I believe that the proliferation of credit card debt over the past 15 years has helped lead us down this path to consumer debtors prison.  The difference between using plastic versus your home as the ATM is the key. They can take away your plastic and you at least have a place to live. 

I think it is really sad that big business (e.g. Countrywide and all their conspirators) have enabled the weak minded to dig themselves such a big hole.  Many of us who follow this blog are not only educated, but wise with our money and are able to distinguish wants from needs.  Many others in society, unfortunately, are not.

So the question today is really good - should they take the ‘bailout’ which keeps them locked in their home or just walk away with a black mark on their credit record?  As we have read in this blog and news articles, many people will not even have a choice as they do not qualify for the bailout.  For those who qualify, I think for many it will come down to their character - will they honor their commitments regardless how misguided they were?
-----

Another second mortgage of death (for the bank). What bank made this dud loan?

Question for IrvineRenter.  The writeup says: “This is a recourse loan as it is a refi.” From this I make an assumption--

Original mortgages are only backed by the property itself in the event of default, but refinance mortgages are backed by the property and any other assets/income of the borrower.

Is this correct?

Thanks for your great blog.

Bill Shoe.

Whenever I think about this issue, I keep hearing Steve Miller’s song “Take the Money and Run.” The people who got the best possible outcome are those that did a cash-out refi at the peak and just let the property go back to the bank. They got to spend the money, and they get out of their debtor’s prison. Of course, like the characters in the Steve Miller song, “They’re still running today...” because that recourse debt with the refi will follow them for years or to bankruptcy.

Yes, that is correct. The people who used 100% financing and never refinanced have no further financial obligation to the bank after a short sale or foreclosure. Their losses are limited to their downpayment (in this example, zero,) the tax burden on the loss (assuming the government doesn’t waive it,) and the decline in their FICO score.

I have a great idea.

The ancient Chinese secret to escaping the home-debtors prison:

Pay off your house.  Pay more than the monthly minimum.

Can’t make the payment?  Screw you and the bank.  Mail in the keys.  Take your bankruptcy lump.  Mortgage defaults are going to be so common on peoples records in the next few years that lenders are likely to not even care (except to use it as an excuse to charge you more interest than the rest of us - that’s just too bad for you; don’t use credit cards then).

Start slashing prices on homes.  The sooner we hit the bottom, the better it is for EVERYONE.

“Who is better off, the homedebtor rotting in their debtor’s prison, or the family thrown to the curb in a foreclosure?”

I would rather just get foreclosed on and get it over with. Then maybe move to Vegas, clean hotel rooms and live a simple life.

BTW, pretty good article in NY Times this morning -

--------------------------------------------------------
And leaders of a housing advocacy group in California, meeting with Mr. Greenspan in 2004, warned that deception was increasing and unscrupulous practices were spreading.

‘He never gave us a good reason, but he didn’t want to do it,’ Mr. Gnaizda said last week. ‘He just wasn’t interested.’
...

An examination of regulatory decisions shows that the Federal Reserve and other agencies waited until it was too late before trying to tame the industry’s excesses. Both the Fed and the Bush administration placed a higher priority on promoting “financial innovation” and what President Bush has called the “ownership society.”

Mr. Greenspan, in an interview, vigorously defended his actions, saying the Fed was poorly equipped to investigate deceptive lending and that it was not to blame for the housing bubble and bust.

http://tinyurl.com/2yy9vy

------------------------------

Financial innovation?  Here is financial innovation for you: Throw out all lending products for homes except 15 or 30 yr fixed rate mortgages. There, I fixed the problem, and I dont even have an advanced degree.

That is true for CA and 5 other states. THe rest of the country are recourse states on purchases as well as refi.

did you read his reason for the bubble?

