patrick.net

DinOR and EBGuy :

“Stumptown RE Disaster Tour 2009″ LOL! :)

Not sure if you are aware of this actually happening or just joking.

http://tracypress.com/content/view/12062/2242/

In the hopes of turning a housing downturn into a golden possibility, a group of prospective homebuyers took a real estate tour of several foreclosed houses Saturday morning.

Didn't either Lexus or Acura have to post-sales-date lower one of their SUV's weight to just under the 6K cutoff? IIRC a lot of purchasers were really steamed about this after having paid the premium price.

And another one from Stockton.

http://tinyurl.com/yvsp8o

It's not a magic bus, just a vividly marked one - REPO HOME TOUR.COM - that real estate agent Cesar Dias hopes will work some magic for him in a bleak home-sales market.

They have photos of this bus too !

StuckinBA,

Hey, great idea! More power to 'em. The one Stockton realtor had a good point, while admitting it's really just a marketing ploy there ARE a lot of people out there that have been fed a steady diet of insane prices. Now that they have homes avail. for under 200k it's worth getting the word out. Stockton can't be that bad can it?

(Some of those Y.O.Y declines were a disaster btw) nevermind from peak.

We've got foreclosure caravans (PDF alert) in my burgh. No worries, though, it's in the bad part of town.... right?! How about, you know your equity is in trouble when one of the foreclosure buses stops in front of your neighbor's house. No fear baby, we're "Fortress Prime"!

OB, before you and I get to discussing India, what are your credentials vis-a-vis India? It would be pointless to get into it without knowing that. I myself grew up in India for 20-odd years and have spent about a decade since here in the USA. I really don't think any argument about India would help this forum but... whatever.

HARM, allow me to clarify where I stand. I subscribe to any well-defined political schools of thoughts or parties. If I had to name my position, it would be Gandhism + Freedom.

I oppose force/coercion. I abhor violence. I believe a free market is morally superior to every other system (all of which involve coercion of some sort) but I do think it is not going to solve all problems (nor is it meant to.) A free market, to me, is just a system where anyone is free to offer any service for any cost they want and everyone is free to either take it or leave it.

On top of this, we do need a social layer that takes care of people who don't have much to offer the world in terms of skills and so would not prosper in a free market. We, as a society, need to come together and solve the social problems. However, society is different from government (which is nothing but an institution with a monopoly on force.)

I watched Paulson today on CNBC and don't understand why he thinks freezing rates for people will solve the problem we have. His solution is like placing a bandaid on a severed carotid artery. The moral hazard is showing it's ugly face more and more as people start to take notice of the serious problem that we have. The bailout prevents the market forces from allowing home prices to retrun to the mean and let home prices be based on the fundamentals rather than temporary cheap credit.

I wonder how many people would agree to/like using the credit scoring models that we have (FICO scores) to qualify people for a tax credit for 2007 year. Lets say anyone with a credit score over 760 gets a 50k tax credit for the purchase of realestate. People would cry foul over this idea because it is a "handout". Why should we as tax payers fund people with bad credit? Why we should we reward people that made mistakes?

nutty,

Excellent point. But that's EXACTLY how it's worked for the last oh... decade or so. It seems the phase out for itemized deductions should have been much lower? This is the opposite of "where's the incentive to save"? Especially where debt=wealth.

What use is that wonderful fico score if you're not going to leverage it to the hilt? That is... afterall the whole purpose of having clean credit, right? Oh and I agree, if teaser rate loans were a big part of the problem... well then let's just extend the teaser period and that should fix it!?

DennisN Says:

> Displacement is a poor stand-in for fuel economy….
> On the other hand, putting in too small an engine in
> a big car doesn’t help fuel economy at all.

My little 1960 Land Rover SII 88 had a tiny 2.0L 4 cylinder engine and I was lucky to get over 12 mpg, while I average about 14 mpg with the 4.4L V8 in my 2004...

thenuttyneutron Says:

> I watched Paulson today on CNBC and don’t
> understand why he thinks freezing rates for people
> will solve the problem we have.

