patrick.net

I don't know if hose people are "rich". Many middle class people bought homes that were a million with neg am loans and predatory lending. You can't blame the people as much as you should blame the government for letting all regulation go on lending practices. Many people didn' t even understand the loans they got into.

Bullcrap!

People (EVERYONE that bought at insane prices) wanted a house, they would have signed a firstborn clause, to get the loan.

So I read the title before I read the article :). After reading it I still agree with my original post, however many "rich" or "upper middle class" are walking away just becuase they have a "bad investment" on their hands that is a fact! However, the public shouldn't make blanket statements that everyone is just walking away because of a bad investment. We don't know everyones situation, maybe they lost their jobs, in this economy many of the "rich" lost their jobs. I also think many people even those in the upper middle class are posers and still bought more than they could afford. I think many people did regardless of econimic class.

Condohelp says

We don’t know everyones situation, maybe they lost their jobs, in this economy many of the “rich” lost their jobs. I also think many people even those in the upper middle class are posers and still bought more than they could afford. I think many people did regardless of econimic class.

True dat.

However, many people with higher incomes from the professions due to the bubble - loan officers, realwhores, investors, etc - didn't plan for a rainy day. They were raking in the bucks. That goes for construction workers too... I know many who bought every toy known to man and spent $20,000 (not a typo) on horses for their little kids to use for 4-H... and have lost it all. If only they had saved a bit and bought something they could afford - they could have paid it off and had sufficient funds left over.

I'd like to see one single person that bought in 05-07 that didn't buy with the intention of flipping the house with in 3 to 5 years, and had no intention of entertaining the worse case scenario where they actually were forced into taking those loans to term.

It has been for me distinguish who was using who, and frankly have been both appalled and disappointed that the banks were the villain in this by the "Predatory Loan" perspective.
That really helps them dodge a big bullet, from a fraud wrap to letting them off with a slap on the wrist trumped up unfair business practice accusation. "Oh they were stupid and you took advantage of them."

When the real crime was the money trail that lead to the County Appraisers door.
These appraisers and inspectors are Contractors, and have a better grasp on Real Estate value than speculation and say so. These guys were enticed to make those numbers higher, by someone, they weren't intrinsic nice guys here. They are City and County workers.

The banks should have never loaned 300K-400k on 99k-120k ranch shacks in historically ran down RE distressed communities. Houses that were bought for 90K then flipped two times in a year to end up at 225K with in 3 years. It all ballooned and scaled up from there.

Now forget that Horhey and Luicia Menedez only makes 29K between them and got loans for that amount. That's wrong too, but the bank should have never loaned that kind of money on every shack standing. They should cap out at country records and if speculators want to run the market up from there. The bank loans based on fair tax value, and if want to pay more, it comes out of the buyers pocket.

Where was the guys at Washington in charge of the Real Estate division of Homeland Security?

OH? It's not that kind of "HOME" land.

Tenouncetrout says

I’d like to see one single person that bought in 05-07 that didn’t buy with the intention of flipping the house with in 3 to 5 years, and had no intention of entertaining the worse case scenario where they actually were forced into taking those loans to term.

I know many who bought and actually believed they'd be able to afford long term. Not everyone was a flipper. They were naive, stupd, and otherwise lacked pragmatism...

Tenouncetrout says

Where was the guys at Washington in charge of the Real Estate division of Homeland Security

Some people, including my husband bought with the intention of this is the way it is. You have to buy a small house first, make a little bit of money off of it to buy a big house. We have other friends who saved for years put over $200k of savings down just to buy a 2,000 sq ft home in the middle of the ghetto, all so they could have a nice house.

I'm sorry that we bought a place. We did not expect to make millions, but we did expect to make $15k to help with more of a downpayment. But most people in this country have the notion that part of the American dream is to own your own home. After reading Patrick's blog, I don't think it should be part of the American dream until home prices deflate.

I think that everyone played their role in this mess, but unfortunately it is the middle class that will have to make up for it. The big guys on wall street are still living it up, and so is the x ceo of countrywide.

