patrick.net

Interesting article.

"We already have a bail out system. It's called foreclosure and bankruptcy."

Amen. We kid a lot about "debtor's prison" and "indentured servitude" but the truth is we did away w/that a long time ago. You want a break? There's your break.

Thanks for centering the debate Lowly!

Interesting cartoon:

http://tinyurl.com/2hda8z

Peter P,

Lower margins for stocks resulted in Black Tuesday. 10% was all the skin you needed in the game then. 50% TECHNICALLY keeps people from winding up with massive piles of debt as the brokerage sells of stocks to cover the nut as the market tanks.

20% in homes did a good job of keeping things mostly stable given the tendency of houses to stagnate rather than deflate. With 20% in, even if you foreclose, the bank can usually get back the initial investment and sometimes even costs.

10% is cutting it close to the bone, but would probably keep thinks 'sorta' stable. There's at least a little bit of 'holy crap, that's a lot of MY money' when you have to lay down 100k for your 1M McMansion.

5% through -3% is begging for trouble.

Then when we’re late making our I/O loan payment on our declining stock portfolio we can all join hands and demand our voices be heard! Kum-buy-ah My Lord

DinOR,

You know, the funny thing is that it's not THAT far off from reality. LBOs and a lot of hedge fund dealing invloves the large business equivalent of exotic loans. Wasn't the 80's heyday of LBOs and their "buy, fire and flip" strategy more or less what today's flippers do? A lot of that didn't end well, either!

Amen. We kid a lot about “debtor’s prison” and “indentured servitude” but the truth is we did away w/that a long time ago. You want a break? There’s your break.

DinOR, Robert Cote (good to hear from you!),

Maybe Amerika needs to find our own version of Australia (apologies to ajh and DS) and send the FBs there. Since everyone's moving out of Detroit, how about there?

Lower margins for stocks resulted in Black Tuesday.

Ocassional stock market corrections are healthy. They remind investors to practice prudent risk management.

Besides, why is the margin for SPY the same as some tiny four-letter stocks?

Will our version of Australia have giant lobsters and abalones? :)

We already have a bail out system. It’s called foreclosure and bankruptcy.

It will be interesting to see what happens with the new BK bill in place. My understanding is that if your income is over a certain amount under the new "means test," you do not qualify to discharge your debts in a chapter 7 BK--you need to file a chapter 13 and enter into a repayment plan. This amount is around $57K for a two person family or $62K for a three person family.

Most FBs who purchased houses over the past few years probably exceed these modest limits. Good luck to you if your "stated income" is $120K, but you list your income as $50K on your bankruptcy petition. The bankruptcy trustee may have some questions for you.

http://www.bankruptcyhelponline.org/bankruptcy-means-test/median-state-income/ca-california/

"would just need more life support" LOL!

I was thinking about setting up "Meth Colonies" where dope heads are removed from the general population but without the expense and legal hassle. Think of all the expense we go to keeping these clowns behind bars when all they really want is to get m@ther f#cking HIGH!

Why do we fight it? Simply set up a MC out in the freaking desert and WE'LL BRING THE DOPE TO YOU! No need for a car so we get them off the roads. An occaisonal Cheetos Drop should cover food and since these people refuse to spend a dime on their own health we needn't concern ourselves w/that. Then FB Ind. Serv. are put in charge at prevailing min. wage until debt is squared killing two birds w/one stone! Escape from Indio!

Those are some paultry median incomes in that BK Means Test chart. Take a look at the "Allowable Living Expenses" too. What do the column headings mean ("Under $833", "$833 to $1249", etc.) Is that income? There is no category for Automobile or gas expenses, unless that is included in "miscellaneous"?

I'm assuming the allowable living expenses would be deducted from stated income, and the remainder is used to qualify for chpt. 7 filing. Very few Californians will qualify under that test. Will the potential thirteeners take lower paying jobs or 'hide' their assets to qualify? It will be a tough row to ho for future BK filers, no doubt.

Paying off a chpt. 13 debt for obstensibly an entire life time is a very hard pill to swallow. I think we'll see a dramatic rise in fraud suits against realtwhores and loan officers before we see a rise in chpt. 13 filings. I can hear the late-night commercials now - "Are you a 'victim' of mortgage fraud? Facing bankruptcy or foreclosure? Call the law offices of Bilk and Plunder Associates".

While I dislike giving a pass to these extreme debtors, I welcome national introspection of our rampant debt addiction as well as inspection of our lending practices (particularly the credit card industry). As they say, it takes two to tango. I want the lead dancer to take some heat too.