“The root of the current crisis, as I see it, lies back in the aftermath of the Cold War, when the economic ruin of the Soviet Bloc was exposed with the fall of the Berlin Wall. ”

http://economistsview.typepad.com/economistsview/2007/12/alan-greenspan.html

I think if they’re smart, they’ll drop it now. go into FC and BK. wait 3 years & buy at the bottom like everyone else who was responsible enouogh not to buy during the bubble. sure, they’ll pay a higher rate, but once their FICOs continue to improve they’ll be able to refi down the road & save all the money they would have lost in equity if they had stayed put. Plus, they’ll be able to save money for that 20% DP.

Isn’t it worse NOT to show pics of the home, even if it may be not as nice as others for sale?

With this home, I just keep imagining the worst.

like white appliances instead of stainless steel.

:D

I wonder if he is attempting to obfuscate or if he really believes the nonsense he is spouting? He is smart, so I lean toward intentional deception.

I don’t think this home debtor’s prison sentence is a nationwide thing.  It is almost certainly regional.  While home prices have fallen nationwide, and things are slow in almost every market, most of the country didn’t experience a bubble and therefore really doesn’t have very far to fall.

To wit, I own a house in Central North Carolina.  I bought this house in Summer 2006 because it actually saved me money on rent.  I will say that again, my mortgage payment (even before taxes) is LESS than the rent on an equivalent house in the neighborhood.  Yes, Virginia, there are still regions of the nation where this is so.  Soon it will be so in most every region.

And there is the rub.  I think the true pain will be felt in regions where this is not currently so (e.g. California, Florida, Arizona, New York, Boston, etc.).  The rest of the country will take a few lumps then get back on the inflation train, while so many poor people will be slaves to their SoCal stucco boxes for the foreseeable future.

Why does everyone keep assuming that people will have to put down 20%? Yes, the more expensive properties, those over Freddie/Fannie limits may have to go that route, but conforming & FHA/VA won’t. & since they raise the conforming limit every year, I doubt too much that 3-4 years from now that limit will be less than $550,000 or so.

Are all properties in Irvine over that?

NC’s bubble just ended this year. You don’t have too many more FL people moving up there since they need to sell their house first.

Maybe buying in 2006 was the right decision for you (it sounds like it was), but that doesn’t mean NC isn’t in for some real pain itself.

So we are enjoying our unencumbered 92606 home last night when a familiar real estate agent stops by to deliver his traditional tin of cookies for the holidays.  Yes, it has been a bad year and he expects an even worse year next year.  In our neighborhood he had 8 listings and none of them sold.  What homes WERE going for $750k were now getting very low ball offers of $500k.  The perspective buyers were planning on flipping the properties next year in the spring. 

4 of the property owners decided to lease out their homes and try to sell again in two years.  I found this strategy an interesting twist to the current housing situation.

This particular RE guy actually reads this blog, too, btw!

One word.

Wow.

Diana,

I fail to see how there is a bubble if you can get real estate for below its equivalent rental value?  How could it possibly retreat more than a few percent barring a local macroeconomic shock?  Buying houses here to rent them out is easy money, but the margin is low.... if the houses decline by more than a few percent though, investors will flock in for easy gains, supporting the prices from the bottom.

Look at the Greensboro, Winston-Salem area.  They lost tens of thousands of good-paying textile jobs over the last 20 years, but home prices still followed inflation more-or-less.

BTW, a lot of NC buyers around here are first time buyers, who left NY, FL, or CA because they couldn’t afford a home without taking a suicide loan.

Yep. And one of the sadder things here is that but for their greed, they could’ve easily “taken the money and ran” totally free and clear. All they needed to do is sell instead of refi and then go rent instead.

But no, their greed (hoping to take advantage of the next climb) killed them. There’s a reason for the Bible calling it the root of all evil.

I’m sorry, but what flavor kool-aid has he been drinking?

“In my judgment, however, the impact on demand for homes financed with ARMs was not major.

Demand in those days was driven by the expectation of rising prices—the dynamic that fuels most asset-price bubbles. If low adjustable-rate financing had not been available, most of the demand would have been financed with fixed rate, long-term mortgages.”

Seriously, how does he think flippers and unqualified buyers were going to afford the payments on 30 year mortgages?  As we continue to discuss here and evaluate data that shows otherwise, it is clear to all of us that the ARM’s WERE a major factor.

