patrick.net

Certainly we are all ultimately responsible for our own choices. I just think it misses the point to be mad at homeowners. Some people do foolish things if given half a chance. But the worst that you can accuse them of is being foolish. Lenders on the other hand, are in the business of managing the 'foolishness' of borrowers. That is what underwriting guidelines are for.

They absolutely knew the consequences of the kinds of loan they were making. They just choose to do it anyway because they could sell the loans, pocket the cash, and move on to the next foolish borrower and do it all over. That is a scam, not a business.

So while you can call some borrowers foolish, and shake your head and resent them a little, I think you should reserve your anger for the lenders that encouraged that foolishness , and profited from it.

Not mad. Perplexed. Confused.

But during the height of the bubble people were selling their homes for outrageous amounts, pocketing tens or hundreds of thousands of dollars - and didn't share their proceeds with the lenders. The lenders didn't ask or expect them to. No one forced these people to buy their house, I'm gonna assume that the lender didn't break in & rip them off (or place the home in the area in which the occupants feel unsafe), and the lender certainly didn't create the need for repairs

Now that prices had dropped and people are upside down, they expect the lender to forgive some debt and hope that another lender will gamble on their ability to repay another loan in the future, when they buy in another area. These people haven't suffered a hardship such as loss of job, reduction in income, illness, family emergency, etc. Yet they expect concessions.

In 2006 (I think), there were some house buyers in Sacramento area that met with builders to complain that the houses they bought were now being sold for $20-30k less. They demanded that the builder either refund some money, or buy them some fancy appliances/do upgrades in order to make them "whole." The builder said something to the effect of "If your homes had increased in value, you wouldn't be sharing the profit with me."

Regarding the family referred to in this post, how did the lender fail? The loan is affordable and the home was liveable at the time of purchase (and remains that way).

Does this mean that everyone who buys a "zorbeez" towel, oxyclean, hercules hooks, awesome auger, big city slider station, mighty putty, ad nauseum and finds out that Billy Mays lied to them about the qualities deserves a refund? There was no bad intent on the part of the lender that I can see, yet some fb expects to have a couple of hundred thousand dollars written off because the lender can afford it?

That's a bunch of crap.

elliemae says

Regarding the family referred to in this post, how did the lender fail? The loan is affordable and the home was liveable at the time of purchase (and remains that way).
Does this mean that everyone who buys a “zorbeez” towel, oxyclean, hercules hooks, awesome auger, big city slider station, mighty putty, ad nauseum and finds out that Billy Mays lied to them about the qualities deserves a refund? There was no bad intent on the part of the lender that I can see, yet some fb expects to have a couple of hundred thousand dollars written off because the lender can afford it?
That’s a bunch of crap.

You can make the argument that the lender did fail in this case. The loan starts to adjust next year. What happens when rates eventually climb and the payments do become unaffordable? They can't refinance or sell because they are already underwater. It's another foreclosure waiting to happen.

You can say that it's not the lender's fault that values declined, and depending on the lender, I might agree with you. But the biggest lenders almost certainly did know that their lending policies would lead to a boom and an eventual bust.

As far as the infomercial question goes, I could be a hard ass and say that yes, if the products don't work as advertised then the consumers deserve a refund. But if your point is that people who buy something based on an infomercial they see at 3 in the morning deserve what they get, well, I agree with that sentiment.

But the people that took out option arms, and adjustable rate sub-prime loans, and 5 year interest only loans didn't do so because of something they saw on an infomercial. They did it because people in nice suits that worked for some of the most 'respected' corporations in America were telling them that was how it's done. And they had the entire lending and real estate industries backing them up, with Alan Greenspan in background saying everything was going to be ok.

"Am I alone in resenting this train of thought? 4 years ago they bought a home without considering the area (obviously) - maybe they jumped in ’cause they thought this would be their only chance, ever, to buy?"

also without considering areas long term price history. Throwing silver for swine. Frustration, anger, confusion, etc etc... certainly does not make sense. Financial incompetence by the public.

I agree with you Ellie!

"But the people that took out option arms, and adjustable rate sub-prime loans, and 5 year interest only loans didn’t do so because of something they saw on an infomercial."

If you stack pressure from friends and family to buy, it eclipses any commercial. You can gauge the sale of IPODS and compare media commercials for IPODS. Frankly you don't see that. Ipod commercials don't exist, yet the sale of IPODS skyrocketed. Marketing 101.

