patrick.net

"get the hell out while you still can!" LOL

No I can't say as those comments would have been construed in that manner? Fuzzy I'm a huge fan of keeping things in their proper chronoligical perspective. So I hear what you're saying.

The way that "I" took AG's comments was that either he was looking out for the banks best interest, or... he felt there was some mileage left in this thing.

Hey Peter--thanks!
Thought I'd look back in, now that things are starting to really "go south". And, far worse than I would have imagined...sigh.

Anyhow, the reason I bring any of this up is that I feel that the anger on this board towards borrowers gets a tad bit heated sometimes. It seems a favorite pasttime to pull up articles victimizing douchebags and pointing out how ridiculous they are. Fair enough. But for each douchebag FB, there are at least 2 honest families getting hurt from this situation. Grouping all homeowners into crazed FB's serially taking out HELOCs starts sounding a little, shall we say, housist?

I visited a friend in Phoenix not too long ago, who has a newborn. The couple bought 2 years ago with no intention to flip. They have already lost half of their investment. They are not stupid by any means, but I truly believe they had no channel available to them that even made them think that this could happen. Now, embarking on parenthood, they are in huge financial hole they will most likely spend the rest of their careers working out of. It's impossible for me to feel any anger towards them. They didn't even realize that they were gambling, let alone WHAT they were gambling.

Evidence of MSM warning us that AG's advice was crap:

http://www.slate.com/id/2096313/

http://www.suntimes.com/business/savage/31157,cst-fin-terry-236.savagearticle

This was not the media's fault.

Thought I’d look back in, now that things are starting to really “go south”. And, far worse than I would have imagined…sigh.

Perhaps we should get a beer at Marin Brewing Company. :)

Peter P

I believe you are wrong in what you are inferring his lordship meant.

Reading his speech
http://www.federalreserve.gov/boarddocs/speeches/2004/20040223/default.htm

particularly the part titled "Mitigating homeowner payment shocks" and it's obvious he WAS indeed pushing ARMs even using other countries as an example to follow and calling FRM expensive!

American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.

American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.

Fuzzy

the example you bring up of your friends in Phoenix is a fair one (although if i had to guess I would say they didn't buy at traditional loan to income ratios). It is true that many had no idea what was going on. When the professionals are telling you all is well, as long as you can afford the payment you assume you'll be fine. After all you're only buying a home, not investing in an exotic product.

However, it is a lot harder to be so charitable with Bay Area realities because:
1. for every idiot taking on too big a loan, there's an honest family forced to rent or join them in jumping off the financial cliff
2. the absolute numbers around here are so genormous, it's tough to believe people shouldn't have known better. It's one thing to make 80K and buy a 450K house, it's another to make 80K and buy a 900K house.

BAI,

yeah, I would assume they weren't. But I don't know... talking about that stuff all the sudden became impolite. No one likes to talk about how they got gamed.

I guess it takes an event like the one we're in to truly learn the lesson. At least for 50 years or so.

I'm pretty much convinced that the powers that be are going to find a way to take all of my generation's money anyways. Maybe there is no lesson to learn. Those that were irresponsible out here are getting slapped with what? Bad credit for 5 years? Oh no! Like there's going to be any credit to get in the next 5 years anyways. Compare that to the life of the renter/saver the last 6 years, and on into the future where they will continue to knock down the savings with bailouts and inflation.

Perhaps ultimately, in a sick fashion, Greenspan was right when he implied the smart money was in ARMS with his eyebrows.

it’s tough to believe people shouldn’t have known better

Even Isaac Newton lost money in the South Sea bubble. Apparently, he forgot about gravity.

Interesting property game, buy hold and flip houses to buy a mansion....:-)

http://www.channel4.com/4homes/chatvotewin/Mansion-Impossible/mansion.html

Peter P

In my opinion, the words and formulations you highlight are Greenspeak for "should". They're in every speech he makes. When he actually wants to describe uncertainty, he doesn't dedicate an entire speech to the subject. It's either a throw-away line, or not there at all.

I'm certain I can't change your mind, but I'm equally certain that a fair reading of that speech results in an endorsement of ARMs in 2004. In fact when asked to defend it later, he does so, never claiming it was a hypothetical (as you say), but rather that what he described was true in a narrow sense.

http://time-blog.com/curious_capitalist/2007/09/greenspan_what_i_really_meant.html

Fuzzy
I think you're approaching the crux of the matter. Like it or not we're all in this together. With the exception of very "gutsy" and knowledgeable investors like OO, if the idiots are really of a large enough number, we're all screwed due to the resulting policies. It's just a matter of degrees. Just like I can't be a winner if the US loses a war, I also can't be a winner if the US loses a financial "war". I can only hope the loss is smaller than projected.

