patrick.net

I'm sick of competing with idiots. The fact that tax dollars will ultimately go to support people like this just adds insult to injury.

I think part of the problem with the lenders is that they look at gross income, not take home pay. Assuming that she takes home 2/3 of her gross pay per month after taxes, her gross monthly pay would be $3705, and 1328/3705 = 35.8%; on the upper end of what banks limits on payment to income ratios.

"The monthly payments on her debt amount to $1328. Her income is $2470, leaving her with just $285 a week to live on. She's paying 54% of her income to make the mortgage payments. She earns that income by holding down one full time and two part time jobs. Obviously, this woman has a strong work ethic. But it also means her income is precarious. With unemployment still rising, she obviously should be worried about losing one of her three jobs. A loss of one of them would likely leave her unable to make the debt payments."

Fuzzy math.

My concern isn't so much with the home price $183K is alot... But not a McMansion... My concern is more along the lines of the "attitude" of the 20 & 21 year-old homebuyers... They both firmly believe a house is a magical investment that should and will become a wealth machine for them. They also talk about buying more houses as investments... Thankfully i don't believe FHA would be able to help them with buying a 2nd home...

That was painful to read. Some day she's going to wake up and realize that she doesn't want to work some 80hrs/wk. I guess she could bring in room mates. No time to date to find that mate that could help with the payment.

I'd like to talk to the lender and ask WTF?

What sane mate would want to date her? :)

"Tejada sees her house as an investment rather than a home. And she is planning on buying more homes, despite the fact that her income is already strained by her debt"

This is the problem, when would people learn? Geez.

I’m sick of competing with idiots. The fact that tax dollars will ultimately go to support people like this just adds insult to injury. You may be right, however, we must applaud the amount of effort it takes to build wealth from poverty. I think going to school is one option, but becoming an entreprenuer is another. In this instance, these kids are being taught to invest in depressed properties with equity at hand. I also dislike the fact that these 2 went out, bought a house with a inflated price 183K that will be worth 100k next year but for different reasons. I simply think the American Consumer needs to let the markets reset before buying. 3 weeks ago I started a house hunt but quickly realized after 2 days that the market was till overinflated. I did my research which led me to Patrick.net and now I am saving and paying down debts (School Loans, Vehicle Loans) that were accumulated during my 20's. What do you propose is the ideal situation would be for a person to buy? What have you against FHA extending opportunity to the poor?

I think part of the problem with the lenders is that they look at gross income, not take home pay. Assuming that she takes home 2/3 of her gross pay per month after taxes, her gross monthly pay would be $3705, and 1328/3705 = 35.8%; on the upper end of what banks limits on payment to income ratios. I do not believe they are wasting their life away on this 1 part of the American Dream (home ownership). I believe the other parts will come along after they get older. We dont say this to Joe the Plumbers who forego their education in favor of being a common skilled laborer. Simply put, they have embraced the entreprenurial spirit and it is up to the economy to put a break on all the madness, now I do agree with FHA footing the bill should they foreclose. I am not familiar with FHA and its negative impacts, but believe we must extend loans to the poor as they could not save 30K like you or I. The poor have income levels that barely meet their needs, now should someone want to work 3 jobs to achieve their dreams I see no downside to hard work ethic....and yes, I do see risk. Which is why we may need to only extend FHA to lower priced homes (120K or below) where by the mortgages would be affordable for even those of us working common jobs at $6.75/hour ...hopefully this would prevent someone from overextending as these 2 have done. Your thoughts?

The % spent per month really doesn't matter, it's how it compares to others owning a home that matters. If everyone is in the same boat, the jones will all behave roughly the same way. If she had a loan that cost her 5% of her income, and the jones had the same 5% but the jones spent 160% of their income every month, she would likely do the same thing, spending 155% more to meet up with the jones. She would go under water no matter what.

She can afford the loan, and as long as her expectations for living match up with her income she will be fine. If there is a miss match, it doesn't matter what % her home loan to income level is, she will eventually go under.

Really it comes down to how she plans on living, and how well she understands how to make ends meet vs using equity line.

The agent who gave her that loan or person at the FHA responsible for such lax requirements should be fired. Its awful easy to give away money when it isn't yours to give and you'll suffer no repercussions if the loan gets defaulted on.