Foreclosures are a different animal. FB's who opt for the scarlett "F" have to live with that on their credit report for 10 years. And they may have to pay taxes on the difference in the resale value, but that's not such a bad fate. It's still better than serving time (in Buffalo, Detroit, or Vegas!).

We may never see such a doomsday anyway. I suspect the FB's will refi into a better loan and/or stick it out. There is so much stigma attached to BK and foreclosure (as there should be).

I suspect the FB’s will refi into a better loan and/or stick it out.

For many a FB, this ain't gonna happen. If a FB is underwater with their loan, and no appraiser, corrupt or not, can assess their home value high enough to allow a refi at all, the refi escape hatch gets closed pretty fast. Add on top of that the significant prepayment penalties a lot of these NAALVPs have and the FB is doubly screwed.

Very few Californians will qualify under that test. Will the potential thirteeners take lower paying jobs or ‘hide’ their assets to qualify? It will be a tough row to ho for future BK filers, no doubt.

Hiding assets is near impossible. Unless the Lexus is paid off, you won't be able to "give" it to your sister. And even if it is paid off, any "gifts" or other transfers within the 4 years prior to filing can be undone by the bankruptcy trustee. Fortunately, most FBs don't have any assets, so this isn't a problem.

As for shrinking your income... Well this might work, because the BK court only looks at your income in the 6 months leading up to the filing. But how many people are willing to quit their job or ask for their employer's help in defrauding the BK court? And if you do quit your job, then how are you going to pay for gas, food, etc. I can imagine some people doing it though. If, eg, both spouses make around $60K, then one can quit working for six months, then file. But if there is a "primary breadwinner" who makes most of the money, then this won't work.

I should have qualified my statement. I don't think we'll see that kind of doomsday in the Bay Area proper. Places like SF, Cupertino, Palo Alto... I just don't see the values depreciating quickly or the prices coming down remarkably. Out in the Central Valley, for sure, there will be lots of drowning FBs. But do you really think that will happen in the some of the higher income/ higher home price areas?

While the hater in me would so enjoy seeing a dramatic fall in prices in my own neighborhood (and hearing of the FBs upside down in places like Cupertino), I also know that incomes are high here. I don't want to say "it's different" here, in that inane, irritating vane, but in some sense it is different here. The prices just don't seem to be falling dramatically. At least, not enough to support my own (sick) fantasy of seeing droves of Hummers leaving the BA, "Just Forclosed" signs on every block, etc..

Tell me I'm wrong, please!

Bay Area has a lot of self-proclaimed smart (though salaried) people. We will see how things unfold. Most techie-types here have EQ approaching 0. It will be interesting to see how they react when the correction comes.

Iv heard storys of people who are paying a mortgage dont spend at stores anymore and waste little money on food and are still having problems paying for there bills as well.This is creating a hole in the economy so why isn’t the goverment doing anything to lower the housing prices?

The government can't lower house prices? Sheeple will pay whatever they want to. The only thing they can do is cut off the liquidity which will make it more difficult for the sheeple to overpay; but it's a double edged sword because it will also keep the FB's from refinancing their way out of the ARM they are stuck with.

"Bay Area has a lot of self-proclaimed smart (though salaried) people"

Yeah, uh I've never been able to reconcile the two either? :(

EQ?

Ghost,

I keep hoping against hope that once we've had a reasonable level of price correction new entrants won't be so buried in their payments that they'll actually have a smidgen of their paycheck left with which to buy goods or services *without the aid of a HELOC.

It has worked before you know! :)

I know quite a few friends that bought in the BA that I know they make less than I do. House maybe 10-12X their income. Reset may not have kicked in yet but they are already drowning. I'm probably at 4.5X but I'm renting, saving, and waiting.

Lots of money flowing around BA but I figure a small percent of the people hold a large chunk of that cash.

It's truely amazing that at this point in time there are actually still some sheeple who are buying and apparently think that it's a good time to buy :roll:. In my area (Long Island) an article was recently released stating that 19,000 families stand a chance of losing their house in the next two years when their loans reset, yet there are still some sheep out there buying; amazing!

Schumer said an analysis by his office found that an estimated 1.8 million American families -- including 23,000 in New York City and 19,000 in Nassau and Suffolk counties -- could face foreclosure within the next two years when their subprime loan rates spike.

"Lots of money flowing around BA but I figure a small percent of the people hold a large chunk of that cash."

Oh we all this before in early 90's.. then puff!
Their money is gone and so are they!

