patrick.net

Correction to my previous post:
So you (well, your child) may be able to get away with selling the stock in small bits from 2008 to 2010 to keep the unearned income (cap gains) under the limit.

Also, does anyone here utilize Utah's 529 plan?
Forbes says:
"The Utah Education Savings Plan continues to set the standard for low costs among 529 plans," Morningstar said. "Over five other states that offer cheap Vanguard index funds, Utah earns kudos for keeping total costs down by tackling the administrative burden itself--charging only 0.25%--and it doesn't levy anything at all for choosing its money market option."

EBGuy :

This no cap gain period might be a good time for me to convert my kid's UTMA account to a 529 account in their name. When I did UTMA - I wasn't aware of 529. The 529 is not as much a hindrance in getting aid as UTMA is. Since 529 accept only cash, I will have to sell UTMA holdings for conversion. The no cap gain tax might just be the right window to do it.

If I do it - assuming there no other tax gotchas, then I will go to Vanguard for 529, that much is sure.

Not advice of any kind.

Punchbowl Says:
Well, it looks like I’m Data :-( .

Don't feel too bad, I came up as Wesley Crusher.

Don’t feel too bad, I came up as Wesley Crusher.

Well, at least I am not Darth Bubblehead. Where is Fake P?

allah Says:
I think the middle class will be tomorrow’s welfare recipients.

SP

Sorry, this may only apply to Long Island New York; I keep forgetting who my audience is.

I wonder how the author (physicist by trade) was able to construct such a believable picture of social structure and ethics of three absolutely different human and non-human civilizations being smashed into each other.

Human behavior is highly unpredictable yet, at the same time, highly predictable.

As long as we've been discussing toxic loans here, I figured we'd pretty much covered nearly every possible minefield with option-ARMs. But then something clicked for me when I was thinking about the "fixed/teaser" lock period on the 10-year option-ARMs, which is the longest "lock" period I've seen for these things so far (emphasis on "so far").

Most option-ARMs sold today allow the FB to choose a 1-2% teaser rate during the "fixed" period, while the rest of the interest just negatively amortizes on the lender’s balance sheets as "imputed income" (bullshit of course, but all perfectly legal accounting). For a 10/1 option-ARM, this could be a pretty looong time. And as far as the lender's concerned, everything's peachy --because a "loss" isn't really a loss until it's booked, right? Not good news for those of us who might wish to see the crash play out quickly, so we can eventually buy at a reasonable price.

However, there appears to be a catch: regardless of whatever pick-a-payment “fixed” period their loan has, once the FB hits the maximum ceiling allowed for negative equity accumulation (typically 115-125% of original loan balance), they MUST begin making “real” full-interest + principal amortizing payments. You can have a 10-year fixed/teaser lock period on your option-ARM, but if you hit that magic maximum LTV number well before your 10 years are up, your loan automatically resets.

Bang --your 10/1 option-ARM just reset to a 5/1 or 3/1 or whatever-ARM at the "real" rate, say, LIBOR + 2% (roughly 7.5% today). In other words, if the borrower always chooses the minimum payment, there's no way s/he can ever reach the theoretical 10-year mark under their super-low "fixed" rate. Game over for FB, right?

Is there a flaw in my reasoning, or am I missing something here?

Sorry, this may only apply to Long Island New York; I keep forgetting who my audience is.

Uh, how does that only apply to Long Island?

A few posts ago, I pointed out that in the future, there will only been execs (Directors, VPs, CxO's) and people working at Walmart, Applebee, etc to serve them.

Globalization can only mean a greater cap between have and have not.

greater gap - not greater cap.

Here is an interesting story of a soon to be FB as told by a realtor.

Is there a flaw in my reasoning, or am I missing something here?

I think your are quite correct. I remember reading about this aspect of -ve ammo loan. The plan A is always to refinance again when that limit is hit - because at the time of refinance the house is worth double so you can actually get some equity - without having to pay anything towards principal. This is how you "get in". Plan B was never really needed.

From what I have been told by a loan broker - here in BA - this is how MANY people bought homes in 2005 and 2006. According to the casual discussion, at least half of her clients chose option ARMs and NOT A SINGLE one chose FRM.

"The emperor has no clothes" moment is not far away for BA.

OT, but a thing of beauty:

I thought this was a real estate blog.

Foreclosures up 42% in 06 vs 05.

The end is near

www.nyc-123.com

Never mind, I just found out.

http://biz.yahoo.com/weekend/foreclosure_1.html

www.nyc-123.com

@Allah - click on it (the chart is also a link).

Ok, let's sing-along everybody!:

"Head, shoulders, knees and toes, knees and toes
Head, shoulders, knees and toes, knees and toes..."

What is with the spam?

@Allah - click on it (the chart is also a link).

Yes, I figured that out myself; but thanks :lol:

Have you checked out the lender implodometer lately? It's up to 20!

I thought this was a real estate blog.

It is a reality parser.

New Century has 2 class actions suits against them, no wonder!

I thought they had 5 against them

I thought they had 5 against them

Could be, do you have a link?

HARM Says:

> As long as we’ve been discussing toxic loans here,
> I figured we’d pretty much covered nearly every
> possible minefield with option-ARMs.
> there appears to be a catch: regardless of whatever
> pick-a-payment “fixed” period their loan has, once
> the FB hits the maximum ceiling allowed for
> negative equity accumulation

The goal of the REIC is to make as much as possible NOW, so they don’t care if pick-your-payment option-ARM people crash and burn.