Condohelp says

ncluding my husband bought with the intention of this is the way it is

I was VERY well-read about the situation 2005-2006 and I did not expect $300,000 condos to decline to $200,000.

I thought prices had peaked and there would be a $30,000 or so drift down as incomes inflated and buying power returned.

It wasn't until the Casey Serin story broke in late 2006 that I realized that prices (and loans!) were totally divorced from buyer ability to pay, and that the low-end was heading DOWN in a big way once the fraud element was exposed.

Brown, white, yellow, black, purble and the rest who werewearing that Realtor Gold Jacket were the ones getting rich hustling homes. Wall Street/Banks made penny while REA were carving up 6% off the top. Have their power and influence stopped ? Nope! They are still partying it up...

Loans go bad, they get hit against earnings and so goes the loses back to the bank. I havent seen anyone "clawback" Realtor commission on the busted sales, have you?

Troy says

I was VERY well-read about the situation 2005-2006 and I did not expect $300,000 condos to decline to $200,000.

How did you feel when that same $100K condo went to $200K in the first place from 1998 to 2000? Writing on the wall was much earlier than 2005. Even the Wall Street Journal started to ask if there was a housing bubble back in 2002.

Troy says
I was VERY well-read about the situation 2005-2006 and I did not expect $300,000 condos to decline to $200,000.

I WAS prepared for a 30% "worst case scenario" drop from the 2006 peaks. The problem is where I'm at values have dropped 60%. I bought in 2001 for $230k, 10% down, never pulled out any equity, now owe $195k and I'm still $50k under water.

thomas.wong1986 says

Troy says

I was VERY well-read about the situation 2005-2006 and I did not expect $300,000 condos to decline to $200,000.

How did you feel when that same $100K condo went to $200K in the first place from 1998 to 2000? Writing on the wall was much earlier than 2005.

That was the dotcom lottery money flowing into the market 1998-2000. Plus apartment occupancy was 100% in mid-2000 when I was FOB and rents were ridiculous. I went to the City Center apts in Cupertino in May 2000 and they told me their actual rents were $200 higher than the website!

I was lucky to have a friend in Santa Cruz with some space in his house so I just moved there to wait on the fallout, which came as expected 2001-2003.

Even the Wall Street Journal started to ask if there was a housing bubble back in 2002.

There was, but hinky lending by Countrywide and the other criminals, the Bush tax cuts & child credit, and falling interest rates increased "affordability" and gave us the mother of all bubbles.

Because Americans are so get used to spending on someone else's money, ie, loans. We just can't do a shit without it. Buying everything because we can do it with loan. Paying my employees by getting a loan out of bank, not out of my pocket. Getting 52 inch state of art TV with credit card. Yeah, I will pay them back some day, I promise... if possible, I hope. That's the way we live in US.

Richs tend to play with leverage more effectively than ordinary Joe. That's great financial advantage though, that means they got more debt than you do. So why not default on someone else's money if that become a burden? It never was my own money from the first place, anyway. Hey, bank. Take this crap back, and do whatever you do.

It was not that hard to understand.

The advantage is that rich folks do not rely so much on credit. They can default on their McMansion and the next day walk down the street and pay cash for a different house.

Troy said.

I was lucky to have a friend in Santa Cruz with some space in his house so I just moved there to wait on the fallout, which came as expected 2001-2003.

Yes, but we havent corrected fully for 1998-2002 period yet. 15% down after the 100% increase is still in process of being undone.

Many things are being undone..

Dwindling public companies means big changes in the valley

http://www.mercurynews.com/sv150/ci_12110548

toothfairy says

The advantage is that rich folks do not rely so much on credit. They can default on their McMansion and the next day walk down the street and pay cash for a different house.

Oh? Havent we read how many times how the super rich ... movie stars, sports figures, dot-com millionaires etc etc are dead broke going into bankruptcy with no money to go out and buy another home. Many of these people do not know how to handle or save money. They did a great job pissing money away on multiple homes all falling in value.

