March 18, 2007

With the housing crash and Great Unwinding stories everywhere, is ANYONE stupid enough to buy a home today?


Anonymous said...

refinance to fixed rate ?
What about 10 or 20,000 $ pre-payment penalty fees in the small print?

This is going to be bad!


Anonymous said...

Bubble didn't burst:


Anonymous said...




He says it all.

Stuck in So Pa said...

One of my co-workers (bought two years ago with an IO/ARM) called his lender to renegotiate when his loan reset last month.


He can't afford his ARM now (he could barely afford it in the teaser period), and the cheapest rate they could/would give him for a fixed/ 30 yr tacked on another $680 dollars over the current recently reset ARM.

So screwed, so sad!

A lot of FB's are going to find out that calling the bank when you can't pay is fruitless and just prolongs the agony. As long as you are on the phone, you might as well ask for the mailing address to send in the keys and be done with it!

chris g said...

I think it's interesting that the guy took the subprime and Alt-A market and lumped them together as subprime. To me, that's the correct categorization of this problem. People who are saying that subprime is a small component of the market are neglecting the impact of Alt-A, which is now supposed to be the elephant in the room.

His advice for getting out of a bad loan is worth trying, but will often fall on deaf ears. You talk to the wrong people at the lender, or they put up a defensive wall against you. Even worse, if they have sold off the loan to someone who has packaged your loan into tranches and sold them off to investors, you can kiss your loan goodbye. Those agreements have clauses stating that new terms cannot be worked out for those mortgages. No short sales, no loan modification, no nothing!

Ben Stein made his usual weekly commentary on CBS Sunday Morning. He commented on the subprime problem, but again like many others, tried to make the issue seem small in the context of the mortgage market and overall economy, and suggested that the banks would get at least 50% of the value of those defaulted mortgages back, and probably more.

I respect Ben Stein very much, but I think he is missing the point here on at least two fronts. First, he is neglecting the Alt-A market when he discusses the "small" impact of the subprime market. Many Alt-A mortgages happened because people lied about their income....otherwise they would not have been qualified, and many of them intended to refinance (good luck doing that now). Second, when many bad subprime mortgages cause foreclosures and subsequent REO's, the eventual sale of those properties brings down the sale value of other properties in that neighborhood, some of which have mortgages taken out by prime borrowers. This reduces or eliminates the equity that prime borrowers thought they had, causing a negative psychological impact on that person's perception of their overall wealth. This has to cause a negative impact on the amount of consumer spending that person does as well.

I'm still not sure if subprime and Alt-A mortgage problems will spill over into prime mortgages, but it seems obvious that the impact will affect the spending patterns of prime borrowers, especially those who want to sell anytime soon.

chris g said...

stuck in so pa,

Great story and great point....sure, the banks will "negotiate" with you, if that means putting you into a fixed rate mortgage you can't afford anyway. You can forget about real negotiation if there is no equity in your home. The banks will do whatever is possible to preserve the value of their security against a borrower's house, as any sane creditor must do outside of bankruptcy.

Anonymous said...

Buying right now isn't smart, I agree. BUT, what if you find something you really like and decide to make an offer. How much (%) below asking price would you offer??

Tesla said...

I chatted up a realtor yesterday, asked her how the market was going. She sighed and said "not good, not good at all", and then proceeded to tell me in detail how lousy the sales figures were for her office. At the end of it she looked like she was going to cry. I didn't have the heart to tell her that it was going to get much worse.

So apparently in my neck of the woods (Boston) very few people are in fact buying.

bozonian said...


It's web sites like this that are responsible for the housing crash. This and the devil and liberals. Yeah. Make them pay. We need a liberal tax and a non-good-christian tax.

After all, there's no way hard working, honest Americans brought this on themselves.

Get out the guillotine! There's a Marie Antoinette somewhere in all this mess and we mean ta' find her!

bozonian said...

Investors around the world who bought these mortgage securities are bending over for the Great Hosing.

I haven't been pulling any punches myself on the possibility of the Great Depression 2.0 coming to a USA near you next year.

No problem though, you DID invest in gold and non-dollar investments didn't you? Oh, you didn't? Most unfortunate.

Here's a tip. Buy Smith and Wesson. The market for suicide revolvers wil be heating up this summer.

Anonymous said...

Bad advice, when asked what a first time buyer should do? The only smart, well thought out answer would have been "to wait". Until all the losers who should never have bought a home are tossed out onto the street.

Anonymous said...

yes in my neighboorhood with 6 foreclosed homes and 1 sale pending with 1 month on market 4 houses down from 1 of the foreclosures. it appears some people do want home ownership no matter the cost and are not willing to wait until the market corrects itself. work is starting on I think it's 80,000 acres of homes and shops. Right down the street from an abandoned housing development. All the sold signs evaporated 2 are occupied, the construction equipment is gone and the weeds now look like bushes and trees and there are perhaps 15 built already looking for someone dumb enough to buy a house for 750,000 with the largest 2000 square feet and ally parking with a couple of feet of front yard. BTW yes you guessed it California.

