying yourself a home with no money down. A shot of some exercise equipment and a graphic came up, that I assume was telling us what a great guy the person selling his book and program was, because he "donated over 200 bicycles to underpriviledged kids." All I could think that, whatever goodwill he bought in my eyes by telling me that, he lost as an analyst by misspelling "underprivileged."
There is clearly some backstory not being told in Max's case. Having grown up in southwest Michigan, I know that a 100k salary goes a long, long ways. This guy either owns multiple properties, has 7 kids at a private college all at the same time, or his hooked on drugs.
ovastar!!!
Borrowing Trouble - NY Times
Why would they knowingly sign the papers, fully aware that they were being deceived? Then they finally wake up out of their coma in 2005 and file a lawsuit?
I work for a small, boutique investment firm. Over the past few months we've had potential clients interview with our investment shop. Frankly, there are some folks we just don't want as clients...those that we think will be high maintenace or are unrealistic about returns, etc. Anyway, a large number of these prospects have real estate for investment. A particular individual owned 5 properties and wasn't even breaking even. Our recommendation, given the deflating bubble as well as his situation, was that he sell some of his property. Of course, he didn't like our advice, since it implied his real estate investment wasn't working.
But it has become apparent that many of these folks, wealthy people, bought property for investment only within the last 3 years...at peak prices, and are extremely leveraged...with IOs and other creative loans. I guess the point is, that it won't be just the average joe stretching to make ends meet, but some of the well off as well, who may have to sell at distressed prices, and contributing further to the inventory.
OT. BeJesus -
First we get a vid of ABBA ( I highly recommend the Mama Mia show btw ), then Venndata mentions Uriah Heep.
And Tanta is our Gypsy Queen of course.
The Official Uriah Heep Discography
Mannn, those were the days - smoking weed during school lunch hours looking out over the marshes from a Norman castle in the Cinque Port of Rye, England
-K
I could have been Max. Our family income has decreased over 50 percent since '02 as my wife and I lost good-paying jobs in high tech and got low-paying university jobs -- the only jobs we could find that gave us the good medical benefits we both must have. Together, we earn substantially less than Max does.
But back when we were flying high, we decided to throw a couple of extra K a month at the mortgage. We paid it off the month after I was laid off. It's been a struggle to keep putting money away, but if we still had the mortgage, life would have been tough. As it is becoming tough for many others.
Maybe this wasn't so much a case of Max not being able to afford his mortgage payment but, rather, of him coming to the realization, Why the hell am I paying so much money every month for the privelege of owning a depreciating asset?
What is really happening in Michigan is that light and medium manfuacturing have been declining since NAFTA arrived, the parts makers are being butchered by the Big 3, and the Big 3 and the UAW are committing slwo motion suicide.
Ohio and Indiana have lost much of their light and medium manufacturing, and have had lesser but still painful auto losses.
Recent report in Michigan suggests 10 - 25 years until recovery - I;m betting on 25 years.
Whether we scold Max or sympathize and whether we form moral appraisals of Max is not important: the question is: how many more are like him and how much of a threat does this pose to financial institutions? A good scolding will not fix things.
My own opinion is that Max is not very typical, but what if he is?
But Frank he says he's embarrassed (not proud) and the clown moves out of a fixed into probably 2 successively worse adjustables.
He wasn't the brightest bulb in the class...and I suppose that's part of the message: just because you have an engineer's ticket doesn't mean you are safe with this housing racket.
Already I'm losing the real message: the Bond buyers of these so called safe Prime loans packages that have a certain number of respectable looking Max type defaulters in them.
Maybe there was a balloon payment. At any rate, walking out on a loan is still stealing in my book.
Since the bank paid him to go away, they must not have viewed it as a theft.
Wait, my head is spinning, this chump makes $106,000 a year and can't pay a $1,950 mortgage?
Binko, my thought exactly. His prop-tax is probably around $400./month, insurance around $75./month, so he's still forking out less than $2600/month for housing.
If he's netting 70% after-tax, I don't know how he can possibly...
Oh, well...
Reepicheep,
He has two mortgages. Probably has equity in the first, maybe even 100%, probably zero or very little in the second.
Who paid him the $500?
That is an interesting numbers don't add up story. What is it that stinks?
I'd guess the guy locked in his paper gains by cashing out. With values crashing he is walking away.
That or gambling/drug problems.
Also the guy claims to be an engineer. That is like a status symbol for a lot of workers that do not have a degree/experience exc. that would make them an engineer.
The sniff test says something lurks there.
It sounds like this guy just walked, instead of taking the loss on the property... He probably stopped making payments and used his kids, girlfriend, or brother, etc. to hide his assets.
Just another example of modern American philosophy.. privatize gains, socialize losses.
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