It's too late now to avert a mortgage lending crisis..

[Virginia Dare]

and the subsequent crash that will follow. I'm more and more pessimistic about a soft landing, I think we're headed for a serious crash. I hope I'm wrong, because there will be dire consequences for everybody if this happens. The blame can rest squarely on the shoulders of the Republican Party who sat by and did nothing while this whole thing played out. Oh wait, they did do something, they made sure that the banking industry will be able to cover their butts a lot easier, and the people will get screwed harder in the event of a crash.

http://www.washingtonpost.com/wp-dyn/content/article/2007/03/13/AR2007031301733.html

http://www.washingtonpost.com/wp-dyn/content/article/2007/03/13/AR2007031300505.html

[SpiralHawk]

1. "Don't worry. Me and my republicon cronies are doing great." - Commander AWOL

"We are busy little piggies counting up our massive war profits.
Oh yeah, I almost forgot the republicon talking point of the day:
too bad about your homes, and shit like that."

- Commander AWOL

[mnhtnbb]

2. the front of the tsunami is hitting FL

Following is from an e-mail newsletter I get as part of an investment newsletter subscription


The Easy Society

Things are starting to get a bit rough for “The Easy Society.” Florida Today is reporting, “5,600 Brevard Residents Are on the Brink of Losing Their Homes”:

“A wave of home mortgage foreclosures is sweeping across Brevard County -- signaling a disastrous end to the local housing boom for those who could lose their homes…

“Many of the cases stem from homebuyers -- both residents and investors -- getting sucked into risky loans, with limited options to refinance or sell because of the recent decline in local property values…

“The trend is part of a rise in foreclosures nationwide, and especially in Florida, which ranked second in the nation in 2006 in foreclosures, behind California.

“In Brevard County, there were 982 foreclosures from November through February, more than double the 377 foreclosures during the same four-month period a year earlier, according to data provided by Brevard County Clerk of Courts Scott Ellis. The figures include some commercial foreclosures, but the vast majority are residential.

[The Cleaner]

12. Florida is also dealing with insurance rates doubling, tripling

and that's also driving many to bankruptcy.

[Virginia Dare]

14. This will only get worse as well..

the insurance industry is already preparting for the inevitable loss and destruction as a result of climate change.

[The Backlash Cometh]

29. Did it ever occur to anybody, that these "crashes" are not accidental?

Like the stock market crashes, where the uber rich are well taken care of before it happens, and suddenly the middlin to lower level investor is left without a chair to sit on once the music stops. Suddenly, there's all this property for the uber rich to invest in at cheap prices, and the process begins again.

I had a lawyer professor once tell me, that if you wanted a job in depression or in good times, take up mortgage lending and bankruptcy.

[Virginia Dare]

30. Money is like water...

it doesn't disappear it just gets redistributed.

[The Backlash Cometh]

34. Yep, and middlin American Republicans are beginning to realize

that they've been carrying that water for their rich Republican relatives, and they don't like their mule status.

[suziedemocrat]

41. That's a good one - never hear that - but so true! n/t

[truedelphi]

55. Liquor stores work well in depressed times as well

The eviction people, the mortgage brokers etc need the bbooze to assauge their consciences, while the rest need the booze to see them through their times of loss.

[Odin2005]

67. I don't see any conspiracy, just typical stupidity, arrogance and lassez-faire fundimentalism.

Just like in 1929...

[The Cleaner]

3. Hell, I've been saying this since 2000!!!

I was one of the few who recognized this housing bubble and sounded the alarms early. Not that anybody was listening though, typical in a bubble. What's that phrase, lasseiz le bon ton roulet...

One of the final signs of a bubble is mass speculation and the flourishing of predatory lenders, leading to pervasive corruption. Now it's all starting to come down, just like I foresaw.

[mnhtnbb]

4. Laissez les bon temps roulez!--Let the good times roll!

[Virginia Dare]

5. I've been increasingly worried about rising home prices..

especially in my area, suburbs of D.C. Our home is been appreciating every year in the double digits for the last 4-5 years. I knew this was not a good thing. This whole thing is very scary in my opinion.