The same infomercials did in fact use fixed rate loan payments to compare the savings each month.
The buyers clearly knew they couldn't afford fixed rate loans. There were no 'corporate suites' that motivated people to buy. The pressure to keep up with the Jones's did that on its own. And with the 'government suites' from Washington made it possible.

I think all of you are right. There is plenty of blame to go around, for sure. And everyone loses--noone is coming out of this unscathed. People should have known better, but history has proven that groupthink is an unusually powerful factor in behavior....

iggyman says

You can make the argument that the lender did fail in this case.

Actually, YOU'RE the one making this argument. They borrowed in 2005 and have made every payment on time thus far.
iggyman says

But the people that took out option arms, and adjustable rate sub-prime loans, and 5 year interest only loans didn’t do so because of something they saw on an infomercial. They did it because people in nice suits that worked for some of the most ‘respected’ corporations in America were telling them that was how it’s done. And they had the entire lending and real estate industries backing them up, with Alan Greenspan in background saying everything was going to be ok.

I refinanced too. And I did it based on the same information that these people had. My loan officer offered me the same options, and even offered to discount the fees associated with a higher-risk loan. But I declined and, like an idiot, borrowed 30 years at a fixed rate (less than 5%).

Come to think of it, I could have benefitted by cashing out all that phantom equity - but I didn't. I believe that it's the loan officer's fault, because if he had pushed it more I would have been able to spend all that money. Instead, my home has lost value and therefore I've lost the ability to buy a bunch of crap I didn't need or really want.

Now I'm stuck with a house that still holds some equity, a very affordable payment - but no granite countertops.

iggyman says

But if your point is that people who buy something based on an infomercial they see at 3 in the morning deserve what they get, well, I agree with that sentiment.

Most infomercial products work exactly as promised - but consumers read more into the ad than meets the eye. I recall seeing a flyer that extolled the virtues of interest only mortgages, comparing side-by-side with conventional mortgages. The flyer showed how, if one borrowed IOM and invested the difference in payment, at 10% interest in 30 years the borrower would have 2-3 times the amount necessary to pay off the mortgage at the time it would be due, and would therefore be better off than the conventional borrower.

One could argue that borrowing based on such flawed logic (not taking into account that the conventional borrower would surely have saved something during those 30 years, this ad assumes that the borrower would be disciplined enough to save the difference)...

I wish that more people were smart & wise, and made important decisions rationally. It annoys me that that is not the case. But my annoyance changes nothing. The fact remains that a very few people are smart, most are average, and a few are just dumb.
Knowing that that is the way it is, and always will be the way it is, why should I be surprised when a great many people make what are to me, obviously dumb decisions, for really dump reasons - like "keeping up with the Jones's".
No, I am going to mad at the people who are supposed to be the smart and wise ones, who encourage the dumb ones to be even dumber, and then shrug their shoulders and say "they should have known better."

here's my view. Barry is not collecting extra taxes from the buyer-vestor-flippers that made $200K in six months in 2006 ..... therefore, I feel no pitty for those other gamblers that got cought standing when the music stopped. You see, had the climb continued until this very day, these same greedy pukes as in this story would be standing around, looking at us lowly renters in a very smug fashion. Anyone agree?

iggyman says

No, I am going to mad at the people who are supposed to be the smart and wise ones, who encourage the dumb ones to be even dumber, and then shrug their shoulders and say “they should have known better.”

no problem being mad. Im in Finance/Accounting, and there are still lots of people in my profession with good education, if not better, who sucked this stuff up like nymphomaniacs. My response, "you of all people should have known better."

I do know a guy (a real person) who sold, cashed out huge chunks of money and could have retired. But he had a gambling problem... He came to my house and complained about how it was all "lost" and I reminded him that he knew exactly where his money was.

The Vegas economy gained $150k from him in a few months. :) Stupid is, as stupid does (thanks, Forrest).