It’s amazing how many people are sticking their heads in the sand, blindly thinking that it is all going to magically get better in 2 years if they can just “hold out”. 

I refer to this crowd as “the believers”.  There is no logical reason to “believe” that house prices are going to rebound and the band will play on and the minimum wage will be 100.00 an hour so we can continue the house price pyramid scheme.

We have a special group of believers here in Phoenix who are holding on to their lemons in anticipation of the upcoming Super Bowl.  These debtors think that they can rent out their houses for thousands of magical dollars to out-of-town visitors coming for the game.  I’m wondering how many of these will be up for sale the week after.

AFAIK it’s not clear at all that 100% financing is non-recourse, because such deals are commonly structured as two mortgages, first and second, and case law is unclear on whether the second mortgage constitutes a “purchase money” loan, which is how the statute distinguishes between recourse and non-recourse.

It’s possible if not likely that the second mortgage (the $157400 in this example) is also a recourse loan on top of the refi.

“BTW, a lot of NC buyers around here are first time buyers, who left NY, FL, or CA because they couldn’t afford a home without taking a suicide loan.”

exactly.

“Mortgage defaults are going to be so common...” Good point.  I also think this is the case.  They will be very common; so common that lenders in three years will be a little surprised when the pull your credit, see you’ve had a mortgage, yet don’t have a foreclosure.

Will Congress meddle with the consumer credit rating agencies and require less damage to credit scores from foreclosures?

“less damage to credit scores from foreclosures”

no bc those scores are tracked & calculated privately. it has nothing to do with any public agency.

& since conforming loans do not care what your mid FICO score is to get a mortgage, the FICO score doesn’t matter too much . (although a higher FICO will make any PMI that you have to pay less expensive.

Renting homes out is not easy money.  If that were true then none of us would work.  We would just rent homes to each other.  In a normal market, the landlord should be able to generate a positive cashflow as their reward for the added financial risk that they assume along with the risk of being screwed by the tenant.  To think that a lot of these people are just renting in order to lessen the negative cash flow 50% is indicative of some pretty poor planning.

Personally, I would never buy a home with the intention of “renting it out” as it is totally not worth my time to deal with tenant complaints, maintaining premises, etc.  I could earn a lot more money in my profession with a lot less stress.

There is a lot more to it than just handing over keys and collecting checks.

No such thing as “easy money”.

he’s trying to mitigate his own involvement. he said in 2003/2004? that ARMs were a great advantage for most people & that more homebuyers should be using ARMs rather than the 30 yr fixed.

it’s not kool-aid; it’s justification.

Hmmm… if the majority of NC buyers are first time buyers (many from FL), that means they don’t have a home to sell, so they don’t have an anchor back where they came from.... I am quite confused as to the point you were trying to make, Diana.

nope, my point was that those same people flooded your market thinking “this home is way too cheap! I’d better buy now!”

but NC & SC historical GRM and current GRM are way out of balance. as well as the median income to median home price ratios.

do they not think there are hotels in phoenix?

At the height of the bubble, you could not obtain three bedrooms for under the $417,000 limit, and there were not many desirable 2 bedrooms under that price either.

I know someone who just consulted an attorney on this matter, and in California, the second mortgage is used to purchase the home is a non-recourse loan.

“Anyone who purchased in the late 80s or early 90s knows the feeling of being imprisoned in their house.”

My husband and I bought a condo in a brand new development in Anaheim Hills in 1993.  2 bed/2 bath 1100 sf for $152,000.  We divorced in 1997 when prices were at bottom so we waited it out 1 year and ended up selling for $147,000.  Not a huge loss but a loss nonetheless.  I can relate to that feeling of being imprisoned and I feel for the people who are going through now it at much higher stakes.  They should get out their harmonicas now...they have a long prison term ahead of them.

When the people who are trying to hold on for a year or two finally sell, we will be at the bottom. People like this are an example of overhead supply. This is what keeps appreciation in check after a long decline. If these people give up and sell in a panic (it’s coming) that is called capitulatory selling. This clears out the overhead supply and permits market prices to rise again.