Condohelp says

I don’t know if hose people are “rich”. Many middle class people bought homes that were a million with neg am loans and predatory lending. You can’t blame the people as much as you should blame the government for letting all regulation go on lending practices. Many people didn’ t even understand the loans they got into.

Not around Santa Clara County. Many used neg-arm because (1) couldnt pay using fixed 30year loans (2) gambled on a tech boom repeating with IPO stock boom. (3) the idea prices were always expensive and never go down in the Bay Area. Many couldnt even understand that even the "best" cities do drop in price as they did back in 1989-1991. Many people around SCC are new to the region and their thinking has been skewed based on a few short years during 'boom years' and lots of hype.

http://www.paloaltoonline.com/news_features/real_estate/fall2000/2000_09_22.trends.php

"No one wants to recognize it, but between 1989 and 1992, prices dropped 30 to 40 percent. There's no question that could happen again. Everything has a cycle and real estate is no exception. It's foolish to think prices will go up forever. In the longer term they will, if you can weather the downturns in between. There's no way to know," Dancer said

"I am Elmer J. Fudd, millionaire. I own a mansion and a yacht."

I love the comment that the rich are more ruthless.

The problem with the situation is people actually looked at this as an investment. If people said that when buying a new car, most people would think they were nuts. Somehow, housing is more special.

The rich are not SUCKERS! Come on, they know perfectly well that the snake oil peddled to the masses about "morality" of keeping up payments is merely a useful tool to keep the peasants in the yoke.

Those of you who have generalized these million-dollar loans to "average Uhmericans" or CRA subprimers, are falling into the trap that you think the Bay Area or NYC are the entire USA. They are not. In most states and cities in the US a million dollars is a mansion with 20 rooms a pool and some servants.

Cain says

I love the comment that the rich are more ruthless.
The problem with the situation is people actually looked at this as an investment. If people said that when buying a new car, most people would think they were nuts. Somehow, housing is more special.

Pardon, I treat my car purchases as investments and I am not crazy. I do research on costs, quality and resale value. If I buy a car for blings, I put a value on that too.
Let me state the obvious. The rich are smarter with finances than the working stiffs.
FICO scores are only important if one lacks resources and must beg for financing.
Duh, they didn’t become rich by letting emotional hang-ups take over.
The banker shills call this being ruthless, I call it being decisive.
What is the logic for J6P not treating his house purchase as an investment?
That does not mean one must get the highest ROI. Make no mistake, if one must trade a big chunk of his life a finite resource to afford, it is an investment.
If not, what is it? A spiritual journey? A civic duty? Meaning of life?
For those with NINJA loans, it is playing with other people’s money.

Vicente says

They are not. In most states and cities in the US a million dollars is a mansion with 20 rooms a pool and some servants.

And this was true with Bay Area as well...I bet you recall how MC Hammer tried to sell his "Mansion" for a Million, and there were no takers. Agassi sold his at loss... the list goes on.

MC Hammer mansion for 1 million? Come on! If you mean his first mansion I think north of 5 million and this is the Zillow listing for it:

http://www.zillow.com/homedetails/44896-Vista-Del-Sol-Fremont-CA-94539/25021235_zpid/

thomas.wong1986 says

toothfairy says

The advantage is that rich folks do not rely so much on credit. They can default on their McMansion and the next day walk down the street and pay cash for a different house.

Oh? Havent we read how many times how the super rich … movie stars, sports figures, dot-com millionaires etc etc are dead broke going into bankruptcy with no money to go out and buy another home. Many of these people do not know how to handle or save money. They did a great job pissing money away on multiple homes all falling in value.

