There Goes Four Years of my Life

Zomby Woof wrote:

Teh E36 M3 wrote:

Zomby Woof wrote:

Teh E36 M3 wrote: Are these two scenarios the fault of the buyer?

100%. You must take into account many things before you make that kind of investment. I have said to my wife in the past, not now, prices are too high. We'll look again when they come down. They almost always come down. Economies work in cycles. That's no secret.

You're right. Man, they forgot to consult their astrologist who could have told them their future. Life is sooooo easy when you can live it through the rearview mirror.

If you didn't see it coming, you weren't paying attention. Everybody here who really thought it could go on like that forever, put your hands up.

Forever is a long time. I don't think anyone thought that. Did anyone think they were going to lose 40% of the value of their home? That's an unprecedented chunk. Unprecedented in modern times.

Teh E36 M3 wrote:

Curmudgeon wrote: In reply to Teh E36 M3: No one can see the future. Tea leaves and goat entrails don't work. But sometimes ya just gotta say 'Ya know, what goes up must come down and if it does where do I want to be?' I was riding a hare scramble once, on lap 2 I came upon a mudhole I had tiptoed around the first time. I said 'screw it, it's banzai time' and subsequently spent nearly an hour getting the damn bike out of the hole. That gives a person plenty of time to reflect on their decision making process, believe me. Maybe it's just me but I have tried to apply that lesson to other parts of my life as well.

So the lesson is, "everyone makes mistakes", right?

No, the lesson is 'look before you leap'. Had I done on the second lap what I did the first lap (scoot to the side) it would have cost me ~5 seconds. Since I didn't think it through and err on the side of caution, I spent an hour digging a stalled bike out of some deep mud watching people fly by on each side. The worst part was I actually knew better.

I'm not here to hammer on your decisions. I wasn't there. I didn't see the paperwork. I can only relate my experiences.

This house I am sitting in now: I cranked the numbers through in best case and worst case scenarios, I backed out of the deal at first because the worst case scenario numbers just did not work out, i couldn't be sure the best case would work, they wouldn't come down any more and for that reason it just didn't feel right.

Three weeks later, it was offered to me $10,000 cheaper and now the worst case numbers worked. So I bought it.

Now, after doing what I've done on it I know if I had jumped on it the first time around (the equivalent of banzaiing the mudhole) I'd be in a bit of a jam.

Teh E36 M3 wrote: Forever is a long time. I don't think anyone thought that. Did anyone think they were going to lose 40% of the value of their home? That's an unprecedented chunk. *Unprecedented* in modern times.

Unprecedented things happen all the time

I saw people lose 25% of their home value in the 90's, so it wasn't a surprise this time either. We had friends that were carrying large mortgages in an overheated economy in the late 80's. I remember asking my wife, do they really think it's sustainable? It wasn't then, it wasn't this time, and it won't be next time.

What's sad is, what happened there didn't happen here.

House prices continue to climb and are at an all time high (the property next to mine -in the sticks sold in a week with a bidding war). People are carrying large mortgages, and personal debt with excellent interest rates. our economy (locally) is in great shape. It can't continue. There HAS to be a correction, and some people are going to lose.

My dad was a pretty smart guy. No book learnin' (never got past the 8th grade), but he had a lot of savvy and had a knack for reading the tea leaves which was more a matter of just paying attention to the world around him rather than only his little corner of it.

When he owned the speed shop back in the 1970's, sales were strong as death. Saturdays were a zoo, people would come from all these little outlying towns to buy stuff. This continued up till about 1982, when he started winding the thing down and closed it. Business was still pretty good at the time and I asked him why.

He explained that the average customer was driving at least a 10 year old car, the new cars with emission controls were a lot harder to modify. It seems laughable now but at that time the catalytic converter was a very new and scary thang. Everything was carbureted and the GM C3 feedback system was the height of technology. Everyone was scared the government would crack down on hot rodding anything with emission controls, the scuttlebut was that removing a catalyst had some enormous fines to go with it. So the cars the business depended on were dying off.

Not only that, but Honest Charley (an old speed shop which started in Tennessee and was one of the first to go mail order nationwide http://www.honestcharley.com/ ) was getting really aggressive. Since they sold nationwide and moved a lot of merchandise, they could buy in much larger amounts than he could and the prices to the public reflected that. Their overhead was lower so they could weather the sales drop better than he could. He didn't want to get stuck sitting in a building with a whole heap of unsellable inventory that he'd have to dump at ten cents on the dollar so he got out while the gettin' was good.