It is an interesting dilemma, if they hold on, and others do as well, to wait for appreciation, the appreciation will never come. If however, they sell, and others sell as well, they create the conditions for appreciation to occur.

Since the GSE loan limit is supposed to be tied to the price of homes, any increase in the limit in the near future is another form of bailout--but this would be a bailout more for the lenders, who can then sell (what are currently) jumbo loans to Freddie/Fannie and get them off their books.  Angelo is pushing hard for an immediate bump (originally, he proposed $850k; he’s moderated to $625k).  Anything Angelo proposes should be assumed to be for the benefit of Countrywide and not anyone else.

Unless there is significant inflation in the next 3-4 years, I doubt very much that the GSE limit will move up to $550k, unless the lenders’ lobbyists prevail.

Our gov’t has already shown that it is far more likely to prevent banks than homeowners or future homeowners.

that was supposed to be protect

thank goodness you bought looking for a home & not an investment.

IMO, that’s why people now will do everything they can to hold onto their home+investment. too many people made tons of money when selling so the rest think they’re entitled to that same scenario as well. they will only take a loss, when that loss gets pushed onto the bank. otherwise, they’ll keep holding out.

These people are the worst kind of stupid. They actually think they can get away with this. They will be prosecuted for fraud on thier new home.

http://online.wsj.com/article/SB119785633408932917.html?mod=googlenews_wsj

The case of Karenn and Steve Oropeza from down the street shows how Inland Empire buyers complicated their lives by overextending themselves.

‘The New Orange County’

The Oropezas arrived at Calle Canon Road in 2004. Corona appealed to them because of its quality of life and regional cachet. “It was labeled as the new Orange County,” Mrs. Oropeza says. Public records show they paid $557,000 for a four-bedroom house and took out a $500,000 mortgage. Her husband is an area manager for an auto-parts retailer and she is a purchasing manager for a firm that sells dietary supplements.

As property values skyrocketed, they refinanced three times, most recently in late 2006, for $835,000, Mr. Oropeza says.

The couple say they used some of the money they pulled out of the house for home improvement, such as a backyard waterfall. But Mr. Oropeza says the bulk was used to pay off credit-card arrears. “We were in a vicious cycle of refinancing our home to get out of debt,” he says. “We banked on selling the house, but that’s where we failed.”

The couple listed the house several times, even before the final refinancing, which raised their monthly payments to about $6,300. Earlier this year, they were asking $839,000 for the house. But it just sat. Elsie Cambone, the Coldwell Banker agent who had the listing, says prospective buyers were put off by the vacant home next door.

Meanwhile, Mr. Oropeza expected to be transferred to Texas, so the couple began house hunting there in late 2006. In June, they bought a 3,600-square-foot home for $283,000 in the Houston suburb of Katy, Mrs. Oropeza says. “It was easy. We had good credit. The deal was done in seven days.”

In the run-up to their move, she says, the couple lived off credit cards to “make sure we had cash for the house payments” in Corona. They packed up in June, and then took their 9-year-old son and 2-year-old daughter on a long-planned Caribbean vacation. They returned to Calle Canon Road, “got in our cars and drove to Texas,” Mrs. Oropeza says.

Neighbors Ms. Lefranc and Mr. Saffold are dismayed over the Oropezas’ departure and note that shortly before leaving, the couple bought a new Lexus. “I think they took money out of their house and split,” Ms. Lefranc says.

Mrs. Oropeza says that she and her husband recently bought a Lexus and a Chevrolet Suburban with no money down. She denies that the family intended to abandon the house. The choice was straightforward, she says: “It was easier to keep the house in Texas than the one in California.”

Countdown to Foreclosure

The couple stopped making their Corona mortgage payments in June, triggering a notice of default 90 days later and starting the countdown to foreclosure. The family is now living in Texas. But Mr. Oropeza says he no longer expects a transfer, so every other week, sometimes more often, he says he flies west to make his usual rounds of retail locations in the Inland Empire. Mrs. Oropeza says she travels to Orange County every three weeks for her job.