PeterP may find a way to profit though ;-)

"Perhaps we should get a beer at Marin Brewing Company."

Yeah--that would be cool sometime...maybe we can get Jack "Bob" Ross in on it and revisit the "old bubble days" LOL.

Presently, I'm living in the S.Bay until my relocation plans go through.

Presently, I’m living in the S.Bay until my relocation plans go through.

There is the Los Gatos Brewing Company. :)

Fuzzy says:

The couple bought 2 years ago with no intention to flip. They have already lost half of their investment.

If they bought the house with a mortgage they could afford, why would the fall in house price matter? In fact, the fall in paper value may lower the property tax. What is it that makes a "huge financial hole they will most likely spend the rest of their careers working out of?"

If they are not forced to sell in the next several years or facing a mortgage reset, they have the same housing expenses they would face if the home maintained its paper value.

HeadSet,

yeah! Geez, why are people so upset about housing dropping 40% anyways? :)

I guess this couple can forget about "trading up" any time soon?

That must be a real kick in the teeth, "What do you mean you don't have any down payment!"

Well uh.. we "did". :(

The couple bought 2 years ago with no intention to flip. They have already lost half of their investment.
I know a couple of Bay Aryans like this. It is not pretty. Their only saving grace is they bought conservatively -- around here that means one decent income plus the other spouse working part time. So a 2/1 with kids sharing a room. You are spot on, DinOR. Try moving up the "property ladder" with a whetstone around your neck. They'll survive, but folks like them are the true casualties in my book... No sympathy JBRs, you'll get to buy in at the bottom of cycle. :-)

It's really not the end of the world for them, but bottom line? They lost a decent amount of.... something. Freedom, perhaps?

It will certainly affect the rest of their lives and the decisions they make.

My point was not to start a pity party for them or people like them. It was to point out that not all homeowners are free-dicking FB's.

Oh, and that Suze Orman might be a step up from our last Fed Chairman.

EBGuy,

Headset is right, as long as they're perfectly content w/ where they are it shouldn't be an issue. I would qualify that though by saying "in a normal environment". If your family bought in some far-flung bedroom community b/c it "was what you could afford" (due to the INSANE bubble) with the understanding that you'd move closer... well then you could be screwed.

With $4 gas Ben Jones estimates bad things for those dev's.

$4 gas is the new $1 gas.

DinOR,
Easy for you to say, your kids have moved out. Imagine them back home, sharing a room. Would you be content? :-)
I mean, like I said, these folks were "conservative", so if the other spouse goes to work full time (when the kids enter school...), they'll be able to move. Still, not a fun setback.

This is beyond hilarious.

CHARLOTTE (AP)--Wachovia Corp. (WB) is considering ending its infamous Pick-A- Payment mortgage loans in 17 California counties that have been hit hard by falling home prices and rising foreclosures.

A spokesman for the Charlotte-based bank said Wednesday that the move is being considered, but no decisions have been made.

Note : They are considering to end the infamous program. We cannot even joke about closing the barn door etc. Because they are not closing it yet. They are only looking at the open door and thinking, "Maybe, maybe that open door ... hmmmm ...".

The really odd thing is, lots of homeowners do NOT have medical insurance (or insufficient medical insurance).

I heard about this from a loan officer at BOA when I was chitchatting about refinancing. He was trying to sell me HELOC to make his monthly quota. His sales pitch was actually to pay for medical expense. So I asked him why any employed person with medical insurance would need a HELOC for medical expense? His answer was quite startling, he said that in fact many of his clients do NOT have sufficient coverage like PPO for their medical expenses so HELOC is a fall back plan. Many employers are obviously offering some sort of capped coverage plans (HMO?) that doesn't handle a bit out of ordinary situations.

About a few months ago when I was at my GP for annual checkup, I overheard his admin going after a patient for an unpaid bill, and the patient was insured, because the admin said, your insurance has already paid xxx, but you still owe us yyy for over 2 months now.

Conservative folks buying at the wrong time still get slaughtered. Fate has no mercy on them. The lesson is, one must buy in the best area (not the best house) he can afford.

I have a college friend who fell exactly in the same trap. She got married in 96 and bought right at the top of the last Hong Kong real estate bubble. Contrary to conventional wisdom of buying in the best areas possible, she was discouraged by the lack of choices in good areas and went for some newly developed satellite town where she could get much bigger room, albeit still at a very inflated price. Does that sound familiar to those who bought in Tracy at the top?