Anonymous said...

"With the housing crash and Great Unwinding stories everywhere, is ANYONE stupid enough to buy a home today?"

That's a stupid question.

Anonymous said...

Yes. Talk to Wang Ho, the hard working China guy who owns the bonds that are paid for by your mortgage.

He's going to be real sympathetic. Maybe what you need is an "SUV-ectomy"

Anonymous said...

Well, it's good to know there are some alternatives out there. Whew! guess I won't have to jump off that bridge after all.

Actually, I sold my house at the peak and am sitting on the little cash I have and I'm gonna WAIT!!! That's what he should've told them to do, but hey, what about the economy??? Gotta keep it growing, growing, growing... Whoops, what's that ripping sound????

Anonymous said...

It doesn't work when there is also a video of Scarlet Johanson getting her boobs groped by a reporter in public on the same page.

Oh. Now I understand. This happened at the "Golden Globes" awards.

Mortgages? Economy crashing? I forgot where we were.

a.creampuff said...

I think they have to be careful not to pour fuel on the fire, hence the platitudes about "get on the phone with your bank". Enough people know how to extrapolate the message from "2 million people missed a payment in the last year". For those who cannot, our awful reality (incl. failure in Iraq, eco-disaster,etc.) is too much to take in all at once.

Keith, as I said in the other threads - your question should be "with...stories everywhere, does anyone need to read HP today?" Along those lines, I've decided I hope they never, ever catch Jughead with his sherpa hat and man bag, sitting on that blue ball dreaming of Sweet Deals. It's way more fun watching Cupcake dig himself deeper and deeper than the deep but fleeting satisfaction of "closure" (jail time). Time for a Jamba Juice, dude!

GreedKills said...

Banks working with FB's to get them into a 30 year fixed?


How are the FB's going to afford a 30 year fixed when most of them were only able to pay the introductory teaser interest only rate?

even if there were no fees/prepayment penalties etc. the math just doesn't work.

I think that the amount of $'s involved for "poor subprime borrowers" that are at risk are small compared to the flippers that are stuck with extra 500k 1BR condos.

IMO...I think that the TRUE working poor should receive *some* assistance but any 30k wannabe millionaires should be hung out to dry.

Anonymous said...

From Yahoo Finance:

Why Your Home Is Not the Investment You Think It Is

By David Cook

What is wrong with Orange County, CA Real Estate:

Check out

Anonymous said...

Hi Keith

American expat living in Surrey - Walton on Thames/Weybridge area to be exact.

Who is stupid enough to buy a house right now...All the English folks around me! 1-3 million pound houses appear to be selling like hotcakes.

These people seem to be oblivious to the situation in the US, and belive it won't happen here. What say you?

chris g said...

anon 3:42,

That's a great question because it doesn't have a single answer. Depends a lot on where you live, and what house you are trying to get. But keep track of data like months of inventory, 90+ days delinquencies, foreclosures, and % subprime/ARM borrowers in your area. If all of these pieces of data are high, there will be a lot of motivated sellers out there.

For a specific house, you need to find out how motivated that person is to sell. Ask why they are selling -- if they really have to sell, you may be able to deal...but only if they have equity in the house.

Before submitting an offer, ask if they are willing to take a lower offer than a listing price. (Most are more than willing to do it, if they can.) Prepare the seller or seller's agent by saying "Look, I would like to submit an offer, but we all know how the market is lately, and yet I don't want to offend anyone. Should I even bother submitting an offer lower than X?" (with "X" being fairly close to your offer). If they say no, then just be polite, thank them for their time, and move on, but make sure to contact them every month if the property still hasn't sold (always contact them right after the first of the month, when the seller has probably just made the next mortgage payment). However, if they say yes, then go ahead and submit the offer, and again, emphasize that you don't want to offend anyone.

Now for target prices...I'm sure everyone has a different opinion on this board, but get used to the fact that if the 4 pieces of data I mentioned above are high and still rising, the price cut must be high. Look at prices at the peak and discount at least 30-40%, probably more if the neighborhood is shaky and the schools are poor. The biggest bubbles are in areas like these. But get used to the fact that a lot of people don't have enough equity in their house to make these kinds of price cuts. Might want to hook up with an REO agent for better price cuts.

Anonymous said...

people in seattle still think they are special horrible traffic crime going through the roof 50 different languages spoken terrible weather 9 months a year low wages unless you are a techie and real estate way out of site for most new buyers yeah real special

Anonymous said...