“We’re sad because there goes our credit, and because people think we are a bunch of flakes who walked away from the house and tried to make money,” Mrs. Oropeza says. The property’s for-sale listing has expired. “We have zero expectation that we can sell this house,” she says. After the government-brokered mortgage plan was announced, Mr. Oropeza says he called the toll-free helpline and left a message, though he doubts he will qualify to get his Corona house back.

I like the description including the “wood floor on the Fist Level”.

Maybe that’s where you go when you need someone to beat the tar out of you for being avaricious and a financial bonehead to boot.

I find myself wondering (too) why the title font is interesting to these realtors and agents? Did someone hand out a bogus study showing it sells 2 more houses a year?

Yes, selling now actually creates a higher bottom.  Waiting, and renting out, makes a lower bottom.  Every additional rental is another chip on the foundation undermining Irvine’s citadel of high rents.  As rents soften, demand will decrease further and equivalent rent falls further away.

I hope you all see through the increasing limit proposals. This is an attempt by investors in jumbos to make our government the bagholder. If GSEs are allowed to insure these loans, it will do nothing to prop up the market, but it will make all of us liable for some very large insurance payouts.

The government insured speculators in the 1980s through savings and loans. This is why we had a bubble in commercial real estate in the 80s and why we had a massive government bailout.

Does anyone think that this is not fair?  They apparently had $350K in cash and probably bought 2 BMW’s, some jet ski’s, trips to Europe, etc…

In the meantime, the rest of us are saving our money and trying to make ends meet. 

Now, these folks appear like the victims and the government needs to help them.

Then at the end of the day, they shortsale, have some potential tax consequences, and have a bad credit report for a couple of years.

Hmm… What do you guys think or am I wrong in my understanding of the repercussions to people like the seller of this property?

Prision is supposed to serve 3 functions:  1) deter otherwise law abiding citizens from commiting crimes 2) punish the guilty 3) rehabilitate the lawbreakers so they don’t commit crimes again.

A house may be a temporary trap but it is not a prision, you certainly don’t have to worry every time you bend over in your house.

I don’t think debtor’s prisions would work, prision time doesn’t seem to work at all for drunk drivers, they just do their time and go back to their old ways.

I think what we need is public flogging and humiliation like they did in the Puritian days but the liberals will never go for that again.

That said, I think scoundrals like Mr Mozilla should be in prision for a long time, if this were China, Mr Mozilla would have been quietly killed a long time ago.

Your credit score itself is pretty meaningless even today.  It is just a phoney abstract number that is rigged in favor of banks to justify sticking you with an interest rate that is different from the next guy.

Granted, it has its place.  Obviously, EXTREMELY irresponsible people will have very low “scores”, but the vast majority of us responsible people are pretty close.

My “score” has actually gone down because I always pay off my balance each month and close the credit lines when the 0% teasers expire.  The banks hate that and try to discourage that bad consumer behavior by dinging you.

If your credit history shows that you pay your credit cards, pay your utilities, etc, but have a mortgage default - big deal.  You’ll still be able to get a credit card, etc; they will just use your circumstances against you to charge more interest.

I would much rather be stuck with a mortgage default on my record than endure sleepless nights worrying about making my monthly payment to my mortgage master.

By the time the housing market rebounds, white appliances may be the hip thing to have.  The owners should hang on to their precious gem for a few more years.

They seem to think that people would much rather rent a house rather than stay in a hotel.  I can’t say that I quite understand the rational behind that as if I were looking to blow a few grand - I would probably opt for a nice hotel.

Nevertheless! It is not stopping people from trying and engaging in magical thoughts.

Hey come on, don’t be so harsh.  They had credit card bills to pay!

And notice how they cleverly qualified the carribean vacation as “long planned” as though to make it look like they didn’t go on a spending spree with home equity credit? Hah.

I just want to make a clarification. Fixed rate loans will not themselves prevent a real estate bubble, but they will moderate it.

