Monday, October 27, 2008

'You didn't have a choice but live in debt'

From the Sacramento Bee:

"Welcome," says the letter dated May 20, 2005. "It is a pleasure to have you as a new loan customer of Fremont Investment & Loan." They were only 18 words written at the height of a housing boom. But mailed to Erin O'Hagan of Sacramento, and multiplied hundreds of thousands of times elsewhere in the United States, they launched a financial crisis that is now rocking the world. More than three years after getting that letter, O'Hagan said, "Who would have thought it all would crash and burn the way it did?" Not just her own world. The whole world.
In the spring of 2005, Erin O'Hagan worked at Chicago Title's Roseville branch, helping close the thousands of escrows that were part of the region's sizzling housing boom. "I was making a better salary than at any time in my life," she said. "I never thought it would end."
From the Tennessean:
Some banks, trying to reduce their exposure to risk, have been canceling the remaining balances on existing home equity lines of credit. That's what happened to [Wayne] Anderson on his second home in Sacramento. His lender, Citigroup, informed him that home values were falling in the area. A spokesman for Citigroup, Mark Rodgers, said in an e-mailed statement: "The reduction or suspension of the line protects our customers from borrowing more than the value of their properties."
Anderson had hoped to use his home equity loan for unexpected expenses, such as maintenance on one of his two homes. He moved from Sacramento last year to find more work, but was unable to sell his home in a declining real estate market, so he rented out the home in California while buying a new one in Mt. Juliet.

He said the high cost of homeownership in California helped fuel certain feelings about debt — feelings that he no longer has. "Prices were through the roof,'' he said. "You didn't have a choice but live in debt. The average person can't afford those houses. You just become accustomed to living in debt. I've come to this realization I don't want to live in debt anymore. All the money I was making was trying to pay off those credit cards."
From the Christian Science Monitor:
[Kevin] Smith, a car salesman, faces many of these pressures and is reconsidering his expenses. Between his home and a second rental property, he’s $400,000 under water. He recently lost his renter, to boot. “If the principal balance isn’t reduced for everyone, then this situation is going to keep going on,” says Smith. He figures within three months he will stop making payments on both mortgages. “Several friends in the neighborhood, they are talking about the same thing.”
As for the roof over Smith’s head, it’s now worth roughly $475,000. That’s low compared with his $690,000 mortgage, but perhaps too high for a replacement loan insured by the Federal Housing Administration (FHA).

Smith might get more time to cut a deal with his lenders if Obama becomes president. His plan calls for a 90-day moratorium on foreclosures by those financial institutions getting federal bailouts. The idea is to give time for new loan modification programs to get up and running. “I think it would be delaying the inevitable [unless] there would be help with the balance,” says Smith, who says his lender, GMAC Mortgage, “hasn’t been too flexible.”
From the New York Times:
An eternity ago, people in this city in northern San Joaquin County braved four-hour round-trip commutes to the San Francisco Bay Area for a toehold on the dream. Today, Manteca’s lawns and driveways are storefronts of the new garage-sale economy — the telltale yellow signs plastered in the rear windows of parked cars Friday through Sunday directing traffic to yet another sale, yet another family. “You can get great deals,” said Sharrell Johnson, 32, who was scouting for toys in the Indian summer heat last Friday amid boxes of tools and DVDs and forests of little skirts and shirts dangling from plastic hangers on suspended rope. “Sad to say, you’re finding really good things. Because everybody’s losing their homes.”
From the Stockton Record:
There may be a financial crisis on Wall Street and a housing crisis on Main Street, but it's a busy time for jewelry buyers and pawnbrokers. That's a mixed bag for Annette Hoag, co-owner of Annette's North Stockton Jewelry and Loan on Pacific Avenue. In terms of making small, short-term loans, she said, "We're up 57 percent in the last six months, but what people don't realize, the retail side of the business ... is gone. People aren't buying anything."
From the Fresno Bee:
The Valley's economy isn't dependent on heavy manufacturing like the industrial Midwest, where plant closures have devastated communities and helped boost the national unemployment rate to 6.1%. But the waves from Wall Street's market tumble, the credit crisis and declining consumer confidence are rocking segments of the Valley economy once thought insulated from job losses.