***
There are mentors in my life who have risen from poverty to the middle class through hard work. In their most desperate of times, they even made use of certain social assistance programs to help them through. I certainly don't propose we throw the baby out with the bathwater, but certain tweaks are needed.

Although I myself have been relatively blessed, I celerity can empathize with the less fortunate. Not that it's a close comparison, but I certainly know the stress of having to live paycheck to paycheck. I grew up watching my father work 80 hours a week in order to provide for myself and my siblings, primarily so that we had our children, we would not have to work as hard as he had to. To me, that encapsulates the American dream; having the opportunity to do better than the generation before, with the responsibility of doing the same for the generation that follows you.

I applaud her work ethic, but after listening to the interview, her mindset comes across as a mix between "this is my ticket to instant riches" and "this is one small step on a long-term path to financial independence.” I will agree that I was a bit harsh with my idiots comment; It's hard to comment on someone based on the snippets from one article. The corresponding audio indicates that certainly she has thought this out a bit more than I had first thought in reading the article.

When you get down to the housing situation we are in, it comes down to financial literacy, something which many lack, irrespective of becoming status, since they do not teach basic budgeting and economics in high school anymore. What scares me is there is more to home-ownership than the mortgage. There are utilities, maintenance, etc. not to mention taxes, which go up over time (although in CA, I know its a bit different than the rest of the US, as there is some sort of cap on how much they can go up).

I personally think that many of the well intentioned programs to permit homeownership amongst those of meager means are doomed to fail. One needs to look at the whole picture. It seems that all they care about is gross income and monthly PIIT. If they took a more holistic approach (looking at the total cost of living, including maintenance, utilities, food, etc.) They would be in better position to really help people get ahead. I know when I was in my 20’s, there were expenses to homeownership that I didn’t account for, and I almost got in over my head because of it. Had I blindly followed the bank, I would have been up the creek without a paddle.

Whether the market goes up down or sideways, one needs to be educated on the total implications of owning, beyond the “I can make the payment every month.” She may very well succeed, and I hope she does, but she has an awful lot of her eggs in the “homeownership is the cornerstone to building wealth” basket.

I think that if you want to help the poor, give them dollar for dollar matching grants. Give them an “incentive based rate” not unlike student loans, whereby if you make two years worth of payments on time, you get your interest rate reduced by a certain percentage. But, please don’t give unrealistic purchase price to income limits, such that a one or two person household must make $97k or less a year to qualify, but can spend up to $385,000 house. I’m not against helping the poor, I’m against programs that are inherently flawed, and set up for failure the very people they are trying to help. There needs more congruency between incomes and purchase prices if these programs are to have sustainable, long term success.

I think the FHA minimum down payment of 3.5% is too low, particularly when combined with the $8000 tax credit. I think that rather than look just at % of purchase price, they should look at % of income as well. If one can save 20% of their yearly income, that is a positive sign that they are responsible, irrespective of the dollar amount that has been saved.

I also think the FHA loan limits are too high, which inadvertently contribute to higher costs. As the bubble built up, the maximum loan that the government would insure was around $430,000. Now it’s over $750,000 in some areas. The lower the loan maximum loan the government will incur, not only doe sit lower the risk to taxpayers in the event of a default, but it also serves as an effective “cap” on house prices, as banks (generally) have stricter requirements for “Jumbo” loans.

As far as young people and college vs. trades vs. entrepreneurship. I know people who have gone all three routes. Ironically, for those in their 20’s and early 30’s, the colleen crowd is more encumbered then their trade-school or entrepreneurial peers. This goes back to college costs and the debt generally taken on to afford it, but that would be another whole thread. Lets just say that it’s 50/50 whether my student loans will be paid off before my children start enrolling in college (if they choose to do so). It’s hard to afford a mortgage, when the student loans are equivalent to a mortgage payment in and of themselves. Hey it was my choice… and if I had to do it again, I would do it mostly the same way, despite the challenges that arose from it.