The condo next door to my rental just sold last month for $405K. It zillows for $390K and most of what sells around here goes for 10-15% under the zesstimate.

Anonymous said...

"people in seattle still think they are special horrible traffic crime going through the roof 50 different languages spoken terrible weather 9 months a year low wages unless you are a techie and real estate way out of site for most new buyers yeah real special "


Can you learn to write using punctuation?

My God! No wonder why so many employers are saying that many Americans are just unemployable!

Anonymous said...

Anon above-

I don't know, I think people in Seattle are starting to realize this week that they might not be so special. hehehe

devestment said...

Them houses just don't shine anymore. I went by the last house I sold the other day and felt gooood about selling. When things were hot there sure was more money in the neighborhood. Now the money is gone and all that is left are tweekers and retired folk.

Anonymous said...

With inflation on shopping cart items - doesn't that mean the Fed has to raise? But they can't raise for the housing market!

Do I have that right? It's all going according to the script...

Anonymous said...

Lax lending standards starting to be tightened!!!!

Kinda like closing the barndoor after the cows have already run out!

Didn't these lenders think this would come back to bite them in the ASS?

dcydell said...

"ANYONE stupid enough to buy a home today?"

Yep, I am seeing two of them tomorrow.

I Love Broadband over PowerLine said...

INTERACTIVE MAP: 2005 Subprime Loans in New Jersey

I Love Broadband over PowerLine said...

INTERACTIVE MAP: Refinancings and Home Equity Loans 2003-05

atm machine !!!

Anonymous said...


Anonymous said...

Lenders are just as entrenched as sellers in the bubble prices of a few years ago. So it is impossible to work with them. They see the illusory interest they will be making on toxic loans and/or the huge chinese wall of fees they've errected to prevent a refi (to them its the quid pro quo for avoiding the high cost portion of the loan and to compensate for you enjoying the low cost portion of the loan).

Banks will not realize all of this potentiona income is a pure fiction until their hard nosed response results in them being the bag holders of properties worth less than the loan balance.

The only solution is to try to sell and leverage any equity you have and/or your savings to cover any shortfall. Sell the unit yourself or get a discont broker. This may put you behind the powercurve in marketing because of NAR's monoplistic unfair competition practices of blackball such sales venues, but it is possible.

In the alternative when the bank refues (outright or w/ the offer of an unrealistic transaction cost/new product) then just be as blunt as the previous poster said and ask them for the place to mail the keys.

This might shock the bank rep into reality and hve them tell you about the deed in lieu option (DIL).

You give them the deed to the home in lieu of paying on the loan and also in lieu of going to foreclosure. This will be a slightly less painful hit on your credi, so someday you might be able to own a home.

Foreclosure is the worst and if you want to try and keep the home you must go into bankruptcy. If you do not want the home then DIL is the best option. As the DILs & foreclosures pile up then banks will curb their greed and work with defaulting borrowers. Also the Feds may step in and force bnaks to take a dose of just medicine for creating this nightmare. But it will take a solid first wave of tragedy before everyone sobers up to reality.

Good luck.

Anonymous said...

"I respect Ben Stein very much, but I think he is missing the point here on at least two fronts."

I dont.
Ben Stein is a stupid loser. Remember, he said gold will NEVER hit $500 in his lifetime. Well Ben, you ARE as stupid as you look.

Anonymous said...

"With the housing crash and Great Unwinding stories everywhere, is ANYONE stupid enough to buy a home today?"
Actually, my sister and brother-in-law are contemplating buying a condo in Portland in the very near future. I'm staying quiet this time after being told by them (by way of my mother) to keep my mouth shut. They don't believe in the "housing bubble" and they're mad at me because I mentioned it. (Sigh!)....

Anonymous said...

As for who's "dumb" enough to buy right now: my wife and I are.

Since people treated housing like the stock market, you have to assume the same rules: a correction is 10-20%, followed by a period of slow (IE negative in inflation-adjusted dollars) growth for several months/years. Prices will never fall 30-40% for SFHs - condos/townhouses...well, if you own one, good luck.

HOWEVER, by waiting to get that last dollar out of the falling prices, you could lose out on the opportunity to do any sort of special program. IE our 80/20 I don't expect to be available by 4th of July anymore. So, you have to weigh it - if you've got 20% down on a 90% of the house you're eyeing, then sure - wait it out. But, if you're young and income-rich/cash-poor since you're starting out, waiting may not be a good idea if you can get a good deal.

Also, to recover from these losses, what do you think they're going to do? That's right, raise interest rates across the board - so sure, you may save an extra 5-10% on that house ultimately, but with the rate increase/diff, you may not be able to afford it whereas right now you can. ;) I prefer to hedge my bets.