Looks like he was right. Today JEG's and Summit dominate the mail order speed market, along with Speedway Motors. I have not seen a bricks and mortar speed shop in ages.

The point is that while none of us can really see the future it is possible to observe trends and make a reasonably smart decision based on them. History can also clue us in, as in how the housing market imploded in the 1920's. Or these things can be ignored and things can blow up in our faces.

People selling houses and mortgages do not have the buyer's best interest at heart. There, I said it. So it is ultimately the buyer's decision whether to get in over their head or not and their decision needs to be based on observance of the big picture, not the little one. There is no way to be 100% sure of anything, but at least it's possible to make a reasonably informed decision.

Mguar, I get what you're driving at, but at some point it just isn't worth going on any further. Think about the things people are actually saying in this thread. Some of the folks you're arguing with have such vast self-superiority and such limited willingness to see anything from an alternate perspective that there is just nothing that you could say that would change their minds. Hell, they call anyone with the nerve to disagree with them a troll. You think these are minds open to being shaped? Not worth it.

In reply to Curmudgeon:

Each time, you keep saying it better and better.

mguar and I agree on many points, chiefly that yes the banking industry certainly did a lot of things out of greed which contributed mightily to the whole mess. We disagree on the personal responsibility part where people overspent like crazy in the pursuit of the illusion of wealth, which is a hot button issue of mine.

Somewhere I read that before the crash it was not uncommon for people to run their credit cards to the max, refi the house which had gone up in value, use that to pay off the CC's then do it all over again. When the bottom fell out they were left holding the bag and then started whining for the responsible citizens to bail them out because the big bad bank was going to put them on the street.

As I said, there is enough blame to go around for everyone. I hold all parties responsible. Of course, they won't see it that way:

'It was legal.'

'Everyone was doing it.'

'Why shouldn't we have those nice things?'

'We never thought housing values would drop.'

'If I didn't write the loan, someone else would and I needed the income.'

'If we had told people these were subprime mortgages, we'd have been on the hook and the CEO said that couldn't happen, he said we better figure out a way to spread the risk.'

'We thought anything backed by mortgages was 100% safe.'

'We demanded a steady, safe and high return on our investment.'

'I don't want to wait. I want my instant gratification and I want it right now.'

And then these asswipes get taxpayer funded bailouts and $150,000 written off the principal of their mortgages. Sheesh. Makes me want to puke.

A good book to read on the subject is A Colossal Failure of Common Sense, it is written by a trader from Lehman Brothers and explains a lot of what the banks and mortgage companies were doing before the financial crisis in 2008.

mguar, sounds like your buddy is a victim of this whole thing too. I guess the worst part is his wife bailing when the money ran out; we now see what she was made of. It also would seem that whoever incorporated him didn't build a good enough legal firewall between his business and his personal stuff. Maybe he should have consulted his banker's lawyer, because those bastards are certainly getting off easy.

That still does not excuse the people who spent too much on houses because they didn't stop to consider worst case scenarios. They carry some blame as well.

BoA forgiving principal still stinks, even if they were the big bad bank. That just rewarded people who spent way too much. Had I been with BoA and they had forgiven $150k on my loan, my house would have been paid off. [John Belushi]'But nooooOooo...'[/John Belushi] instead the asswipe who paid $650k for a $500k house to stroke his ego gets the break.

OBTW: Yeah, there is something strange going on with the internets. Now that I look at it, it looks like Datsun1500 busted it.

mguar wrote:

Curmudgeon wrote: mguar and I agree on many points, chiefly that yes the banking industry certainly did a lot of things out of greed which contributed mightily to the whole mess. We disagree on the personal responsibility part where people overspent like crazy in the pursuit of the illusion of wealth, which is a hot button issue of mine. Somewhere I read that before the crash it was not uncommon for people to run their credit cards to the max, refi the house which had gone up in value, use that to pay off the CC's then do it all over again. When the bottom fell out they were left holding the bag and then started whining for the responsible citizens to bail them out because the big bad bank was going to put them on the street. As I said, there is enough blame to go around for everyone. I hold all parties responsible. Of course, they won't see it that way: 'It was legal.' 'Everyone was doing it.' 'Why shouldn't we have those nice things?' 'We never thought housing values would drop.' 'If I didn't write the loan, someone else would and I needed the income.' 'If we had told people these were subprime mortgages, we'd have been on the hook and the CEO said that couldn't happen, he said we better figure out a way to spread the risk.' 'We thought anything backed by mortgages was 100% safe.' 'We demanded a steady, safe and high return on our investment.' 'I don't want to wait. I want my instant gratification and I want it right now.' And then these asswipes get taxpayer funded bailouts and $150,000 written off the principal of their mortgages. Sheesh. Makes me want to puke.

We certainly do agree on many things Curmudgeon.. I think here's where we disagree. When you say many people did...(Over spend and use the equity in their home as their own ATM) .. I feel it's not as widespread as you state.. Here's why.. If a person was greatly overextended in his house to income ratio and everything else remained the same they would quickly declare bankruptcy, have their home foreclosed on, and the market would have long sense recovered. The housing crunch started in 2006 Prior to that contractors were busy, the economy was humming and I had a career.. I noted in 2006 that few contractors were as deeply booked as previously.. By 2007 Contractors were running scared and I spent most of my time helping marginal contractors survive.. (rather than selling) By Fall it was clear things were going to cycle down.. I looked around and based on past sales there was over 2 years inventory unsold . Banks had shut off the spigot an money was extremely hard to get.. In 2009 came the flood of foreclosed etc.. homes.. Every year since (adjusted for legal problems) foreclosures have increased.. That means to be in or near foreclosure now the home owner has had at least 4 years cash reserves.. If they were as close to the edge as you indicate would they have 4 years reserve? So Curmudgeon. Yes some people were careless.. However that's not what caused the problem, is it? 25% of the nations income comes from construction.. (or came from construction) The number of people unemployed or underemployed is about 25% of the work force.. (remember to add so-called discouraged workers and those who took early retirement etc into the 8.1% ) Bottom line? We're in this mess because greedy bankers cheated the system, and ruined construction.. Yes there were a some who maybe learned a lesson.. But those after a year or so who are being foreclosed on? Now we're starting to talk not about foolishness but victims..

Well, I'll add a partial reason for the long foreclosure trail: People cannot get out of their houses the way they used to. If you bought a house say, around 2008-2009 or earlier (I'm in Louisiana, where hurricane damage caused a post-Katrina housing bubble, so I might think of a cutoff date different from yours, but I think my point remains valid.) you cannot get out of your house. You just lost your job, and you need to downsize, maybe even move to an apartment. Perhaps you need to get out of town to follow where the work is headed. Your $200,000 house bought in 2009, which you bought on a 5% mortgage with an $8k tax credit (that went to Ikea, not your principal) is now worth $160,000. Your 105% mortgage says you still owe within about 1% of your home's purchase price.

Ten years ago, if things had gone wrong, you'd find your house was worth about the same amount you'd paid or a little more. You'd have the ability to get out more or less cleanly. You might be down a couple thousand, but it'd be learning experience money, not financial ruin money.

Today, you can try a short sale, try renting the house out, try to stick it out (and hope the work comes). If you have the reserves, or can get a big enough unsecured loan (at a rate low enough that your $40k loan payments aren't higher than your mortgage), you can buy your way out. Or, you can walk away from the house and try to sign a lease and secure a job in a new town before your credit tanks, and eventually either work a deal with your mortgage company or declare bankruptcy.

The bottom line is that at this point it might actually make sense to not foreclose on some of these people. Empty houses drive down values in the surrounding neighborhoods and houses that aren't being lived in tend to deteriorate. Vandalism and theft can accelerate the process. Taking a partial loss might actually be good business when the alternative is to foreclose and end up with an even bigger loss on house that will sit empty for a couple of years, get torn apart and then get sold at a fire sale price.

Of course the angry brigade here doesn't care about the fact that this might actually be the best choice financially for the bank. They are just pissed that somebody in the world might actually get some help that they don't get.

Which brings us full circle to rewarding poor behavior while the ones who used their heads so that they did not become part of the problem are told 'bite my shiny metal ass'. Oh, well. When it happens again...