Its not the next earthquake ( THE BIG ONE THAT WILL HIT)
which will shake these people... Just watch for the next tech recession!
You know Q1 Revenue at local companies is rather shaky!
Keep a keen eye on earnings announcement in the next 2-3 weeks.

"But SF/SM/SC/Alameda/CC counties will still get hammered."

Getting hammered already! Several companies already having layoffs.

"I don’t think we’ll see that kind of doomsday in the Bay Area proper. Places like SF, Cupertino, Palo Alto… "

I guess you didnt see the recession of tech recessions of mid80s' and 90-91. You already saw the 2001.

There was plenty of hurting! Looking back it was just cycles playing
through.

"There was plenty of hurting! Looking back it was just cycles playing
through. "

I agree. There is so much paper wealth right now, it's crazy! Tighter lending standards definitely will affect the BA.

"MSNBC is soliciting sob stories (I assume) at the above URL. "

I got one !!! LOL!!!

(1) My realtor told me there were multiple bids so I upped the offer by 10%. I didnt know if there were really "other offers"...My realtors couldnt disclose these 'phantom bid amounts to me' ... But I had to trust my realtors.

(2) My Appraisor came 10% below comps so he fudged the apprasials by 15%.

(3) My Lendor fudged my income because of (1) and (2) above to qualify for a exotic loan.

I got fudged three ways by the realtor,appraisor and Lender!
Can you help me! I am really sore!

I sent MSNBC a link to Casey Serin's website.

@ FormerAptBroker,

She has other assets and I'm not saying anyone should cry for her because she is fine. My point is that the asset was built up over time through hard work and the crooks that ended up with the company destroyed it. You could also make the point that at least half of that value never really should have existed since its like the bubble where someone was lying to inflate the price.

"Lower margins for stocks resulted in Black Tuesday. "

I'm not a fan of the coming reduced margining. People blow themselves up just fine as things are now.

Palo Alto, Cupertino and Sunnyvale are HOT while the rest being sluggish
http://www.mercurynews.com/breakingnews/ci_5558959?nclick_check=1

I can understand the school-addict parents targeting Los Altos, Palo Alto and Cupertino, and the location of Mountain View, what's the story with Sunnyvale?

what’s the story with Sunnyvale?

It is one of the safest ghetto in America.

Here is the related story partially explaining the strong property market in the prime areas and the sluggish market outside these enclaves:
http://www.mercurynews.com/business/ci_5555055

# of households making more than $200K grew a lot, # of households making less than $50K grew even faster, # of households making between $50-200K shrunk.

The conclusion is: if your household makes less than $200K but more than $50K, perhaps moving out of the Bay Area is your best strategy.

CB, my friend looked into that house. It was pretty nice. I heard there were a lot of offers.

I prefer bad school districts.

$200K is definitely middle class pretty much anywhere in the first world.

Palo Alto, Cupertino and Sunnyvale are HOT while the rest being slugish

OO,

I think there are two things at play here.

First, this observation jibes with the theory I've proposed here before. During a RE downturn (which we are in the early stages of), the "prime" areas (by whatever metric locals have) stay up for a while. There has been price stabilization even in these prime areas, and potential buyers are likely saying, now that prices have come down a bit, we can look in Cupertino instead of having to look in East San Jose. This in fact props up demand in these areas, even as the less prime areas continue to fall. As the flood waters rise, people run for higher ground. However, if the waters rise high enough, everyone still drowns (or at least has to tread water for a while)...

Second, take a look at the photo gallery accompaning the article. I hate to stereotype, but every single human in the photos is of the South Bay immigrant demographic. These folks (a) still have the means to buy (I'd venture there's a lower rate of subprime lending in this demographic) and (b) I'd venture have no clue about any bubble.

I'd say, let them buy - who cares. Continued demand at this stage in the cycle only leads to a more rapid fall once the inflection point has turned.

CB

That house is deep into Sunnyvale, not even at the border with Cupertino that can go to Cupertino schools. The lot is below 8000 sqft. The bidders lost their mind.

The interior is just IKEA, you can fit out such a kitchen for less than $20K, the bathroom costs even less. Even if you want to pay the market price, you can easily find a home below $800s with comparable location and lot, and spend less than $100K to bring to the same look.

Dear MSNBC,

I too was a victim of those nasty mortgage lenders.

One day, I was walking home to my pathetic rental, when I was approached by a man who only identified himself as Mr. Subprime, who I later found out was a dodgy mortgage broker. Though he was dressed a little strangely (black overcoat, stovepipe hat and handle-bar mustache he was constantly twisting), he seemed harmless enough at the time.

