Not My Problem
Problem Child - AC/DC
Do you get the impression from the behavior of speculators and HELOC abusers that it isn't their problem? I do. Today's featured property was bought in 2005, the equity was quickly extracted right up to the peak, and now that prices are dropping, the speculator is simply walking away. It isn't his problem anymore, it is the problem of Residential Mortgage and Investment, Inc. or whatever CDO the loan was packaged into.
Day after day, we document lenders taking huge losses. It is not the kind of thing that promotes a loosening of credit and increasing prices. Yet there are still people trying to flip houses (a post for another day, perhaps.) WTF? Do people have so little understanding of credit markets that they believe lenders are suddenly going to go back to the practices of the bubble? Faced with daily huge losses causing unprecedented price declines, lenders will become more restrictive of credit -- much more. Either that or they will go bankrupt (I am still waiting on Countrywide, IndyMac, Downey and WAMU.) Prices will fall to the point where people can afford to buy houses with a conservative percentage of their income because lenders will require it. The days of DTIs in excess of 28% may return again someday, but not until that becomes the standard for quite a while. Lenders will retreat to this level because they know people can really afford that. That will become the standard until people stop defaulting. People are going to continue to default until prices stop declining and they stabilize at affordable levels. That is just the way credit markets work.
Asking Price: $575,000
Income Requirement: $143,750
Downpayment Needed: $115,000
Monthly Equity Burn: $4,791
Purchase Price: $680,000
Purchase Date: 6/28/2005
Address: 13 Pebblewood, Irvine, CA 92604
Read the rest of this entry »