I can agree with not properly researching the area before buying, even during the housing boom, there are many areas that any fool could see they were undesirable regardless of price.
As for housing repairs, I can sympathize. Even with a good home inspector I got, there are many things he missed that are costing me $ to correct now. I have two wooden garage door, 10x10 feet each, one of them is seriously rotting on the on corner or the door. A garage door repair guy re-enforced the door with a bar that is secured into some better wood, but it's only a matter of time before the pulley line that lifts the door will rip out of the rotten wood. Got a quote from Lowes today to replace both doors, $3,500. There's been others, the Refrigerator died and had to be replace ($1,500), the geothermal system died 6 months after moving in, another 15k to replace. (the inspector pointed out that this may be an issue, we got the seller to certify the system was in running order and got some Cash back at closing, but I seriously under estimated replacement costs of this system)

Also timing is a issue, if we had waited to buy was could have gotten the 8k first time buyers tax credit, $4,500 tax credit for the geothermal system (we were capped at 2k for 2008), NJ would have cover 50% of the costs AND given us a 0% interest loan. (we got a 6% unsecured loan from the state, but no help with free $).

Yea - but Techie, you might not have been able to get THAT house if you'd waited. I think I recall how much you and the wife loved it. I sincerely hope that you are enjoying the place.

I can see how repairs can be frustrating - but that's not what I see as the problem. They're upside down, have buyer's remorse and even tho they can afford the place they'd like to bail. It's not the lender's fault the place isn't all that and a bag of chips... but the lender will end up on the losing end.

@Iggy

Certainly we are all ultimately responsible for our own choices. I just think it misses the point to be mad at homeowners. Some people do foolish things if given half a chance. But the worst that you can accuse them of is being foolish. Lenders on the other hand, are in the business of managing the ‘foolishness’ of borrowers. That is what underwriting guidelines are for.

So let me get this straight, you dont want to hold the buyers accountable but want to blame the lenders for tricking them into making a stupid decision. This statement would lead me to believe that if someone died today from lung cancer after smoking cigarettes for 40 years that you would also want to hold the cigarette company responsible for their death. I would also be led to believe that if a mother of 6 raised 4 engineers and 2 gangbangers that we should blame the mother and not the 2 gangbangers who made the choice to go down the wrong path.

Here is my point: People have a choice in their lives, it is not our fault these people did not make a responsible, informed decision before they bought their home.

@BAP

here’s my view. Barry is not collecting extra taxes from the buyer-vestor-flippers that made $200K in six months in 2006 ….. therefore, I feel no pitty for those other gamblers that got cought standing when the music stopped. You see, had the climb continued until this very day, these same greedy pukes as in this story would be standing around, looking at us lowly renters in a very smug fashion. Anyone agree?

Exactly, these folks would be looking down on us now had they sold at the right point and turned a profit. They would be the same people speeding by our tugboat in their jetski's splashing water all over our face. I dont have any empathy for these folks situation, not the banks that gave them the loans. I am starting to understand the point of this site much better through the dialogue I have been having with you folks. From what I have read, after the crash of 1929 banks stopped lending and the markets froze, unemployment rose. The solution was for the government to back bank loans with an insurance plan called FHA. LOL

Plain and simple, the requirements for FHA and any home loans need to change...but we know that is not going to happen because FHA was started to jump start the economy after the crash of 1929.

@Iggy

I am curious as to whether you are you going to blame Obama's $8,000 tax incentive when all these new homeowners lose their equity?..you realize these folks will have to sit on these homes for 10-15 years before their homes return to todays prices right?

@thunderlips

So, we obviously need regulation, so fair and well-considered laws and not fallible men, are in the driver’s seat. Laws can be changed if inadequate; Human Nature can’t.

Now, why would you as a conservative be a proponent of regulation?

*Jokingly* Leave the regulation and common sense thinking to me and Teddy Roosevelt who btw was a REPUBLICAN. Long live the progressives! **Jokingly**

"Yes people bought cars and some got boats and some got more crap - but does anyone know the actual dollar amount that was actually lost on frivolous stuff (and not on newer homes or remodels)."

Im sorry, but this isnt the Star Trek era were we can just ask a computer and get some answer in a minute or two. Our financial system doesn't track such complex transactions down to such levels.

Fact is in the 70s, home prices on the East Coast were much higher than SF Bay Area, which was primarily farm lands. We still had fruit canneries working 24/7 in Sunnyvale as late as '79.