Bubbles will probably happen no matter what restrictions there are. But its really a matter of how bad the bubble becomes.

This last real estate “up” cycle started in the late 90s. That is perfectly normal and to be expected. And I do think a bubble did take place after 9/11 and lower interest rates.

But, the real problem and huge bubble started in 2003 when wacky-jacky lending was used more extensifly to qualify people who would not have qualified using the old standards. This also caused prices to inflate even further.

If 30 yr fixed full doc with verifications by the lender was the only game in town, then this would have been just a normal “up” cycle + minor bubble for real estate.

An “up” cyle for real estate just serves to bring prices back in line with trend.

I wonder if the prisons will have gormet kitchens and romantic fireplaces ?

Many people have asked me about the new Fed bailout policy for those trapped by subprime loans, and why the hedge funds and banks were willing to go along with it.

Here is the analogy that I used:

“Imagine a drug dealer pushing his product on his growing clientele.... only to find that the dosage and toxicity of his product was killing off his clients.  At one point, the dealer would realize that he had to reformulate his drugs to a lower dosage and toxicity too keep his clients lifelong addicts without actually killing them off prematurely.  This formulation change would be followed by a press release… telling everyone how wonderful he is for making the change for the “good” of his clients, even though the welfare of his clients was actually furthest from his mind.” This is basically what is happening now.

Of course, another way to look at this is with the old saying that I mentioned around 7 months ago:

“Borrow a dollar and the bank owns you… borrow a million dollars and you own the bank.”

Clearly, the subprime borrowers own the bank at this point, since the fate of the banks is now clearly in their collective hands.

Food for thought.

I think all the debtor prisons should have 5 burner stoves but no pots and pans to put on them.

The fact of the matter seems to be that if you are a crook or if you are a responsible borrower, you are both welcome in America. None of you has to endure prison time or public disdain. It all depends on thick you can let your skin grow. Besides it looks like quite a financial advantage to be a crook in America provided you udon’t drop the ball on the consequences and manage those like Mrs. Oorupuza and her family did. JUST DON’T grow a conscience, will ya?!

There is a lot of disgust over the people who bought the lexus after a forclosure, or the people who did the big cash out refis and frittered away the money.  The Lexus example above shows that bailout or not, walking away or not, these people will go on making bad financial decisions.  You might think that after the foreclosure, they would reconsider their lifestyle, but they don’t.

To understand why the spendthrifts benefit the financially responsible, try this article:

http://www.efficientfrontier.com/ef/103/hell4.htm

It essentially says that in a country that is aging rapidly (most of the western world), how much you save relative to your peers is what matters.  The people who do not save make it easier for the people who do save to afford retirement.  These Lexus types will be the ones working at 70 or 75, because they have no choice.  By working longer, they increase the number of available workers, reduce inflation, and make it easier to afford retirement if you did save.

So, for my money, they can walk away, or they can stick with it.  Let them ‘buy’ their Lexus.  Live it up!  They are making things easier for me in the long run.

Of course its not fair but good ‘ol Uncle Sam has just decided that these equity cannibals should be rewarded for splurging on hooters and scooters.  With one exception, every single U.S. Senator voted in favor of the FHA reform bill that elimnates forgiven debt income on all short sales until something like 2010.

Diana,

They do not increase the conforming limit every year...it has been 417k since 2005 and they just voted to keep it at 417k again for 2008.

FHA and VA loans are not enough ammo to save people.  Conforming approvals can only be generated at 90% LTV for SUPERIOR credit. This is regardless if it’s a purchase or refi.  If you have spotty credit (between 620 to 680) You are at 80-85% max with PMI.  If you are below 620 forget about it.  You may be capped @ 70% LTV

If there was an American debtor’s prison, I am sure it would be decorated pretty nicely. Every cell would have granite counter tops and marble tiled floors.

The mortgage must be defined as a “purchase money loan.” Even if you just refinanced to lower your rates and did not take out cash, your loans are now no longer purchase money loans.  You are no longer protected by the homestead law.