He does not want to “solve” the problem, he just wants to delay it (until after the election)…

> Why should we as tax payers fund people with bad
> credit? Why we should we reward people that made
> mistakes?

We as taxpayers may not fund the bailout but the people “we” elected want to give free money to as many “voters” as possible so they get re-elected…

Dinor,

Let me clarify my idea. I am saying you give this money to people with other people's taxes just to show the absurdity of Paulson's ideas. Credits are better than deductions. If one could find a home for 50k, (detroit) you could own the home outright without taking on debt. There is no reward for taking debt, only reward for being responsible.

I do not like my own idea, I just throw it out there as a devils advocate on this whole "fix" idea that our government is trying to work out. It is the exact opposite of what Paulson is trying to do now. I want no government intervention at all in this mess and want assets marked to market.

If we marked to market many of these toxic loans, banks would fail. The insolvency would destroy many monopoly dollars as the deleveraging works its way through the system. Many pension funds for government workers would lose large amounts of money as we have already seen in Florida. FDIC would be challenged! I do think the destroyed dollars and the deflation that would come afterward would allow the economy to purge its excesses and come back very quickly. We do after all have a high percentage of resources per person compared to many other nations.

I often find myself wondering if the cure of collapse is worst than the disease, but I remind myself that the rest of the world will not continue to finance our living standard of consuming 6% more than we produce. If this workout does happen, I expect many countries to divorce themselves from the dollar. We will have to buy oil using another currency such as the Euro. If that ever happens, get ready to pay a mortgage every month just to drive that SUV :(

Nuttyneutron,

I don't think the administration is rewarding people that have made bad mistakes. I think they realize that this house of cards could fail if house prices decline to fast. If prices reverted to their historical value in the next year(40% loss) the financial system would be devastated. This correction needs to be stretched out at least 5 years. The Japanese housing bubble took 15 years to correct and there was very little collateral damage. Get ready for a a very slow free fall.

Both tax-breaks for Prii and for SUVs are abhorrent. The free market should really decide, and gas should probably cost about $5 a gallon already in the US.

But then if you're poor, you should ride the bus - I feel this way because I grew up in an area with a pretty decent bus system.

A giant SUV or gas-guzzling *whatever* being a necessity to get to work is awful. The US was to a great degree intentionally set up this way - it's going to be quite painful changing over to how more rational nations do things.

>sorry Sri, you’re not going to win this

Win what?

>You’re a rather obnoxious fellow.

OK.

And you, sir, are not.

I am not the one who wanted a discussion about India.

Like I said, whatever.

"Credits are better than deductions"

They certainly are, I gotcha'. Sometimes you have to word things in the ridiculous just to cut through ever increasing bail-out noise!

"correction needs to be stretched out at least 5 years"

Oh I agree. Even at that, it's extremely distasteful to all creditors invloved. However I think the reality is that right now they're just trying to make it through to tomorrow. It's that bad.

Duke Says:
It seems to place an emphasis on home as investment as opposed to home as neighborhood that has the characteristics people like.

The idea of a home as a neighborhood has pretty much disappeared in most of the Bay Area. It is all about price, 'appreciation' and school-district ratings.

IMO, the reason for this is actually the high prices. Prices are the biggest factor for most people when it comes to deciding where to buy - they really don't have the freedom to _choose_ a neighborhood. Hardly anyone is actually happy and contented with the house they buy, since they all really want better but can't afford it. As a result, most of them take very little interest in the neighborhood (other than basic NIMBY issues).

Even if they did not intend to buy the house as an investment, they pretty much sink all the past (and future) savings into paying for it - hence the obsessive focus on 'appreciation'. If you take that away, all they have is a house they don't really want, bought for far more than it is really worth, paid for with money they don't really have, and a loan that will pretty much consume the lion's share of their income.

One personal finance observation that I had a long time is this:

One sure-fire way to sell things for way more than they are worth is to call it an "investment" as opposed to a "purchase" (which is what most things are).

A house is a classic case. Throughout history, it was purchase. You bought a house to live in it. Period.

The minute people started thinking about it as something to invest money in, the prices started going through the roof.