Curmudgeon wrote: Which brings us full circle to rewarding poor behavior while the ones who used their heads so that they did not become part of the problem are told 'bite my shiny metal ass'. Oh, well. When it happens again...

I can see your point about people being overextended being encouraged to do it again and again and again but the bank is looking at it on a short term basis. They are going to take a loss either way. If they let the people keep the place they take a smaller loss. And if the house is next door to me, I would rather have somebody living there that have the windows boarded up, and yes, there are a couple of places on my block with boarded windows. The flippers hit my neighborhood hard. The one across the street was owned by a lady in New Jersey. Why would somebody in New Jersey be buying up houses in Dallas, Texas?

I think that, if the location etc is right a piece of property can appreciate like that. The Battery in Charleston SC is like that. Some of the old houses on the first row are well into the multimillion dollar category and 30 years ago they were around $250k. It's astounding what the older houses on the edge are selling for; the historically black neighborhoods down there were poor and the housing values low. Then as the noveau riche discovered they couldn't afford The Battery they started buying those old tumbledown houses and renovating them. It's known as 'gentrification' down there. http://paa2008.princeton.edu/download.aspx?submissionId=81623 The locals are all wound up because people who have owned their houses free and clear for two generations can't afford the property taxes after the last reassessment. So they either have to risk the house getting sold at a tax auction or they wind up having to sell the house and move away.

Zillow is generally full of E36 M3 on individual home values but is pretty good for tracking long term trends. http://www.zillow.com/local-info/SC-29401-home-value/r_70446/#metric=mt%3D34%26dt%3D1%26tp%3D6%26rt%3D7%26r%3D70446%252C70455%252C70452%252C70457%26el%3D0

If this doesn't load properly, enter zip 29401 and use 10 years, then see how property values went berserk around 2007.

This represents ALL sales, including the little crackerboxes that stand only because the palmetto bugs and termites are holding hands. It also includes the multimillion dollar waterfront houses.

An East Bay street trophy house: http://www.carriageprop.com/charleston-mls-listing-details.cfm?ListingID=1122523 Currently listed at $5,998,00.00.

An old Trulia listing (2010) for the same house: http://www.trulia.com/homes/South_Carolina/Charleston/sold/20200315-91-E-Bay-St-Charleston-SC-29401 Same house = $2,983,000.00.

mguar wrote: In reply to Curmudgeon: Curmudgeon; They aren't rewarded.. Assuming they are behind on the house payments and they are upside down.. At best they get is to start over

Hi mguar,

If you feel that way, I invite you to round up some folks for a game of Monopoly. Standard rules will apply except the cost of getting out of jail will be increased from $50 to something the corresponds to the massive, life changing impact excusing $150,000 in principle represents…let’s make it $1,500 and of course, we need to remove the opportunity to get out on a double roll since there’s no analog to that in the real world.. Lastly, the “Get out of Jail Free” cards will no longer be acquired randomly but rather will be allocated based on which player has the lowest cash reserve at the time the card is drawn.

Many contributors to this thread have taken the position that helping some doesn’t adversely affect those that aren’t helped. I strongly disagree and offer the above as a way to model the profound impact it actually has on everyone participating in the system.

mguar wrote: ...They aren't rewarded.. Assuming they are behind on the house payments and they are upside down.. At best they get is to start over....

Actually, the best they get is a $150,000 bonus when the house in question goes back up to the value that they bought it for and they sell it (or use the equity for a loan etc).

If nothing else, the whole thing will produce some who will roll the dice hoping to get the same 'forgive the principal' treatment.

And frankly I could give two E36 M3s about BoA's PR being improved by this. It's easy to give away a bunch of money and make people happy. If I handed each of my neighbors $1000 cash they'd be kindly disposed toward me even if I was a pedophile. Or had noisy-ass race cars.

Datsun1500 wrote: I am responsible for where I am in life, no one else. I can't blame someone else, nor can they take the credit for my good decisions.

this^^
...srsly

In reply to mguar:

It just reminds me of my brother's old GF who wrecked (totaled) a car she bought at a 'buy here/pay here' operation. She called them; they said 'come on down, sign a contract and you can drive out today'. He calls me, all excited. I asked 'what happened to the original loan?' He says 'all she has to do is sign and drive.' I asked him again what happened to the original loan (more than the car was worth, ins would not pay). He said again all she had to do was sign and drive. Turns out they merely tacked the balance from the first 'note' onto the second 'note', i.e. she was paying for 2 cars.