Oops!

would you be able to “flip your cell”?

Diana,

I am curious as to where you are getting your info?  Fannie and Freddie most certainly go by the middle of the three FICO scores.  Both companies look at the borrower’s total financial outlook, LTV, assets, job history, self-employed vs wage earner, and FICO score.

My desktop underwriter denies loans every day because of low FICO scores.

“Conforming approvals can only be generated at 90% LTV for SUPERIOR credit. This is regardless if it’s a purchase or refi. If you have spotty credit (between 620 to 680) You are at 80-85% max with PMI. If you are below 620 forget about it. You may be capped @ 70% LTV”

That is not true.

Confomring can still be had @ 100% & up to 65% DTI.

Conforming loans do not care about FICO scores.

Ah yes.  Justify your mistakes.  The sign of a real mature person.  And I had such faith in Greenspan.  I sure was misguided.

What are you talking about?  You cannot do 100% conforming approvals.  There may be an investor other than fannie or freddie that purchases 100% loans, but they do not.  Even during the height of the purchase boom, they neve purchased these loans.

What do you mean they don’t require credit scores?  I addressed this comment later on in this thread.

“Corona appealed to them because of its quality of life and regional cachet.”

LOL! Which real estate agent fed them that line of bull?

There was no law-breaking by the home owner here. Yes there was rampant fraud by appraisers, brokers and lenders during the boom, and many people can be blamed, but lets be rational. This home owner didn’t rob a bank and steal the 350K at gun point. The home owner made out, the broker made a fat commission, and the lender’s stock went up. Now the music is over and the bag holders are who ever has shares in the first and second mortgage. There’s no justification to have such hatred targeted towards the home owner.

Fannie Mae has a program called “my community mortgage” which allows first time homebuyers to purchase at 100% BUT.  Your income need be less than the area median income.  This is not a typical approval, it is a special HUD regulated program

should these people be buying homes anyways?

Thanks Alan, I needed a good laugh today!

“A house may be a temporary trap but it is not a prision, you certainly don’t have to worry every time you bend over in your house.”

If the cell walls or floors are made of granite stone does that count as gourmet?

I bet they’d have a show on cable about it.

1000 license plates = 1 lb of granite

“magical thoughts”
My dad uses that term.  Are you a psychologist?

Did Orangzillo do anything illegal?  What would you put him in prison for?

Hmm.. eons ago we opened a HELOC.  The limit went up to 80% LTV.  We never reached it.

How in the world could anyone get a HELOC to 100% LTV?  I feel like I missed the boat somewhere in there.  I could have transfered the title to my wife, taken out ungodly amounts of cash.  Walked on it, rented a place and next year I would be able to buy a house with cash.

Damn.... I really blew this one.

I’m trapped in a nice house, quartz countertops, stainless steel gourmand appliances, a low rate 30 year fixed, comfortable payments and plenty of equity even if the market drops 45% or more....

They may be deadbeats, but they are deadbeats who vote.

I think its the “love” of money that is the root of all evil.  Money itself is not evil. 

http://www.bartleby.com/100/774.193.html

These guys are stone cold winners.  They cashed out huge, and should now “sell” the place to the bank.  Just quit making the payments and stash the cash in a London bank to wait it out.  Live rent (and HOA / taxes / Mello Roos / maintenence / insurance) free for six to nine months. 

Hell, they could even buy the place back for the $629,000 on the first using $125,000 of the cash out refi.  Then they’d have the same house back, owe $500,000 on it and have $225,000 sitting in a Euro mutual fund.  This screams WINNER WINNER WINNER all over it (well, except for the stupid lender).

Any idea where we can find this data Diana?  It would be great reference material for comparison purposes.

1 Timothy 6:10
For the love of money is a root of all kinds of evil.

Don’t tempt fate, Tonye…

who are “these people” exactly? my parent’s made less than the median their whole lives, & they still deserve to own a home as much as anyone else responsible with their credit.

