The trap has sprung. That sums it up.
The slimiest of the slimy, mortgage brokers, conned so many financially unsophisticated folks into these no-down, no-doc, negative-am, teaser-rate blah blah loans over the past couple of years. Yes, the sucker (I mean loan holder) is responsible for their own mistake in the end. And I understand why many of them made it:
Free money!
Lower your house payment 50%!
Pay off all your debt!
Well, there is no such thing as free money, their payments will end up being more than they were paying once the loans reset, and they didn't really pay off their debt, they just moved it from lender A to lender B.
The trap has sprung. America, get ready for the Greatest Depression. Never before have so many used so much leverage to bubble up an asset than the Late Great Housing Bubble of 2000 - 2006. Leverage on the way down is sickening, as we'll all now see.
From BusinessWeek:
For cash-strapped homeowners, it was a pitch they couldn't refuse: Refinance your mortgage at a bargain rate and cut your payments in half. New home buyers, stretching to afford something in a super-heated market, didn't even need to produce documentation, much less a downpayment.
Those who took the bait are in for a nasty surprise. While many Americans have started to worry about falling home prices, borrowers who jumped into so-called option ARM loans have another, more urgent problem: payments that are about to skyrocket
The option adjustable rate mortgage (ARM) might be the riskiest and most complicated home loan product ever created. With its temptingly low minimum payments, the option ARM brought a whole new group of buyers into the housing market, extending the boom longer than it could have otherwise lasted, especially in the hottest markets. Suddenly, almost anyone could afford a home -- or so they thought.
The most diligent home buyers asked enough questions to know that option ARMs can be fraught with risk. But others, caught up in real estate mania, ignored or failed to appreciate the risk.
The option ARM is "like the neutron bomb," says George McCarthy, a housing economist at New York's Ford Foundation. "It's going to kill all the people but leave the houses standing."
September 01, 2006
BusinessWeek "Nightmare Mortgages" cover story: Option ARMs like neutron bomb - "going to kill all the people but leave the houses standing"
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47 comments:
Perhaps this is the Bell Ringing for all of America!
. . .this is posted all over the internet today. . .the Map of Misery is horrible!. . .time for the Hindenberg Movie Clip . . .btw - Google now has a video clip search in Beta. . .check it out. . .
the mouse with the helmet is the best pic yet -- love it.
Why not i/o's, rate are low and you make the payment. Nobody ever pays off there 30 year fix anyways. Most people i know and work with in their 50's or older plan to sell and retire some other place. most have had 30y fixed rates and will sell and retire before ever getting to the end of the 30year fixed. Rates are still low get a clue KEITH you know most people will never pay off a 30 year note. I don't agree with people refi to by bullshit stuff but 30year fix rate are worthless. Most people will move or die before paying a 30 year fixed rate complete.
I think there needs to be a 3 strikes you're out law that will outlaw option ARM.
The pena;ty after the 3 offense - death!
Anon 6;52;26,
You are the most shallowest person I've heard. Yes- your argument is very shallow with respect to the 30 year FIXED mortgage. Listen very carefully as this will not be repeated again. It is not the idea of paying off your mortgage in 30 years, let alone having to live in your house for the next 30 years. It is the FIXED rate that you will take advantage of on a traditional 30 year mortgage. Who gives a f'ck if you turn around and sell it tomorrow.(symantec only) With a traditional FIXED RATE, you're protected during market swings. Now will say - but taking an adjustable will lower your payment initially. That's the key word you have to watch; the word initially.
Lastly, no one, I mean no one, even your self-serving realtor, can dictate how and where you want to live or want to do with your life for that matter.
Now, there's nothing much I can say other than; whatever floats your boat.
whap! splat!
To Anonymous
I paid off TWO 30 year loans early. . .and many people I know have done that. You are the perfect example (sadly) of people who don't understand economics, and will be victimized by sleazy sub-prime lenders. . .why not just go to a Check-Cashing store, or payday loan?? You might get better rates!!
The battle of Sprawlingrad has begun.
you don't get it
NIZE NOTES:
"THE FROTH COMITH"
This month's figures prove that the so-called "housing bubble" is not only real, but that its cratering faster than anyone had realized. As the UK Guardian reported just yesterday, "the orderly housing slowdown predicted by the Federal Reserve will (soon) become a full-blown crash".
All the indicators are now pointing in the wrong direction. Consumer confidence is down, inventory is at a 10 year high, and the number of homes sold in July was 22% lower than last year. As Paul Ashworth, chief economist at Capital Economics said, "Things seem to be getting worse very quickly. Freefall is a strong word, but I think it's the right one to use here." (UK Guardian)
The housing bubble is a $10 trillion equity balloon that will explode sometime in 2007 when more than $1 trillion in no-interest, no down payment, adjustable-rate mortgages (ARMs) reset; setting the stage for massive home devaluation, foreclosures and unemployment. ("By some estimates housing activity has accounted for 40% of all the jobs created since 2001". Times Online) July's plunging sales are just the first sign of a major slowdown. The worst is yet to come...