[mnhtnbb]

8. We've seen about 5%/ year in Chapel Hill. The whole Triangle area of NC

hasn't seen huge appreciation in the last few years. We hope this stability will be a good thing, because we're thinking of putting our house on the market next year. We already refinanced to get equity out and use for the house we're building in Panama--which will be owned free and clear. Hubby and I have talked about whether we'll just walk away from this house if we can't sell
it for enough to cover paying off the 80% interest only loan, broker's fees and closing costs.

[Virginia Dare]

10. That's about all you can do..

prepare yourself the best you can and keep your fingers crossed.

I paid off all of my consumer debt when I was in my late 20's and never looked back. I've had a couple of car loans and a couple of mortgages, but now I owe far less on my home than what it is currently worth, so I think I'm in an okay position. It's just so hard to tell what all of the repercusions are going to be, I don't think any of us will come out of this the same way unfortunately.

[The Cleaner]

20. I LOVE that area of the country...and a question:

What exactly does it mean to just "walk away" from one's home? Does it literally mean you up and leave, skipping out on the mortgage payments? If so, wouldn't creditors catch up with you at some point? And how could you rent an apartment or purchase a new home in the future if you walk out like that?

I wondered this because I've heard this phrase before.

[mnhtnbb]

22. We will have walked away to live in Panama. Let the lender foreclose.

It won't be worth it to them to come get us there.

We'll own the Panama house free and clear and our permanent resident visas
in Panama have already been approved. I'm going to pick mine up when I'm in Panama next week taking care of some business and checking on the construction of our house--which we hope will finally be finished this summer (Should have been done this month but the workers have been on strike since end of Jan and developers are trying to bust the union by letting them strike).

[Virginia Dare]

25. That depends...

as long as lots of other people don't get the same idea you do, probably not, but if lots of people start walking out on mortgages and fleeing the country it might become worth it.

I don't know, I'm not a real estate lawyer, so I'm not sure all of the ins and outs of the law. I hope it works out for you, sounds like you've thought it all out, I'm all for sticking it to the greedy bastards.

[mnhtnbb]

28. We hope the 20% cushion will make it possible to find a buyer.

I'd rather sell it for 85% of what it was once valued than have to walk away.

Again, the Triangle area hasn't seen huge run-up in housing prices and the jobs outlook is pretty good here.

[The Cleaner]

26. Why Panama?

How did you come to choose Panama as your place to live? Aren't you afraid of political instability?

[mnhtnbb]

31. Panama was the result of taking a look at a lot of places.

Canada and NZ don't want retirees; Ireland is too expensive. Caribbean islands like Bahamas, Turks & Caicos, Cayman Islands are all subject to hurricanes.
We looked very closely at Belize--but rejected it because of exposure to hurricanes.

Panama is the financial center of Central America. They have a terrific
program for retirees; they want American and Canadian ex-pats.
With the approval of the Canal expansion, there will be boom times for another 10-15 years in Panama. Heck, even Donald Trump is building in Panama City.

We bought in the Bocas del Toro area, up near the border with Costa Rica, on the Caribbean side. We're part of a resort development on a rain forest island.

[The Cleaner]

42. hmph - how very interesting!

Thanks! Good luck...:)

[Virginia Dare]

43. I've been hearing some buzz about Costa Rica...

lots of American ex-pats heading down that way. Very interesting.

[mnhtnbb]

58. Costa Rica is quite a bit more expensive than Panama.

[Virginia Dare]

60. You might want to start keeping Panama under your hat then..

because once the Yanquis start heading there in droves, it will drive up the cost there too.

[mnhtnbb]

66. It already has! We couldn't afford to buy in now to the development where our house is!

[eridani]

68. Depends on how you live

The son of a friend of ours is living there with his Peruvian/Cuban wife and a couple of other young couples doing subsistence farming and making jewelry for the tourist market.

[truedelphi]

56. Sounds nice

Could you PM me more details!!

I want to go relax somewhere where lunch ain't ten bucks a pop!

And designer clothes are not required.

[wicket]

11. The prices in my area (Boston, MA) are insane

It is very scary. I'm glad to be a renter at this point, as much as I would love to own a home.

[ananda]

37. renting works for me too

I just can't see myself taking on the burdens of home ownership again.
Renting has been great for me and I will continue to rent when I move
this summer.