Gas prices are actually lower than 1980s peak prices, they fell for 20 years
...http://zfacts.com/p/35.html

Ever since the Telecom deregulation, prices of product and services have fallen.
You have gizmos which cost a few dollars a year and provide free service.

wish i was lucky says

Does anyone know just exactly how many people actually took out tons of cash and then just kept it? I think a lot more people lost money buying another house or remodeling, and helping their kids buy homes. Yes people bought cars and some got boats and some got more crap - but does anyone know the actual dollar amount that was actually lost on frivolous stuff (and not on newer homes or remodels).

I don't know anyone who cashed out & kept it - in the heyday everyone was re-investing in more real estate or the stock market. Most people thought that they were gonna make money. Even the people who remodeled thought they were doing the right thing. But many people I know took the opportunity to go on dream vacations, buy vacation homes or cabins, throw a fancy-assed wedding like those on teevee...

thomas.wong87
"Fact is in the 70s, home prices on the East Coast were much higher than SF Bay Area, which was primarily farm lands. "

Bzzzzz. Wrong Again. Thanks for playing. Your consolation prizes are down the hall by the ladies room on the way to the parking lot.

-Primarily farm lands? Just plain wrong, Wong. Oh yes, Manhattan was more valuable than Alviso or Sunnyvale.

"We still had fruit canneries working 24/7 in Sunnyvale as late as ‘79."

24/7 huh. Showing overwhelming ignorance with this last blanket statement.

Wong, Your posts are FUN to read and provide a source of pure comedy gold. Keep up the Great work!

javco says

Bzzzzz. Wrong Again. Thanks for playing. Your consolation prizes are down the hall by the ladies room on the way to the parking lot.

Loved the humor! Thanks. :)

I miss the emoticons...

my previous landlord is a RE broker. she called me many times during the boom saying "come to AZ, you can buy a new house here without spending 1 penny of your own money".

at that time, the house prices were still climbing.

i didnt buy because i do not have the money for a 300K house. even the bank would lend me money.

some people just think the money they get from a loan is their own money. no it is not yours, you borrowed from the bank.

i used my saving to buy a new BMW M3. now i share the rent with my gf. she pays 40%, i pay 60% which is about 20% of my after tax income.

i WILL buy a house after we get married. but it will be a decision all about numbers.

Well Javco, Did you live in Sunnyvale-Mt View back in the 70s.

Do you recall the Del Monte canning facilities off the Railroads, near Evelyn and FairOaks in Sunnyvale?
Do you recall the Mariani facilities off De Anza, off 280 in Cupertino?

"-Primarily farm lands? Just plain wrong, Wong. Oh yes, Manhattan was more valuable than Alviso or Sunnyvale."

Did you compare metros in Connecticut, New jersey, Pennsylvania, and even Delaware.

309 N Sunnyvale Ave Sunnyvale Ca 94085
3 beds, 1.0 baths, 1,484 sq ft

Sale History 09/04/1973: $29,950

340 N Sunnyvale Ave Sunnyvale Ca 94085
3 beds, 2.0 baths, 1,583 sq ft

Sale History 04/04/1973: $25,500

If the public doesn't understand financial concepts, and Congress certainly doesn't understand it too well either,
would you allow Congress to regulate institutions they have no idea about. They were certainly all too willing
to influence/threaten banks to make loans to people ill prepared to pay them back for political gains regardless
of the outcome. Not to mention they were willing to overlook all the GSE Accounting shenanigans, out right Fraud, and fat
bonus payouts to hit the numbers, because the GSEs were an implied extension of the US government and well connected
with their their friend on Capitol Hill.
I guess for politicians its standard operating procedures, when they are being put to the 'stress test'.

4X says

@Iggy
I am curious as to whether you are you going to blame Obama’s $8,000 tax incentive when all these new homeowners lose their equity?..you realize these folks will have to sit on these homes for 10-15 years before their homes return to todays prices right?

I do think the tax incentive - or any other measure aimed at propping up values artificially - is a bad idea. Ten or 15 years might not be enough time to get back to current prices in some areas.

4X says

This statement would lead me to believe that if someone died today from lung cancer after smoking cigarettes for 40 years that you would also want to hold the cigarette company responsible for their death. I would also be led to believe that if a mother of 6 raised 4 engineers and 2 gangbangers that we should blame the mother and not the 2 gangbangers who made the choice to go down the wrong path.
Here is my point: People have a choice in their lives, it is not our fault these people did not make a responsible, informed decision before they bought their home.