Then came the burst of the bubble. Everything tanked in Hong Kong, but her area tanked much more than the prime "fortress". It tanked so much that it became the magnet for low-income families and icon for poverty and crime in the media. Her unit is still hovering at 1/4 of its peak value, nominally, after 11 years while the prime area has already exceeded the 97 peak nominal price. Therefore, given the bigger gap between her area and the more desirable pockets, she has completely lost her hope to trade up.

About 4 years ago, she went through a bitter divorce, and the very untimely home purchase definitely had its part.

I'd say, for those who bought outside the "fortress" at the top of the bubble, it is very likely that they will never see their money back for the rest of their life. In the end, location matters, and timing matters too.

and timing matters too.

I thought you said you were bad at timing... ;)

BTW, I won't consider Cupertino and parts of Palo Alto as good areas. The school premium has been fully-baked into the prices and further influx of new residents will only dilute that premium. Also, if we really towards a school voucher system the importance of school districts will further diminish.

Good areas have lots of big tress and no riff-raff.

Most Asians still don't get it. If they want more opportunities for their kids, they should network and make money. That is the only way to ensure "unfair" advantages for their offsprings right from the beginning.

Of course, any motivated kid with sufficient luck can always build that edge themselves with or without parental help. See, the world is fair after all. ;)

Location is not about the name of the city, it is just about... uh location.

Anything along the western foothill west of 280 or 85 is considered good area, be it western Redwood City (now Emerald Hill I believe), or western Palo Alto. There's location first, and then there is city incorporation, and then there are schools.

The exceptions to this rule perhaps include a few pockets on East Bay which again are in the foothills. When I first came here, my father-in-law, who has been here for almost 5 decades, told me, "if you follow the foothills up and down the peninsula and the valley, you can't go wrong." I have found this statement to be generally accurate.

Yes, I agree. Foothill means trees. Riff-raff people do not usually accumulate up in the hills.

There may be feral people though. :)

There is the Los Gatos Brewing Company.

I prefer the Tied House in SJ. Better beer and fewer yuppies.

Tablerock Brewery here in Boise is also really good. www.tablerockbrewpub.com

If they bought the house with a mortgage they could afford, why would the fall in house price matter?

I bought my house for cash here in Boise two years ago for $272K. It's now worth maybe $250K. Who cares. I paid cash and expect to live in it until they cart me off to the old folks home.

Feral people. You mean the homeless?

With feral cats it's considered humane to catch, sterilize, and release.

Feral people. You mean the homeless?

Hmm... more like Deliverance. :)

More like Deliverance? That's why 20% of Idahoans have concealed carry permits.

I like this post at the NRO....

http://corner.nationalreview.com/post/?q=ZWU1OGIzNmQ4ZGVmZmM2NDMxNTJkYWRjODZhN2Q5MDg=

"Whenever you hear the word "bipartisan," be sure to check for your wallet."

Super-SIV anyone? Banks and investment houses are moving their impaired assets off the balance sheet AGAIN!

http://www.ft.com/cms/s/0/7f7dc986-00dd-11dd-a0c5-000077b07658.html

Who thinks it will work this time?

Why do American Asians compete so fiercely with each other for the lowest markets? All I see are retail like furniture, convenience stores, swap meet stalls...etc. Even in our open culture Asians seem to only be able to streamline a market or to invest in a market. I may not be seeing everything but it just doesn't seem like Asians build large businesses in innovation from the ground up here. Is it a cultural thing or am I just wrong?

We're looking at home now in which the owner bought in 1998 for $450K, with a $350K mortgage. Not too bad, a normal, fixed mortgage as best I can tell.

They just kept refi'ing cash out and taking on revolver after revolver until they put it up for sale in 2006 for $1.5mm (in Novato for crying out loud). Well, it's still for sale after dropping price by $300K. But they're stuck. They owe $1.2mm and change in debt.

Oops.

My question is: did these people work? Or have they just been living large off their house for the past decade? WTF?

Did they refi to remodel or rebuild the house? I actually have several neighbors who refi'd over $500K to either rebuild or remodel the house, which is also partially the reason why a house bought for $450K in 1988 is asking for $1.5M 10 years later.

Man, remodel in the Bay Area is expensive. It runs $200-400 per sf, almost as much as rebuild. The average remodeling bill I heard is at least $100K. If they refi'd to remodel or rebuild (hence increasing the value of their home), then it is fine I guess.