If that is not convincing, I have three words for you - "Collectible dinner plates" :)

I will admit here I think the H2 is friggin awsome in a decadent rap star way. I only want to pay about 6k for one though so I can actually use it offroad and trash it w/o worry.

In 10 more years high school kids will be the only ones owning them due to they will be obsolete broken down 9 mpg embarrassments.

I remember in the 80's the old cars from the 60's were such an item. The sixties caddilacs had 500 cu engines and got about 8 mpg. You could get one for $400 in 1986 but it was still a bad deal due to poor mpg and always broken down/rusted. History repeats.

I saw a used H2 for sale on CL in AZ for 22k and it had 12 tv's installed. Total high school kid car.

SP :

If you take that away, all they have is a house they don’t really want, bought for far more than it is really worth, paid for with money they don’t really have, and a loan that will pretty much consume the lion’s share of their income.

Well said. That's why I insist, it's mostly psychology and the fundamentals don't justify the absurd prices in the Fortress. Because very few people paid (or could have paid) a lot of down payment in percentage terms. Yes, people can stretch to max and somehow service the loan as long as there is a job.

But a 1M loan to a 150K income techie is not too far from subprime.

FormerAptBroker Says:
[re: Paulson's Snake Oil Plan]
He does not want to “solve” the problem, he just wants to delay it (until after the election)…

In addition to delaying it past the election (and handing the Democrats a bigger Bag o' Krap to deal with in 2009), there seems to be another angle to this.

If you look at the qualifying criteria for the FB's who actually might get their rates frozen, you will notice that is very carefully carved. It identifies the subset of FB's who can be kept on life-support for a while.

In other words, the ones who can afford the reset get no help. The ones who can swing a refi also get no help. Not a problem for the bank since they keep making payments.

The completely hopeless cases get foreclosed on right away. This becomes an immediate problem for the banks.

The ones who cannot afford a reset will get to keep paying 'frozen' rates for a while. This bunch of underwater fools keep making payments, so the bank doesn't need to foreclose immediately. Eventually, though, when the freeze is lifted, most of these will probably go belly up anyway. But that is not for a few more years...

The net result is that _IF_ this crazy, desperate scheme actually works as intended, the banks can spread out the foreclosures instead of having to take it all right now.

The fact that it also is a election year only makes it easier for the plan to get approved in a hurry.

>the banks can spread out the foreclosures instead of having to take it all right now.

Exactly. Whatever be the scheme, it will not end up helping the FBs. They were screwed the minute they signed the paper to buy something that couldn't really afford.

The whole scheme is to help out the banker buddies of those in power.

I do not see the Paulson plan as any type of help to the borrowers. It's primary target is to help lenders - because they cannot handle the flood of foreclosures. At the current rate of foreclosure generation and current ability of the system to process it, there would be buffer overflows all over.

So this plan adjusts the speed of foreclosures. It will indirectly help some borrowers and will be directly marketed as such to gain political mileage. So many of us are justifiably pissed off. If it actually succeeds in putting some order in this chaos, it may not be as bad as we think. Yes, all of us want this to get over this ASAP and move on, but that was never likely. We have been discussing bailouts for a long time now.

WOW. There were 3 of us, posting almost exactly the same thing almost together.

By the way, the real elephant in Paulson's room is this -

They are willing to overwrite contract law on securitized mortgages that have already been sold to investors. They are pretty much monkeying with the underpinning of trust beneath the financial and derivative markets. That is one doozy of a precedent to set.

They are willing to risk the credibility of the financial system by forcing a practically unilateral change in debt-obligations. "Finance this debt for me and I will pay you some interest"

They are bending over backwards to delay and/or obfuscate the market revaluation of securities - thereby promoting an opacity that DIRECTLY impacts trading in these securities.

So, Mr. Paulson, if _this_ is the cure, EXACTLY HOW BAD IS THE REAL PROBLEM THAT YOU ARE TRYING TO RUN AWAY FROM?

We are f*cked.

