patrick.net

DennisN,

No, Gross has totally lost it! You wonder if it's one of those things written in a fit of rage he wishes he could take back? "We bailed out Chrysler?" WTF? Where's the logic there?

Claire,

Overall I agree (after all... this IS 2007?) Where I think more folks might have a case is if the loan was sold to them under the premise that;

A. RE only goes up!

B. You should be getting your hands on every borrowed $ you can!

C. We can always re-finance you later after your equity has accumulated!

Of course all of this was done by MB verbally so it will be tough to prove but I maintain that is exactly how a number of otherwise intelligent people got caught up in this.

Do I think the mortgage panic has been priced in? No! that is why all these rebels are on a housing bubble blog. The denial out there is rampant.

The scramble for cash is underway as evidenced by the brutal T-bill yield decline on Monday. Supply and Demand....

Glen,

Couldn't agree more!

SFWoman,

Barbara Ehrenreich's point was this may well be a case where the middle, lower middle and lower class will inadvertantly "stick it to the rich" as much of the MBS schlock was marketed to the very wealthy. Not that it's a particular advantage to anyone.

@PeterP && @astrid
I posted some photo-geekery you may be interested in on the previous thread. Didn't want to drag it here.
SP

DinOR said:
...a number of otherwise intelligent people got caught up in this.

"Otherwise intelligent people". If they are not intelligent enough to PAY ATTENTION to what the terms of a loan are before they sign, and to educate themselves about their obligations under those terms, then I am sorry - they are NOT intelligent people.

SP

Glen

The problem of cash is very closely related to the topic of this blog: housing. For many people the largest amount of investment they have outside of their retirement (which are mostly in mutual funds of equities + bonds) is cash or cash equivalents being saved/banked for down payment. This time frame rules out equities as an efficient investment vehicle in terms of risk. It is also a liquidity problem. Even if stocks are very liquid, that doesn't mean they're favorably liquid. Money markets have the distinct attribute of knowing that $1=$1. Because house prices are so high, 1st time buyers often exceed the FDIC limit and bubble-sitters like me often exceed the SIPC limit. Yet none of us wants to put that in sub-inflation treasuries.

Stirring up things on Zillow's new discussion groups.

If you haven't seen, Zillow has message boards. The unique thing is they allow realtors to register themselves, insert a mugshot, and they get a little nifty tag that says "Agent".

But there are a ton of folks like us out there, and it makes for a raucous mix. It's worth a gander if you haven't already.

I'll leave you with one of the realtor-posted topics. She received quite a tongue lashing in the responses. Not what I think many of these realtors expected on Zillow.

OK..you people..why are YOU waiting? I watched for years as buyers fell all over themselves to bid the prices up in the last market. They waived appraisals and home inspections. Now comes a market where you can REALLY strike a deal...and you're WAITING???

Interest rates are STILL low, sellers will pay settlement fees foro the most part. You can get a home inspection AND an appraisal. What gives??? There is SO much inventory AND there are short sales and foreclosures. It's like being a kid in a candy store. So..give me a call. Let's go strike the deal of the decade.

SP,

LOL! Yeah, I know... I KEEP "straddling" this but I've seen more than a few people I just assumed were at least as smart as me(?) get s-e-d-u-c-e-d by sexy rates and sure profits. I strongly suspect they knew (or should well have known) these "2nd/vacation" bets were "out there" but I also suspect, they just didn't WANT to know!

Since a lot of these "deals" were done "sight unseen" and b/c "You've got to ACT NOW!" petty details like this were swept under the carpet. If the "client" balked in the slightest they were assured that they'd be selling at a profit long before the short comings of the loan even came up!

From the DennisN Gross link:

"Write some checks, bail 'em out, prevent a destructive housing deflation that (Fed Chairman) Ben Bernanke is unable to do. After all 'W', you're 'the Decider,' aren't you?" Gross wrote."

How would a housing "deflation" be destructive? This deflation should be welcome, since it would be the true path to long term housing affordability. The bailout would just keep houses priced out of the reach of savers, and back into the realm of the thriftless, short-sighted masterbatards who are willing to mortgage their ass and ours to pay whatever price the house has inflated to.

RE: Bill Gross,

He's clearly a smart guy. His commentary IMO comes from self-interest. He's a bond guy after all, and with a continued credit crunch that was in large part triggered by the subprime mess, his business will suffer.

OT - First Post, lurking since Spring 06.

Thanks to all at Patrick over the last year and a half. I have learned more in that time via Patrick, CR, Ben's, etc. than in the last 20 years of BS jobs(perhaps more about Peter P.'s eating habits than I care to:).