I agree that people that people have choice in their lives. My point is that focusing on the irresponsibility of the choices that some individuals made distracts us from focusing on the real culprits in all of this: unbelievably irresponsible lending practices, bad policy, and poor to non-existent regulation.

are you suggesting that the CRA played a part is this issue, iggy?

Bap33 says

are you suggesting that the CRA played a part is this issue, iggy?

Possibly, but I don't know enough about it to to have a worthwhile opinion. To the degree that changes in policy encouraged silly underwriting guidelines at FANNIE & FREDDIE etc. (like allowing up to 65% debt ratios), I can say that policy was bad, or at least poorly enacted.

There is no reason why the FHA guidelines that allow home ownership for every one in America that can show a credit standing and have a job can have a resource to borrow from. Other than banks that would want a greater chunk down and a charge a higher interest rate. Which would only serve to creating further hardship, to pay back the loan.

what was fundamentally missing, was guidelines of the Valuation of properties. I think that if a large percentage of properties being bought in a neighborhood is funded by FHA loans. Then the value of those homes can't exceed the current exposure percentage wise. Because most likely the money paying those loans off and creating the new loans will be the same money.

These indicators would keep inflation and bubbles in check.
Conventional loan neighborhoods, could have the same model but possibly a larger exposure curve.

I used to think your way, but not anymore. Why? It isn't a level playing field. If the government did not bail out the banks, I would agree. But once others get bailouts, then all bets and all morality goes out the door. I am not upside down, but if I was, I would walk away in a heart beat and feel NO GUILT at all. And yet I would never consider stealing from anyone ever. But the new morality is we get ours. As long as the corporations can declare bankruptcy and walk away- so can we. That's called fairness, justice, and the American way. Thanks superman

The fact remains that a very few people are smart, most are average, and a few are just dumb.

Duncical equilibrium.

Tenouncetrout says

what was fundamentally missing, was guidelines of the Valuation of properties. I think that if a large percentage of properties being bought in a neighborhood is funded by FHA loans. Then the value of those homes can’t exceed the current exposure percentage wise. Because most likely the money paying those loans off and creating the new loans will be the same money.

These indicators would keep inflation and bubbles in check.
Conventional loan neighborhoods, could have the same model but possibly a larger exposure curve.

Is this similar to what you are talking about?

You have some guy at the bank that gets paid for each mortgage deal. How is it his fault for pushing deals? Isn't that like his job?

@iggyman

I agree that people that people have choice in their lives. My point is that focusing on the irresponsibility of the choices that some individuals made distracts us from focusing on the real culprits in all of this: unbelievably irresponsible lending practices, bad policy, and poor to non-existent regulation.

Ok, now I understand better and can agree with your statement that the root cause is more important than blaming the players. Oddly enough, after reading all of the threads and researching the issues I am starting to believe that since 29 FHA has accomplished its #1 purpose. That purpose being, provide confidence to the banks so that they will lend money in uncertain times. I am starting to understand both the politics and the economic aspects of our current situation. If we forego FHA, then the banks stop lending. But, if we forego regulation then the banks go wild.

wish i was lucky says

There were many people who bought between 2000 and maybe the early part of 2005 before the home prices actually tripled - who did put 20% down

I humbly disagree 100% with this post if you are talking about the central valley of California. Since RE is local, I submit that in the future such statements have an area specific to the statement so valid numbers can be found. Here in the central valley of mexifornia you will not find a 20% DP loan on ANY new house, investment house, or whatever house since 1999 .... many of the central valley hispanic homebuyers where cultivated by greedy REwhores and LiarLenders, creating a whole bunch of buyers that would never qualify for a loan (of any type) without some illegal Lender activity ..... The rest were just greedy sheeple that make for stupid buyers, and the last stupid buyer has yet to buy, do not forget that ... the last stupid buyer is getting ready to fall for the gov supplied bait.

Is it not funny when you see a home you were watching sell for about 25% more than you offered ... only to end up in forclosure again?? I find that quite amusing. And the market is so full of houses now, I don't really plan to bid on the POS when it hits the market. I say POS because it is now another victim of what I call the "Tiajuana Remodel" syndrom. And the fridge and oven and washer and dryer have been removed. And the driveway has a big oil stain. You have to love how these fine early-jumpers react to their own greed.