...according to the Fed's own figures, "the total amount of residential housing wealth in the US just about doubled between 1999 and 2006"up from $10.4 trillion to $20.4 trillion". Times Online.
UP $10 TRILLION IN 7 YEARS! That is the very definition of a humongous, economy-killing equity monster. In other words, the Fed knew the ACTUAL SIZE OF THE BUBBLE and chose to steer it towards the nearest iceberg without warning the public.
This is what Greenspan called "a little froth"...
I personally have friends in this situation..needless to say they did not listin to me and told me I was crazy to think this is going to end real bad..
man I hate that Expression, ahh what the hell...."TOLD YOU SO"
Good thing I just cleaned my finished basement looks real nice to $150 a week I look foward to renting that room out ..
Knock Knock! sorry have to go someone at the door hahahah! "TOLD YOU SO"
"TOLD YOU SO" will be heard in family gatherings and parties for sometime. I love it. In fact, I will start the "TOLD YOU SO" this coming Labor Day (family BB-Q)
Whats really silly is people making mortgage payments on a CONDO!! If they plan to "pay it off"' by the time they do..the Home Owners Association dues have raised so much they just replace a mortagage payment and the poor
condo "owner" is NEVER free from debt!
more from the article:
There was plenty more going on behind the scenes they didn't know about, either: that their broker was paid more to sell option ARMs than other mortgages; that their lender is allowed to claim the full monthly payment as revenue on its books even when borrowers choose to pay much less; that the loan's interest rates and up-front fees might not have been set by their bank but rather by a hedge fund; and that they'll soon be confronted with the choice of coughing up higher payments or coughing up their home. The option ARM is "like the neutron bomb," says George McCarthy, a housing economist at New York's Ford Foundation. "It's going to kill all the people but leave the houses standing."
Jennifer and Eric Hinz of Somerset, Wis., are feeling the squeeze. They refinanced out of a 5.25% fixed-rate, 30-year loan in June, 2005, and into an option ARM with a 1% teaser rate from Indymac Bank. The $1,483 payment for their original mortgage dropped to as low as $747 with the new option ARM. They say they had no idea when they signed up, however, that the low payment adds $600 in deferred interest to their balance every month. Worse, they thought the 1% would last three years, but they're already paying 7.68%. "What reasonable human being would ever knowingly give up a 5.25% fixed-rate for what we're getting now?" says Eric, 36, who works in commercial construction. Refinancing is out because they can't afford the $15,000 or so in fees. "I'm paying more, and the interest is just going up and up and up," says Jennifer, 34, a stay-at-home mom. "I feel like we got totally screwed." They say their mortgage broker has stopped returning their phone calls. Indymac declined to comment on the loan's specifics.
we are hosed
Keith-
You need to juxtapose that BW cover next to the Time cover of a year ago.
"quickly pulled the trigger"
Someone needs to take Burger's gun away.
Keith:
I don't know if you archive some of the funny comments we've made here. If not, I think you should start doing it now and in 10 years, we can all get together, revisit our comments and in unison shout - TOLD YOU SO!
That's what you call - sweet talk by the loan sharks.
When these banks fail due to increasing foreclosres, guess who's going to end up paying?
Keith-
lmfao
just noticed you changed the name on the link of housingbubbleblog to "ben's boring blog".
Is this like an east coast/ west coast rapper thing?
Keith's Blog: Fox News
Ben's Blog: CNN
Keith's Blog: Rush Limbaugh
Ben's Blog: Al Gore
Keith's Blog: Pluto
Ben's Blog: Saturn
Keith's Blog: KKK
Ben's Blog: ERA
Keith's Blog: Renters who can't afford a house
Ben's Blog: Renters who can afford a house
"The Greatest Depression....."
Keith - you only have 4 months before your beloved Dow 8000 prediction exposes you as a fool.....
DOW at 11,450 today
Correction-
Keiths blog - URanus
Anon at 7:46:35 PM
Good Point!!! I've noticed outrageous HOA fees built into some new developments, even on 1-BR units to guarantee the builder an income stream of excessive management and other related fees.
It's a scam. In california, you can buy a 1-BR condo for cash and still pay well over $1,000 per month in Taxes, Insurance and HOA fees with supplemental assessments.
There will be massive class-action lawsuits guaranteed.
Call me a fool but....
I predict that the poop hits the fan with the administration change.
I agree on the HOA issue. I don't own a condo, but I'm thinking of getting one someday if the price is right or at bargain.
