and consumers who lied about their income or intent to live in their home?

We'll know we're making progress when we stop talking about "consumers who lied" as a distinct and obvious group.

I never particularly liked the ephithet "liar loan." I always preferred "snow doc." (Which I believe I invented, which is why it hasn't caught on.)

The trouble is that a whole lot of people believed (and still do) that they have more income than they do, or that it is more stable than it is, or that it is increasing faster than it is. This runs the gamut from overly optimistic small business owners who are still confused about revenue versus income to youngsters with their first bonus or options grant burning a hole in their pocket to people who just hit some kind of glass ceiling and don't realize it. (By glass ceiling I don't necessarily mean discrimination, just that "unofficial" salary cap that a lot of companies have in place, that the newly-minted middle managers often don't realize is there.)

These people will over-state their income if you just ask them to state income. Same, by the way, with their assets. Most people aren't that bad at guessing their current bank balance, but forget it if you ask them what their stocks are worth.

The point is that they're not necessarily trying to snow the lender; they're snowed themselves. They really and truly believe they can afford these houses. They really and truly believe that the bonuses will continue, the stock will keep going up, the neighbor's apple tree will drop fruit into their yard. And for years we had the kind of go-go economy that obliged enough of them often enough that these beliefs didn't seem all that irrational.

Now the party's ending and my, how judgmental we've all become. Instead of asking why lenders didn't rein in a bunch of this by simply demanding the documents--we having supposed to have been around this block once or twice--we now want to focus exclusively on the "liars."

That a fair number of people did out-and-out lie is indisputable. But I think what CR and I are trying to get at with demystifying this "subprime" meme is that it's all much, much more complex than clear wrongdoing on the part of an easily-defined group of bad people. So writing endless media articles about liars, absent the relevant context, is, in my view, just more obfuscation, not less. It makes the pain caucus happy--those who want to see the evil ones punished--but it won't stop the history train from chuggin' through, and that train's going to be full of a lot of people whose only crime was optimism in an unsustainable economy.

I may have misunderstood the sequence of quotes. The graph in the WSJ article does look like they are only looking at the subprime, ignoring the so-called non-subprime waves of alt-A and option ARM resets coming in 2010 and 2011.

Bad move.

that obliged enough of them often enough that these beliefs didn't seem all that irrational.

Tanta, you are such a party pooper. I'm going to start digging soon for the box of depression-era gold that I'm sure is hidden somewhere on the back lot.

I prefer the term "optimistic".

dryfly,

What town? I am from Prior Lake originally and now in Phoenix. I am hoping to buy a lake cabin in Bemidji, where prices are slowly coming down and inventory rising. Many lake houses in Bemidji sitting on the market for many months.

What town? I am from Prior Lake originally and now in Phoenix. I am hoping to buy a lake cabin in Bemidji, where prices are slowly coming down and inventory rising. Many lake houses in Bemidji sitting on the market for many months.
cccactii | 11.24.07 - 4:20 pm | #

It's near Cloud - you want to go farther north. This is IDEAL commuter location for the NW I 94 corridor though.

As per Bemidji - watch what happens at the particle board plants, paper mills and the ATV/snowmobile mfgrs... when these guys hit the skids lake fronts will crash. I was just up in Bemidji and asking prices are still too high in my cheap ass estimation. You can get a real nice year around lake home for $250K to $300K... I'd hold out, I bet they go below $100K if the local unemployment increases. If not they won't... guys'll drive 100 mile round trip to live on a lake.

Of course you'll need cash since no one like Tanta would be stupid enough to lend you good money for something as silly as a depreciating second lake home unless you don't already need the money. Prove you can buy it with cash and maybe she opens the purse strings. That's the way it was up there in the 80s, the last time lake frontage went begging.

The point is that they're not necessarily trying to snow the lender; they're snowed themselves.

LOL - no kidding. Go to a sales convention with a bunch of self-employed sales reps sometime... you have to wear those slitty-eyed glasses eskimos wear out hunting seals on pack ice, else you'd go blind from all the 'snow'...

When it's news. I mean exciting news! You know: Extra! Extra! Read all about it! People in Debt!

I'm holding out for "BREAKING: Granite countertops' cost may be in excess of their worth! Must credit Drudge!"

Dryfly,

The problem for me in Bemidji is not local employment. The lake property has been going to people from outside the area mostly paying in cash. I do hope the prices come down like the 80's, that would be great.

We are very frugal, and can handle the price. I got a 30yr fixed at 5 7/8 about 4 years ago and the brokers were stunned that we had no debts and some money etc... I knew we were doomed back then as I am not remarkable but merely live within my means as most of our fellow country folk used to do. It will become stylish again soon I imagine.

The cloud is too close to the cities for me.

Thanks

don't forget the next step of the "subprime" vs. "us" meme . . . once it is ingrained in people's heads, and has spread to "our" houses . . . it can naturally be said to be all "their" fault. After all, "everyone knows" this started as a subprime problem . . .

"Must credit Drudge!"

Jealousy doesn't suit you!
And Drudge doesn't accept credit...
just cash.

"I'll put everything on 34 Red"

I assume this is a street address in TonkyWonk, Minnesota?!

You guys worry too much. You must trust in the magical powers of SpongeBen FakeBux, being underwater was never better.

once it is ingrained in people's heads, and has spread to "our" houses . . . it can naturally be said to be all "their" fault.

I think it more likely that people will be shamed into shutting up about how foolish they were, so as not to be tarred with the same brush.

CR quotes his Oct. 1 post report of a San Diego realtor's comment that
There were 70 listings [of which] approximately 75% of the listings were short sales, and a similar percentage were vacant.

And then opines ... As the number of REOs surge, I'd expect some of the less desperate homeowners to take their homes off the market.

Alas, it appears that fewer than 25% of the homeowners in that neighborhood seem eligible for "less desperate" classification.

perhaps the joke is about eating tan snow...

GP- "Oh, you are using it to make your house payment? Hmmmm......"

I rather expect to see a lot of that, and around tax time as well, particularly if Congress does nothing about the AMT. Another 20 million filers will have IRS vacuum hoses shoved into their pockets.

That could put a lot of people into a real world of hurt, as many of them won't be ready for it.

I remember hearing on the radio a couple years age a woman saying,"They're thinking they're going to refinance. They've already got the lowest rates in years. What are they going to finance to?" When you borrow $500,000 at, say 6%, that's $30,000 a year. No matter where the equity goes, that borrowed amount isn't changing. I suspect if they had actually told a lot of people: "You know, you're borrowing half a million dollars!", many buyers would have thought twice, and maybe three or four of them would have said no.

Tanta: "These people will over-state their income if you just ask them to state income."

I find it hard to believe that at any instant in time, somebody does not know their actual income - not future income, not wished for income, but actual income. Given that, if they "over-state" it to get a loan, that is rightfully called a "liar's loan".