Wednesday, March 14, 2007

The Mortgage Trap has Sprung

I’m not a financial wizard, not by a long shot, but even a couple of years ago I could see the prospect of a flood of home foreclosures that we now have.

When housing prices escalated so rapidly, so did mortgage availability. All sorts of Mickey Mouse mortgage arrangements sprang up. Just about anyone could get a quick loan and buy a house that was horribly overpriced. Way too many of these people couldn’t really afford the homes they bought, but they bought them anyway thinking the value of the house would continue to rise and they didn’t read the fine print on these easy to grab mortgage papers.

Today it’s all caught up with them and they discover they really can’t afford the mortgage payments on these homes. They also discover that since the bottom has fallen out of the housing boom, they own a home which is worth much less than they owe on it. It’s damned difficult to get out from under mortgage payments by trying to sell a home for more than it’s worth. So what do they do? They do the only thing they can do, they walk away from their home and leave it in their lender’s hands. All those mortgage companies that made it all so easy for prospective buyers to get these homes are left holding the bag and the debt.

I remember at a speech last year or the year before bush bragging about more people in the US owning homes than ever before. Wonder if he’ll address the high rise in foreclosures any time soon?

No one in the government seems to have paid attention to what was brewing with these easy to get mortgages. No one said this is trapping people in something they can’t afford. Why not? Someone should have.

29 Comments:

Blogger Coffee Messiah said...

Any time you hear how good things are, should be enough to alert you to stay away.
Of course, no one will ever address this issue.
BTW, my parents bought a house in '59 for close to $9,000.00 in Daly City, Ca: "Little boxes on the hillside, little boxes made out of ticky tacky...."
They are indeed very small. Now? They are going for over $600,000. Who has that kind of earning power.
My sister lives near Santa Cruz, Ca and purchased a 3 bdrm condo for $650,000. I couldn't believe it.
We're slumming. We purchased a very cool bungalow built in the 20s, with real wood throughout the inside, pocket doors, for $60,000. Need I mention it's my first and only house?
Out here, those out of range prices
will never occur(this area anyway) but may be one area where you can fix a house and actually make a little money on your return.
With lack of jobs paying real wages, with jobs going out of the states, who will be able to afford anything anymore????? ; (

March 14, 2007 3:29 AM  
Blogger fallenmonk said...

While everything appeared rosy all the GOP fat cats were making too much money to do anything about the potential disaster. Remember the Savings and Loan debacle, the government or should I say taxpayer wound up paying the bill for a lot of people making a lot of money. Something similar will happen this time.

March 14, 2007 3:45 AM  
Blogger Women on the Verge said...

This makes me absolutely crazy... we've become so focused on instant gratification that we just can't wait to "own" things until we can truly afford them. I agree, the banks have made it far too easy for people to get in over their heads, but where is the common sense on the part of the borrower??? The bank might approve someone for a loan, but does that mean it's realistic for the borrower? I know when we were looking at houses the bank approved us for much higher than for what we actually purchased. Ya see, we wanted to be able to own the house, not have the house own us. Groceries and utilities weren't "luxury" items we were willing to go without...and what about those unexpected expenses, like a water pipe bursting, or a major appliance going, or the furnace quitting??I have a sister who just bought a house and a water pipe went causing $14,000 worth of damage.Something like that could cause a family to go under very quickly if they're living paycheck to paycheck with maxed out credit. I agree something needs to be done to rein in the banking industry, but the consumer needs to start practicing some delayed gratification as well... we need to start thinking more like the ants than the grasshopper.

March 14, 2007 4:32 AM  
Blogger Peacechick Mary said...

This foreclosure "boom" has a huge domino effect as now, those institutions who gave them the loans while borrowing from prim lenders are defaulting on their loans. So it wasn't just the homeowners who were crazy to buy into the boom, many money factories did too. I also put a lot of blame on the insurance companies who gouged the new owners.

March 14, 2007 6:01 AM  
Blogger robin andrea said...