I think there should be a cap, similar to Prop 13, where they can only increase the fee by no more than a certain percentage per year. Or perhaps no more than the inflation rate.
Check out the podcast and post what you think...
http://www.businessweek.com/mediacenter/podcasts/cover_stories/covercast_08_31_06.htm
NIZE NOTES:
WSJ: Housing Chill Begins to Pinch Nation's Banks
You will not want to own bank stocks after reading this. WSJ with some solid reporting explains how the first problem for banks will be declining earnings. (Problems from mortgage defaults will come later).
The cooling housing market is starting to pinch the nation's banks, which are more exposed to real estate than ever -- and it comes at a time when some of their other key businesses already are being squeezed.
Although real-estate downturns typically trigger concerns about rising delinquencies and defaults on existing mortgages, the more pressing worry in the industry right now is that a slowdown in demand for new loans will cut into earnings that have been exceptionally strong...
...banks have begun to warn investors that the housing slowdown is starting to hurt their business. FirstFed Financial Corp., a Santa Monica, Calif., bank with a large mortgage business, said in a securities filing Monday that its mortgage originations were down 47% in July from year-earlier levels. The next day, First
Horizon National Corp., a Memphis, Tenn., bank that sells home loans across the country, said it expects mortgage originations to fall by $1 billion in the third quarter due to a falloff in applications. And Punk Ziegel's Mr. Bove last week cut his rating on Salt Lake City-based Zions Bancorp to a "hold" from a "buy" due to views that the bank, which provides loans to home builders, will experience lower volumes as construction slows and land values decline...
Banks have ridden the real-estate boom over the past five years by pitching traditional loans, newfangled mortgages and home-equity loans that can be used to pay off credit-card bills or fund a new plasma-screen television.
While the banks reduce their exposure to these loans by selling some of them into secondary markets, real estate still amounts to a chunk of their assets.
As a result, real estate, including mortgages, home-equity loans and commercial loans, represented a record 33.5% of the U.S. banking industry's $9.298 trillion in assets in July, according to the Federal Reserve. The numbers represent the highest level in the Fed's database going back to 1973.
Home-equity loans and commercial loans at record highs, with the housing market collapsing, is not a good sign. This is going to get very messy.
Let the Domino effect begin.
I REALLY wish all the Anon posts would be banned.
All bloggers should have a permanent ID, not some "group name".
It is like throwing bombs while hiding behind your mommy.
Pathetic....
Seattlemoose:
You're pathetic. The purpose of this blog is to share ideas and thoughts, specifcally on the housing market and is not a popularity contest. ID is immaterial. What difference does it make if you call yourself Einstein, but with a dumbest opinion? Or call yourself Dimwit, but makes sense. It is the idea of offering different perspective on different issues. I don't think you even have some worthwhile opinion to offer, do you?
Seattle-Really Dude-get off it.BTW Do you have some solutions to the problems that people are facing financially?Lets hear them if you do.
Keith's Blog: K-Fed
Ben's Blog: Britney
Keith's Blog: People Magazine
Ben's Blog: Reader's Digest
Keith's Blog: Camaro
Ben's Blog: Saturn
Keith's Blog: WNBA
Ben's Blog: NBA
Keith's Blog: Wal-Mart
Ben's Blog: Costco
Keith's Blog: Seattle Moose
Ben's Blog: Anonymous
The FBI is on the case-AHhhHaaaaahaaahaaahaaahhh-Phone call to the FBI.Hello?FBI?Yes this is theeee FBI.Ah,yeah,well uhmm,BLAh blah blah blah,and blah,FBI-yes keep going,-well uh blah blah.FBI-well wee will get right on it.end of call.Meanwhile at the FBI Headquarters-What was that call about ? Well sir ,seems some of the sheeple have awaken.Where?Out west sir.Shit!Swarzzenegger! WTF Governor-you got sheep up at night.Oh Mine GODT!GET OVA HEAH NOWWWUUUU.DEMMIT!Das Bubble must conteenu to beeuld,owa elssse we will be osta.Yes Governor ,but didn't we agree to not mention the "B" word?Yes YES,My MEESTAKE.Nowuuu Get on wit da commooshal pwoduction you swinehundts!!YOU! get outta za way!Noww demn youuu!GET dowwwwwn!Man this dude is a loon,says one agent to the other. Meanwhile at the Chili's in Lodi-Hey honey,isn't that the governor on the tube?Why yeas it is darling,lets listen.
Men unt women off Golliphonya,This is youaa guvunah heeuh totay to tall you of the great progress we half med in owah economeee.Da Houssing ist strongah then evah,das rates ah comingk dowuun,unt once ageen da Housing mokket iss on fiah!!I helf put tha FBI on da trail of OSAMMA foah adtimpting to destroy ouah housing mokkit.Unlike Washington,Golliphonya weel captuah Osamma.I will kick Boosh's bott back do Texas ,undt Maheeaah will bite Laura's ESS widt huh Big ASS Choppuhs!!! Hoooorayyy in the backround.