StillLooking says

You have some guy at the bank that gets paid for each mortgage deal. How is it his fault for pushing deals? Isn’t that like his job?

It's not the local loan officers,bank managers etc. in question. You are right, for the most part those guys were just doing their thing without necessarily understanding what they were selling. It's the institutions themselves and the people at the top who did understand all of the issues, and were responsible for setting the guidelines and designing the loan products in the first place.

How many times can all of us go over the same old sh*t over and over again? I’m roughly 6 months into my involvement on Patrick.net and picked up loads of great information on here, but posts like this show up every week and the same things are repeated over and over and over and over again.

@Bap33, you speak of your beloved Central Valley so affectionately - who do you stay there? I’m sure the reasons are many and possibly complex, but why don’t you cut your losses and move to an area of California or even to a different state that makes more sense for you? When I first moved to California in 1999, I lived down in Bakersfield – a town very analogous to Merced. I had a great paying job and bought a brand new house in the year 2000 for $75 sq/ ft. After living a very comfortable life there for 7 years, the mrs and I decided to have kids. One day while she was still pregnant, I woke up and looked around and said out loud, “F*uck this – this isn’t living.” I was honest with myself for once and realized what was around me. I decided on that day that I would not raise my kids in a county where the teen pregnancy rate was at or near the highest in the state, nor would I settle for having my kids go to schools where the English-speaking households were the minority. I found a new job in a significantly “whiter” area and moved. I took it in the shorts financially for a while, but now after 5 years I can honestly say it was the best decision I ever made. My happiness parlayed itself into career/finanical success. I’m happy when I drive around the area I live in – I rarely see suspected illegal immigrants and very rarely hear Spanish spoken freely and loudly in public. The neighborhoods you describe do exist, albeit far away in pockets and not in every square mile. The schools are some of the best in the state.

The point I’m trying to make here is that much like all of us resetting the same housing crash crap over and over again in a forum rarely paid attention to by outsiders, let’s look around and be honest with ourselves and make actual changes in our lives when we discern that things are beyond our control. I’m not saying lay down or anything, but housing will be led by government policy or lack thereof and Merced, California will never get out of its own way.

Ellie Mae why do you resent these people? They gambled and lost. People throw away money on stupid decisions all the time. People go broke gambling in Vegas or chasing a hot stock tip every day. Do you resent them because they took a stupid bet and lost. Why isn't the anger directed at the people that took stupid bets and won, like the executives at AIG that left with millions in 2006.

Would not most Americans be better off if real estate prices never returned to the bubble prices?

I'm not relying on any statistics or economics education - just intuition. I recall my parents selling a house in the 1960s and being grateful that they didn't lose too much compared to their purchase price - kind of like when one sells their car. That always seemed to me to be better for people. A new house would cost more than a resale. A resale house might sell for more if it had been improved in some way. Most houses would depreciate to some extent. That seems like that would keep housing affordable and stop the unrealistic notion that one's shelter is also one's retirement plan.

For your house to also be a good investment, you have to either sell it and move to something less expensive to get the money, or take out a loan for some of the equity and pay interest on that loan. I don't know why anyone thinks that's good for most Americans.

Because people do believe that, a lot of people have become dependent on real estate as an industry. Of course, it is painful for them now with prices and employment related to real estate down, but wouldn't we all better off if it stayed that way? Don't all of these artificial attempts to reinvigorate that part of the economy just invite more of the same bad results? Let's go back to manufacturing things we can export.

@FredMG

Ellie Mae why do you resent these people? They gambled and lost. People throw away money on stupid decisions all the time. People go broke gambling in Vegas or chasing a hot stock tip every day. Do you resent them because they took a stupid bet and lost. Why isn’t the anger directed at the people that took stupid bets and won, like the executives at AIG that left with millions in 2006.

Dont be silly, it is the buyers fault and governments job to regulate the madness of the banking industry. The Banks only did what they were legally permitted, as well did the buyers. If the business deal failed then whose fault is it?...and why not resent the fact that some idiot bought at too high a price driving up the markets we seek to buy in. With statements like this, I am sure you are looking very diligently at using the 8,000 tax credit right now.

Good luck spending that 8K when you lose 100K in equity, your missing the point of the site so I highly reccomend you go back and read each and every point clearly.