I remember reading Paul Krugman a while ago, and he was recounting a conversation he had with someone. This person was stunned by our economy and said-- you people don't build anything anymore, you just buy and sell property. The housing boom of the late 90s and early 2000s was like the tech-stock boom of the early 90s. A lot of people got into it expecting big returns. Now the bubble is bursting. This has the potential to be very bad. Fallenmonk is absolutely right. We will end up bailing out a lot of these companies. Does the name Neil Bush ring a bell? Have I mentioned how much I hate the Bush family?

March 14, 2007 7:45 AM  
Blogger SB Gypsy said...

All those mortgage companies that made it all so easy for prospective buyers to get these homes are left holding the bag and the debt.

Actually, they are left holding the deeds to all these properties, which may have been why they offered the bad loans in the first place.

(am I cynical, or what?)

March 14, 2007 8:02 AM  
Blogger SB Gypsy said...

Heck, every time they sell the house, they get points, and every buyer is paying 90% interest for the first 10 years anyway.

If they forclose, they don't have to sell for anything near what the price of the house was in order to make a profit. The "homeowner" looses any principle they built up.

They're probably interviewing realtors right now.

March 14, 2007 8:07 AM  
Anonymous JollyRoger said...

I talked the other day about these ARMed bombs being being a kind of WMD that literally touches every ZIP Code in America.

The WMD have started to explode, and their proliferation means that these ARMs are going to affect many millions of Americans for many years to come.

I was reading last night that certain areas in Florida are among the worst hit by these WMD. I, of course, live in a wasteland myself-the ARMs proliferation here has meant that WMD have gone off all over the place.

March 14, 2007 8:12 AM  
Blogger Frederick said...

Ownership society; who's getting owned?

March 14, 2007 8:45 AM  
Blogger The Minstrel Boy said...

like many other things this will drive deeper and hurt more. the market corrections that should have softened this blow were stopped by artificial investments by regulators. it's like the "earthquake flurries" that sometimes happen in california. a swarm of small, little temblors is far better than the 7.5. pretty soon wall street is going to look like the oakland bay bridge.

March 14, 2007 9:53 AM  
Blogger beachblogger said...

Dear PoP,

i'm thinking of the old joke "we lose on every sale but we make up on the volume" bushco would like to see everybody go bankrupt and then they can buy it all on the cheap.

peace, peter

March 14, 2007 12:26 PM  
Blogger sumo said...

I'm with Robin Andrea...I'll never forget what Neil Bush was part of. His Papa 41 swept that situation under the carpet so fast that it left smoke. I wasn't a voter then yet...but that was when I began to really hate the Bush family...no honor or principles...at all. Their family gets a free pass in life I guess. And my heart goes out to those people that got caught up in the housing boom. Yes...I'd say that most of the lenders aren't hurting...they have the deeds like sb gypsy said...to use to their advantage. They're all whores.

March 14, 2007 12:30 PM  
Blogger Human said...

women on the verge wrote my thoughts better than I could.

Peace.

March 14, 2007 12:34 PM  
Blogger C-dell said...

yes that tends to be the way things are done here in america. We get sold a wolf in sheeps clothing. We are so quick to see the big letters that we ignore the small ones. If it sounds good we are hooked.

March 14, 2007 12:45 PM  
Blogger Pursey Tuttweiler said...

Patricia,
I have been trying to figure this out for a long time. Banks only wanted to be in the money business but it seems to me by offering these tricky deals they started wanting to become landowners. Now, citizens will all be renters. What is the gain for the banks? No more private property owners, that is what.

I think I have things up and running on the new blog, Live at the Gay Agenda. You should be able to get to it through this post by clicking on my name.

March 14, 2007 12:55 PM  
Blogger Pogo said...

PoP,
Jumping back to the prior thread, the early DST change drove our IT folks nuts, but other than that, no prob.

Funny how the creative mortgage guys didn't have a problem when folks they were lending to were holding overvlued property. Wall Street hasn't been as generous. When the creative mortgage guys are ending up holding the overvalued property through foreclosures, they are turning the money off. Want to ge tthe last laugh? Go bid on foreclosed properties at less than their appraised value and for once sleep with the satisfaction of having stuck it to the bankers.