[The Cleaner]

15. Boy do I have some stories for you from Northern Virginia!

Stories of greed; homes selling within one or two hours of listing; overbidding; bidding wars; nearly gutted-out townhomes in Annandale area selling for the price of normal homes; and this was all in 2000. We were so disgusted we moved out of state where housing was more reasonable and more sane. Figured we'd never be able to afford a home in Northern Virginia unless the market crashed and housing became affordable again.

Anyway your intuition was correct all along. This kind of mass speculation is not a good thing. When you see valuations go up beyond reason (ala the tech market of the late 1990s) that's a reason for concern - and you can damn well bet it'll come tumbling down at some point.

Ah yes, the easy money days of using one's home as an ATM machine are over. I just wonder what will become of all those enormous McMansions...

[Virginia Dare]

17. The McMansions...

they will be the new poor houses. You will see 5 to 10 families living in them.

[nitpicker]

19. Have you checked the comps in the last few months??

My area in the DC area has been FLAT for me since about the middle of 2005, although they did sell a few McMansions and older showpieces along with all those little cottages. Without subprime to put people in those cottages... look for the souffle to deflate.

[Virginia Dare]

21. Values appear to have gone flat in my area...

although my tax value went up again this year. It's a bit like the calm before the storm.

[pampango]

7. Congratulations. Give yourself a big pat on the back.

:hug:

[The Cleaner]

24. What is most difficult is

warning people for years now that the train is coming and they'd better get off the tracks, and hearing them deny it to the hilt, to their own peril.

[frankenforpres]

61. these smug hotshots

are going to get their comeuppance, dont worry.

[Double T]

6. Agreed. The wall street cheerleaders on cnbc can forget about.........

their soft landing propaganda BS, the evil ways and greed of corporate america. wall street and specially the lending and banking institutions are going to take a big hit that may lead to an economic crash. The phony bush boom great economy is coming apart, as would be expected.

[Raven]

9. I'm afraid I agree with you.

When the real estate market crashed in the 80's it was mostly developers and some banks that were hurt. Many regular folks found that their mortgages were "upside down" ( the loan to value ratio was out of whack) but they had conventional mortgages and were able to hold on until the value of their property went up. This is a very different situation because so many of these mortgages to lower income folks and first time buyers where just nuts to begin with. There was no way that people were going to be able to make the monthly payments over an extended period of time. If you ask any competent mortgage leader, he/she is going to tell you that they are not in the business of owning real estate. It is the last thing they want. They make their money of the interest payments. If they have to foreclose, the lender bids in at the amount of the outstanding mortgage. If the property sells at auction for more than that, the excess goes to the borrower. If the property goes for less than the mortgage (very likely these days) then the lender is screwed and the homeowner is screwed.

People who signed up for one of these these nutty mortgages were betting that by the time their super low interest rate became super high, they could rely or an increase in value of their home and refinance out of the nutty mortgage. Hasn't happened. I have to say, though, that I don't know what people were thinking if they entered into one of those no documentation mortgages knowing full well that they didn't have the income to pay the monthly freight.

Another thing that I've noticed that boils my blood is the real estate brokers who have partnered up with mortgage companies and really push buyers into these bad deals. There is a horrendous conflict of interest there, I think.

[Virginia Dare]

13. Yes, I think people put false trust in the lenders...

they figure, if they're willing to lend me the money, it must be okay. Most people under the age of 35 or so don't remember a time when interest rates were high and credit was harder to come by. I think they're about to find out the hard way.

[napi21]

46. Yes, and I wonder how many times we're NOW going to hear Shrub

BRAGGING about how many "first time home buyers" there are!!!!

Every time I heard him say that, I cringed! I personally know several people who bought their first home with NO MONEY DOWN and a variable rate mtg. NOW they're in panic mode becauce interest rates are going up and they no longer can afford their payment!

[nitpicker]

16. Who can put 5% down now on their own house?

Short of raiding the retirement kitty and paying the IRS tax and penalties.

[Virginia Dare]

18. Good point..

and for a lot of these people who will ultimately lose their homes, it will be much harder for them to ever be homeowners again, so in reality making it easier for people to own a home in the short term will probably do much more damage in the long term.