For those that blaze their own path, all the more power too them. I know high school drop outs that started their own companies and are doing just fine now. But keep in mind that historically, the American way also involved risk and reward. Most self-made fortunes came after many trials and tribulations, with many failed attempts and false starts. Such episodes build character. But somewhere we lost our way. Rather than letting people live by their choices, we coddle them, try to insulate them, and look for others to blame for their misfortune. We re-work mortgages, write down principle, bail out banks, but do littler examine at the underlying fundamentals that got us to this place.

Perhaps I am too conservative for my own good, but I certainly can’t compete with those less conservative than I. Just like we can’t compete with China on manufacturing costs. At some point, one just throws in the towel. I did so recently, after loosing out on a home, not because my bid was not the highest (it was), but because the winning bidder did not stipulate a home inspection as part of their offer; and I did. Caveat emptor

I respectfully retract my comment speculating on Miss Tejada’s level of intelligence, and offer my apologies should I have inadvertently offended her, but standby my assertion that I cannot compete with the uneducated, ill-informed, or mis-lead in the more broader spectrum of buying the largest financial asset (and largest liability) that one generally has in life.

The ideal time to buy is when one can construct a budget that will balance accounting for both the “known knowns” unknown knowns” and “unknown unknowns” of homeownership. That is to say, a budget that accounts for more than jus the mortgage, and has at least a small margin for error.

Hope for the best, plan for the worst.

The FHA is just another way of shifting private debt to Govt debt. What bank owned the loan on this house before it was sold? If It was a foreclosure what bank got this inflated (by the Govt.) price? When the FHA is guaranteeing 500k loans it is obviously not about putting a roof over poor people's heads. The banks are insolvent and the Govt plan is to take on all the bad debt, monetize it, and then let the "free market" take over. The Govt. knows just as well as you do that this is a risky loan.

Bubbleboy:

I think you hit it on the head with your last comments, and being conservative is not a bad thing. I am conservative-progressive...meaning i want to support positive growth within our society through conservative steps. I am going to read up on FHA so that i have a better understanding, but from what you stated it sounds like FHA is lending to the wrong groups. 20 years old is too young to buy, they need better guidance as i believe in addition to home ownership the next 10 years need to be spent developing moral character and furthering their education. I am a firm believer that even Joe the Plumber would benefit from a college degree..even if it were just from a life perspective aspect. My college experiences taught me many things outside of just book smarts...these 2 need to experience the same.

For me, it all comes down to assimilation of the American culture by those that want to achieve the dream. If we continue to allow the poor to bypass their education then we will have a world filled with nothing more than opportunists like these two.

I know i have taken an opposing view to my initial statements, but thats because i agree with you on both sides of the issue. Wealth building for the poor needs the same ethical guidelines as what we are calling for in the Financial sector.

13X

FredMG:

The FHA is just another way of shifting private debt to Govt debt. What bank owned the loan on this house before it was sold? If It was a foreclosure what bank got this inflated (by the Govt.) price? When the FHA is guaranteeing 500k loans it is obviously not about putting a roof over poor people’s heads. The banks are insolvent and the Govt plan is to take on all the bad debt, monetize it, and then let the “free market” take over. The Govt. knows just as well as you do that this is a risky loan. So, it sounds like FHA is similar to Freddie and Fannie. The banks use them as the scapegoats for bad loans...maybe you can point me in the right direction?

If the government wants to help the poor, the government should just give money.

As soon as the government tries to decide what the poor should buy and starts giving incentives to specific sectors, markets get distorted, and then we have things like housing bubbles.

If we just give money then the only thing we will do is "make Cadillac the number dealership in all of America!" That is a quote from Cedric the Entertainer on why Slave Reperations wouldnt work. That is lopsided as well...

Just goes to show that the American Dream of owning a home of your own isn't dead. I don't know how much enjoying she'll get out of it, working three jobs.

Where will she find a mate? Speed dating, 'cause she doesn't have much time, or Craigslist, match.com, eharmony... Wait - I just came up with an idea for a dating site. You post photos of your home and paycheck instead of pictures of you. The prettier the home, the greater the chance you'll bag a mate.

I think the 3 jobs thing will end when she's pregnant.

In any event, she's well on her way to becoming a slumlord.

Misstrial says

In any event, she’s well on her way to becoming a slumlord.