Let’s look at two examples:

#1 Responsible Bob makes $50K and wants to buy a $500K home with the $100K he has saved over the years. Responsible Bob demands a fixed rate fully am loan and decided to wait until he can save more money or home prices go down. The Realtor, Mortgage Broker Appraiser and Banker make nothing so they tell him that he will be renting forever and needs to buy now since real estate always goes up.

#2 Crazy Casey has no job but just charged $10K on his credit card to go to a seminar on how to get rich in Real Estate. After learning at the seminar that real estate always goes up he calls a Realtor who finds him a nice $500K home that he buys for $550K (getting $50K cash back) with a no doc stated income pick your payment loan. The Realtor makes $33K on the deal, the Mortgage Broker makes $10K on the deal the Appraiser makes $1K (all in $20 bills) on the deal and the Banker makes $5K up front plus a end of year bonus of $500 since the Bank “earned” 10% interest even though Crazy Casey only made one payment since he blew the $50 K on Jamba Juice and more seminars on how to get rich.

The REIC makes a ton of money every time a Crazy Casey buys a home and the sooner he defaults and the home is foreclosed on the sooner they can do it again and make even more money…

Here is the question I have been pondering about NEW (and LEND, FMT etc). Is there still time to make money ?

There has been tremendous bottom fishing going on for these stocks. All are in free fall. There will be a sucker rally. When that happens, it might be a good time to buy a put.

There was always enough time to make money on downward path WCOM and likes. It's risky, but if these MAY be going the way of BK. It will be pure speculation as not even the company know what's it asset - liability situation is.

*Please, this is anything but investment advice.

Check out this story about a new century borrower who isn't even behind on payments getting harassed by the company. New century seems to be getting pretty stressed out!

FAB

The goal of the REIC is to make as much as possible NOW, so they don’t care if pick-your-payment option-ARM people crash and burn.

Oh the wonders of MBS, CDO etc ! The real creditors are so far removed from the whole mess that their mathematical models don't show what we can decide in 1 nanosec in real life. Don't give a loan of 1M to someone who makes 50K per year. How many super computers do you need to figure that out ?

I hope so - but I think many in the BA may be able to hang on for a while by hollowing out the rest of their life.

Yes, I agree. I do not envision any of my friends needing to foreclose their home. I certainly hope they don't have to. These are eburbed's favorite people ;-) They will stop buying everything but groceries, they will stop their $15 Netflix service, they will sell their minivan and buy an older car - anything, but lose their home. And this is the worst case scenario. Most would feel some pinch - but that's it.

The market is just stalled here in "real BA". Across the bridges, the prices are down YOY. So sooner or later, people who do not fit the above description - and eburbed, be assured there are, just not as many as other parts of the country - will need to refinance and won't be able to because credit is not as easily available, house value has gone down and you know the drill.

Isn't 2008 the real year when the reset hits en masse ?

Netflix has plans as low as $4.99 now. It looks like they are really hurting for business!

Here is an interesting story of a soon to be FB as told by a realtor.

He also has this post:

http://nyhouses4sale.typepad.com/ny_houses_4_sale/2007/02/baby_steps_buyi.html

Interesting article this morning about young buyers. The article claims that the Gen Y are not afraid to buy. But not just buying with the "typical" 20% down, they are financing the entire purchase. The younger generation has done a total 180 turn from what I remember my grandparents telling me "If you can't pay cash, then don't buy it". My generation (mid-late 30's) are more of the "some debt is ok" mentality.

So, the financing is critical for them.

Translation: It's only going to go up. Someone should reply with the tent cities and honda speech.

Yeah but that is 1 DVD at a time limit 2 per month, I just get the new releases from ON-DEMAND when I feel like it

craigslist seems to be down, anyone else experiencing this?

Yeah but that is 1 DVD at a time limit 2 per month, I just get the new releases from ON-DEMAND when I feel like it

Wow! You mean there are people that watch more than 2 movies a month?

I enjoy the 3 at a time for about $20. I turn them around pretty fast, so I watch at least 12 movies a month for this price. Netflix is certainly slower than it was at the begining. The term they use is throttling. After they lost the class action law suit they had to disclose that they intentionaly slow down the turn around for the accounts that turn over too many movies. Years ago I would drop off the movie at the main post office on my way to work and the next movie would be at my house the next day! That does not happen anymore but I still like the depth of the Netflix library so I don't see myself cancelling anytime soon,

Wow! You mean there are people that watch more than 2 movies a month?

:-)

justme :

The Jan stats do not show what happened in Jan. I think Jan wasn't as bad for some areas - at least Cupertino, because I know there were bidding wars and I know the people who bought.

I think it's normal. I wrote about this in last thread. People who have been waiting for a long time, can be scared about the spring bounce and there is still enough funny money available.

Catching a falling knife is not unusual pattern. Look, even that NEW which has a big chance of being BK has 20M share purchased today - just because it was 50% lower than Wed.

As has been said many times, without these there won't be lower comps.

So Countrywide warns of rising defaults now - what next?

Claire:

Do you have a link ?

theotherside:

“Whatever shocks are ahead,” says del Missier, “the markets are better positioned to deal with them than they’ve ever been.”

Wow. :-) It's ironic that this is posted today. This article is a gem of "cluelessness". It talks about cheap money without mentioning anything about the currency manipulation and uncontrolled credit expansion. If anyone is interested in an easy primer, please check out the current post on Mish's blog for a hilarious take on this.

I will include additional quotes, far more interesting than you included.

And derivatives let financial institutions and traders manage their risks with mind-blowing precision.
...
What's more, many are depending on instruments that are highly leveraged, numbingly complex, and untested by a market downturn. Then again, derivatives might cushion the blow when the reckoning comes.

Derivatives are going to save the world. Yeah, right !