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Image for a moment that you –as our hapless friend from the SDCIA– find yourself saddled with 14 underwater properties, all bought on margin with exotic financing, and are now unable to make the ARM-reset payments on your night manager’s salary from Taco Bell.
I realize this is exaggeration in jest, but one thing this thread misses the point on is that the majority of the "action" - the pain of financial distress, selling for less than you owe, and all that will be felt by your average FB who went in over his/her head to buy with an NAALVP, not you specuvestor with dozens of properties. Yes, the specuvestor will get royally reamed, but the sad part of the story is the "Joe Sixpack" FB who got seduced by the sudden capability of "owning" a home, something that was out of reach prior to the crazy lending practices of the past few years.
The problem is that you fools are not familiar with Cali construction materials. Other places build houses out of bricks, mortar, wood, old tires, etc.
Here the houses are made out of bales of money.
* The specuvestor with 14 open interest properties is not likely a fast food night manager. The credit bubble was bad, but not that extreme on balance.
Randy,
The Taco Bell night manager buying 14 properties I described above is no hypothetical. I based this on a real SDCIA specuvestor, named "Jeff". I included the link to his autobiographical thread above, and here it is again:
http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=1101481
You have to read all the way through 6 pages or so of comments & replies to get the whole scoop, but unless he made the whole thing up, this is the "real deal"! Of course, I don't imagine he is necessarily your average flopper, but these guys definitely exist.
but the sad part of the story is the “Joe Sixpack†FB who got seduced by the sudden capability of “owning†a home, something that was out of reach prior to the crazy lending practices of the past few years.
I don't pity them one bit. They took a gamble with the odds mostly against them and they lost. Equivalent to going to vegas with your nest egg on black and it comes up red.... would you feel sorry for them? You cannot pity the stupid. People do stupid things every day, and some of them die because of it.
Off Topic
SHTF:
Hello fellow animator!
I've just finished a 2d/3d course at SMC-AET, and have heard the stories from all over (EA Spouse, anyone?). It was interesting and educational to learn how to do 2D, but as the writing was on the wall 4 years ago when I started my course, unless I move to South Korea I will never find a job doing it here in CA.
Fortunately, the husband works for a big Japanese games company in Santa Monica, so at the moment I have the 'luxury' of looking for something along the lines of Junior Artist - rigging/modelling, etc...or contract work using Flash/Maya etc.
As we have a steady salary coming in, the pressure is off for me to have to make a good living all on my own, but I feel really sorry for younger people trying to live in LA on contract/junior salaries. I just don't think its possible any more.
We've had an ex-pat (UK) friend living with us for the last few months who is finally moved out to his own place at the weekend. Its nice enough - a big guesthouse at the back of a big Los Feliz house, but its 2K a month to rent! Our friend used to live in Brighton in the UK, where housing was as expensive (if not more so) than London, and even he was apalled at the prices over here in L.A. What seemed like a good reason to come over here (100K salary, health insurance, etc...) has turned out to be way more expensive than he imagined. Add to that the insane, illogical US Visa system, and the odds are he won't be here next year. Sadly, as many of the bigger games developers in the UK are going out of business, he's sort of caught between a rock and a hard place.
As for us - we came over in 2000 and tried to save enough for a deposit from day 1. However, every time we thought we'd saved up enough for a 20% DP, the prices would go up again out of our reach - and this on a combined salary of median income X 3!
Now, I thank my lucky stars that we never had the opportunity to buy. We were seriously considering trying to get on the ladder last year, but it would have meant the husband using part of his 401K, and a toxic loan (and this with an income of over 100K pa).
Anyway, enough about me - my guess about the FED announcement? I have no %ucking idea ;-)
Speeding bullet,
I would suggest doing one of 2 things: Study 3D modeling in Maya, etc, and try to get in as a game designer or modeler at a studio. That would be the most difficult direction. On the other hand, there is actually quite a bit of flash animation available. Flash is great because it elliminates the middle man from the picture. You can produce the entire thing from scratch. Once the characters are made, you can reuse the parts for the rest of the toon. Ever see those Esurance ads- the ones with the silly secret agents with the pink-haired girl? That's made in flash with a small studio here in SF. The costs are low.
There's a lot of kiddie TV shows now made in flash for the same reasons: cheap cheap cheap! Flash isn't the hard to learn either, so go out and get some books!
Speedingpullet, I would suggest being a highly paid manager, or a movie star, have you considered being rich?
_____________________
sarcasm off
allah Says:
I don’t pity them one bit. They took a gamble with the odds mostly against them and they lost. Equivalent to going to vegas with your nest egg on black and it comes up red…. would you feel sorry for them? You cannot pity the stupid. People do stupid things every day, and some of them die because of it.