When I was growing up, we were so poor we didn't play cops & robbers or cowboys & indians. We played slumlords & tenants. It was fun, but now my kids play Wall Street Huge Bonus Recipient and Out of Work Foreclosure Welfare Recipient.

Ya gotta roll with the times.

elliemae:

LOL!

I saw a guy on the freeway offramp this morning playing wave the "rich bankers stole my home and dreams" sign game.

@Mistrial @Elliemae

Misstrial says In any event, she’s well on her way to becoming a slumlord. Elliemae says When I was growing up, we were so poor we didn’t play cops & robbers or cowboys & indians. We played slumlords & tenants. It was fun, but now my kids play Wall Street Huge Bonus Recipient and Out of Work Foreclosure Welfare Recipient. Ya gotta roll with the times.

So how do you propose the poor improve their lot in life?...mopping floors at McDonalds wont work. College, Skill building activities will take her into the next 10 years. Be proud of her accomplishments, if it were your child I am sure you wouldnt want to see these sorts of comments posted. I agree that the timing of these purchases were right, however, we must applaud the capitalistic spirit being shown...even if it is on our dime.

@Mistrial @Elliemae

Can you comprehend the extreme amount of effort/resiliency it takes the poor to leave their circumstances behind?

What kind of lowlife is she planning on renting a room to when EVERYONE, including hand-to-mouth 20 year-olds like herself are buying houses? Who's left that is (shudder) renting?

4X says

@Mistrial @Elliemae
Can you comprehend the extreme amount of effort/resiliency it takes the poor to leave their circumstances behind?

That doesn't make it a good idea for them to be working themselves to death chasing real estate riches. The only real estate investment that anyone should do is when they want to be a landlord.

I'd much rather see the government money going to student loans. A college degree would do that girl more good than a home ever will.

4X:

Its "Misstrial" as in Miss and trial. Trial as in Court.

Thanks.

btw, by becoming a slumlord, she will simply pass off her "circumstances" (your term) onto some other vulnerable renter.

Have you ever met a slumlord? I have. Quite a few, actually. Ever heard of the saying: "Water seeks its own level"???

Now just apply that to this 20-year old.

I am not "proud of her accomplishments" (your term). More likely than not, her father arrived here illegally and she is an anchor. They came to the USA seeking to cash in on the casino enviro and with your accolades, they got it - flat screens and all.

~Misstrial

4X:

Wanted to add that I know a married couple that live in the zip you desire. They actually live in one of the canyons near the Mt. Wilson trail park...

....and not to criticize, but to expect to pay $200k for a 3/2 is not presently realistic in that zip - if there are any good deals they would be out there *now* with mud slide season upon us due to the horrific fires that have taken place in that area over the past year.

Anyway, you are competing with buyers who work at the JPL, CalTech, the LA Times (management office nearby off the 210), and Occidental college to name a few.

May want to expand your list to include Arcadia (I know its on the other side of the 210, but its nice and so is San Marino), La Canada Flintridge, Alta Dena, La Crescenta, or Montrose, especially down by Descanso Gardens. Eagle Rock is even more affordable for your price point. I was in Alta Dena, La Crescenta and Pasadena last week during rush hour and the commute is no where near as rough as it used to be prior to the downturn.

~Misstrial

The whole % of income to predetermine a loan incorporates much of what you're saying Bubble Boy. The government, banks and others can't easily figure out what skills a person might have in terms of money management. Not to mention it's pretty hard to figure out how a person will handle a "bad" situation, and whether they know how to dig themselves out or just keep going until they're so deep they can't get out.

The % idea leaves you with certain amount of left over income that you are responsible for. The % was probably not just randomly choosen, but probably included many years worth of data, which likely included who failed and who succeeded in payments, based on how much of their income was used. A certain % would be set aside for the mortgage, another for taxes, another for basic necessities, and the left over for luxury items and "unknowns".

I am betting that those numbers no longer work based on the sheer number of "monthly" commitments we now make. Over the last decade or so, we've been pushed contracts and monthly payments for almost everything. Everything now seems to want a small monthly payment, vs a single payment. Which means that our luxury/unknown portion has now changed to a strict luxury item, leaving people with 0% left over for unknowns.