[BluePatriot]

48. We are lucky to live here in that regard

Houston sucks for a lot of other reasons but at least housing's still moderate. We are aiming for 20 percent on a $120,000ish house one day, which you can still get in a moderately safe area close to the freeway. Too bad that to live here you have to work for an oil co/have zero arts around/deal with Repugs all the time...ntm our formerly unremarkable "meh" city has shifted into a weird construction of seething artificial demographics and unpleasant, noticeable class/race tensions re:Katrina. (I offer no opinion on the latter, just an observation)

[MadHound]

62. I can and did,

Back in 1993 when I bought my first, starter house. By buying a cheap trailer, and having to pay a minimal lot rent, I was able to save for the down payment. I lived in that house for ten years, and sold for a profit. Turned around and invested that profit into a twenty percent downpayment in my current, and last house, out in the country.

The trouble is that everybody wants the big house out in the hills right away. The concept of working up the ladder, starting with a small, affordable house that you can invest in and see some profit from the sale is one that is quickly dying. Instead, they want the McMansion now, but it simply doesn't work that way, never has, not if you're smart. But idiots take out shaky loans with nothing down and an ARM, and then cry foul when the fall behind on payments and are foreclosed. Sorry, but in most cases it is their own damn fault, they foolishly bit off more than they could chew.

We have raised generations of people who believe in their right of having instant gratification, and will do anything to fulfill that need. Thus, they make unwise decisions, like buying overpriced houses on undersized budgets. And now not only will they pay the price, but all of us will as the economy comes in for a crash landing.

[ScreamingMeemie]

23. It was too late 3 years ago.

But those stories weren't important and sunk like stones both in the media and here.

[lectrobyte]

27. some good info here:

http://calculatedrisk.blogspot.com/

[NashVegas]

32. This Means Very Little To Me

The only mortgage I can afford would put me in outrageously high-crime neighborhoods. When all these mortgages default, I have no illusions that home prices in safer areas will be in the range I could afford.

[Virginia Dare]

33. There will be a domino effect though...

it will mean very much to all of us before it's over.

[tomreedtoon]

35. GOOD! It's the fall that preceeds pride.

All those people who wanted me to buy a house on horrible loan programs...SO THERE!

And yes, the economy will crash, we'll all lose our jobs and we'll all be living in cardboard boxes, fighting over rats and cats for our daily meal. But I always expected to be there. You guys with your mortgages and your hot tubs never did, and you'll be easy pickings for us bottom-dwellers.

See you in the alleyway.

[Deja Q]

51. I know it's easy (and fun!) to be cynical, but aren't you being a bit much?

Plus, threatening other people with bodily harm is a crime, if not an act of terror. Zip it.

[tomreedtoon]

69. You should only be on the receiving end of this nonsense.

People here, who should have known better, kept saying "A house is a good investment!" and "You really need to marry a good woman and have her work for you - two incomes are better than one" and other nonsense.

No matter how progressive or liberal such people may think they are, they are still materialistic. Bitching about Republicans driving gas-wasting SUV's? You buy cappucino and lattes and other pretentous coffee, which doesn't do anything more or taste any better than the cup o' mud served at your local greasy spoon. It's all materialism, and such people deserve a smackdown. Whether it's a "nice house" or Hilfinger shirts.

And like it or not, when the economy fails, we will ALL become each other's enemies. We will be scrabbling for scraps. I'm sure you'd kill me if you thought I had food to feed your family, and there was no other way to get it. And I'm determined not to die, even if it means your family must.
It's Republican "free market" philosophy brought down to a very real level, and if you didn't like it, you should have done something about it when America was still a free country - like run somebody who actually wanted to win the Presidency, not those wishy-washy "nice" candidates Gore and Kerry.

[SammyWinstonJack]

52. That's real nice of you.

:sarcasm:

[tomreedtoon]

70. Hey, "Sarcasm," welcome to free market economy.

Lesson one: if Democratic candidates don't really want to win, and surrender to Republicans at the first opportunity (two times), then Democrats don't really have any argument with Republican philosophy.

