"How many like this?" (housing bubble stories)

[phantom power]

I can't understand how anybody (who isn't outright rich) would take on a $3000/month mortgage. To say nothing of an adjustable mortage. (oh, and no health insurance???)

I mean... goddamn, what were all these people thinking??? Adjusting the rate up to $7000/month is a joke. Clearly, they're going to default on that. They're completely fucked.

Which makes me wonder: will the banks see the writing on the wall and choose to not adjust the rates upward? If I'm a bank, and I have the choice of (a) raising the rates, but then having the client default on the loan, or (b) keeping the rate lower, and continuing to get payment, isn't choice (b) the obvious option?

It started two years ago. Anthony Stewart runs an automotive-services business. His wife cares for children in their 4-year-old home on a quiet street in a nice subdivision.

They learned at that time that a third child, a boy, was on the way. Being self-employed, they had no health insurance.

They paid for Kerry's prenatal care, hospital and delivery costs out of their savings and by selling stocks and fairly exhausting every credit card and line of credit available to them.

By the time they took their infant son home, they still owed the hospital $17,000. Negotiations on a payment schedule went nowhere. The $17,000 landed in collections.

Yes, they would refinance their home, pay off the hospital debt, plus bring down their credit card debt.

A banker friend steered them to a mortgage broker, a seemingly friendly woman, who told them that despite their credit woes and low credit scores, she could get them a mortgage at a rate no higher than 7 percent.

Weeks passed. And the offered rate continued to climb: 7.8 percent, 8 percent and higher.

Finally, at the closing table, the broker told them their new loan would be 10.8 percent, and adjustable. Anthony Stewart had missed his last mortgage payment, the one she'd earlier told him he didn't have to pay. He paid it that day. It made no difference.

The mortgage on his home would climb to nearly $5,000 a month now, from the $3,000 per month he'd been paying since buying the house.

...

Getting out of the loan was impossible, what with their low credit scores and a pre-payment penalty of no less than $22,000.

Now, two years later, the adjustable rate mortgage is about to adjust.

He and Kerry have figured out the monthly loan amount likely will total no less than $7,000.

http://atrios.blogspot.com/2006_09_10_atrios_archive.html#115841119297166462

[Warpy]

1. Banks and other lending institutions think quarterly

not long term. There is no way they're going to do option (b) because it would require the long term thought about recouping a loan versus getting a property on the books that will do nothing but continue to decline in value as the market continues to slide. They just don't think in those terms, never have, never will. The lessons of the Depression went unlearned.

As for that original $3,000/month mortgage payment, it's not unusual in coastal cities for the most modest of suburban bungalows. The real estate market has been insane for far too long in those areas.

Banks and mortgage companies are going to need some sort of bailout at some point, which they will get, as people like those described above find themselves in foreclosure. The properties they vacate are often trashed because they are given little notice to move and can't afford apartment space that fits all their possessions. Giving up that much of what they own makes a lot of people very angry. Go figure.

Banks will end up owning a lot of distressed properties in the coming years, properties that have declined in value far beyond the original loan, meaning a net loss for the banks. Poor babies.

Dispossessed people will speak for themselves, loudly, but get little in the way of help, as usual.

[Human Torch]

3. $3000 mortgage? For starters, married couples who...

...think they will be healthy and have good-paying jobs until they die or pay off the house.

Locally (Silicon Valley, CA) the San Jose Mercury News regularly runs stories about "young" (read: twenty-and-thirty-somethings) married couples who "really, really wanted" a house (but most of them end up buying condos at 300, 400, 500K, because the median home price here is 750K).

"We saw it and we just new it had to be ours."

So they roll the dice. We won't get sick. We won't get fired. And hey, even if we do, it's George Bush's America. The economy is strong, and gettin' stronger. We'll just get another job for 60 or 70 K a year and we won't miss a single mortgage payment.

It's the unfortunate fulfillment of the "be careful what you wish for" promise.

:patriot:

[jedr]

4. Banks make their money repossessing partially paid off;

property and reselling it. I would guess there is some equity in this house and not all houses are trashed before the bank gets them ( I would bet very few). So the bank will win and this family will lose. Scrooge would be proud.

[Warpy]

6. Reselling it?

They'd have to resell at a substantial loss. Foreclosed properties are generally full of discarded junk and often completely trashed by the angry departing homeowners. The homeowner's equity has often been eaten up by refinancing to pay debts (and the mortgage, itself) and declining property prices.

Banks will take a hit on this one.