Calling the plight of the FB sad doesn't necessarily mean I pity them. It's a sad example of the state of American culture: lack of financial prudence, inability to save money, living off of debt, always being the "victim" who is not at fault. I don't feel sorry for them at all, but I do get extremely depressed about the state of affairs in this country.
HARM,
I especially liked this:
With
the kids and my job, all the stress is on me, sell the dam things and lets
live a normal life. Even if you are right it is not worth it, besides
several of my co workers said they are having trouble selling their
homes so who says homes will keep going up. At first I was all for
this buying houses, but I don't know now...........
Linden Labs in SF was hiring quite a few people recently after getting a big infusion of new VC.
http://lindenlab.com/employment
I don't know if they're still hiring animators/modelers. Disclaimer: I generally dislike the business model of this segment of the games sector, but lots of VCs seem to disagree with me.
skibum,
You know in a way I do see what you're saying. What makes it worse for "Joe" is that he will absolutely knock himself out trying to make good on his obligation. No matter how ugly it gets and at whatever the cost.
Mr. Specuvestor on the other hand.........
Maybe his renters (if he has any) could be suckered into entering a lease to buy option with him, if they too cannot get credit to buy a house on their own, it would ante up some cash to bail out some of the houses. Is this the guy that put all the leverage onto just one house and said he would let that one go and save the others? Or how about putting the houses in an IRA, then if they are repossed and some debt forgiven, then the IRS couldn't tax him on it? Is that possible?
I don't own, can't afford to own, and plan not to own until the market crashes or my husband moves out of CA for a different job.
Claire,
I still consider doing some form of lease option from time to time. In most cases they are a bad deal. They'll promise to keep you at today's LOW LOW price and YOU get to "keep" the profit! Uh, no thanks. Besides the amount of your "deposit" just so happens to have a direct correlation to the amount of their arrears! So why would I bail you out? I would just let it slide towards inevitable foreclosure and just pick it up from the bank if so inclined.
The only way I will consider it is to have two appraisals done at the END of the lease period.
DinOR -
I know lease to own is not a good option - especially in teh current market - hence I'm still renting, but I was commenting on the guy with the 14 houses - if I was him, I would probably have at least one renter that would be stupid enough to fall for it. But reading some of his posts, he's not planning on selling any houses, in fact his goal is to own 20.
Pause, dove, probably a HOLD not a PAUSE. We won't see any rate hikes for a while I think.
Well is it time for the black helicopters? I'll take my money drop now please.
It seems almost as if each time Ben made a statement along the lines of "We're going to look at the data, and decide then what to do", people interpreted it to mean a pause was coming. I think he could justify a hike based on inflation numbers as well as to send a "yes, I really do mean it" signal to the market.
Pause, dove, probably a HOLD not a PAUSE. We won’t see any rate hikes for a while I think.
I don't think so..... I think after they pause (if they do), inflation is going to strongarm the markets and they will have to continue raising in September.....but what do I know.
The Fed action makes me really worried that we are headed straight towards inflationary times, or worse yet, stagflation. It's hard to fathom how BB can continuously say his decisions are "data driven," and yet he pauses in the midst of very concerning indicators pointing towards inflation. He may be hanging his hat on the poor jobs numbers, but that only points to stagflation, especially given the recent volatility of crude oil futures. Once again, savers are f%#ked!
Surfer-X Says:
Speedingpullet, I would suggest being a highly paid manager, or a movie star, have you considered being rich?
Sadly, Surfer X, it appears I may very well be rich in a few weeks.
My mom died in early june, and as an only child of a single parent I have the double-edged advantage of being her sole inheritor. After selling her flat in London I would be able to buy pretty much whatever I want.
Still, the money is nothing compared to not having my mum around any more. And having to travel back to the UK to clear out her sweet little place in 90 degree heat, and deal with probate lawyers and estate agents, getting death certificates etc. Meh
Claire,
I only tinkered with the Lease/Option as a way to "accelerate" the price correction. Probably wouldn't consider using this with an FB (remember they lied like a black dog to get the loan in the first place) so how could they have any credibility going two or three years out? We've already seen ample evidence these guys are living from hand to mouth.
I'd prefer to work with a RE perma bull that was so convinced that RE will do nothing but appreciate he's running red lights to get down to your attorney's office!
This way, you'd be into the home of your choosing (paying about 1/2 to 2/3rds what his PITI is) getting the place just as you like it knowing all the while that comps are softening by the day! There's no saying our "perma bull" may not try to wriggle out of the contract but if he does just make sure it's written so he has to "CTC"! (Cut the check).