I agree you're right but the article suggests that the rich are defaulting because they are somehow more savvy and strategic about their money. When In reality many of them are just losing the home because they're going bankrupt.

toothfairy says

I agree you’re right but the article suggests that the rich are defaulting because they are somehow more savvy and strategic about their money. When In reality many of them are just losing the home because they’re going bankrupt

I think the media assumes too much when they look at the upper end of the markets and talk about the uber rich. Many of the Palo Alto types made there millions at one shot 'lottery winnings' from the tech bubble some 10 years ago. Eventually they pissed it away on junk and toys. Real millionairs have a small business going which they maintained for decades watching their spending habits carefully. You certainly wont find them living in PA.

yep, thats the one...

http://findarticles.com/p/articles/mi_m1077/is_n5_v47/ai_11840190/pg_2/?tag=content;col1

Hammer: "too legit to quit": the fight for a new image and a $20 million home - M.C. Hammer - Cover Story (1992)

"Sitting majestically atop 12 acres, the $20 million, 40,000 square-foot multistructure homestead will have a game room with pool table, Ping-Pong and video games; floors of Italian marble, and various aquariums, ponds, fountains, gardens, terrariums, skylights and fireplaces.

There will be two swimming pools, tennis courts, a baseball field, a weight and sauna room, a recording studio, a 33-seat media room, a bowling alley and--oh, yes--a 13-car garage to house part of Hammer's extensive automobile collection that includes a Ferrari Testarossa, an assortment of Mercedes Benzes and several Porsches."

Fast forward... takes a loss!

M.C. Hammer's estate sells for $5 million in Fremont, California
Jet, Sept 8, 1997
The palatial Fremont, CA, estate that rapper M.C. Hammer built recently was sold for $5 million.

The rapper sold the mansion, after residing there for six years, to the Singapore-based communications satellite company for $5.3 million in cash. The 35-year-old performer filed for bankruptcy last year and has since moved to a less ostentatious home.

elliemae says

I know many who bought and actually believed they’d be able to afford long term. Not everyone was a flipper. They were naive, stupd, and otherwise lacked pragmatism…

I know one family that bought. They were able to afford it. They were able to pay the mortgage but had to lie on their mortgage app to secure the loan. But when I questioned her "but how long can you keep this up?" Response: "Do you really think things won't get better? The price will go UP!" So it's true, they wanted to live in it, but was using the myth that it was going to go up as a back up.

We can finally put to rest the right-wing lies about CRA and Fannie/Freddy causing the housing crash:
http://obsidianwings.blogs.com/obsidian_wings/2010/07/facts-cant-stop-zombie-lee-atwater.html

More than one in seven homeowners with loans in excess of a million dollars is seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.
By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

lyoungblood says

We can finally put to rest the right-wing lies about CRA and Fannie/Freddy causing the housing crash:

CRA along with the GSEs need to be burned and buried... RIP! They have BOTH failed. Both Fannie and Freddie had accounting fraud which eclipsed Enron, Tyco and WorldCom combined. Yet has any GSE exective been charged? Corruption was a way of life in the GSE backed by friends in Congress.

As for the 'so called' rich enclaves of Palo Alto falling to foreclosures that was already written on the walls back in 2000-2001... if you didnt have lots of stock options during the tech stock bubble you used ARM loan to finance.

Fall Real Estate 2000
Publication Date: Wednesday, Sept. 20, 2000 & Friday, Sept. 22, 2000
Breaking into the market
Yes, Virginia, it is possible to buy a first home in this area--if you're willing to make compromises
by Jocelyn Dong
So you're looking to buy your first home in Silicon Valley. How do you get into the market?
"Stock options," says real estate agent Chuck Atwell dryly. "Being a multi-millionaire."

http://www.paloaltoonline.com/news_features/real_estate/fall2000/2000_09_22.lowmarkt.php

kt says

Cain says

I love the comment that the rich are more ruthless.

The problem with the situation is people actually looked at this as an investment. If people said that when buying a new car, most people would think they were nuts. Somehow, housing is more special.

Pardon, I treat my car purchases as investments and I am not crazy. I do research on costs, quality and resale value. If I buy a car for blings, I put a value on that too.

Let me state the obvious. The rich are smarter with finances than the working stiffs.

FICO scores are only important if one lacks resources and must beg for financing.

Duh, they didn’t become rich by letting emotional hang-ups take over.

The banker shills call this being ruthless, I call it being decisive.

What is the logic for J6P not treating his house purchase as an investment?

That does not mean one must get the highest ROI. Make no mistake, if one must trade a big chunk of his life a finite resource to afford, it is an investment.

