patrick.net

Huh? Yet another thread?

I do not want to think like an FB. It is too dangerous because the negative energy can be powerful.

Again --sorry. I published before realizing Randy had just created a new thread.

When people get desperate, suicides and criminal acts (esp. killing spouse for insurance money and embezzling) may become more common.

The burger flipper with 14 houses is screwed and will land in bankruptcy, probably with chapter 13. But most housing speculators are not in that deep, they'll have negative equity, but not so extreme an amount that they'd want to go into chapter 13. I predict they will be extremely unhappy for the next 10 years (Or shorter, if Randy's inflation/real growth comes about and bails them out. Or longer, if we reached some sort of Japan redux.)

#2 is a clear winner. Especially if there was no refi involved.

Here's a related article:

http://ocregister.com/ocregister/money/housing/article_1206268.php

If they previously refinanced and their lender decides to foreclose, they may not only lose their house, but the bank also may be able to go after their other financial assets including stocks, savings and their paycheck.

And even if the bank doesn't go after their other assets, a foreclosure may mean a big tax bill from the IRS and state Franchise Tax Board for any shortfall between what the bank gets for the sale of the owner's home and the value of the loan.

And I bet once this starts happening, Prop 19203 will be passed to "Save Homeowners and The American Way of Life - Think of the Children" so that taxes won't be owed on bailouts anymore.

For instance, if the foreclosed homeowner has a $500,000 loan and the lender sells the house for $450,000, the homeowner will have to pay taxes on the $50,000 difference. The $250,000 tax exemption for singles and $500,000 for joint filers does not apply to debt relief income, in this case the $50,000.

The tax owed on the debt relief is based on the homeowner's ordinary income tax rate, not the lower capital gain rates. The exclusion, however, may still be available to reduce any capital gains in the difference between the sales price and the homeowner's basis.

That's actually not that bad. You could work out a payment deal with Uncle Sam to pay the taxes on that $50k of income.

I wouldn't think too much about this - FBs will be saved to live another day.

Hilarious picture!

Great topic!

Classic FB scenarios...Yikes!

HARM,

We can run more than 1 thread simultaneously. It'll be good blogging practice.

I agree with Astrid. The likely outcome on the BA is that there will be an extended period of time where homeowners will be living with negative equitty on a place that will cost perhaps 30% less or more than what they paid. The result, as mentioned countless times is a sluggish economy. My big question is will the enevitable recession be sporatic and localized to the areas that participated in the boom, or will it affect everywhere across the country? many parts of the country are experiencing record economic growth and are also usually places that didn't have runups in prices.

Good topic, but you left out the window ledge as an option. Too bad those RE sign posts aren't tall enough, otherwise they can use it to hang themselves.

The closest model I have to work from is the "tech wreck". While Mr. Flopper in Phoenix is now likely soiling himself trust me, in the end it will have been someone else's fault. The builders, the lenders, the realtors. Of course now years later some people have finally stepped up and taken a little accountability for squandering their inheritance of a 100K with their Ameritrade margin account in 2000. But for the most part firms internal Risk Management Departments shut these guys down well before the became a "negative equity liability". Meaning they would let them auger their account down to zero.

See though, RE doesn't work that way. We START with ZERO!

Perhaps there could be another solution to the future woes of current homedebtors. The way I see it, most of these people already work 60-70 hour weeks. What's another 30-40 hours? Heck- if you're working 70 hours a week, you might as well buy a cot and sleep at work. Most offices have kitchens anyhow, so companies are sitting on a goldmine of opportunity here.
The plan would be that homedebters would purchase large rolls of astroturf, vans full of cardboard furniture, compressed fiberboard spray painted black to look like granite, and a whole slew of "prop" pieces that they can put in their houses. They could turn off all the water, power, and cable. A solar panel on the roof would charge batteries that would turn on low wattage flourescent lights at night.
Once this is done, they can simply live at work and be available to work round' the clock, 16 hours a day, 7 days a week. Employers will be elated because while they'll be paying their employees more, they're getting 50% more productivity! Workers will be only to glad to get the extra pay because they need it to pay off their little 2 bedroom bungalow. This would be the best opportunity to pay off their houses- say before 50.
SF will become a mecca of industrialism as workers and residents alike meld into a single working machine, all for the good of making sure that California stays as progressive as possible.