Oh isn't that great honey? Why yes.Lets go flip that house in FResno!!YES YESS YESSSS!
20 years ago in UK we had something called an "Endowment mortgage".
This was basically you take out an insurance policy for the value of the house over the term of the mortgage and paid the insurance premium plus the interest on the loan.
These were sold as "You'll get the minimum payout on the policy to cover the loan, but you'll likely get a tax free lump sum too.
We now have the "were you missold an endowment mortgage" and you can claim adverts on the TV, as not only was the "+ lump sum" a load of old tosh, but these insurance policies wont pay off the mortgage anything near whats owed.
I was in my early 20s at this time, and as green as grass, but even I saw this was bound to fail.
The more things change, the more they stay the same.
from yahoo news this morning "...Most of the pain will be born by ordinary people. And it's already happening. More than a fifth of option ARM loans in 2004 and 2005 are upside down -- meaning borrowers' homes are worth less than their debt. If home prices fall 10%, that number would double. "The number of houses for sale is tripling in some markets, so people are not going to get out of their debt," says the Ford Foundation's McCarthy. "A lot are going to walk."
http://news.yahoo.com/s/bw/b4000001
I had an identity and every one verbally bashed me because of my name! I am still here, and LOVE the "back and forth" but I am stealth now. I am too sensitive.
But it is really fun when it is everyone else!
I hav e never understood the idea of buying a condo or co-op and paying monthly fees.
Finaally after years of being ridiculed for my unsophisticated opinion, I stopped talking about it.
Jennifer and Eric Hinz of Somerset, Wis., are feeling the squeeze. They refinanced out of a 5.25% fixed-rate, 30-year loan in June, 2005, and into an option ARM with a 1% teaser rate from Indymac Bank. The $1,483 payment for their original mortgage dropped to as low as $747 with the new option ARM. They say they had no idea when they signed up, however, that the low payment adds $600 in deferred interest to their balance every month. Worse, they thought the 1% would last three years, but they're already paying 7.68%. "What reasonable human being would ever knowingly give up a 5.25% fixed-rate for what we're getting now?" says Eric, 36, who works in commercial construction. Refinancing is out because they can't afford the $15,000 or so in fees. "I'm paying more, and the interest is just going up and up and up," says Jennifer, 34, a stay-at-home mom. "I feel like we got totally screwed." They say their mortgage broker has stopped returning their phone calls. Indymac declined to comment on the loan's specifics.
This is a good example of what that one comedian means when he says, "You can't fix stupid." Who do these people hang out with?
BTW...there's an awful commercial that keeps playing on WTOP radio in DC. They keep saying that if you are paying more than 1.25% on your mortgage you need to call them NOW. They also say things like "You OWE it to yourself" and "take UNLIMITED CASH OUT". The number is 877-345-CASH if you're interested in mocking these jerks.
MAN I am Sooooo sick of those damn mortgage ads. I listen to talk radio and everyother ad is some sleazy mortgage company offering to give you "cash flow relief".
I can't wait for these companies to go back to janitorial or whatever rock it is they will have to crawl back under....Until the subpoenas start coming.
Frankgio... I have to agree on the HOA fees. Its one of the reasons I bought my own home back in '94 rather than a condo. Why? Because the assoc wanted 155.00 per month . I felt I could apply that 155 alot better then give it to some group. Glad I did. People tell me that if you've got a maint issue, good luck with getting it fixed. One friend tells me he had a couple sprinkler heads not functioning. He requested repair over 2 years and never got it fixed. He finally went and did it himself. Basicly you get nothing but grass cuttings and snow plowing ( But not on your driveway or walkway. That you have to do yourself!! ) But then When the group decided to redo all the roofs even though his was still in excellent shape being only about 9 yrs old, he had to cough up another 4800. He wasn't allowed to opt out.
You are all behind the times re the HOA fees. Mine is $118.00 a month and it covers: conference room, office equipment ( copier, printer, 2 computers), gym, 2 swimming pools, security, free city parking spot, club house for parties and HOME OWNERS INSURANCE IN FLORIDUH.
Can't wait to see all the bodies and laugh my ass off.
My neighbors HOA fee in Los Angeles is $600 a month and it includes bending over and taking it!
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Crazy scary...that is how the home mortgages market is getting. The UK home mortgages market isn't much better.
Jord
UK Home Mortgages
on a 30 year mortgage it will cost you more than double of your original loan balance. why give all that money to the bank. if you have a 300,000 loan it will cost 672,000 which is a loss of 372,000.
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