13% off list price.
Independent appraisal @ 5% over what we paid.
All closing paid by seller.
Points paid by seller to get us down to 5.75% fixed 30 year.

Oh - new construction by the way. You watch things "implode" for the next 3 months, and then cry about interest rates when the loan-programs vanish and the rate increases outstrip the diff in price decreases. I'll enjoy decorating my new house and absorbing another 5% decrease before I'm at a loss on paper with 0 down.

Anonymous said...

I really love the way that everyone dances around the subject of the borrower having bad credit. At one time, you could say that - bad credit, bad credit risk, bad debt, etc.

Now they all say "bruised credit", "impaired credit", "soiled credit", "tarnished credit", "limpy, gimpy credit", "blemished credit", "sullied credit", etc.

Man, just come out and call it what it is already "sh*tty credit".

Smug Bastard

Anonymous said...

I live in NJ between Philly and NY. Prices shot up so high so fast, that anyone with half a brain knew weren't sustainable. Let me make this clear....Now is NOT the time to buy. As soon as you sign the papersat closing you're already in negative equity. My advice wait the storm out....2008, or 2009. For now, sit back, relax, save up, and build your credit. If you need to get out of a current situation....RENT for the next year or two. House prices aren't going anywhere until some realtors start starving.

Anonymous said...

"Also, to recover from these losses, what do you think they're going to do? That's right, raise interest rates across the board - so sure, you may save an extra 5-10% on that house ultimately, but with the rate increase/diff, you may not be able to afford it whereas right now you can. ;) I prefer to hedge my bets."

Most people can't afford a house right now. That's why the whole sub-prime, Alt-A mortgages had to be used in the first place.

The ONLY thing that you can never change is the initial purchase price of the house. And if rates go up, as you portend, prices MUST come down if you assume that monthly payments stay affordable. If you buy at that time, you might be paying the same per month; but then you can refinance all the way down and end up with low monthly payments. Should I post an example or do you see what I'm saying?

Anonymous said...

"I'll enjoy decorating my new house and absorbing another 5% decrease before I'm at a loss on paper with 0 down."

I would wait for the bottom and buy at a higher rate with lower price anyday. at least I dont run the risk of being underwater like you will!! HAHAHAHAHAHAHA. Buying in a declining market never pans out.
You can try to rationalize your stupid purchase as much as you want but the bottom line fucked up buying in a 'just beggining to decline' market.
I hope your new inflated mortgage came with fins and a snorkel Skippy. You smug bastard.

Anonymous said...

Something people are not taking into consideration in all of this subprime talk, is the fact that lots, and I mean LOTS, of people used their houses like piggy banks. People have borrowed to buy giant Plasma screens, cars, boats, motor homes, vacations and all sorts of other luxuries, figuring that they could always re-finance when their house had gone up in a year or so. Properties always go UP...they could NEVER go down. Or so they thought. Now that property values have flattened or dropped these people will be forced to pay for all the luxuries and if they fail to pay they will lose their homes.

I am sitting on a pot of gold from selling my Beverly Hills home in 2005 and I have been leasing a new luxury home for close to nothing out in the glutted market of Palm Springs. Houses here are sitting for a year or more. I will buy, but not anytime soon. In the last down turn it took 6 years for the market to bottom (from 1990 to 1996). I bought in 1996 ($850K for a 4 br 6 ba home on half an acre in prime city of BH 90210 and sold it for close to 5 million in 2005...with MINOR improvements), we won't be seeing the real bottom until the suckers who are overstretched are forced into foreclosure. Until then, enjoy watching the inventory pile up, and say buh-bye to all the idiot flip-ers.


Anonymous said...

"I hope your new inflated mortgage came with fins and a snorkel Skippy. You smug bastard."

It is known as the "Jacques Cousteau Option ARM Mortgage"

Happy diving. Let's dance Calypso!

Smug Bastard

Anonymous said...

"I'll enjoy decorating my new house and absorbing another 5% decrease before I'm at a loss on paper with 0 down."

That means you yourself is admitting that the future price of your house is going to be 5% less than today. Now, think of a scenario:
Your home price is down 5% and you cannot pay your mortgage anymore (e.g. you lost your job). Can you bail out yourself from that situation? Probably you can provided you have 100k in your bank account. The problem is that many home buyers don't have that much money in their back accounts. The subprime meltdown is the perfect and expected result of that kind of situation. People think assumed two things (one of these or both)

- Their home price is go up all the time.

- They are not going to have financial problem in future which can force them to sell their home.

Bottomline, people should not buy home anticipating that their home price will go down, unless they have they have enough financial ability to cover the difference. If you have that kind of finacial ability, you are fine. Otherwise, you are indeed "dumb" - just like those people who thought 2 or 3 years back that they are smart (but got into this subprime meltdown today anyway).