People might have wanted that new tv years ago, but had to pay for the new fridge/washing machine/roof instead. Today that money is parceled up and already committed to some provider for some service. Freeing up extra income for 1-2 months to pay off that unknown item isn't as easy as it used to be, because more of our income always seems to end up locked in contracts.

Interesting thoughts pkennedy, unbelievably one I failed to think about before now. I have no car payment, no loan payments outside my mortgage and student loan, but yet I am overwhelmed every month by the sheer amount of commitments I have. I try so hard to simplify and reduce payments, but between phone, garbage, electricity, a dozen insurance premiums, property taxes....it's just an endless stream of bills that becomes overwhelming. When and how did it get to this place?

Rent at 1 (one) percent of your gross annual income and that will improve things. Not sure what to say to mortgage holders except to not get into any more debt than you presently have. Sorry.

If you rent at 1 percent of your *gross* that will work out to 25 percent of your take home each month - meaning that you should be able to pay your monthly rent OUT OF ONE PAYCHECK ONLY with a few dollars to spare.

This practice will enable you to be able to pay utilities and other modest obligations plus save.

~Misstrial

I’d much rather see the government money going to student loans. A college degree would do that girl more good than a home ever will.

Come on. This would be true if an overpriced college degree was some kind of magic solution to the distemper of mediocrity and poor decision making. It is not. Let's face it, people in general -- irrespective of their education -- lack the basic smarts or discipline required to understand the fundamentals of sound decision making or maximization of utility. What we are seeing here with this gal is a social phenomena. It's called easy money, or smash 'n' grab, and it's all American.

Misstrial says

If you rent at 1 percent of your *gross* that will work out to 25 percent of your take home each month - meaning that you should be able to pay your monthly rent OUT OF ONE PAYCHECK ONLY with a few dollars to spare.

Your math is strange. If I'm grossing $10k a month I should only spend $100 on rent? And that somehow equals 25% of my take home pay?

Austinhousingbubble says

Come on. This would be true if an overpriced college degree was some kind of magic solution to the distemper of mediocrity and poor decision making. It is not. Let’s face it, people in general — irrespective of their education — lack the basic smarts or discipline required to understand the fundamentals of sound decision making or maximization of utility. What we are seeing here with this gal is a social phenomena. It’s called easy money, or smash ‘n’ grab, and it’s all American.

The average college graduate makes more than twice as much money as the average high school graduate, plain and simple. Yes, a college education would do her more good than a subsidized house loan.

The average college graduate makes more than twice as much money as the average high school graduate, plain and simple. Yes, a college education would do her more good than a subsidized house loan.

It depends on the type of degree/field of study, to be fair -- and depending on a person's interests/aptitude, a college degree is often extraneous. The reality is that I know several people who took vocational courses who easily outpace my graduate friends struggling with college loan debt.

Anyway, the original point remains: a college degree is not a panacea. It will neither change the psychology or the popular mindset that inform and hold sway over plain old rotten decision making. If your point is that higher education is probably a better investment than a crack shack in Oakland, I agree, but I don't think taking money out of Uncle Sam's shirt pocket as opposed to his vest pocket makes me feel any better about subsidizing the ambition of fools.

Kevin:

Please reread my post: its one percent of your gross annual income.

Example: we make $198k/yr. We rent at $1700/mo which is actually under one percent gross annual.

Thanks.

~Misstrial

4X says

So how do you propose the poor improve their lot in life?…mopping floors at McDonalds wont work. College, Skill building activities will take her into the next 10 years. Be proud of her accomplishments, if it were your child I am sure you wouldnt want to see these sorts of comments posted. I agree that the timing of these purchases were right, however, we must applaud the capitalistic spirit being shown…even if it is on our dime.

4X says

@Mistrial @Elliemae
Can you comprehend the extreme amount of effort/resiliency it takes the poor to leave their circumstances behind?

Can I comprehend the effort? Buddy, I've lived the effort. I applaud her wanting to improve herself, but I doubt that taking on huge amounts of debt and working three jobs is the way to do it - especially if that's the only way she'll be able to continue paying for the place for 30 years. The capitalistic spirit on my dime concept is hard to swallow at this point - because I don't think that setting someone up to fail by loaning them a couple of hundred thousand dollars is the way to untold wealth.