Forgiving principal (basically refunding how much the buyer overpaid for the house) is NOT the same thing as reducing interest, etc. I still say it's rewarding bad behavior.

mguar wrote:

4cylndrfury wrote:

dculberson wrote:

4cylndrfury wrote: it is as simple as that

Nothing in real life is ever that simple.

2 truths: 1. You can only control yourself, no one else 2. If you say youre going to do something, you should do it. if someone doesnt follow number 2, please see number 1. If you say youre going to make payments (like you promised you were going to when you signed on the line), you should make them. You shouldnt sign on the dotted line if you dont think youre going to be able to do what youre saying when you sign. You should make sure you have the ability to do what youre saying you are going to, before you accept the obligation. What you do is under your control. You cant control the bank. You cant make them do what they say theyre going to do (again, see number 1). So you have to look out for you. You made the decision to borrow the money - you made the decision to buy the house. The ill-effects of that decision are on you. Thats your responsibility.

Wow! are you drinking the cool aide.. Big Business makes errors all of the time.. there are plenty of banks who declare bankruptcy, as well as Fortune 500 companies. as well Ever hear of a company called Enron? or more recently GM? Airlines do it so often the route to the court house has grooves in it.. Stuff happens, it the leaders of the country like Bush (jr) can declare bankruptcy they are setting an example for others to follow..

If thats drinking the kool aid, then I'm a giant ass red pitcher busting through walls

Curmudgeon wrote: In reply to mguar: It just reminds me of my brother's old GF who wrecked (totaled) a car she bought at a 'buy here/pay here' operation. She called them; they said 'come on down, sign a contract and you can drive out today'. He calls me, all excited. I asked 'what happened to the original loan?' He says 'all she has to do is sign and drive.' I asked him again what happened to the original loan (more than the car was worth, ins would not pay). He said again all she had to do was sign and drive. Turns out they merely tacked the balance from the first 'note' onto the second 'note', i.e. she was paying for 2 cars. Forgiving principal (basically refunding how much the buyer overpaid for the house) is NOT the same thing as reducing interest, etc. I still say it's rewarding bad behavior.

I worked with a guy who did that like 4 times... bought a car and then traded it a year or so later, each time adding the negative equity onto the next loan. By the time he realized the stupidity of the situation he'd put himself in, he was leasing a base Hyundia Accent for $600/mo for 5 years to get himself out of it all. And to make matters worse, due to his commute, he would have blown through the mileage limit in about two years so he ended up have a to buy another POS car just to get to work while the Accent sat. But to his credit, he took his lumps, saw it through and finished it. I sure that was a long 5 years, tho...

mguar wrote: Aircooled; That's a big assumption.. So what if you have a home worth millions and the bank offers to write off $150,000? t It's gone down more than than 2&1/2 million Like the house 3 doors up from me. Think you'd be excited?...

I doesn't matter if it makes a dent or not, that's not really relevant to my point. The fact is, if the house goes back to the original sale price or beyond, that's a $150,000 in value that the owner will never need to pay off. $150,000 may not seem like a lot of money for someone who buys 3 million dollar houses, but for most other people it is, and for some, it will buy an entire house.

If you are saying many houses will never return to their sale value, I find that hard to believe. It may take 20 years, 40 years, who knows, but those are not unreasonably huge periods of time as far as mortgages are concerned.

aircooled wrote:

mguar wrote: Aircooled; That's a big assumption.. So what if you have a home worth millions and the bank offers to write off $150,000? t It's gone down more than than 2&1/2 million Like the house 3 doors up from me. Think you'd be excited?...

I doesn't matter if it makes a dent or not, that's not really relevant to my point. The fact is, if the house goes back to the original sale price or beyond, that's a $150,000 in value that the owner will never need to pay off. $150,000 may not seem like a lot of money for someone who buys 3 million dollar houses, but for most other people it is, and for some, it will buy an entire house. If you are saying many houses will never return to their sale value, I find that hard to believe. It may take 20 years, 40 years, who knows, but those are not unreasonably huge periods of time as far as mortgages are concerned.

…additionally, $150,000 is just the average so half of recipients will receive more than that.

Average, not median.