SFwoman,
I had a former housemate who worked 70 hours a week at one of the large game producers. He had this crappy game testing job that paid him around $9 an hour. He didn't have any money and lived in his car out in the parking lot. He said the only time he left was to do his laundry. The facility had showers, cots, a few cafe's and even a basketball court. He did this for an ENTIRE YEAR.
The sad thing is that I know way too many people in this area working 60-70 hours a week, so my comments were not exactly far from the truth.

SHTF

re: game developers...I hear you!
I know of several people who slept under their desks during 'crunch time' - and a few who did it between moves. As there's a kitchen, showers, and a workday that starts at 10am, most of their colleagues never knew.

Everyone thinks working in games is 'cushy'....but that's a story for another day ;-)

As for FBs - I guess I'm lucky: being a renter myself, this is more like watching the Demolition Derby from the VIP section of the Grandstand. The best seat in the house and a cold beer in hand...

All my friends either bought pre-2000, or sold last year to move up with a 50% downpayment. So, I only have the stories I read about.

My reaction - a sincere 'awwww...bless...:-( ", and then looking away to laugh my ar$e off.

OK, I'm a bad person. Very bad

Given your 14 underwater properties, this amount may be quite large. Bailing on your creditors? Relatively easy. Bailing on Uncle Sam? Not so easy...fraud..garnishee for life...Ch. 7 BK...

hmmm, quietly apply for a PR visa and flee to australia -- there's Taco Bells here, so no shortage of work...

Speedingbullet,
The same goes for most of the entertainment biz. I have friends that work on mvoies. Big names ones too. You'd think that they'd be all set and good to go right? wrong. They are always put on contract, never with any health or retirement benefits, and not for what you might call phenominal pay. As a result, they jump from job to job to job, usually with as much as 6 months without any work. The only people that make big bucks in the movie biz are those at the top of the food chain. I considered being a cartoon animator, but settled for design instead because it is steady,in high demand, and pays decently ( unless you live in cali)
My reaction to the housing fiasco now unraveling here in CA is what I thought of it years ago. it's a big joke with an empty promise that it's all worth it since the area is supposed to be so wonderful. Now it is outright ridiculous. I opened up our local newspaper which contains a 12 page advertising segment every week just for real estate. It is cleverly styled to make you think that it belongs with the rest of the paper, as if what is written within its leaves are facts. One article this week was entitled: " Is real estate going south?" followed by an ancedotal story of a home in Berkeley on sale for 1.4 million, selling for 1.8 million. the summary was " and we thought RE was heading south!"- as if a 2 million dollar home has anything to do with the bulk of the reality of the situation. These stories seem to be popping up everywhere now, and they're just hysterical, especially if anyone thinks that someone is dumb enough to believe them.
Living here in general is a joke. Doing business here is equally a joke. The joke's on the people who bought into it, but I see nothing funny about what the repercussions to the economy this will eventually cause.

SQT,
Yes, I am aware of the Disney shutdown. That was around 2 years ago. The interesting thing is that with the aquisition of Pixar, Disney is going to place John Lasseter as their new head of animation not only for their 3D output,but also to restart their traditional 2D studio as well. It was a real shame to see the old studio close, but I'm glad to see it might be on the way back.
The problem I ran into was that shows like King of the Hill, The Simpsons, Rugrats, Spongebob Squarepants... etc were mostly animated in Korea, India, or Ireland. That meant the only US jobs were for storyboarding, keframes, and layout. Not that many jobs. Then I discovered flash and started making flash cartoons. That was in around 99'. Then the dot-com burst before I had a chance to make it out here. Then I discovered that flash web sites and interactive product demos were all the rage. Having a traditional animator's background, I was good at it. Hence I stumbled into being a designer, which was like going back to school all over again.
Yup- the entertainment biz is highly overated. It would be fun to try it out, but I think I'd rather make web sites for movies rather than make the movies themselves. That and design firms are in almost any major city, so I am way more mobile when it comes to my choice of cities. If you're in the movie biz, you have to stay in L.A.

During the dot-com from around 98-99 things got so bad Mid Peninsula around Redwood City that folks were renting out houseboats between Whipple & Woodside Rd., living in RVs in the Excite parking lot, and bidding on trailers in that lovely park behind the soundwall south of Woodside Rd. We used to store stuff in the self-storage next to that park. I remember thinking it odd when so many trailers had BMWs and Mercedes parked in front of them.