If she works three jobs, she should work them a couple of years, save a 20% downpayment toward a home, and see if she can continue at that pace for 30 years before she takes our money. People should buy homes that they can afford.

A college degree worked for me because I had a chosen field of work that requires a diploma and a license. By the way, I'd like to send a shout-out to ya'll that contributed to my education, for without it I would have been a welfare recipient. College isn't for everyone, and there are a helluva lot of college grads looking for work as we speak. But 4x's comment about "mopping the floors at McDonald's" negates the possibility that the floor mopper will someday become Manager. Ya gotta start somewhere.

Again - I applaud the spirit of the person who is trying to get rich by buying a house for $155k and a 2nd of $28k; she now believes that she has an asset of $255k while she's paying 54% of her income (article doesn't specify gross or net) toward her house payment. But 2005 is calling, it wants its optimism back.

elliemae posted:

Can I comprehend the effort? Buddy, I’ve lived the effort. I applaud her wanting to improve herself, but I doubt that taking on huge amounts of debt and working three jobs is the way to do it - especially if that’s the only way she’ll be able to continue paying for the place for 30 years. The capitalistic spirit on my dime concept is hard to swallow at this point - because I don’t think that setting someone up to fail by loaning them a couple of hundred thousand dollars is the way to untold wealth.
If she works three jobs, she should work them a couple of years, save a 20% downpayment toward a home, and see if she can continue at that pace for 30 years before she takes our money. People should buy homes that they can afford.
A college degree worked for me because I had a chosen field of work that requires a diploma and a license. By the way, I’d like to send a shout-out to ya’ll that contributed to my education, for without it I would have been a welfare recipient. College isn’t for everyone, and there are a helluva lot of college grads looking for work as we speak. But 4x’s comment about “mopping the floors at McDonald’s” negates the possibility that the floor mopper will someday become Manager. Ya gotta start somewhere.
Again - I applaud the spirit of the person who is trying to get rich by buying a house for $155k and a 2nd of $28k; she now believes that she has an asset of $255k while she’s paying 54% of her income (article doesn’t specify gross or net) toward her house payment. But 2005 is calling, it wants its optimism back.

*APPLAUSE*

~Misstrial

double post, sorry....

~Misstrial

The point is, she is working 3 jobs and has invested in this house. She can maintain the house and has several options to survive if the need arises. In fact, by having 3 jobs she is in a better position than most. She could probably lose 1-2 jobs and still somehow make ends meet, albeit it would be pretty hard. She obviously feels good the house is "worth" 250K now, which is always a nice feeling eve if it isn't true, it doesn't hurt her or anyone else.

The story doesn't appear to cover what she plans on doing now, which is the key point. She might be heading towards a career as a LL. That is a career choice and if done correctly won't add to the current problems. If she wants to flip houses, that is a career choice. If her plan is to hold onto "any" house for a year and sell it for 50% more, she's missed out on that opportunity, and everyone flaming her is just in doing that. If that isn't her plan, then she's potentially on the right path and we shouldn't be flaming her for adding to the problems.

Realistically, she can rent out a couple of bedrooms now and make ends meet pretty easily. Renting 2 rooms for even $500 a piece would greatly reduce the amount she needs to work.

I don't believe she states how much she is working either, or the division in income. If it's 3 burger flipping jobs, that is going to be a painful life. If it's a primary job, with two side jobs just to add a little extra income, like selling hot dogs at a major sporting event once a week, her "three jobs" claim isn't really that bad. The shift style jobs would be horrendous.

It gets worse - we forgot about the $8,000 tax credit. We actually paid this young woman to buy a home that she can't afford. We're all fucked.

She works one full-time job and two part-time jobs - and makes $2470/mo. I don't think she can lose any job and still make ends meet.

Do you know what other expenses she has in her life?

Maybe she doesn't have the iphone $100/month plan, the $150 cable/internet combination and maybe she doesn't have a $500/month car payment. Maybe she bikes to work, and cooks her own food. We have no idea how close she is to her limit, and whether she will fold when put under duress, or if she'll make the necessary changes to make things work out.

You simply don't know, but you're sure you can blame her for your problems. Nice.