Lesson two: Republican philosophy is stab-in-the-back competition. To them, you never stand taller than when you step on the neck of a friend. And Democrats showed that they accept that philosophy, when they stepped on Bill Clinton's neck during the Whitewater business. You can't tell me that you sabotaged Clinton's Presidency because you argued with his stand on NAFTA - you just wanted to see him fall over and die, a truly Republican pleasure.

Lesson three: Democrats have been playing the economic game the same way Republicans did. They may have mourned when (to get back to housing) people were wiped out in New Orleans, but if those luxury condos were built on the grounds of the rubble (and the undiscovered dead bodies), Democrats with money would be just as eager to move into them as any Halliburton executive. None of the candidates of any party have taken a vow of poverty - have you? (I'm not talking about a vow of poverty imposed by economic conditions, which too many of us already have.)

So when people here talk about "buy a house" and then feign disbelief when their investments go south, of COURSE I'm going to feel schadenfreude. They weren't investing in a house or the housing bubble, they were investing in Bushism, and they deserve to be thrown into the alley to scrabble with the rest of us losers.

[kickysnana]

36. D Trump says "cash in the looming forclosure market"

Mail solicitation for a seminar given by D Trump Jr yesterday.

[bullwinkle428]

59. Trump Jr. is giving seminars now? I suppose he sees

the writing on the wall regarding the future of "The Apprentice"!

[meldroc]

38. I may be avoiding the worst - I currently rent.

For my entire adult life, home ownership has been completely out of reach for me. Only recently has it started to get closer to within reach, though that's because I have a nice software engineering job, and I'm building up a little savings.

But this housing bubble has me very jittery right now. I'm nervous about shopping for a home, only to wind up with a bad loan from a predatory lender, lose my job in the upcoming economic crash, and end up on the street, homeless, still owing tens of thousands.

So I'm going to rent for another year, wait and see how things settle down, continue building my credit (paid off my old credit card, still have a car loan and student loans, but they're not too bad) and hope that when the rubble clears, I'll be in the catbird seat and be able to pick up a nice house for dirt cheap. Though I imagine that by then, interest rates will go up, meaning houses will be cheap, but the mortgages will still be impossible to afford.

I guess the rich motherfuckers ensure that it's impossible for the little guy like me to win... They'll take their pound of flesh one way or another.

[BluePatriot]

39. *shrug*

Pro: it may be easier for us to buy a house.

Con: The ripple effect of this (loss of construction jobs, etc) will affect the local economy and loads of businesses.

I think we will just continue waiting unless some gem of a foreclosure pops up. Property taxes here in Texas really impede ownership, ntm all of the gas/electric bills spiking in cost year over year. Mom told me stories about having to walk away from their first home b/c interest rates spiked over 6-7 weeks in the late 70s/early 80s.

[Virginia Dare]

40. Maybe, but you'll need to put lots of cash down...

yes you're right, it will be the inflation that will kill the rest of us.

[BluePatriot]

44. Did you see this article?

http://money.cnn.com/2007/03/14/magazines/fortune/sanon.fortune/index.htm?cnn=yes

"...NEW YORK (Fortune) -- Jemima and Ricardo Sanon, 30 and 29, saw the possibility of trouble before they ever signed their mortgage documents in 2004.

The Sanons had diligently saved $5,000 in preparation to buy their first home, but the sum was just enough to cover the closing costs. So to finance the $290,000 purchase price of a Waltham, Mass home, they took one loan for $232,000 and also a piggyback loan for $58,000, both from New Century Financial, a subprime lender..."

$5000 down on a ~$300,000 house? Yikes.

Looks like an attempt to frame "irresponsible buyers" as the problem, but no one, NO one should have approved that loan. Predatory lending has got us into this mess.

[Virginia Dare]

45. That's the truth...

and these are the types of sloppy practices that the Congress will now try to reign in, but like I said, too little, too late.

[meldroc]

49. Buying a home is nearly impossible if you do it the traditional, responsible way.

Back before these days of predatory lenders and ARMs and piggyback loans, the classic way to buy a home was to put 20% down (yes, 20%) plus closing costs and borrow the other 80% on a fixed-rate 30-year mortgage.

Back when a home was $50,000, that meant you would pay $10,000, plus another couple thousand in closing costs, borrow $40,000, and you're done. That's a bit of a sum to save up, but not impossible, and lots of people could manage it.

