LIVING THE AMERICAN NIGHTMARE

As the housing market softens, a combination of consumer naivete and aggressive lending means owners with subprime loans are increasingly getting sucked down a financial black hole.
To many people in the affluent Bay Area, losing a home to foreclosure sounds like a Depression-era relic or a Rust Belt phenomenon. Our real estate prices have defied gravity for so long; our job market is so strong; our cachet as a place to live seems so obvious. How could foreclosures happen here?
http://sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/07/29/MNGRVR91S21.DTL

'Unless of course you are a Neo-Con Republican in which cas this can be seen as the continuation of their American Dream in which the economy is on a roll and everything is finally becomong right in the world'

SINKING SHIP!

That's what happens when you take a interest only mortgage in a bubble market.

Simple reality. Things happen to idiots that don't happen to other folks.

Does anyone remember when everyone was crying about the sluggish stock market a couple years ago ? People took their money out two years ago and invested in real estate. Many, many people who were not investors were tempted into the market based on the following years of "booming RE market" reports. It's not surprising that the original investors have taken the gain, reinvested in the stock market, causing the rise this last week, and also the sudden drop as they capture profits back.

Yes, there are a lot of foreclosures. Many many more than last year, and probably more to come. I imagine that people who cashed out their stocks will be taking advantage to the falling market and reinvesting in the foreclosure market.

Non-traditional lenders are not the problem, less than ethical mortgage brokers and short sighted agents aren't helping, but there are plenty of people who benefited from being able to get a loan without income qualifying -- including me. I'm self employed, and work on a commission type basis. I don't get a traditional W-2 income statement, and without one, I'd pretty much never be able to get a traditional loan.

Timing is everything, and if you don't have that, get a consultation from an appraiser before you make an offer, or even, before you list your property. The money you spend may just save your bottom line.

You are so right, this has nothing to do with predatory lenders or their amoral Realtor allies who convinced buyers the bubble would never burst.

Caveat emptor.

I am no fan of the financial services industry, but every con needs a willing mark.

I agree with you, however as someone who has derived the majority of my income for the last 35 years from Real Estate related activities, as a buyer, seller, landlord, Realtor, Loan Officer and hard money lender, I can't tell you how many hundreds of cases of unscrupulous RE activities I have witnessed. Part of the problem is the commision based fees paid to both lenders and Realtors. Buyers and sellers should always use attorney when transacting any RE action. Realors have a fiduciary resposibility to their clients but..................
And yes the ignorance of the American buying public never ceases to amaze me.

It's not that simple.

Developers paying appraisers to overvalue the houses they've built for increased profit, the Fed encouraging banks to relax traditional mortgage underwriting standards, deregulation allowing lenders to securitize risky loans and sell them to investors and the proliferation of the subprime lending industry were all among the factors feeding the bubble.

Yes, some people were idiots - I have little sympathy for condo speculators in Miami - but others were legitimate victims of predatory lending practices and outright fraud.

If it slows down new construction.....I say...bring it on.

I rank builders just below child molesters and neocons.

I certainly don't understand how these things work, and I'll say that right now, but from my uninformed standpoint it doesn't seem surprising that when foreclosures start happening, they would happen in places with astronomically high housing costs. I know it's happening everywhere, but I don't get the "how could it happen in the Bay Area?" thing. My first thought is that it would happen there because it seems to cost a metric fuckton of money to buy a house there, so people are less likely to be able to afford a lot of the traditional costs of buying a house in the first place and thus are more likely to go for these "too good to be true" mortgage and lending schemes.

Again, though, I don't understand how these economic market trends and bursting bubbles and whatnot really work, so my perception is probably off.

LOL
Actuallly thats a pretty good explanation of what happend. Housing prices got so high people couldn't afford the traditional 20% down or they couldn't meet the income level or credit ratinng requirments so Lenders came up with the sub-prime creative financing. People could get in to a home with little or no down,at one point you could evn get loans for 120% of the appraised value and with interest rates were at rock bottom. Some loans were down to 3 to 4%. The problem was/is that these were interest only ARM's -ajustable rate mortgages. So the borower was only paying the basic interest rate, say 1K a month for example for 2 to 3 years and then Holy Shit here comes reallity. Your 4% interest only loan is now a 8% principal and interst loan and your payment is now 2K a month. Your home has stopped appreciating and you may have evn lost equity, you actually owe more than your home is worth.
Thats a way over-simplified explanation but I'm watching the Giants game waiting for Barry Bonds to tie the Hank's record

And yes timing is everything along with educating yourself. However there are plenty of shady appraisers out there as well working with mtg brokers and realtors inflating home values, the corruption runs very deep.

But, you see, that is just it. The whole con was based on the mark believing that s/he had to buy a house in this wildly inflated market.

I mean, I do feel bad for people. My father, who had always been a sucker for the get rich quick deal, dumped his retirement into the Nasdaq at 4500, two months before the crash. He kept believing it would come back (he's been dead for three years and the Nasdaq still isn't where he got in at.)

What the small guy needs to get is that this is a big guy's game. You have no business buying a 1.5 mil house on 350k of income and no equity stake. It was a loser's bargain from the beginning. The only folks who made money were the developers who flipped their stock early. Which is the way it always works out in the end. The big guys get out early and leave the small guys holding the bag - it has been that way since the speculation in tulip bulbs in the 17th century.

Fixed that for you.

48% of loans in 2006 were no doc or low doc loans.

Which means this isn't going to peak until 2009. Perfect for me, that should be around when I will be looking for a house.

Then I fixed it for you.

Interesting that you would put this is a thread about people pulling the wool over other people's eyes.

As recently as four months ago, a supposedly reputable housing lender tried to get me into a zero-down, interest-only/balloon payment mortgage for 250K. In New Orleans.


I "respectfully" declined.

I have a great loan offer for you, also.

Thanks guys.
btw We here in the good ole USA are still inocent till proven guilty ya know.
Unless of course your a Duke lacrosse player lol

I was hoping SubRosa might chime in on the Bonds issue him being in San Francisco and all :-)

It was better in 2004

A friend of mine used to work in loans, and the stories he could tell about people were simply staggering. One where a couple making over 200k a year were about to lose everything because they had just bought, bought, bought, and then just didn't pay off any loans. Or where a couple making 50k combined wanted to buy a 250k house with a credit rating of under 550.

Yeah, I've got no sympathy for complete idiot shitheads.

PS - One woman actually said to him "Yeah, I took on a lot of loans that I knew I wasn't going to pay back." WHAT THE FUCK

oops

Congrats&Good for you for doing your homework.
Oh and good luck with the new place

The simple explanation suggests that the market is a product of a perfect storm.
-For sellers, the "deal value" is the price. The higher the price, the better
-For buyers, the "deal value" is the monthly payment

Therefore, lower interest rates suggest increased buying power, which in turn drives higher prices. The net effect is (in many but not all parts of the US), inflating prices offset by lower interest rates spawned by immense amounts of available capital.

The housing market will not "crash" on these metrics or behaviors. Selected markets will witness inventory and price pressures based upon the strength of their local economy (employment and taxes).

That is not to say that buyers did not overextend themselves on the pretext of low interest; however, it remains a small minority and homes are still selling in most healthy markets where the average number of days on the market remains well below what was the norm 10-15 years ago.