I sold out of Santa Barbara in Mar 06 based only upon incredulity over the market. Banked it and went to Hawaii. Wife got rock fever, so we are back in SB, renting. The great unwind is finally here.

Surfer-X, appreciate your handling of trolls, REIC, etc. Particularly that UCSB punk from a year ago. I can't usually post during the day so I was hoping you might know of a local forum for doom & gloomers like me. I am staying temporarily with a Realtor (wife's friend), so you can guess what life is like. Couldn't find an email on your blog, can give you mine.

Thanks again to the crowd,

SBRenter

First Bill steals my Second Life research for his own blog, then he goes off the deep end and starts pontificating about bailing out the poor, misbegotten homedebtors.

bleh

http://www.cnbc.com/id/20411995

Headset,

I.... must say! You are in rare form today sir! Exactly. Write "some checks" drawn against where... precisely sir? And "the Decider" line tends to indicate to me that he's come completely un-hinged.

The Original Bankster,

Exactly. It's called "riding the tiger". Wild ride! But if you lose the stomach for it (even for an instant) he'll turn around and eat you! Well said sir.

Money markets have the distinct attribute of knowing that $1=$1.

For each given time, that may be true.

that people will stop going to sushi bars

Excellent! More for me! :)

DinOr,

Yes, the checks. Not only drawn from gov coffers, but from my own accounts for the future inflated prices.

Last I heard though, the "Decider" has chosen not to bailout or increase Fannie/Freddie limits.

Last I heard though, the “Decider” has chosen not to bailout or increase Fannie/Freddie limits.

Praise the Decider! Decider Banzai!

It seems like the only time Bush makes the right choice is when he chooses not to make a choice.

I heard yesterday evening on this, that, or the other news-radio feed that he was already caving. Something about Bush signaled his willingness to endorse a bailout plan so long as it didn't expand the role of government in the banking sector. All he cares about is his benefactors don't get upset. He could give a shit about the people, whether be they the homedebtor FBs or the prudentrenter FSs. (Did I coin a new abbreviation? If so I propose FS, which is what many of us are likely to become if there's a giant bailout funded on the backs of our savings and larger tax burden).

SBRenter,

Like a lot of us with ties to the P.I (Peoples Republic of the Philippines) Hawaii always "seems" like such a great compromise (but never quite works out?) If you're up to sharing I'd love to hear what went wrong and why? What bubble-nomics from HI can you bring us?

It is fine to bailout the banks and the rich people. Let's hope that regular folks don't get let off the hook easily.

Randy H,

I hadn't heard that and I can't imagine where any Pres. would even begin to start with a bail-out on this scale? Oh, btw I believe FS was already designated as "Frustrated SELLER"? Or PILO (priced-in loanowner).

Peter P,

Yes, let's hope. :)

I just read Gross's commentary. Apparently the government has not yet done enough to "encourage" homeownership. Now with the purchase of a home you will get your very own "Greenspan put."

Pretty soon they will start rounding up renters and sending them to Guantanamo for forced re-education. Renters will be strapped to chairs and forced to watch videos of Leslie Appleton Young and David Lereah until they sign up for neg-am NINJA loans on at least 3 Pulte desert homes or Vegas condos.

Now with the purchase of a home you will get your very own “Greenspan put.”

Did you mean Bernanke Put?

I don't know why FBs can even be seen as victims deserving of help, even if they were preys to predatory lenders. This is just a simple case of Social Darwinism.

Did you mean Bernanke Put?

I was using the term "Greenspan put" generically. Technically, I guess it would be a "Bush Put" if Bush were to adopt Gross's recommendations.

I don’t know why FBs can even be seen as victims deserving of help, even if they were preys to predatory lenders. This is just a simple case of Social Darwinism.

In those cases where individuals were truly prey to fraudulent, predatory lenders, then the predatory lenders should be the ones financing the FB bailout, not us "prudentrenter FSs" (thanks, Randy).

In those cases where individuals were truly prey to fraudulent, predatory lenders, then the predatory lenders should be the ones financing the FB bailout, not us “prudentrenter FSs” (thanks, Randy).

You can't get blood from stone. Those lenders are already getting wiped out.

Regarding the safety of money markets (or possible lack thereof), here is an interview with a money market manager for Vanguard...I found it somewhat interesting...

https://flagship.vanguard.com/VGApp/hnw/VanguardViewsArticlePublic?ArticleJSP=/freshness/News_and_Views/news_ALL_mmtreas_08212007_ALL.jsp

*Note, I don't really believe it will come to all this, but to conjecture*

If it all does go down in the worst possible way for PrudentRenter FS's, then we are exactly like the GoldBug holding physical bullion in his bomb shelter: Congratulations, you were right. While you were digging and hoarding your stores everyone else was tripping the life fantastic. But when it all comes down, it's your door they kick in.