Jeffrey Michael, director of the Business Forecasting Center at the University of the Pacific's Eberhardt School of Business, said the Valley seems headed into a second phase of recession. After the collapse of the real-estate market and the burst homebuilding bubble, "it's spilling over into consumer spending. We're starting to see some pullback in employment in retail, restaurants and other consumer-discretionary things," Michael said. "What we're seeing in this second phase is a more broad-based weakness; there are fewer 'safe havens' out there for jobs" except in health-care fields.
From the Sacramento Business Journal:
Dunmore Capital LLC and its affiliates have lost more than one-fourth of the 7,000 acres they once controlled, and more land is at risk if disputes over tens of millions of dollars in debt can’t be resolved. An investor in six of the company’s properties from Bakersfield to Red Bluff has foreclosed on about 2,000 acres. Another 400 acres, which are considered among the company’s most promising development sites, are at risk of foreclosure as lenders filed notices of default alleging late payments on $28 million in loans.
A year ago, the Dunmores touted a deal with a Dutch pension fund and other institutional investors they said would carry them through the housing slump. But since then, they have been hit with numerous allegations of default. The company has resolved many of its debts, but the recent round of filings presents a new challenge.
From CBS 13:
A large fence weighing hundreds of pounds was stolen in broad daylight in front of a Sacramento home, but experts say that the metal is worth virtually nothing if sold for scrap. All that's left of the six-foot-tall, rod iron fence is less than dozen posts, cut nearly down to the ground. The home on Sierra Vista Avenue has been in foreclosure for the past two months....
From the Sacramento Real Estate blog:
Hardly anyone is happy about the events of the past few weeks. To be sure, there are a few dubious winners. Those for whom predictions of economic doomsday is a hobby have had the satisfaction of saying "I told you so".
From the Modesto Bee:
Booms and busts provide valuable lessons. The housing market boomed for a decade. Then, over the past two years, it busted as the subprime loan game ran its course and, like an overworked wad of Bubblicious, left the nation covered in the reddish slime of a $700 billion bailout.

It's perfectly acceptable to blame all involved: greedy buyers who demanded the 3,400-square-foot McMansion on a tent-trailer budget, real estate and mortgage types who scored hefty commissions by nudging buyers into these exploding loans, and the greed-mongers who orchestrated this fiasco from Wall Street's end.


Patient Renter said...

You didn't have a choice but live in debt.

You do have a choice - live within your means.

The average person can't afford those houses

Then why buy one?

To be sure, there are a few dubious winners...have had the satisfaction of saying "I told you so".

Hardly. The same fools who helped create this mess (perpetuated by many including your profession) support pushing the consequences off onto parties who were not involved, while the "dubious winners" still have no say in policy. What's to celebrate?

Cow_tipping said...

Yes ... he should stay in his house, and there will a public flogging of everyone who skips on payments. That is the only way to keep the home foreclosures from spiralling out of control.
Its a slap in the face for everyone who is making payments and living within their means.

Cow_tipping said...

Oh yea, his realtors that encouraged him to buy, get 6% of his floggings.
Appraisers, mortgage brokers, everyone gets flogged to the extent they are involved.

Perfect Storm said...

"Who would have thought it all would crash and burn the way it did?" Not just her own world. The whole world.

My God who could have seen it coming, who might I tell you, who?

Just a bunch of sheep.

Rich said...

Some banks, trying to reduce their exposure to risk, have been canceling the remaining balances on existing home equity lines of credit.

What I can't figure out is USBank currently pushing HELOCs on the radio so people can take vacations. What???

cole said...

gee, ain't that tough...

it's 20% down (unless VA or FHA)
and 1/3 to 1/4 of your income for payments

anybody else who participated, bought, signed a CONTRACT, sold a contract, handled the paper...TOUGH LUCK...try the trailer park down the street where you can park your 75 Chevy pickup with camper