If not, what is it? A spiritual journey? A civic duty? Meaning of life?

For those with NINJA loans, it is playing with other people’s money.

What a load of manure. Rich people are, for the most part, lucky. I have a couple friends who have a little money and think they are fucking financial geniuses, and both of them have no common sense about money whatsoever. One of them lucked onto a job that paid really well and managed to stash some money away. The other one inherited a bunch of money from his dad. Both of them read these caca get-rich-quick books, and I have to constantly hear about how everyone could be swimming in dough like them if they followed their "investment" advice. God, what a load of horseshit. Both of them would be begging change on the street right now if they hadn't lucked onto some money to start with. Their investment schemes have nothing to do with it. They probably would have more now if they just left their money in the bank. It has been my experience that rich people almost universally overestimate their own intelligence and financial savvy. They think their shit don't smell, but by god it sure as hell does. It's all really just an excuse to be an asshole to everyone and strut about like they're better than everyone else.

As for a car being an investment, you missed the point entirely. The point is, it would be stupid to expect to buy a new car and then turn around and sell it for more than you bought it for, yet millions of dunces think they're automatically going to be able to do that with a house.

Rayray's (thanks ellie, I really like that name) Rules for Real Estate:

1) Never buy your primary home with the thought of "making money." Buy it for your enjoyment. If you "make' money, that's icing on the proverbial cake. If you want to "make" money, do it with non-owner occupied properties, financed with 15 year fixed (or less) with positive cash flow in good areas only.

2) Pay off your mortgage on your primary home ASAP. NEVER take out a 30 year mortgage, instead, use 15, 10 or best CASH. Being debt free on your primary residence creates financial freedom like few others.

3) NEVER do "cash out refis." If the rates drop more than 2% of your current rate, take advantage by maintaining the same mortgage PAYMENT amount while reducing your TERM. The goal should be to reduce your term, increase your principle, and pay off your loan ASAP. Shorter term loans pay off principle (adding equity) at a much higher rate than do 30 yr. loans.

4) NEVER force your purchase by using creative financing, ARMS, etc. If you can't qualify for a 15 year, fixed rate mortgage, IMO, you shouldn't be buying.

Nomograph says

kt says

Pardon, I treat my car purchases as investments and I am not crazy.

Not crazy, just financially stupid. Unless you are a car dealer, you would be hard pressed to find a worse investment vehicle (pun intended).
No offense, but you reek of someone who desperately wants to appear wealthy to others.

Chill it already.
Reeks to appear rich, he he...
Lets just say to cut a bad investment loose quickly won't make one rich.
But to keep digging will definitely make one poor.
A car to me is an investment, just not the kind that give a direct monetary return.
Say I need a vehicle to work, you don't know if I am a realtor or a saleman.
So the car depreciate, but makes a ton of money for me just like a farmer buying a tractor.
Does that make sense?
My friend tell me his expensive car helped him meet his current wife although it isn't the only thing.
She has a great career and they are happy, so it was a great investment for him as he came out way ahead of the game.

Game (sorry not Ray - edit),
So you have a couple of friends that didn't quite meet your standard of behavior. From that you draw the conclusion rich people universally overestimate their own intelligance and savvy.
Wow, a scientist would be impressed.
There are a lot of self made rich people in the usa. Read Millionaire Next Door.
The idea that rich people mostly lucked or were borned into wealth is a myth.
By rich I defined it as being financially independent and at about 95th percentile of self-worth.
Although you are right that most did not make it with flipping RE, they typically own a modest house.
Try to emulate their behavior would be one way to move up the food chain.
To be successful in business, you better be extremely confident and believe in yourself.
It doesn't hurt to think you are more intelligent that average too.
Look, 4(edit) in 5 business startups fails within 5 years. If you don't think you are above average, you are doomed.
In business, if you do not act on your passion because you are afraid you may fail, you have already failed.