@Glen,

True, but my main point was it should not be *us* forced to bailout the reckless and greedy. Which may happen anyway, as Randy pointed out, because the habitually reckless and greedy vastly outnumber us and frighten politicians terribly.

OT, but I just had a lunchtime chat with one of the parking attendants at a hotel near my work, and found out he has a 2004-purchased property in Victorville he is having some trouble selling. Why Victorville (we both work in Pasadena)? Because it was an "investment" property and was relatively "cheap" ($245k 2 Bdm). Why the need to sell now? Because the recently evicted tenants trashed it and it's now vacant and bleeding cash (and I suspect he's also facing an option-ARM reset, though he didn't say). Unfortunately, it looks like the willing-and-able buyer real market value has now fallen below what he owes on the place.

And so the beat goes on...

If a bailout to keep FBers off the street were to happen, here's how I'd like it go go down :

1) FBer applies for foreclosure exemption. Not blanked foreclosure halting, etc.

2) Gov pays the bank 85% of the principle on the loan. They were gonna lose 15% on foreclosure anyway. And giving them 100% is a moral hazard. Say it's a 500k loan, the bank gets 425k

3) Seconds on the house get a whopping 20% on their value and are told to take a hike. For simplicity, we'll pretend they didn't have one.

3) Gov gives FB a "Bailout" mortgage, in which they have a 30yr fixed on 50% of the original principle (not the 85%, the full principle) at 6%. So 250k at 6%. They place a lein against the property for the other 50% of the principle.

4) If the seller ever sells the house, or moves out (it cannot be rented) or buys another house, without paying off the bailout mortgage, the Gov takes 100% of the proceeds to repay the taxpayers. If they have a 250k mortgage, sell the house for 400k 10 years later without paying it off, they get nothing, taxpayers get 400k right into the deficit (or hopefully, the national debt)

5) If the seller pays off the entire Bailout Mortgage, they can then aquire the real rights to the house by paying the government the other 50% of the original loan amount. (Another 250k) They can do this by taking a mortgage. Or they can sell the house, and pocket whatever is left over after paying the gov 250k. Or they can pay the gov "interest only" payments at 6% until they eventually sell the house.

6) The FB can get rid of the other lein and make his bailout mortgage a regular one if he can pay the lein off in cash without having a non-mortgage debt larger than 5% of the lein.

The outer edges of The Fortress are starting to crack:

http://www.redfin.com/stingray/do/printable-listing?listing-id=997443

"Bank owned fixer" Sold for $726k 5 months ago, now $139k off. Has been on the market for a few weeks, too.

Some guy is trying to sell the same sized house on the same street a block down for $950k. I am sure his is in better shape, but is it really worth 60% more?

This is Rockridge, probably the best neighborhood in Oakland.

Jimbo,

B-O-F. BOFF??

sfbubblebuyer,

Nice, well thought out plan.

But that plan contains the evil of allowing the FBs to keep houses, thus preventing those houses from hitting the market at a future reduced price.

If house prices do not free fall to what people can actually afford, we will see rents rise and people will develop coping mechanisms such as families doubling up to share a house, SFH converts to duplexes, etc.

I know Patrick writes that rents are based on actual salaries, but I am seeing rents rise noticeably. They are consuming a bigger portion of that "limiting" salary.

sfbubblebuyer

You are forgetting one very important factor in processes like you're describing:

The further away from the initiating event, the less likely full compliance will be required. This is true of all government programs where a repayment burden of some sort is placed upon the recipient. The government would have to, from time-to-time, renew the program by closing loopholes that open, increasing penalties for fraud or default that become profitable due to inflation over time, and simply to remind owners that what they did 20 years ago still counts.

But those recalibrations seldom happen, or happen poorly, due to Realpolitik. Basically, you're telling the government that in 2027 they'll have to publicly and visibly strengthen the obligation and enforcement of this, by that time, hated and broadly considered unfair program. 20 years is a loooong time in politics. By then, the children of the FB will be the ones mostly affected -- at least in their own perception -- and they'll cry about how unfair the requirements are with the same vigor we all yell about Prop 13 today. They'll say it was just a way for us greedy (by then) multiple property home owners to steal from their poor, hardworking parents who raised them by holding down 3 jobs...

The fact that we were renting at the time and paid for the damned bailout won't matter one iota.

There, that's my doom & gloom for the day.

The only other bailout I can think of involves 'out back behind the barn' and would involve a rapid run-up in shotgun ammunition.

:D

But you're right. Any teeth in the program would get yanked as soon as any 'prosperity' was seen.

Even burning the IE to the ground wouldn't help as the taxpayers would have to bail out the insurance companies.