Sp,

Of course we are f*cked. I disagree with trying to drag the problem out. I want the process over ASAP. It is a $hit sandwhich that everyone has to take a bite of. I would rather it happen under our terms rather than wait for foreign capital to dry up. The end result will be the same, but more painful if we are cut off by our creditors.

Duke Says:
I am still thinking about the fortress here in the BA.

Well, stop. :-)

For what it's worth, Zillow seems to have marked down many Cupertino houses by 3 to 5% in the past month. Even though I don't trust the absolute value of their Zestimate, this is still an unusual trend to see in their numbers.

The assumption that the government can, at its discretion, override contracts drawn between two private parties is a dangerous precedent.

In the future, people will enter and draw up crazier and crazier contracts because they are not inviolable anyway.

If things go south, the gummint will interfere and fix everything.

SP,

I'm glad you mentioned the precedent of meddling in the mortgage mess. Since when, in the good old capitalist US of A, has the government been able to annul contracts legally made by consenting adults because they weren't a good idea? Ostensibly the people who made these mortgages to the lesser able to pay did so fully expecting the contractually agreed upon higher rates of interest. They were expecting to be rewarded for risk. As were the secondary markets. If fraud was committed, and I'm sure brokers committed a lot, go after it, but a crappy deal? Caveat emptor.

As to the SUV write off- I'm waiting for the private jet write off (OK, because it's the only way I could afford one...). Think about all the jobs it would bring- pilots, maintenance people, personal stewardesses, refueling people, ground people, prepared gourmet meal box lunch people. Think of how much more productive a society we could be without that mandatory two hour arrival before departure. Yes, private jet write offs, good for America, good for us all!

They are willing to overwrite contract law on securitized mortgages that have already been sold to investors.

My understanding was that most servicers have some leeway in changing the interest rate if problems should occur.

And that this move was to encourage more servicers to take advantage of that clause.

So it's not a government breach of contract per se.

But that's just my understanding...

SFWoman,

LOL.

Private Jet write-offs will definitely help the common good.

If only we could tie it somehow to "national interest", we will be all set.

The whole scheme is to help out the banker buddies of those in power.

Unfortunately, it will also put a little brake action on the slide of home prices. I wonder if it is possible that if housing costs (rents and mortgages) fall to the point where they are a much smaller bite of the take home income, the economy would benefit by people having more money to spend on items other than housing. Down payment requirements and loan rules may prevent future homebuyers from getting a loan that commits too much of the monthly take home. Thus, more money left over for other wants, such as SFWoman's private jet.

The faster home prices fall, the better for us all.

SP :

So, Mr. Paulson, if _this_ is the cure, EXACTLY HOW BAD IS THE REAL PROBLEM THAT YOU ARE TRYING TO RUN AWAY FROM?

We are f*cked.

I think that's what Fed and Treasury officials are seeing in future and makes them scared. This time RE was not local, and trouble won't be local. If ZIRP get's us out of this, then so be it.

Damn italics again.

Bapp33,

I think you and sriramgopalan agree that force should not be used in the marketplace

"most of them take very little interest in the neighborhood"

They certainly don't. Oh and that's hardly confined to the BA btw. What makes this additionally insulting is that they were somehow able to convey the highest levels of smugness at the same time.

Then again, that was the promise the boom held. If ONE guy on your block made less than you or wasn't holding up his end insofar as dedicating every free moment to installing koi ponds (you need only tolerate it for 2 years) before moving up the property ladder.

Hello Kitty,

I must have been one of those guys in the 80's! I love a "boat". Especially as the rear suspension begins to sag, that really gives it that "cutting a wake" look. HARD to PORT!

You're absolutely right. The Hummer will become the next, "Aw hell, he's a good kid, just let him drive the old one" car. It has all the ear markings.

DinOR,

Funny. My thought has been that Hummers and SUVs will soon become the drive-by-shooting-vehicle-of-choice. It has taken longer than expected, though.

justme,

Wasn't that what Tupac was driving when he was gunned down? I always think it's classy when you're in Vegas and a block long Hummer Limo filled w/ frat boys screaming out of the windows rolls by!

BTW, why are all these posts categorized under "Uncategorized"? There is a "housing crash" category.