Everyone thought he was so brilliant for not letting the markets seize up after the S & L crisis, but I think he’ll actually be remembered as the worst Fed chairman we’ll ever have.

“I’m trapped in a nice house, quartz countertops, stainless steel gourmand appliances, a low rate 30 year fixed, comfortable payments and plenty of equity even if the market drops 45% or more….”

Now THAT’S what I call the American dream!

The Fed has only proposed changes to the rules for mortgage lenders today.

Or are you talking about the plan from Bush? In that case, the bailout is so extreme. the requirements are too strict to qualify many people at all.

and maybe some granite?

...and greed is not the love of money?

By absolute chance, we opened up a HELOC at the absolute pinnacle of the market—June 2006.  Add to that the fact that the appraiser was very generous with his comps.  I dare say, our HELOC today is at about 140% LTV!  Of course, we haven’t touched it…

The “old saying” is an Americanization of Keynes’ line:

“If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has.”

Which was added to by The Economist magazine in the early 80s:

“If you owe your bank a billion pounds everybody has a problem.”

I would imagine that people that are so stupid that they borrowed more money than they could pay back at rates they could not afford are probably too stupid to fill out the government paperwork required to qualify for the program........

The horror. Probably formica too.

Priced_Out_IT_Guy -

The homeowners borrowed money that they never planned on paying back. 

Just like everyone else who wanted something for nothing; they pulled out all the cash and pissed it away on Caribbean vacations and credit card bills (i.e s*** they don’t need).

Now they are whining because they don’t want to have to pay it all back and even had to nerve to call the 800 number for bail out assistance.

They may not have done enough to be arrested and put in jail; but that’s only because we don’t have any statutes outlawing stupidity.

Do these people actually get to keep their house in Texas?

Wow, lucky them if they do:

1.  Buy a house in CA
2.  Use a HELOC to buy a house in Texas
3.  Foreclose on CA house and make the get-away to Texas
(oh yeah buy a lexus and a suburban with your HELOC to make the get-away)

They should have pre-paid for their kids college tuition while they were at it.... maybe they did !

IR - How about using a song from “Chris Isaak Christmas?” He has some good ones!

Is it an adjustable rate?

Is it still opened?

You might want to tap it all out for a week and see if they freak out!

Adjustable, still open.

That’s a hilarious idea.  I bet I’d get a nervous phone call from the banker…

Alo?  Alo?  No se habla Ingles.  Senor Skek?  He go away.  He not here no more.

Mr Mozillo conspired to break the banking system by running a corrupt corporation that specialized in using inflated aprasials to procure loans to people whom they knew couldn’t afford the payments, taking rediculous fees off those transactions and then selling these loans as grade A investment material to unsuspecting buyers, thus relieving themselves of any liability for the losses occuring when the turkeys stopped paying on the notes and making 100’s of millions in the process.

(read Enron… smartest people in the room for comparison.  Countrywide is the Enron of the mortgage industry)

Other than that, I suppose he’s a great guy

It may lack ethics, but it doesn’t sound illegal. Should it be? That is another question…

When I bought my Irvine home in the spring of 2000, I worked my a$$ of to pay down the mortgage. Allot of the time I felt like I was in debtor’s prison. I wasn’t easy. So why should these people have the opportunity to bail out like that. Thats not right. If your stupid with your money, it’s your fault.

Hehehehehehe!!!!!

You know, I think that credit card companies and the rest would really turn us into slaves if they could.

When my son was in the army, he bought a cheap car.  He HATED the army and couldn’t wait to get out.  He went to a car dealership and got roped into driving an expensive (by my standards, not by TonyE’s) truck off the lot.  He called us, told us what he had done and I went off like a volcano.  One of the things I said to him was, do you want to be a slave?  Do you want to stay in the army forever?  Didn’t you say you wanted to go to college?

He took the truck back, got out of the army and got almost straight As.  He actually listens to what his parents say, bless his heart.  Now he’s working for a year in his field and applying to grad school.

Seeing how the average person acts, I can see lots of people selling themselves into debt slavery, if it were allowed.