March 14, 2007 1:40 PM  
Blogger Pogo said...

sb gypsy,
It doesn't work that way for the smaller lenders. Holding a deed for them is no different than holding a mortgage note is for you-it's supported only by debt, and when they get foreclosed upon because they can'tpay their lenders, they don't keep the deeds or the property, either. Sthey're not writing mortgageslike they used to, so their income streams diminish,and they'll hit the financial wall and either have to declare bankruptcy and forefeit their assets or will be bought out by one of the bigger banking predators out there, or it will be covered by an insurance outfit like FDIC - Like Chase, f'rinstance. The only bright spot is that someone will end up with the foreclosed property and have to sell it for cash. In a soft housing market, that means there are people who will be able to pickup property at a decent price- probably not at firesale prices, but at realistic prices. The unfortunate part is that real people lost that house to foreclosure.

March 14, 2007 1:55 PM  
Blogger Anon-Paranoid said...

Don't forget under the new bankruptcy bill they will still owe the money. No more clean slate.

When the bill was debated on the floors of Congress it was brought up that if a job was lost or a severe medical condition arose people would lose there houses and still have to pay the majority of their debt.

This was the bill brought to you by the Republican Fascist Nazi Party controlling the agenda and our government.

I know in some states your house is suppose to be free of any bankruptcy filings, but I believe under this new law there not. Once a foreclosure happens they lose there house or try to save it through filing bankruptcy before foreclosure happens. The new bill strips away any protection they might have had of getting a clean slate and keeping there homes.

If I'm wrong would someone please correct me.

I hope I don't lose this comment as I tried posting it earlier and it did a disappearing act.

God Bless all.

Oh, on another note it has been reported that the pumps installed in NOLA were possibly defected and might not have held up under another hurricane allowing the city to be flooded again if one occured in 2006.

The company that had the contract for the pumps once had a partnership with Jeb Bush and is located in Florida. More contracts to the Bush Criminal Family.

God Bless.

March 14, 2007 5:07 PM  
Blogger TomCat said...

Great minds PoP. We're mirroeing each other here. Bush's nefarious bankruptcy law, written for their benefit, gave subprime lenders the impetus to make loans to people who could not pay, fueling artificially high housing prices, upon which the subprime lenders depended for security from the many defaults they knew would come. The effects of their greed are now spreading across the economy.

March 14, 2007 6:29 PM  
Anonymous pekka said...

Might this possibly support, that the unbridled growth is the curse behind it all? It is as if there is a planned consipracy against the people to make them to consume, consume, consume.

It is evident, that our collective and unsustainable path in wasting the world's natural resources can not be sustained. The housing industries everywhere and in the U.S. particularly, have long ceased being just providers of homes. They have become, with other branches of industry, dream merchants and comodity peddlers. All the signs are there, that they have been selling with the reckless disregard something that has been contrary to the intrests of their customers and thus to that of the country itself.
Onus should not be saddled on the consumer alone.

Add to this the fact, that the banks are acting just like drug pushers around school yards, and one helluva unflattering picture emerges.

March 14, 2007 6:42 PM  
Blogger Yoga Korunta said...

Doesn't Ohio lead the nation in foreclosures?

March 14, 2007 7:23 PM  
Blogger Anon-Paranoid said...

yoga korunta....

I believe that Florida has 25% of all foreclosures in the housing market with California second. I could be wrong though.

God Bless.

March 14, 2007 8:27 PM  
Anonymous Anonymous said...

Why is it the banks fault or Bush's fault that people are "caught' in houses they cant afford? Since when are people not held accountable for just plain old bad decision making. If you cant afford it without one of these crazy arms then YOU CANT AFFORD IT! Has no one ever thought ahead that intrest rates could rise and you could be pricing yourself out of your house. Should that bank tell you that?
I agree with WOTV instant gratification and our misconception that bigger has to be better has a lot to blame.

March 14, 2007 9:15 PM  
Blogger PoliShifter said...

Well Anonymous,

I wish we would apply your logic to how we run our gummint.

WE CANNOT AFFORD THE OCCUPATION OF IRAQ, AFGHANISTAN, or BUSH's GWOT

But we borrow none-the-less to fund them. We deficit spend. Our National Debt is $9 Trillion.