Actually, the folks who did the RV in the parking lot thing may have been the smartest of all. Milk the boom until it pops, then start up the engine and move on.

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).

3. File for Chapter 7 bankruptcy.

Let me make a couple of amendments to the hypothetical:

* 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.

* The night manager type is overextended simply by being an owneroccupier in a home they should not have been able to afford; usually a "modest" home in a marginal neighborhood, but still well beyond their traditional affordability.

Were I a specuvestor in trouble I'd attempt to unload my open interest at a loss if I had a lot else to lose. Mainly, family. If I have roots, family and connection to the area then I'll try everything starting with short sales and ending with bankruptcy to stop the bleeding. I'd go to the best lawyer I could afford, probably borrowing money from parents/siblings for the fees. This lawyer wouldn't be very good, so I'd get so-so advice but still end up coming out of it all within a couple of years with terrible credit, but probably with lots of support from sympathetic friends and relatives who don't really get that I'm at fault for my own situation. Everyone is a victim, and if I was truly a FB, I'd surely roll over and cry foul.

Instead, if I had no connections, family or vested interest in the area, my low wage night manager job, or declining neighborhood with my now 50% depreciated and falling stucco shitbox demanding growing monthly mortgage payments: I'd leave the keys, break a few windows, scratch the Pergo, and leave a few other "surprises", pack up, and head out of dodge. I'd probably go live on a houseboat somewhere for a while in another state while I waited for my legal name change to go through. I could always get a job running illegal immigrant labor crews somewhere for cash while I figured out my new identity.

Randy,
Sometimes I wonder about the corrolation of the end of the dot-com and the end of the RE boom. The two in terms of atmosphere and cost are about the same. I remember when I moved out here in 2000. SF was so expensive that we never even considered it. paying $3,000 a month for a studio wasn't unheard of back then. Our tiny little 2 bedroom place in Berkeley was $2600.
I have no doubt that people were probably just as irrate as they are now. I recall that rents dropped like a rock within a year. That was because the industry collapsed overnight. People simply left. Do you remember all the moving trucks?
I realize that this boom is a little more complicated in that it is not only seen as a major part of the state economy, hence just as likely to cause a severe swing in the fortunes of the industry that has ballooned up around it, but it's also tied to the very well being of those who bought into it. People simply can't pack up and leave. They're stuck here. So it can go either way.

Randy H,

I'm not so sure I'd dismiss the night manager's ease of access to credit. I've read several articles about hairdressers in FL and in one case the gal had 18 properties! Another MA linked was a secretary in AZ with 6 properties? Myself? I don't have the "brass" to walk into a bank and blatantly misrepresent myself. Obviously there are others where this is not an issue.

SHTF,

I am very bullish on the BA long term; reasonably bullish for the medium term.

There are probably more differences than similarities between the dot-com bubble and the RE bubble. The dot-com bubble was a relatively fast-correcting phenomenon, labor included. Since so much of that labor had been imported into the BA in a period of 3-5 years, much of it was transient enough that it simply left when the jobs left.

An RE correction won't play out that way. But a recession could be just what the area needs to spur much needed restructuring. It should have happened in 2000/2001, but the RE bubble backfilled the wealth gap and kept the party going.

Once this is done, they can simple live at work and be available to work round’ the clock, 16 hours a day, 7 days a week. Employers will be elated because while they’ll be paying their employees more, they’re getting 50% more productivity! SF will become a mecca of industrialism as workers and residents alike meld into a single working machine, all for the good of making sure that California stays as progressive as possible.

hmm, sounds like japan....or is it s. korea...

Randy,
I don't think there is such a thing in California as a long-term fix. The problem, even when housing " corrects" will remain a problem as long as those classic regulations (prop 13, local measaures like Measure A) stay in place. It's a matter of severe upward pressure, and severe downward pressure. There is a cycle to the runups and rundowns, and every single time it happens, another segment of the social structure leaves with it. This time it's the middel class. next time it will be the upper middle class. After that, well perhaps the cycle will be complete and Ca will simply be all wealthy people and folks living in the gutter.

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

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.

Wow. And I though "Jeff" from SDCIA was in a big hole:

http://www.creonline.com/wwwboard/messages/24397.html

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.