[phantom power]

9. Even more so, in an economy where housing prices collapse.

Looks like we're moving into another economy where cash will be king. The ones smart (or lucky) enough to ride out the coming recession with cash in hand will make a killing.

[Virginia Dare]

11. They made sure that they covered their asses...

with the new banking and bankruptcy laws, a flurry of which were passed last year, with little notice or fanfare from the media (big surprise). The banks know what's coming, you can bet they're prepared, you can bet most Americans however aren't.

[jedr]

14. late post;;

The down payment required on buying a house normally covers the immediate deprecation. If you have paid on your house for a year or more there is more than enough equity to cover the loan. I still feel that few houses are trashed in the process, but could be wrong. Banks resale houses cars and land repossessed every day. Weep not for the banking system, the Bushies have them covered, even in a declining market. I'm old enough to remember in the late 60's that farmers on the edge of growing towns were sold equipment that were sure to bankrupt them so the company could reposses the equipment and the bank take the land and develop it.......the oldest game in the book.

[Matariki]

13. Banks only get what they're still owed, if they're lucky

They don't get to pocket the owner's equity.

[fasttense]

16. I talked to a contractor who bought houses

that had been foreclosed, fixed them up, then sold them. He did this on a regular basis. He said the houses he saw were so trashed he would turn down about fifty percent of them because they required too much work. He said you would not believe how angry people get when they lose their home. They take it out on the house. I guess I would be angry too.

[phantom power]

8. I feel bad things coming our way. Bad, bad things.

[msongs]

2. birth control and condoms for people like this who cannot stop

having sex when they cannot afford the babies.

and when the interest quoted went from 7 to 7.8 they should have walked out and got somebody else.

Msongs
www.msongs.com/political-shirts.htm

[DBoon]

5. proof that it is not the poor that spend irresponsibly

It takes a lot of money to do something really stupid.

[WhiteTara]

7. I know a realtor in Oakland

and during the height of the bubble, she offered $80,000 over the asking bid of $790,000. and came in last of 5 other bidders. Everyone acted like it was monopoly money. It was the most amazing mania I have ever seen.

[lapfog_1]

10. The end is near... all speculation bubbles end like this

At the end of the dot-com bubble, I saw business plans that NO rational person would ever fund.
And yet they got funded, usually for $25M to $50M. VC's literally running down local entrepreneurs
in parking lots to beg them to take $50M of startup money.

A year later... you couldn't walk into an office on Sand Hill road with a technology that legally
printed money and get even $1M or $10M to market it.

[suziedemocrat]

12. But when will it bottom out?

I REALLY want to buy a place. I sold my condo in 2000 because I thought Real Estate was headed for a downturn. Now I want to buy, but I don't want to be 5 or 6 years too early this time!!!

[Warpy]

15. Know your area

If there has been a dramatic appreciation in housing prices over the last 5 years (especially over the last 2 years), hold onto your money. Keep stashing more away, if you can. Check out the for sale signs in your area. Count them. Watch how long places are staying on the market. Remember, any house that is sitting on the market and is EMPTY is dragging a person or a real estate company down with monthly mortgage payments. They will have to drop the prices if there are a lot of other houses on the market if they want to get out from under those payments. Look at foreclosure signs. If you're in a really nutty market where people have been STUPID enough to accept those interest only mortgages with the huge balloon payments after three to five years, you KNOW the foreclosures are going to happen. And soon.

The bottom is going to fall out of hyperinflated markets that have been driven by speculation.

If, on the other hand, you're in the heartland where there hasn't been a tremendous appreciation in house prices but rents have risen and are continuing to rise, consider buying. You will probably lose equity as the housing stock as a whole depreciates, but it won't be as drastic as what will happen on either coast. Your fixed mortgage will also be a hedge against rising rents. You'll also get that mortgage interest deduction on your taxes.

In the meantime, pat yourself on the back for dumping that condo. Condos were the first thing to feel the cool off in the housing market and they are NOT moving and haven't moved for about 3 years in a lot of otherwise "hot" markets. You should be able to rent one soon for less than you were paying on your mortgage.

[shrike]

17. Read the original comments from the Rocky Mountain News article

Scary thing is, they sound a lot like DUers, and the comments they make re: someone else's housing misfortune.

It's fun to do a pig-pile on the poor sap who's down and out, then when it's our turn we expect sympathy.

And don't think you're too smart never to get in trouble. Nobody is.

[suziedemocrat]

18. How true!!!!