Stagflation cometh? (Reminder, this thread is FBer psychology, the last one is Inflation)
Still, the money is nothing compared to not having my mum around any more.
Very true, sorry to hear of your loss.
The one thing I wouldn't like with the lease option is that you'd have a bitter, unhappy person who knows where you live. So, I guess someone who doesn't care too much about such things, or who already has a collection of such people could go for something like that.
Off topic
Surfer-X Says:
Very true, sorry to hear of your loss.
No worries, mate - you weren't to know.
Its the reason that I started reading housing blogs - for a little insight into what to do with the cash..
I guess its just a confirmation of old adage "be careful what you wish for, because it may come true".
speedingpullet,
Lost my mom due to cancer 11 years ago --very sorry to hear that.
requiem,
Lost a post there some where but all I can say is wether you buy 2 years down the road from some FB after making 9 counter offers (each successively lower) or do a lease/option none of us "bubble-sitters" are going to be racking up any brownie points. Who cares?
Off topic:
Thanks guys :-)
Sorry - I didn't mean to hijack the thread!
But what about now? The Fed has paused. All everyone is going to hear over the next few days is how the Interest rates will “no longer be risingâ€.
The FED pausing is not going to stop interest rates from rising. It may even have the reverse effect due to inflation fears which is what I think is going to happen.
Yes, even the delectable Ali Velshi on CNN was musing that, rather than calming nerves, its just going to make everyone jumpy until the next meeting in september.
George, you may be right, but wouldn't it be simple enough to change tack and use “get your loan now before inflation rises any further�
Well, no matter what happens, your FB can rest easy knowing he still has his car/SUV to sleep in. Whoops --maybe not.
requiem,
Karmic effects are exactly what is pounding FB's, specuvestors, flippers and all the other lazy people that want 200K/500K+ over what they "paid" 2 years prior for just occupying a residence! This is a time for them to consider "their" karma, not for us to worry so much about ours.
As much fun as we have at flippers and specuvestors expense it really has been rank and file folks, your co-workers, friends and neighbors that have done the brunt of the damage. We also have fun with "equity extraction" but more of late it feels like "equity extortion"! Look, I ran my cc's up to their max limit and I KNOW you don't expect ME to pay them! Hence the stalled and sputtering market. Flippers had TV shows so we tend to focus on their folly.
Speaking of delving into the mind of the FB has anyone else noticed the recent battle cry of "it's the flippers that created all this mess"!
I'd even heard one Portland "luxury loft" builder (third major project in 4 years) say that the slowdown is attributable to the speculators! Really? Is that so? Then why do you have a full time realt-whore in your model taking app's with a grand down? Why did you put on events like wine and cheese "lotteries" to see who would get first crack? Your entire sales model (and building) is made to cater to flippers!
I can't wait for Portland to have it's very own "Dark Tower of Financial Doom"!
Lenders have been putting the pressure on fence-sitters with the “get your loan now before rates rise any further†tactic. Though completely divorced from reality (Mortgage rates have actually dropped in the past few months), I’m sure it scared more then a few people into buying sooner rather then later.
That tactic would have been smart 3 or 4 years ago. There just aren't that many people left who can afford a fixed rate mtg, who don't already have one.
The market's up-cycle went like this:
1. Demand catches up with supply in the late '90s as the economy booms and the market starts picking up ('97-'00).
2. Fed starts lowering rates to soften tech crash, making mortgages more affordable and fueling the boom ('01-'03).
3. Frenzy takes hold as home buyers are convinced that they will be "priced out" and flippers begin leveraging their equity gains. Potential sellers hang on to properties because real estate "always goes up," limiting supply. Creative financing becomes the norm, fueling demand. ('04-'05).
The down cycle will go like this, IMO:
1. Inventory climbs while prices stabilize. A few overleveraged flippers are forced to unload properties at a loss, adding to supply. ('06).
2. Creative financing starts to bite, forcing homedebtors to sell to get out of their ARMs. Potential buyers are less frenzied to buy and are more willing to wait things out, limiting demand. Foreclosures and fire sales become more common ('07-'08).
3. Lenders need to liquidate massive inventory and need to slash prices in order to do it. Many FBs send in their keys, rather than face foreclosure or remain in "upside down" loans. Many move away. ('09-'10).