He said, "Psst... hey, kid, wanna buy a house?". The next thing I knew, I was in his office he was showing me all kinds of glossy picture of granite countertops, faux-French turrets and happy looking people holding rakes. He explained how all this could be mine, with the help of something called “leverage”. Being unemployed and broke and all, I was a little skeptical, but he assured me “it’s a no brainer” and there was nothing to worry about, ‘cause “it only goes up”.

Before I knew what happened, he had his hand in my pants (grabbing my wallet) and was drawing up a bunch of confusing looking documents. I didn't understand any of it, but he assured me he'd fit me into a monthly payment I could handle, and even promised me lots of cash back at closing! Of course, I didn't want to offend the nice man by asking lots of silly questions –and what he was telling me sounded like a really sweet deal, so I went ahead and signed!

Well, everything started out great, just like Mr. Subprime said it would. I took lots of cruises and vacations and bought matching Lexus’s for me & the Mrs. It was great not "throwing away money on rent" anymore! I felt really smart and superior around my pathetic friends who still rented. When the Mrs. wanted a boob job, Mr. Subprime even helped us liberate more of our equity with something called a "HELOC". It was awesome! Later on, Mr. Subprime even hooked us up with several “investment” properties in Las Vegas and Miami. I was well on my way to becoming the next Donald Trump –and my wife and I didn’t even have a job or penny of savings between us!

Then about a year later, something strange happened: the monthly payments on my twelve mortgages suddenly jumped from $300 to $65,000! So I called Mr. Subprime, demanding some answers. Apparently, hadn’t been up front with me about a few things, like this stuff called “negative amortization”, “adjustable rate-reset” and a bunch of other financial gobbledygook. He had also inflated my income on the loan docs, from zero to $3 million a year.

Well, naturally, I was more than a little miffed about that, and I told him so. He just laughed at me and hung up –can you believe that?! I don’t understand how someone like this can even be allowed to run a business! Well, I went ahead and reported him to the state attorney general, but later found out his company had gone out of business and Mr. Subprime was nowhere to be found. Evidently, “Mr. Subprime” wasn’t even his real name, and he had skipped town to some place called the “Cayman Islands”.

Imagine the shock and sadness I felt when I found out I’d been had! Now I was facing 12 foreclosures and was completely out of money. Plus, my wife’s boob job was botched (we asked for Ds, but they gave her GGGs!), and she was badly in need of some corrective surgery, as well as some back surgery (thanks to the strain those implants were causing on her spine). To make matters worse, we couldn’t afford gas for our Lexus’s and were forced to start eating at home!

Anyway, Mr. Subprime turned my American Dream into a total nightmare! I hope by sharing my story, I can help other people avoid creeps like him and not end up in my situation. I think the government definitely needs to get involved and prevent the banks from stealing other people’s houses (they pretend it’s not stealing by calling it “foreclosure”)! They’re mine, dammit --I signed for them! I dunno, maybe the government could take some money away from people who have too much –like all my renter friends-- and use it to pay off my 12 mortgages. Anything, as long as I don’t have to go back to renting again (*shudder*).

Anyway, thanks for providing me some space to vent, MSNBC –and keep up the good work!

Sincerely,
Ben Dover

# of households making between $50-200K shrunk.

The strategy: so homes up to 800K (4x income) may not do so well?

the bathroom costs even less

But it can also cost a lot. ;)

skibum,

I think these immigrants are aware of the bubble, just that they have no intuition of how bad things can go. I heard repetitively from FOBs or friends outside the US saying, things cannot be possibly worse than 911, the stock market, housing market cannot possibly crash harder than 911.

They use 911 as the yardstick. They thought that was the CRASH, and we are past the bottom. They don't know that we have never crashed, the crash was delayed by a few more rounds of liquidity injection, and when we do crash, we need to look at 1929 as the yardstick.

Well, let them buy, once they exhaust their savings, there will be even fewer competitors for us when this time bomb really goes off. I know there won't be enough of us to go around to stir up a bidding war by then.

Even if you want to pay the market price, you can easily find a home below $800s with comparable location and lot, and spend less than $100K to bring to the same look.

The vast, vast majority of people want homes in move-in condition. It is more unusual in my observation to find a buyer who wants a place to fix up (I'm in that category). I think that's part of the reason why (a) new homes are as popular as they are - despite their often shoddier construction, and (b) pergraniteel-coated, staged homes are so pervasive. Don't underestimate people's laziness - both in wanting to undertake renovations and in lack of imagination in taking a raw space and personalizing it.