Now, a typical starter home goes for $160,000 in my area, and you see a lot of homes for $250,000 or even more. To do the traditional mortgage, that means you'd be putting down $32,000 just for the downpayment. For that $250,000 home, you'll be putting $50,000 down if you were borrowing the old-fashioned way.

That's flat out impossible for just about everyone except the wealthy. So the lenders, wanting to keep those homes selling, come up with piggyback loans, interest-only loans, ARMs, etc. that pretend to make these prices within reach of regular people. Of course, this will end up biting everyone in the ass when all of the sudden, those mortgage payments go up, or the homeowner gets laid off, etc.

The point is that houses are overpriced. Not just slightly overpriced, but overpriced by close to an order of magnitude. If homes were priced at their true value today, you'd probably be able to buy a starter home for $50,000 - $80,000 in most markets. When the housing market truly tanks, lenders and lendees are going to learn the hard way that no financial wizardry will make a $250,000 home truly within the reach of a family that by all rights should be paying $80,000 for that same home.

Like I said, by continuing to rent and save money, I hope to be able to pick up a house at its true value after the housing market finishes imploding.

[loudsue]

65. But our hardwood lumber is being sold to China/Japan for exhorbitant $$

And merely the cost of the wood to build a house these days has skyrocketed.

The entire "ecosystem" of the building industry is "bubbled" due to globalization, so when the shit hits the fan, it's going to spew it all over the world.

It's a fine mess these greedy short-term thinkers in government have gotten us all into.

:kick::kick::kick:

[Raven]

47. Good op-ed in Truthout about this.

http://www.truthout.org/docs_2006/031407J.shtml

[Deja Q]

50. $300,000 for a house worth $150,000 is the real problem...

And there are plenty of safeguards left.

Don't be so negative.

I'm not sure Dems are all sterling angels either... but if offshoring were to slow down and jobs made, that would help a lot too.

[Virginia Dare]

57. Cheap and easy credit is what fueled that problem..

the speculators and the flippers jumping into the market and driving the prices higher and higher.

No the Dems aren't sterling angels, but they weren't minding the store during the run up to this particular crisis, and many of them have been sounding the alarm for several years now.

Sorry, but it's very hard for me to see an upside to this right now, it would take a miracle to come out of this unscathed imo.

[trekbiker]

53. my house sale closed march 1.... huge relief

but I had it on the market for 6 months and reduced the price $50K below other identical homes in my area (northern CA). Found a very nice apartment 4 miles from my office cutting my commute down from 45miles one way. I think I'll be renting for awhile.

There are a few problems here in CA. Rates of foreclosures are skyrocketing, especially in the central valley, and subprime lending is going to tighten up dramatically as foreclosure rates go up. I think Subprime lending was fueling this bubble from around 2000 to late 2005. The builders are still building homes so it will be interesting to see how this develops later this year and into next without the constant supply of subprime borrowers fueling the bubble from the entry level.

[truedelphi]

54. Banking Indistry is the New Mafia except the one

Difference is that they are legally sanctioned.

[MadHound]

63. Yup, this is already looking to be a hard crash, perhaps rivaling the Great Depression in scope

Sub-prime lenders are going under. All fine and good, except for the fact that SP lenders get their money from the big boys at Citibank, Bank of America, Chase, etc. etc. Thus this will start dragging down those major financial institutions also. Shorten up the money supply, inflation goes up, interest rates go up, etc. etc. The other, really big devil in these details is how this will effect the consumer credit industry. Families with enormous debt loads will face the choice between the credit card payment or the house payment. Most will stay with the house, thus more and more money will be withheld from the CC companies. In addition, as things tighten up, less consumer spending, meaning less money charged, which will hurt the consumer credit industry hard, as will all of those defaulted home equity loans that were eaten up like candy over the past ten years. This could bring an enormous crash to the consumer credit sector, and thus toppling the whole economy.

We'll see what happens. But I suggest that people start making preparations. Get rid of as much debt, espcecially consumer debt, as you can. Learn to grow food, ride a bike, get back to the basics. For if the consumer credit sector goes, we're all going to be in for a world of hurt.

[gravity]

64. The mortgages are high risk for a reason

If people are taking high risk loans, its expected that some will fail to pay them back.