I wonder where are those people who were defending the "fortresses" last year? Oh yeah, they are "different" and immune to price drops. whatever :rolls eyes:

its pretty tough to defend a fortress when the snooty inhabitants bails at the drop of a hat when things get tough

Serpent,

I work in a Cool and Hip department populated mainly by Fortress Homeowners; my partner also works in such a department similarly staffed. Even though they are our peers they can afford to buy those Fortress homes, pay the property taxes on those Fortress homes, get their kids to all kinds of private lessons and tutors, send the kids on the Fortress school summer trip to Provence, drive fancier newer cars and take semi-annual trips back home to places like Shanghai and Mumbai. My partner and I, using traditional ratios for things like housing expense, etc. cannot afford any of these things. So it certainly appears that The Fortress must be populated mainly by rich folks who are working here for the perks.

Could it be that this topic hits a raw nerve with the good doctor and he has to go on a personal attack.
Treating house purchase as an investment has many implications he doesn't like.
One is, it forces people to come to grips with the lowly house debtor having the same rights as the big banks such as JPM Chase and GoldmanSachs in returning a non-performing property to the financier.
This is their mantra:
If the mortgage is not an investment, then you should not treat it like a business, then there is no problem that businesses do this all the time because you are a foolish man to think of your little piithly finances like the CEO of a bailed-out loser. You unwashed are not like the rich so stop think like them.
---
I don't like getting tax banged to restore the system to the exact prefailed structure.
This is not free market in action, they should have failed.
Moral hazard gallore. Default is always an option in a contract.
Maybe if enough people balk in outrage, something good might actually happen.

sybrib says

My partner and I, using traditional ratios for things like housing expense, etc. cannot afford any of these things

That is certainly why we are seeing such areas going into default. It certainly was also true as prices were rising more rapidily than incomes during the boom. Therefore there were other factors. Eventually they will be exposed.. matter of time.

Thomas, I used to think so, too. In the past year though there's been a couple of family junkets to east Asia, three Fortress home purchases, another Fortress complete teardown and reconstruction, a new BMW, a kid going to Stanford, another to some other elite and expensive school, all workaday engineers, not a dotcommer among us. Apparently some rich folks from rich families or something like that, paid their way through grad school and into Silicon Valley I suppose. My partner commutes in a Camry with 99K miles on it, I take public transit, and leave my other old car with 105K miles at the park n ride lot.

kt says

Lets just say to cut a bad investment loose quickly won’t make one rich.
But to keep digging will definitely make one poor.
A car to me is an investment, just not the kind that give a direct monetary return.
Say I need a vehicle to work, you don’t know if I am a realtor or a saleman.
So the car depreciate, but makes a ton of money for me just like a farmer buying a tractor.
Does that make sense?

No, it's pretty much gibberish.

Game (sorry not Ray - edit),
So you have a couple of friends that didn’t quite meet your standard of behavior. From that you draw the conclusion rich people universally overestimate their own intelligance and savvy.
Wow, a scientist would be impressed.
There are a lot of self made rich people in the usa. Read Millionaire Next Door.

I didn't say there weren't. There are some Bill Gates types out there for sure. That's why I said they're lucky "for the most part". I didn't say all.

The idea that rich people mostly lucked or were borned into wealth is a myth.
By rich I defined it as being financially independent and at about 95th percentile of self-worth.
Although you are right that most did not make it with flipping RE, they typically own a modest house.

You're a perfect example of the type of behavior I'm referring to. You want us to believe you are a smart guy, but you can barely string together a coherent sentence in English. "Borned" is not a word. The difference between you and the people in my earlier example, though, is that I don't believe you are rich. I think you are an internet poser trying to make others believe you are rich.

Try to emulate their behavior would be one way to move up the food chain.
To be successful in business, you better be extremely confident and believe in yourself.
It doesn’t hurt to think you are more intelligent that average too.
Look, 4(edit) in 5 business startups fails within 5 years. If you don’t think you are above average, you are doomed.
In business, if you do not act on your passion because you are afraid you may fail, you have already failed.

This is exactly the type of thing my two friends would say. You spew forth a string of empty platitudes about "success", implying that you believe yourself to have more business savvy than others. I think you sound ridiculous. Sorry to be blunt - I'm just calling it as I see it.