Sure I understand People should make sane, rational financial decisions and if they bought a house with payment that in a couple of years would be above their means, ultimately it is their fault. I mean, so what if the mortgage broker talked them into the deal promising them that their equity growth would out-pace their payment...they could always refi or take out money as they would be house-rich. Who cares if the broker promised them massive tax returns.

But my question to you anon is this: Should we not at the very least hold our gummint to the same standard you want to hold others to?

If so, then why the fuck are Bush&Cheney still president and why the fuck are we still in Iraq?

March 14, 2007 9:55 PM  
Blogger Women on the Verge said...

Poli--
You are right... we should definitely hold the government to those same standards and I am constantly asking myself exactly WHY Bush and Cheney are still in the White House and why this country is still in Iraq. I'm sad to say that I've come to the conclusion that it's because we've become a nation of apathetic people who would rather let someone else do our thinking for us and unfortunately, due to greed and laziness, now we're in an incredibly deep hole that's sinking by the second...

Yes... the banking industry is out of control... YES the government is out of control... but the bottom line is it's up to us to decide whether to give in to the salespitch. Are you willing to lead, or be led?? Yep... the mortgage broker told us that we'd be house-rich too, but I also realized these folks can't predict the future either... anything can happen... the stock market can crash, the housing bubble can burst... and there really may just not be any weapons of mass destruction.

I feel your pain, poli...we ALL need to be accountable for our actions, not just a select few.

Ethel

March 15, 2007 6:02 AM  
Blogger PoliShifter said...

Hi Ethel, well I didn't buy a house though I went through several pitches and have been preapproved over 4 times for a homeloand I just could not pull the trigger for the very reasons anon was talking about. Interest only ARM's? I wasn't going to take the chance that housing market would melt down and leave me stuck with a piece of paper.

But it always amazes me (I'm not picking on anon here) how conservatives can demand fiscal responsibility out of Americans and not their government. They will be the first to shit on "wellfare queens" and poor people for not working hard enough or spending their money frivilously.

At the same time these very people will advocate for massive tax cuts for the wealthy and tell everyone that running deficits and borrowing money is really a good thing for the gummint.

March 15, 2007 7:27 AM  
Blogger Fixer said...

Didja hear Greenspan today decrying the subprime industry? Seems he used to be highly in favor of them when it was u to him to prop up this economy.

March 15, 2007 2:40 PM  
Blogger Women on the Verge said...

poli-

I hear ya... that's always stuck in my craw too... it's the old "Do as I say, and not as I do".

The biggest problem for me is why do the masses continue to buy the same old tired salespitch/ arguments for this garbage??? You would think common sense would show them that reasoning is "faulty" at best...

March 16, 2007 5:05 AM  
Blogger RawFoodGuy said...

It's easy when you don't have the problem to blame foreclosures on the victimes of the subprime lenders who sold them products they were not qualified for in the first place. I am one such person. Just after the hurricane decimated my FLorida property I was desparate enough to say yes when one such salesman called. Of course, my property has lost about 40% of its value, and is worth less than the 2nd I took. I am responsible - ultimately, of course. However, I am not good at financial matters and was taken advantage of us well in a tough situation. It is extremely insulting and naive to think my personal responsibility is the only variable in this equation. The lenders were more than happy to sell me a first with an ARM and a HELOC later at 100% of the value for 13% - despite absolutely nothing documenting any income at all (stated income loans). I had a chronic illness followed by major financial setbacks right after the hurrican and couldn't work for a year. Now I can't pay. Now these same mortgage companies refuse to help in any way and threaten foreclosure, claiming they are happy to lose money rather than do something to help me out. One company insisted that the only program they can offer me is to make me current if I pay two months in a row $900 a month) - what sense does that make??? It's like asking the fire for heat without giving it wood first...if I had the mmoney to make two months payments, I wouldn't be in financial need, would I? These people are criminals and they deserve every penney fo the hundreds of billions they are losing now due to foreclosures of subprime loans.

My question is this - should I rent a place now and get out from under the two loans (about $1500 a month) and walk away or should I try to get caught up and hope the value comes back up in a few years??? What do you folks think? Is bankruyptcy an option, even though mortgages are secured loans, to protect my home?

Thanks for listing to my rant -
RFG

May 15, 2007 3:52 PM  

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