4. Market bottoms out. There are no more real estate radio shows. Nobody talks abour real estate at dinner parties. Nobody even goes to dinner parties. Disgruntled FBs grouse about California's high taxes, smog, traffic, crime, earthquakes and decaying infrastructure. People let their houses fall into disrepair. Local economy sucks. Inventory liquidation continues, along with natural increases in supply (deaths, divorces, job losses and job changes). Inventory stays at relatively high levels. Nobody shows up to probate sales. ('11-
12). This is the time to buy.
Just a guess.
Speaking of delving into the mind of the FB has anyone else noticed the recent battle cry of “it’s the flippers that created all this messâ€!
Hopefully that has enough momentum to kill any attempt to bail out FBs. (Not that the builders have no responsibility of their own, but as the saying goes, "the enemy of my enemy is useful".)
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If there's one thing that distinguishes your average Patrick.net blogger from your typical robotic SDCIA.com perma-bull, it's the ability to consider your opponent's P.O.V. and to see things from others' perspectives. This thread is dedicated to this proposition. I want you to put yourself into the mind of a F@cked Borrower.
Peter P has already suggested this concept --in jest-- with his thread, "A cry for help". I would like this one to be approached from a more serious mindset. Image for a moment that you --as our hapless friend from the SDCIA-- find yourself saddled with 14 underwater properties, all bought on margin with exotic financing, and are now unable to make the ARM-reset payments on your night manager's salary from Taco Bell. Never mind that you could have avoided your unsavory predicament by merely applying a modicum of logic, some cursory market research and a dash of high school math to the dubious principle of "it always goes up". It's too late for regret now --you let your greed get the best of you, and so here you are. You now have a "diversified" portfolio of 14 equity-negative properties in different states, and all of them are heading in one direction: down.
So, let's assume you've gotten past the denial, anger, bargaining and depression stages, and have picked yourself up off the floor (after spending several days there whimpering in the fetal position). You've finally reached "acceptance" and are ready to rationally assess your sorry situation with cold, hard-eyed reason, and you must determine a course of action before events progress to the point where your creditors begin making all your decisions for you.
At this point, you have basically three options, none of them particularly good from your P.O.V. Which one do you take?
1. Confront your creditors (MBS shareholders) and request permission to start making "short sales" (i.e., selling the property for less than the amount owed).
This option has a number of attractive advantages, particularly the ability to avoid bankruptcy and/or liens and legal actions against you, as well as the ability to be quickly rid of those 14 "equity alligators" before they eat your alive. If your creditors agree to this, it amounts to a non-BK debt forgiveness, and you will not owe any money after the sales.
It also carries a few drawbacks: (a) Exactly whom do you negotiate with? Your loans got bundled up as MBSs and sold off before the ink even dried. Do you call Fannie Mae, Fredie Mac, the Bank of China, Fidelity, Vanguard, CalPERS --other? (b) Your creditors will undoubtedly require you to bring your entire life savings to the closing table in order to minimize their own losses. Of course, being a reckless speculator who used other people's borrowed money, you're not likely to have much anyhow, so no biggie. But there's another drawback: (c) your creditors will have to report the amount forgiven to the IRS as "cancelled debt", which will be taxable as income. Given your 14 underwater properties, this amount may be quite large. Bailing on your creditors? Relatively easy. Bailing on Uncle Sam? Not so easy.
2. Leave 14 sets of keys on 14 granite kitchen counters and walk away.
Pros: Perhaps your creditors will eventually realize you have no money, no reasonable chance of paying off the debts, and just write them off and leave you alone. To borrow a phrase from J. Paul Getty, “If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.†Even better, if all of your mortgages are "firsts" (no refi's) and you live in a non-recourse state (CA), then your creditors basically have to eat the loans. You'll still be on the hook for tax on the cancelled debt, however.
Cons: Aside from trying to sue you for any current assets and garnish your future earnings (assuming any of your mortgages were refis/recourse loans), your creditors may also try to intercept your tax refunds, ruin your credit (ha-ha, I know --like you care!) and generally harass you and try to make your life miserable.
3. File for Chapter 7 bankruptcy.
Pros: Means a "clean start" no more debts, and no tax liabilities --if you can get it.
Cons: Thanks to the new creditor-friendly Bankruptcy "reform" law, you have to qualify for means-testing and prove you did not commit fraud to obtain the loans in the first place. Uh-oh. That last part could really bite you in the a$$. How much did you inflate your Taco Bell night manager's salary to get those 14 $0-down NAAVLPs? Don't remember? Better consult with an attorney first. If you can't qualify for a Chapter 7 under the new rules, then your only option is to file for Chapter 13 (repayment plan --not good) or reconsider options #1 & 2.
Discuss, enjoy...
HARM
#housing